"No contagion" from the "thunderstorm", XPeng managed to hold on

XPeng Motors released its first-quarter financial report on March 19, 2024, after the Hong Kong stock market closed and before the US stock market opened. Compared to the triple thunderstorm of Li Auto last night, XPeng also dropped by nearly 11 points. However, the results were not bad. After being fully immersed in pessimistic expectations, XPeng had a little bit of luck:

1) Finally, the gross profit margin of car sales is looking up: The gross profit margin in the first quarter seems to be only 5.5%, with a slight increase of just over one percentage point compared to the previous quarter. However, this is actually due to a provision of less than 500 million for losses on contracts for the P5, dragging down the gross profit margin of car sales by about 3.2 percentage points, which is actually close to 9%.

This better-than-expected gross profit margin performance indicates some success in price advancement through the X9. Additionally, the price reductions for the main selling models G6, G9, and P7 mainly occurred in early March, so the impact on the first-quarter gross profit margin was relatively small.

2) Collaboration with Volkswagen has finally paid off: Despite the provision for contract losses, XPeng's overall gross profit margin reached 13%, significantly exceeding market expectations. This is mainly due to the recognition of R&D cost sharing income from the collaboration with Volkswagen (there will be future income from vehicle platform usage fees, intelligent driving services, etc.), leading to other income exceeding market expectations. Moreover, as this income is essentially pure profit, the gross profit margin of other businesses directly increased from 38% to 54%.

3) Increase in unit price: The market expected the average sales revenue per vehicle to be less than 250,000, but it actually reached 254,000. This is mainly because the X9 suddenly increased its sales volume share from 0 to 36% in the first quarter, becoming XPeng's largest single model by sales volume share. The long-awaited price increase finally showed some hope, achieving what the first-generation G9 failed to do this year through the X9.

4) Decrease in expenses: XPeng's R&D expenses remained relatively stable, but the company had previously communicated that R&D expenses would increase in 2024, which did not actually show a significant increase. However, due to poor sales in the first quarter, XPeng's R&D expenses did not increase significantly.

Sales and administrative expenses were restrained due to price pressure on franchisees, reducing the sales commission given to them, as well as controlling advertising and other promotional expenses under low sales volume.

5) Operating loss of nearly 1.7 billion: Much better than the market's expected loss of nearly 2.4 billion, especially considering the provision of 480 million for contract losses in this quarter. The actual loss should be around 1.1-1.2 billion less than market expectations.

Dolphin Research's Viewpoint:

After a long period of bottoming out in performance and exposure of sales volume, XPeng Motors, with a market value of 8 billion US dollars, has to some extent already priced in the market's pessimistic expectations. Compared to the 23 billion US dollars of Li Auto after a big drop, XPeng can actually easily show off its "assets" As the actual results show, XPeng has gradually emerged from a low point of poor sales and even poorer profits due to the product price increase brought by X9, cooperation with international car manufacturers, and a series of other operations. At the same time, through stricter dealer management, there have been signs of improvement in expenses.

However, in terms of current sales volume, XPeng is still clearly lagging behind. Currently, the weekly sales of 2000-2200 units are not enough to achieve the implied monthly sales of 10,000-11,000 units in the last two months of the second quarter. Sales need to increase to 2500 units to have hope.

Furthermore, the gross profit margin of the automotive sector in the second quarter may come under pressure again: 1) On one hand, the proportion of X9 sales continues to decline, now below 20%; 2) In March, there was an average price reduction of over 7% for the main selling models G6, G9, and P7, and in April, there was another reduction of around 5% for G6, G9, and P5, which will inevitably put pressure on sales volume.

In this situation, the first quarter's "impairment of P5 contracts due to expectations of demand for upcoming new models" seems more like a move to smooth out the gross profit margin, so that the gross profit margin in the second quarter does not appear to decline significantly.

Overall, Dolphin believes that the evaluation of XPeng in this quarter is still based on a fully pessimistic expectation of "small happiness". Only when XPeng truly increases its car sales can a real turnaround be possible. In the short term, this hope will depend on the third quarter's performance.

Below is the main content:

I. XPeng's gross profit margin remains "bright" this quarter

Since XPeng's weak sales in the first quarter have already been announced, investors are more concerned about the gross profit margin situation this quarter.

