Xpeng: Sales Remain a Major Challenge, Relies on Didi's Mona for Support

XPeng released its 2023 fourth-quarter financial report after the Hong Kong stock market closed and before the US stock market opened on March 19, 2024. Let's look at the key information:

1) "Pleasant Surprise" Gross Margin: The gross profit margin of the car sales business not only achieved the company's target turnaround, reaching 4.1%, exceeding the market's expectation of 1.9%. Despite recognizing inventory impairment and contract losses this quarter, the actual gross profit margin (excluding the impact of G3i contract losses) increased by 9.2% compared to the third quarter, showing significant improvement.

2) First-quarter Sales Guidance Still Under Pressure: After selling 13,000 cars in January and February this year, the sales guidance for the first quarter of this year is 21,000 to 22,500 cars, generally lower than the market's expectation of 23,000 to 28,000 cars. This implies increased terminal promotions and significant expansion of dealerships through the Jupiter plan to achieve sales recovery. However, there has been almost no progress in March, and overall sales in the first quarter remain under pressure.

3) X9 Supports Gross Margin in the First Quarter: The revenue guidance for the first quarter is 5.8 to 6 billion, with an implied unit price of 234,000, a 29,000 increase compared to this quarter. This means that the gross margin will not decrease significantly due to a sharp decline in sales volume, and it will still be supported by the high-margin X9.

4) Leverage Effect Unleashed: Research and development expenses were reasonably controlled this quarter, while sales expenses increased slightly due to channel expansion. However, with a 50% increase in sales volume compared to the previous quarter, operational leverage was released, narrowing the operating loss rate to -15%.

Dolphin's Overall View:

Overall Impression: The gross profit margin for this quarter exceeded market expectations, and the first-quarter gross profit margin is expected to be supported by X9. However, sales volume in the first quarter of this year remains under pressure, lower than the market's expectations. The market's biggest concern is still the recovery of XPeng's orders and sales volume.

The implied March sales volume under the first-quarter sales guidance implies increased terminal promotions and significant expansion of dealerships through the Jupiter plan. However, there has been almost no progress in March, and overall sales in the first quarter remain under pressure.

With the current sales downturn, it will be challenging for XPeng to achieve its initial target of 280,000 annual sales, as major institutions have generally lowered their annual delivery expectations to 220,000 vehicles.

Looking at this year, XPeng's upside lies in 1) leveraging joint procurement with Volkswagen and cost reduction through technological advancements by 25%, 2) initiating a new round of organizational restructuring to improve operational efficiency. However, the most crucial aspect for XPeng at the moment remains the increase in sales volume and revenue.

Based on the current weekly sales, last week's order volume only recovered to 2,200 units. With the decline in orders and sales of the main models G6/P7, X9, as a pure electric MPV, is expected to contribute monthly sales of only 3,000 to 4,000 units (more on the gross margin side). The key to XPeng achieving its sales target this year lies in the pricing of the "Mona" model, priced at 100,000 to 150,000 yuan, in cooperation with DidiCurrently, XPeng's price-to-sales ratio for 24 years has reached 1.2-1.4 times, higher than Li Auto and Nio. Considering the sales volume is currently under pressure, the valuation is no longer considered cheap. Dolphin believes that the key factor for XPeng's stock price to continue to rise significantly this year still lies in whether "Mona" can achieve high sales volume. It is necessary to continue monitoring the launch time and delivery progress of "Mona".

Below is the main content:

I. XPeng's "Surprising" Gross Margin

In the latest financial report, investors were pleasantly surprised by the gross margin for this quarter, which not only achieved the company's target of turning positive, reaching 4.1%, but also exceeded the market's expectation of 1.9%.

Despite recognizing inventory impairment and contract losses this quarter, due to XPeng upgrading its current models and making provisions for old models, the actual gross margin reached 6%, a significant improvement compared to the third quarter's actual gross margin (excluding the impact of G3i contract losses) which increased by 9.2%.

Next, Dolphin will dissect XPeng's surprising gross margin for this quarter starting from the unit price and cost of each vehicle:

a) Average Unit Price: Improvement in vehicle structure increased by 0.7 thousand RMB

The average unit price in the fourth quarter was 203,000 RMB, an increase of 0.7 thousand RMB compared to the third quarter, showing a continuous increase in unit price.

