Xpeng anticipates that Mona will achieve a positive gross margin with stable monthly sales exceeding 10,000 units (4Q23 Earnings Call Summary).
The following is a summary of XPENG-W's financial report conference call for the fourth quarter of 2023. For an interpretation of the financial report, please refer to " XPENG-W: Sales are a tough nut to crack, relying only on Didi's Mona 》
I. Review of Key Financial Information:
II. Detailed Content of the Financial Report Conference Call
2.1. Key Points from Management's Statements:
Highlights of 2023 Performance: a) Deliveries in the fourth quarter exceeded 60,000 vehicles, a year-on-year increase of 171%. b) Annual deliveries exceeded 140,000 vehicles. c) Gross margin in the fourth quarter increased to 6.2%, with a 10 percentage point increase in vehicle profit margin compared to the previous quarter. d) Achieved over 6 billion RMB in positive cash flow in the second half of the year, with the full-year operating cash flow turning positive for the first time. e) Cash reserves at the end of the year reached 45.1 billion RMB, providing strong financial support for high-quality rapid growth.
2024 Strategic Planning and Outlook: a) Adjusting strategies in the face of intense industry competition and price wars to comprehensively improve organizational efficiency. b) Significantly improving operational quality and providing a fully closed-loop customer experience to build comprehensive competitiveness in products, technology, and supply chain. d) Upgrading sales and service capabilities in both Chinese and overseas markets. e) Promoting the democratization of full-scenario autonomous driving technology to make it more accessible and affordable. With the efforts of the large-scale and autonomous driving teams, accelerating the rapid improvement of autonomous driving capabilities and a significant reduction in costs. f) Accelerating global expansion, planning to launch over 10 new models in the next three years, including left-hand drive and right-hand drive versions, as well as facelift models. The total number of models in the entire SOP will reach 30, opening up new avenues for growth through international expansion.
Marketing and Sales Strategy: a) Upgrading marketing strategies through the advantage of mobile internet platforms. b) Enhancing brand awareness through social media platforms and user-generated content (UGC). c) Completed a new round of channel upgrades in 2023, eliminating 130 stores, while introducing 160 excellent dealer partners through the Jupiter plan. Although the adjustments may affect the sales capabilities of the fourth quarter of last year and the first quarter of this year, they have improved the channels and expanded coverage to over 40 third-tier and even lower-tier cities. While nurturing new stores this year, we will further accelerate channel sinking. The plan is to increase the number of quality sales outlets to 600 in the third quarter of this year, and continue to expand after the launch of new models. Starting from the second quarter of this year, we will initiate a new cooperation model with dealers to establish short-term channel inventory of about half a month to accelerate end delivery speed
Product and Technological Development: a) Integrating intelligent technology, powertrain, and vehicle platform into a comprehensive intelligent platform to improve compatibility, achieving greater commonality among different models through modular design and supply chain integration. b) By adopting a platform-based R&D approach and economies of scale, cost reduction can be accelerated to achieve the 25% cost reduction target mentioned in the second quarter of last year.
Intelligent Driving: a) Starting from the beginning of this year, promoting to Max version users in over 200 cities nationwide, with user activity reaching 83% in February. XNGP has achieved the highest historical scale, user experience, and mileage penetration in urban intelligent driving. During the Spring Festival travel rush, XNGP assisted users in driving nearly 70 million kilometers, with a daily usage rate of 67% and an urban daily usage rate of 49%. It is hoped that the XNGP experience in core cities will be benchmarked against Waymo's Robotaxi in San Francisco in the future; b) Achieving mass production of AI large models for commercial vehicles in the second quarter of this year, making it the first mass-produced engine for artificial intelligence and cognitive driving in the Chinese automotive industry, making intelligent driving smarter. c) In the XNGP models to be launched in the second half of this year, a new technological solution will reduce hardware costs by 50%, rapidly improving cost competitiveness and promoting the faster popularization of advanced intelligent driving.