XPeng's automotive business gross profit margin in the first quarter was 5.5%, slightly lower than the market's expected 5.9%. However, this quarter still included provisions for inventory impairment and contract purchase losses for the old model P5, which dragged down the gross profit margin of the sales business by 3.2%. Excluding this impact, the actual gross profit margin of the sales business reached 8.7%, an increase of 2.7% from the previous quarter's actual sales gross profit margin of 6%, mainly contributed by the high-margin X9 delivered since the first quarter.

Next, Dolphin will dissect XPeng's performance this quarter from the perspectives of unit price and cost to explain why the gross profit margin remains good:

a) Average unit price: Improvement in vehicle structure increased by 51,000 RMB

The average unit price in the first quarter was 254,000 RMB, an increase of 51,000 RMB compared to the fourth quarter of last year, exceeding Dolphin's estimated unit price of 233,000 RMB and the market's expectation of 248,000 RMB.

Although XPeng started a new round of price reductions in March due to the off-season sales and increased competition, with P7i reduced by 20,000-50,000 RMB (8-15% reduction), G6 reduced by 20,000 RMB across the board (7-10% reduction), and G9 reduced by 5,000-10,000 RMB (1.4%-4% reduction), the price reductions mainly started in March The impact is only partially reflected in first-quarter sales.

However, the increase in first-quarter unit price is mainly due to the improvement in the sales structure of models. The higher-priced X9 from XPeng (priced at 359,800-419,800 RMB) started delivery in January, accounting for 36% of sales this quarter, ultimately raising the first-quarter unit price.

b) Unit Cost: Decrease in sales volume and higher manufacturing cost of X9 increased unit cost

The actual unit cost in the first quarter (excluding the impact of P5 contract losses) was 232,000 RMB, with a sequential increase of 41,000 RMB in unit cost. Dolphin believes this is mainly due to:

A 64% decrease in sales volume in the first quarter to 22,000 units, leading to a decrease in production capacity utilization and a sequential increase in unit depreciation cost.
The higher manufacturing cost X9 started delivery this quarter, accounting for 36%, increasing manufacturing costs.
Lithium carbonate prices have basically stabilized in the first quarter, with limited contribution to costs this year.

Finally, the unit cost increased by 41,000 RMB sequentially.

c) Unit Gross Profit: Increased by 10,000 RMB sequentially

The average unit price increased by 51,000 RMB, while unit cost increased by 40,000 RMB. In the end, for every car sold in the last quarter, a gross profit of 22,000 RMB was made. Compared to the previous quarter's actual gross profit of 12,000 RMB, it continued to increase by 10,000 RMB sequentially, with the gross profit margin for car sales increasing from 6% in the previous quarter to 8.7% this quarter.

II. Second-quarter sales slightly higher than market expectations

a) Second-quarter car sales target: 29,000-32,000 units, slightly exceeding market expectations of 25,000-30,000 units

Since the beginning of the year, XPeng's sales and order volume have been continuously declining. Due to overspending demand in the fourth quarter of last year to boost annual sales, and the competitive pricing of XPeng models starting to decline along with competitors.

Currently, the main model G6 faces competition from BYD's new Song L, while P7 also faces pressure from the new ZEEKR 001/ZEEKR 007 and Xiaomi SU7. Both orders and sales have shown weakness, and XPeng has been forced to lower prices due to the pressure of declining sales and orders.

In March and April, XPeng initiated a new round of price reductions, with the second-quarter sales target of 29,000-32,000 units slightly higher than the market's expectation of 25,000-30,000 units. With April sales of 9,400 units known, it implies that the average monthly sales in May/June need to reach close to 10,000 units. However, due to weak weekly sales performance, the latest weekly sales have only reached 2,000 units. The market is most concerned about whether the price reduction can lead to a recovery in XPeng's monthly sales. Currently, the sales target implies that price reductions have a good effect on sales recovery and promotion

b) Second-quarter revenue guidance implies a decrease in unit price, basically in line with market expectations

XPeng's second-quarter revenue guidance is between 7.5 billion and 8.3 billion. Based on other revenues of 970 million, the unit price corresponding to the second-quarter guidance is about 227,000 yuan, a decrease of 27,000 yuan compared to this quarter, which is in line with market expectations.

The decrease in unit price in the second quarter will be directly affected by the price reduction in March, and at the same time, due to intensified competition on April 20th, the continued soft sales volume has led to a new round of price reductions for its G6/G9/P5 models by 7,000-15,000 yuan, a decrease of 4-5%, negatively impacting the unit price in the second quarter.