Although XPeng implemented discounts and promotional policies on its models to boost year-end sales (in December, G6 series reduced prices by 10,000 RMB, while offering limited-time discounts on G9 and P7),

From a sales structure perspective, the proportion of higher-priced G9 (new G9 priced at 253,900-354,900 RMB) increased from 7% in the third quarter to 26% in the fourth quarter, offsetting the impact of price reductions. The unit price actually increased due to the improvement in the vehicle structure.

b) Unit Cost: Cost reduction exceeded market expectations, actual cost decreased by 11 thousand RMB

The unit cost in the fourth quarter was 191,000 RMB (excluding certain impacts), showing a decrease of 11 thousand RMB compared to the previous quarter. Dolphin believes this is mainly due to:

1. Dilution of fixed costs due to a 50% increase in sales volume in the fourth quarter

2. Natural cost reduction in battery costs due to the continued decline in lithium carbonate prices

3. Increase in the proportion of higher-margin G9 models and decrease in lower-margin G6 models: Although the new G9 is priced lower than the old model, the higher margin of the new G9 exceeded that of the old G9 due to technological cost reductions.

c) Unit Gross Profit: Increase by 18 thousand RMB

With the average unit price increasing by 0.7 thousand RMB and the unit cost decreasing by 1.1 thousand RMB, in the fourth quarter, for every car sold, a gross profit of 12 thousand RMB was earned. This represents an increase of 18 thousand RMB compared to the previous quarter, where a loss of 6 thousand RMB was incurred for every car sold, resulting in an improvement in the gross profit margin from -3.2% in the previous quarter to -6% in this quarterII. Sales under pressure, but gross margin supported by high-margin X9

a) First-quarter car sales target: 21,000-22,500 units

Since the beginning of the year, XPeng's sales and order volume have been continuously declining. This is due to the oversupply of demand in December last year to boost annual sales, as well as the declining competitiveness of XPeng models as competitors have started to lower prices.

Currently, the main model G6 is facing competition from BYD's new Song L (January + February sales of 13,000 units), while the P7 is also under pressure from the new ZEEKR 001 (January + February sales of 8,000 units). Both orders and sales have declined, leading XPeng to reduce prices under the pressure of declining sales and orders.

With a combined contribution of only about 13,000 units in January and February, the sales target of 21,000-22,500 units implies that March sales will need to reach 8,200-9,700 units. Considering the current weekly sales trend has already recovered to 2,200 units, achieving this target should not be too difficult.

However, for XPeng, the most important thing at the moment is the recovery of sales. The implied monthly sales target for March also means that there has been almost no progress in achieving sales recovery in March, with overall sales in the first quarter still under pressure.

b) First-quarter gross margin supported by X9

XPeng's revenue guidance for the first quarter is between 5.8 billion and 6 billion, estimated based on other revenues of 910 million, the unit price corresponding to the first quarter guidance is about 234,000 yuan, an increase of 29,000 yuan compared to the previous quarter.

While XPeng has already offered significant discounts on existing models, the unit price in the first quarter still increased significantly, mainly due to the high contribution of the high-margin and high-priced X9 model (accounting for over 30% in January-February, with the latest weekly sales contribution reaching 50%).

This means that although sales in Q1 of 2024 are still under pressure, the improvement in the vehicle structure (X9 is the model with the highest gross margin in the current series) will prevent a significant decline in gross margin due to a sharp drop in sales3. Year-on-year revenue growth of 154%, slightly below market expectations

In the fourth quarter, XPeng achieved a total revenue of 13.05 billion, a year-on-year increase of 154%, slightly below the market expectation of 13.1 billion, mainly due to lower-than-expected unit revenue and delivery volume.

a) Car sales revenue: Car sales revenue for this quarter was 12.2 billion, a year-on-year increase of 162%, but both sales volume and unit price were slightly below expectations.

In terms of volume, the delivery volume in the fourth quarter was 60,000 vehicles, a 162% increase year-on-year, which was at the lower end of the fourth quarter guidance of 59,500-63,500 vehicles provided in the third quarter financial report, slightly below the market expectation of 61,000 vehicles, indicating soft orders for the main model G6.

In terms of price, the market originally expected an increase in unit price of 9,000 yuan due to the increased proportion of G9, but due to discounts taken to boost sales volume and soft orders, the final unit price only increased by 7,000 yuan, resulting in a car sales revenue of 12.2 billion, a 162% year-on-year increase.

b) Services and others: Revenue from services and other businesses this quarter was 820 million, with a gross profit margin of 38%, an improvement from 36% in the third quarter, possibly related to XPeng's growing autonomous driving services.

4. Reasonable control of R&D expenses, increase in sales expenses due to channel expansion

XPeng positions itself with intelligence as its core competitiveness, which inevitably requires continuous increase in R&D efforts in the field of intelligence to form and solidify its advantages. At the same time, the company is deepening channel reforms, continuing to use a "direct sales + authorized" dual-channel model to find a balance between marketing expenses and efficiency. R&D expenses were reasonably controlled this quarter, but sales and administrative expenses increased due to channel expansion.

1. Stable sales expenses, reasonable control

Looking at this quarter's situation, XPeng's R&D expenses reached 1.31 billion, remaining stable compared to the previous quarter, significantly lower than the market expectation of 1.58 billion. The control of R&D expenses exceeded expectations during the accelerated implementation of XNGP.