Product Planning: a) X9 becomes the sales champion of pure electric three-row seat models, with a significant increase in delivery volume expected in March/April. b) Introducing a new brand in the price range of 100,000 to 150,000 RMB, equipped with autonomous driving, aiming to create the first AI car for young people. The first model of the new brand will be launched and delivered in the third quarter. e) A new XPENG-W main brand model will be launched in the second half of the year, with more new products to be introduced in the future.
Overseas Progress: In the second half of 2023, models such as G9 will be launched overseas, with feedback from the Nordic markets exceeding expectations for compact cars. In Norway and Denmark, XPENG-W G9 became the best-selling mid-to-large SUV model two months after delivery, with plans to launch the international left-hand drive version of G6 in the second quarter of this year and the right-hand drive version in the second half of the year. It is believed that the global sales potential of G6 is greater than that of G9. This year, more high-quality dealers will be cooperated with to efficiently enter key global markets, including Western Europe, the Middle East, Southeast Asia, and Commonwealth countries.
Cooperation with Volkswagen: Reached the main agreement on platform and software strategic technological cooperation, and the joint procurement plan has been initiated.
Cash Position: a) Achieved positive operating cash flow for the full year of 2023. c) As of December 31, 2023, the total cash and cash equivalents, restricted cash, short-term investments, and time deposits amounted to 45.7 billion RMB.
2.1 Q&A Analyst Q&A
Q: XPENG-W plans to launch approximately 10 new models in the next three years, which means the company will have new models entering the market almost every quarter starting from the second half of this year. Faced with such frequent product updates, how will you avoid the impact of new products on the sales of existing products and maintain sales growth for the entire product line?In the past three years, we have noticed that whenever XPeng-W launches a new model, the sales of the old models always decrease. How can we avoid this situation?
A: At the beginning of last year, Feng Ying's first task upon joining XPeng-W was to plan for product technology, supply chain production, brand deployment rhythm, and market marketing, which needed to be started 2-3 years in advance.
Last year, discussions were held on different price segments, sizes, functions, and timelines for product planning, with more innovations in new product categories. The product team was reorganized in the first half of last year.
Technically, we currently have a dual-frame architecture, two sets of powertrains, and two sets of intelligent platforms that can support all our vehicles.
We also encountered issues with the supply chain not being able to meet demand after the product launch, or excess capacity after a period of time. XPeng-W made adjustments in procurement, supply chain management, and manufacturing, and this year launched fully digitalized products to ensure all processes are executed, and will try to increase quality, reduce costs, and improve production capacity by sharing modules among multiple products.
Starting from the third quarter of this year, multiple products can be seen launching in different quarters. The current planning is done earlier than before, with preparations made 12 to 18 months in advance. Additionally, we will flexibly adjust strategies based on market changes and competitors' actions, focusing not only on short-term goals but also on long-term development. The key is to build a strong organization to adapt to market changes.
As for how to avoid product self-competition, since the end of last year, we have established the XNGP process to ensure consistency in all processes. At the same time, we will ensure differentiation in price and functionality for products. These are the two main measures we will take to avoid product self-competition.
Starting from the end of 2023, XPeng-W will fully implement the XPD end-to-end process. Secondly, we will ensure differentiation in price and functionality for products. These are the two main measures we will take to avoid product self-competition.
Q: With the increasing competition in vehicle pricing due to the launch of new products, how will you respond to price wars, while effectively increasing the sales of existing models in the second half of this year?
A: I believe different companies will have different ways to deal with competition.
From two perspectives, firstly, from a macro perspective, it is crucial to establish a systematic and solid foundation. Secondly, in terms of innovation, having innovative products is the only possible way to avoid competition. Thirdly, we always pursue quality before scale. If done the other way around, pursuing scale first, then improving quality will be very difficult.