Looking at the high-frequency weekly sales volume structure, the high-priced and high-margin X9, due to limited market space for pure electric vehicles, although the X9's cost performance is still good compared to competing models, sales have started to weaken. In April, X9's proportion dropped from a peak of 44% in March to 21%, and the latest weekly sales proportion continued to drop to 16%, indicating that X9's proportion in the model structure in the second quarter will also decrease compared to this quarter, ultimately leading to a decrease of 27,000 yuan to 227,000 yuan in the unit price included in the revenue guidance compared to this quarter.

With a unit price of 227,000 yuan, it means that the gross profit margin in the second quarter is basically in a state of decline compared to the actual gross profit margin of 8.7% this quarter. Dolphin expects the gross profit margin in the second quarter to fall to between 3-5%.

Three. Overall revenue and gross profit margin are higher than market expectations

In the first quarter, XPeng achieved total revenue of 6.55 billion, higher than the market expectation of 6.16 billion, and achieved a comprehensive gross profit margin of 12.9%, higher than the market expectation of 10%.

a) Car sales revenue: Car sales revenue this quarter is 5.54 billion, higher than market expectations

In terms of quantity, the first-quarter delivery volume was 22,000 vehicles, a decrease of 64% compared to the previous quarter, basically in line with the midpoint of the first-quarter guidance of 22,000-22,500 vehicles given in the previous financial report, which is in line with market expectations. This was mainly due to the off-season for sales and the competition pressure faced by the main models G6/P7/G9 leading to weak sales.

In terms of price, as the highest-priced pure electric MPV X9 (priced at 359,800-419,800 yuan) among XPeng's existing models accounted for 36% of the sales structure, it raised the unit price in the first quarter, with the unit price increasing by 50,000 yuan compared to the previous quarter.

At the end, Xiaopeng's car business revenue reached 5.54 billion, higher than the market's expected 5.4 billion.

b) Services and Others: Increased Revenue and Gross Margin from Technical R&D Services in Cooperation with Volkswagen

In this quarter, revenue from services and other sources reached 1 billion, exceeding the market's expectation of 800 million. The gross margin for other businesses reached 54%, surpassing the market's expectation of 37%. This was mainly due to Xiaopeng recognizing revenue from technical R&D services in cooperation with Volkswagen this quarter, which was close to the previously estimated revenue increase of around 1 billion. The gross margin for this part was close to 100%, directly boosting Xiaopeng's other business and overall gross margin.

Research and Development Expenses Remain Firm, Significant Reduction in Sales Expenses

Xiaopeng Automobile positions itself with intelligence as its core competitiveness, which inevitably requires continuous and intensified research and development efforts in the field of intelligence to establish and solidify its advantages. At the same time, the company is deepening channel reforms, continuing to use a "direct + authorized" dual-channel approach to find a balance between marketing expenses and efficiency.

In this quarter, research and development expenses remained firm, while the reduction in sales and administrative expenses was significant.

1) Research and Development Expenses of 1.35 Billion, Remaining Firm

Looking at this quarter's situation, Xiaopeng's research and development expenses reached 1.35 billion, an increase of 0.4 billion compared to the previous quarter, but lower than the market's expectation of 1.51 billion.

Xiaopeng's research and development expenses were mainly invested in intelligence and the development of new vehicle models. In terms of intelligence, Xiaopeng takes intelligence as its core competitiveness, making it difficult to reduce research and development expenses.

The management plans to reduce XNGP's costs by 50% through technological innovation this year, enabling XNGP to be successfully mounted on the A-class model "Mona" priced at 100,000-150,000 RMB, successfully integrating intelligent driving into the segment below 150,000 RMB, creating core competitiveness in the 100,000-150,000 RMB vehicle segment. Mona is expected to be launched in the second quarter and deliveries will begin in the third quarter, with research and development expenses expected to increase compared to the previous quarter in the second quarter.

Looking at the entire year of 2024, Xiaopeng's estimated research and development expenses are between 7-7.5 billion, with a total research investment of 3.5 billion in the "AI technology centered on intelligent driving" field, and subsequent research and development expenses are expected to continue to increase.

2) Channel Adjustments and Reduction in Dealer Rebates Lead to Significant Reduction in Sales Expenses Sales and administrative expenses for this quarter reached 1.39 billion, an absolute decrease of 550 million compared to the previous quarter, lower than the market's expected 1.48 billion.

XPeng initiated the "Jupiter Plan" channel transformation program starting from last year's quarter, increasing the proportion of authorized stores, rapidly expanding into the sinking market through an expanded distribution model, expanding the coverage of stores in lower-tier cities, and preparing for the launch of the "Mona" low-priced model.