XPeng's R&D expenses are mainly invested in the field of intelligence. Currently, in the field of intelligence, the competition around intelligent driving is rapidly expanding in cities with the fastest speed, obtaining diverse real driving data, establishing a positive cycle of data and algorithm iteration, generating user word-of-mouth to promote sales, and establishing new moats.

XPeng has the same first-mover advantage in intelligent driving as Tesla, with the fastest implementation speed of NOA. On February 29, XPeng became the second company in the industry to open advanced city-assisted driving functions without maps nationwide, following Huawei, exceeding XPeng's goal of opening in 200 cities this yearIn February, XNGP's urban smart driving monthly active user penetration rate reached as high as 83%, making it the industry leader in terms of user scale.

The management plans to reduce XNGP's costs by 50% through technological innovation this year, enabling XNGP to be successfully deployed on the A-class model "Mona" priced between 100,000 to 150,000 RMB. This move will bring smart driving into the market segment below 200,000 RMB, creating core competitiveness in the 100,000 to 150,000 RMB vehicle segment.

However, looking at the entire year of 2024, XPeng will significantly increase its R&D investment, with an expected year-on-year growth of 40% to 7.4 billion RMB. Approximately 3.5 billion RMB will continue to be invested in AI technology centered around smart driving to consolidate its core competitiveness. XPeng's AI smart driving large model will officially be implemented in the second quarter of this year.

2) Channel expansion leads to an increase in sales and administrative expenses

Sales and administrative expenses for this quarter reached 2.04 billion RMB, an increase of 100 million RMB compared to the previous quarter, but lower than the market's expectation of 2.04 billion RMB.

In the fourth quarter, XPeng also initiated the "Jupiter Plan" channel transformation program, increasing the proportion of authorized stores to rapidly expand into lower-tier markets through an expanded distribution model. This aims to broaden the coverage of stores in lower-tier cities in preparation for the launch of the low-priced "Mona" model.

The number of stores increased by more than 100 in the fourth quarter, coupled with the increase in sales commissions paid to dealers due to the rise in sales volume, leading to a sequential increase in sales and administrative expenses.

Due to the increase in sales volume compared to the previous quarter and the relatively reasonable sales, administrative, and R&D expenses for this quarter, the fixed costs were diluted by the leverage effect, resulting in a slight decrease in the company's expense ratio. These two expense ratios accounted for 25% of the revenue, significantly down from 35% in the third quarter.

The operating loss rate for this quarter reached -15%, with the loss narrowing compared to the previous quarter, increasing by 1 billion to -1.9 billion RMB sequentially. This was mainly due to the improvement in gross profit margin and the leverage effect brought about by the increase in sales volume.

Furthermore, the net loss for this quarter was -1.35 billion RMB, earning 700 million RMB more than the operating loss. The main reason for this was the recognition of approximately 560 million RMB in fair value changes of financial derivative liabilities in this quarter, as well as the fair value changes related to the forward equity sales agreements associated with the strategic investment by Volkswagen. Focus should be placed on operating profit.

V. Cash safety is sufficient, and the upside this year mainly depends on whether "Mona" can achieve high sales volume

In the fourth quarter, XPeng's cash and cash-like assets rose to 45.7 billion RMB, an increase from 36.5 billion RMB in the previous quarter. After deducting short-term and long-term borrowings, the net cash amounted to 34.8 billion RMB. The significant growth in cash and net cash was partly due to a 5 billion RMB investment from Volkswagen and an increase in accounts payable (for supplier payments) Based on the company's actual quarterly loss level of 2-3 billion, Xiaopeng will have nearly 3 years of time left with sufficient cash flow security.

Looking at Xiaopeng's new car pipeline for this year, new models are concentrated in the second half of the year, covering the 100,000-350,000 yuan range. Previously, Xiaopeng's sales expectations for this year were 280,000 vehicles (from a 36kr report), but currently, due to a significant decline in sales of existing main models, the market generally expects sales to be around 220,000 vehicles.

In terms of gross profit margin, Xiaopeng expects to increase the commonality rate of components through the Fei Yao architecture, joint procurement with Volkswagen, and cost reduction through technological improvements by 25%, as well as improving the model structure (increasing the proportion of X9+G9) to enhance the gross profit margin. However, due to the low-priced Mona possibly dragging down the gross profit margin, and Xiaopeng may continue to take promotional activities while facing pressure on current orders and sales, the market's gross profit margin expectations for next year are only in the high single-digit range (7%-9%), far below the ideal 20% gross profit margin.