From a short-term micro perspective, I think this will involve several aspects. Firstly, in marketing, we are always looking for ways to improve marketing effectiveness with less money. Secondly, in sales and service capabilities, at the end of the fourth quarter last year, we reduced 130 underperforming dealerships, expecting new stores to be established and matured from the second quarter onwards, with a particularly rapid improvement in sales and service capabilities in third and fourth-tier cities. Lastly, it is about the functionality and capabilities of the product. So, from a micro perspective, this involves marketing, sales, service, and productQ: Can you provide more quantitative information about the cooperation with Volkswagen? For example, how many components can be jointly purchased with Volkswagen, and how much cost savings are expected?
A: A few weeks ago, we announced that we have signed a major agreement on platform and software services, which is a significant milestone in our cooperation project based on the G9 platform. At the same time, we have joined a joint procurement plan where we will jointly purchase components applicable to our G9 platform model.
This is a very high level of cooperation in terms of platform and component sharing, and through the joint procurement plan, we are also leveraging Volkswagen's world-class supply chain capabilities. We have already seen initial positive results from the joint procurement plan, and we believe that such a plan will continue to optimize our cost structure and quickly bring our BOM cost structure to market competitive levels.
Additionally, starting from 2024, revenue from platform and software services will begin to generate, and once recorded on our income statement, it will become recurring revenue, positively impacting our profit margin. This will continue to make a positive contribution to our profitability.
Q: Regarding the MONA project, how do you view the positioning level between brands, as well as the brand of the MONA project? Can you provide more detailed information on the progress of the B model and C model releases?
A: We believe it will become a heavyweight product in this category. We believe it has potential, one reason being that we think it is a very well-designed product, arguably the best design and intelligent functionality in its category, which we believe will differentiate it from similar products in the category. We have also put in a lot of effort to ensure the product is very competitive in terms of cost and competitiveness, both for the C-end and B-end channels.
We believe it will actually have a dual channel. I think it will start with the C-end channel, receive good reviews first, and then move on to sales in the B-end channel. So this may be the sequence of our marketing. Specific details about the specific features and capabilities of this product may be provided at the launch event. We also plan to steadily improve this product based on additional development plans later this year and early next year, which will improve along with the improvement of the A-level platform.
Q: For the full year 2024, media reports suggest your target is between 260,000 to 280,000 vehicles. It actually needs to maintain about 75,000 vehicles per month each quarter, which is about 25,000 vehicles per month. Can this target be achieved? Is there a guaranteed sales volume from Didi? How much of the target is from exports?
A: Regarding our delivery numbers for this year, we typically do not provide specific guidance. However, based on the current situation, we are very optimistic about our performance this year. Considering our product lineup and release schedule, we are confident in achieving significantly higher growth rates than the market throughout the year and significantly expanding market share.
We expect delivery performance this year to be similar to last year, with the first half of the year possibly lower, mainly due to industry dynamics and our product release scheduleHowever, starting from the second quarter, we expect the delivery speed to accelerate, especially in the third and fourth quarters, thanks to the strengthening of our sales and marketing channels and the launch of new products.
Of particular note is MONA, a highly anticipated product. We plan to first launch it in Channel C, with deliveries expected to start in the third quarter. As for Channel B, it may be a few months later. Although we cannot provide specific delivery expectations for MONA, based on our market understanding, to be a successful product in the A-level category, approximately 10,000 units need to be delivered monthly. Therefore, in a stable state, we believe MONA can achieve this sales level.
This year, we do not plan to make large-scale expansion efforts in many new markets. However, we believe that as these efforts progress gradually, we will begin to see growth in delivery volumes. From an international sales perspective, we expect to generate tens of thousands of deliveries.
Q: As the situation evolves, we hope to maintain a leading technological position. Can you describe the differentiation with Huawei's autonomous driving technology?
A: Obviously, Huawei is an excellent Chinese technology company, and we have great respect for them. Both companies have our unique advantages, so in the field of autonomous driving, I think four aspects are very important: first, the functional capabilities of the vehicle, second, safety, third, vehicle cost, and fourth, how to internationalize, expand product sales, and gain more revenue and profit.
In China, autonomous driving is obviously liked by everyone, however, the demand for autonomous driving from the general public has not been met, and there has not been a good implementation of full-domain autonomous driving functions, cost-effectiveness, and good marketing. This is the direction we need to work on in the next 18 months.
The large-scale on-board model can greatly improve autonomous driving. XPENG-W started last year with a significant reduction in the global cost of high-level autonomous driving assistance and improved marketing capabilities. XPENG-W is more focused on autonomous driving in its own and a few partner aspects than Huawei, which helps to form combat effectiveness.
Q: Since the new brand differs from the XPeng brand in its pricing range, the target customer group will be different. Will the sales channels be shared with the existing sales channels or will there be independent sales channels? Considering that the new brand is positioned in a lower price range, will the gross profit margin be lower than the XPeng brand?
A: Regarding the sales channel planning for the new brand, our first car will mainly open independent showrooms in the current channel stores. With the enrichment of the new brand product line, we will continue to establish an independent dealer channel network, hoping to have hundreds of independent stores for the new brand in the next year or the year after.
As for the gross profit margin issue, we generally do not disclose specific gross profit margin data for specific vehicle series. However, it is clear that the new brand MONA will mainly target the A-level car market. Therefore, we do not expect MONA to achieve the highest profit in our product portfolio. However, overall, we expect MONA to achieve a positive gross profit margin for the brandAt the Beijing Auto Show, we will launch Mona's first model, which is just the beginning of our product strategy. In the future, we plan to introduce more models through this platform. In our long-term business strategy, we may consider adopting different commercial methods for software and providing more guidance and information in the coming quarters.
Additionally, it is worth mentioning that since Mona targets a broader customer base and our partnership with Didi and other partners will help us promote the product, we expect Mona to have lower sales-related costs compared to the XPeng brand.
Q: X9 faced some supply chain bottleneck issues before the Spring Festival, and the company expects these bottlenecks to be resolved after the Spring Festival, leading to an increase in X9 deliveries. What types of bottlenecks did X9 face, and how does the company plan to prevent similar situations in the future?
A: Regarding the supply chain bottleneck issues faced by X9 before the Spring Festival, we have taken a series of measures after the Spring Festival to effectively resolve these issues. In reviewing the past supply chain issues, we identified common bottlenecks including poor supplier management, material shortages, and logistics distribution issues. To address these problems, we have introduced a new management system, optimized and integrated suppliers, mainly choosing to cooperate with high-quality, listed private Chinese companies that can provide greater flexibility. In the future, we will continue to strengthen supply chain management, establish long-term partnerships with strategic partners to ensure the stability and reliability of the supply chain.
Furthermore, we will promote the development of standardized module development for multiple product lines, collaborating with a few partners to provide these modules to achieve a more efficient, low-cost, and reliable production process.
At the same time, we have adjusted the existing supply chain management team and optimized the organizational structure to enhance the team's professionalism and execution. We are confident in launching all products internally and are committed to achieving a good sales volume in the first three months of launch.
Q: Last year, you mentioned that 2027 would be a key year for comprehensive autonomous driving in China, with a penetration rate of over 30% for intelligent driving. What is your latest view on this, and what is the theoretical basis behind it?
A: It will be ahead of schedule compared to previous predictions, based on several considerations:
Firstly, the application of large models in autonomous driving technology has made significant progress. After testing and validation, large models can significantly accelerate the realization of general intelligence and autonomous driving technology. We have completed relevant tests and obtained approvals, laying a solid foundation for achieving autonomous driving goals.
Secondly, the decrease in hardware costs and the support of hardware scale are key factors driving the popularization of autonomous driving technology. Large models are a solution to the increased computational power and memory requirements for achieving greater success. Additionally, the maturity of hardware for unmanned driving in specific or restricted scenarios is more advancedLastly, the development of non-HD maps has provided us with new possibilities. The adoption of non-HD maps will greatly accelerate the progress of autonomous driving technology, not in a linear growth manner, but extremely rapidly. Having access to relevant data and witnessing the actual operation of non-HD maps, we are more convinced that this will have a positive impact on the adoption of large models and the development of autonomous driving technology.
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