For Xiaopeng, the most important thing at the moment is the recovery on the sales side. From the current weekly sales, last week's order volume only recovered to 2,200 units. With the decline in orders and sales of the existing main models G6/P7, the contribution of the X9 as a pure electric MPV in terms of sales is expected to reach only 3,000-4,000 units per month (more in terms of gross profit margin contribution). The key to Xiaopeng's sales plan for this year lies in the pricing of the 100,000-150,000 yuan model "Mona" in cooperation with Didi.

Previously, Mona was planned to have annual sales of 100,000-180,000 units, priced as low as 100,000-150,000 yuan, becoming the first car company to bring advanced intelligent driving capabilities to the 100,000-150,000 yuan A-level car market, creating differentiation and competitiveness.

Currently, Xiaopeng's 2024 P/S ratio has reached 1.2-1.4 times, higher than Ideal and Nio. Considering the current trend of sales pressure, the valuation is no longer cheap. Longqiao Dolphin believes that the key factor for Xiaopeng's stock price to continue to rise significantly this year lies in whether "Mona" can achieve high sales volume. It is necessary to continue to pay attention to the launch time and delivery progress of "Mona".

Next year, Xiaopeng will also start receiving technology transfer service fees from Volkswagen. Longqiao Dolphin estimates that in 2024, this will bring Xiaopeng an additional profit of around 100 million yuan, which will not have a significant impact. It will only start to bring real incremental benefits to Xiaopeng from 2026 onwards2023 年 11 月 16 日电话会《小鹏 3Q 电话会纪要：四季度毛利率将转正》

2023 年 8 月 18 日财报点评《小鹏毛利率暴跌？最后一搏前的困境》

2023 年 8 月 18 日电话会《四季度仍受 G3i 影响，小鹏预计毛利率将在四季度转正》

2023 年 5 月 24 日财报点评《小鹏：业绩已见底，何时能够复苏？》

2023 年 5 月 24 日电话会《小鹏军令：四季度销量目标达到 2 万辆》

2023 年 3 月 17 日电话会《小鹏 2023 展望：改革、降本、推新品》

2023 年 3 月 17 日财报点评《XPeng：备受指责，能否度过困境？》

2022 年 11 月 30 日电话会《小鹏电话会一夜暴涨近 50%，究竟有何看点？》

2022 年 11 月 30 日财报点评《业绩不佳却股价上涨？小鹏需重塑竞争力》

2022 年 8 月 24 日电话会《G9 和 B 级 “Model Y”，小鹏最后的努力？》2022 年 8 月 23 日财报点评"XPeng is far from 'making money' yet"

2022 年 5 月 24 日电话会"XPeng: The fourth quarter is when price increases will show results and gross margin will rebound significantly (meeting minutes)"

2022 年 5 月 23 日财报点评"Sales champion, loss leader, will the market still buy into XPeng's strategy?"

2022 年 3 月 29 日电话会"Rapid channel expansion has lifted the ceiling on XPeng's delivery volume (2021 annual report meeting minutes)"

2022 年 3 月 28 日财报点评"Selling more but losing more, is XPeng in a dilemma or a winner?"

2021 年 11 月 23 日电话会"XPeng: Exploring the Robotaxi business, advancing intelligence further? (meeting minutes)"

2021 年 11 月 23 日财报点评"Leading the new forces in annual sales, how far is XPeng from being the 'Chinese Tesla'?"

2021 年 8 月 26 日电话会"XPeng: Rolling up sleeves and working hard"

2021 年 8 月 26 日财报点评"XPeng: Healthy financials, full of 'smart' spirit"

2021 年 5 月 14 日电话会"XPeng 2021 first quarter performance conference call minutes"2021 年 5 月 13 日财报点评"XPeng: 负面缠身的特斯拉和超预期的小鹏，你 pick 谁？"

2021 年 3 月 9 日电话会"XPeng 的 Q4 电话会议，不比财报燃？"

直播

2022 年 11 月 30 日"XPeng-W（09868.HK，XPEV.US）2022 年第四季度业绩电话会"

2022 年 8 月 23 日"XPeng (XPEV.US/09868.HK) 2022 年第二季度业绩电话会"

2022 年 5 月 23 日"XPeng (XPEV.US/09868.HK) 2022 年第一季度业绩电话会"

2022 年 3 月 28 日"XPeng (XPEV.US/09868.HK) 2021 年第四季度业绩电话会"

2021 年 11 月 23 日"XPeng (XPEV.US) 2021 年第四季度业绩电话会"

2021 年 9 月 15 日"小鹏 P5 超级发布会"

2021 年 8 月 26 日"XPeng (XPEV.US) 2021 年第二季度业绩电话会"

2021 年 5 月 13 日"XPeng (XPEV.US) 2021 年第一季度业绩电话会"On April 14, 2021, "XPeng P5 New Car Launch Event"

Risk Disclosure and Statement for this Article: Dolphin Investment Research Disclaimer and General Disclosure