In the first quarter, the number of stores increased by a net of 74, but due to the pressure on sales rebates paid to dealers and controlled advertising and other promotional expenses under low sales volume, the decrease in sales and management expenses this quarter was significant.

Operating losses this quarter amounted to 1.7 billion, much better than the market's nearly 2.4 billion loss. Especially considering the provision of 480 million in contract losses this quarter, the actual loss should be about 1.1-1.2 billion less than market expectations, mainly due to the better-than-expected gross margin and the significant decrease in sales and management expenses.

Dolphin's in-depth research and tracking comments on XPeng include:

Financial Report Season

March 19, 2024 Financial Report Review "XPeng: Sales Volume is a Big Challenge, Can Only Rely on Didi's Mona"

March 19, 2024 Conference Call "Looking Forward to Mona Achieving Positive Gross Margin, Stable Monthly Sales Exceeding Ten Thousand"

November 15, 2023 Financial Report Review "When Will the Performance-Average XPeng See a New Breakthrough?" November 16, 2023 Conference Call "Third Quarter Gross Margin Will Turn Positive (XPeng 3Q Conference Call Summary)"

August 18, 2023 Financial Report Review "XPeng Gross Margin Bloodbath? The Last 'Embarrassment' Before Rebirth"

August 18, 2023 Conference Call "Fourth Quarter Will Still Be Affected by G3i Residual Impact, Expected Gross Margin to Turn Positive in Fourth Quarter"

May 24, 2023 Financial Report Review "XPeng: Performance has 'cooled down', when will it recover?"

May 24, 2023 Conference Call "XPeng Military Order: Targeting 20,000 Monthly Sales in Fourth Quarter (Summary)"

March 17, 2023 Conference Call "XPeng in 2023: Reform, Cost Reduction, and New Product Launches (22Q4 Conference Call Summary)"

March 17, 2023 Financial Report Review "XPeng Motors: Target of Criticism, Can it Survive the Crisis?"

November 30, 2022 Conference Call "Nearly 50% Surge Overnight, What Did XPeng Really Say in the Conference Call? (Summary)"

November 30, 2022 Financial Report Review "Poor Performance Still Leads to Increase? XPeng Still Needs to 'Reshape its Bones'"

August 24, 2022 Conference Call "G9 and B-Class 'Model Y', or XPeng's Final Effort (22Q2 Conference Call)"2022 年 8 月 23 日财报点评"XPeng is far from 'making money' yet" (https://longbridgeapp.com/topics/3360096)

2022 年 5 月 24 日电话会议"XPeng: The fourth quarter is when price increases will be reflected and gross margins will rebound significantly (meeting minutes)" (https://longbridgeapp.com/topics/2646440)

2022 年 5 月 23 日财报点评"Sales champion, loss leader, will the market still buy into XPeng's strategy?" (https://longbridgeapp.com/topics/2643113?invite-code=FRQWBJ)

2022 年 3 月 29 日电话会议"Rapid channel expansion has lifted the ceiling for XPeng's delivery volume (2021 Q4 earnings conference call minutes)" (https://longbridgeapp.com/topics/2204281?channel=t2204281&invite-code=FRQWBJ)

2022 年 3 月 28 日财报点评"Selling more but losing more, is XPeng in a dilemma or a success?" (https://longbridgeapp.com/topics/2202663?channel=t2202663&invite-code=FRQWBJ)

2021 年 11 月 23 日电话会议"XPeng: Exploring the Robotaxi business, advancing intelligence further? (conference call minutes)" (https://longbridgeapp.com/topics/1368547?invite-code=032064)

2021 年 11 月 23 日财报点评"Leading the new forces in annual bookings, how far is XPeng from being the 'Chinese Tesla'?" (https://longbridgeapp.com/topics/1365965?invite-code=032064)

2021 年 8 月 26 日电话会议"XPeng Motors: Rolling up sleeves and working hard" (https://longbridgeapp.com/topics/1083946?invite-code=032064)

2021 年 8 月 26 日财报点评"XPeng Motors: Healthy financials, full of 'smart' spirit" (https://longbridgeapp.com/topics/1083178?invite-code=032064)

2021 年 5 月 14 日电话会议"XPeng Motors Q1 2021 performance conference call minutes" (https://longbridgeapp.com/topics/811761?invite-code=032064) 2021 May 13 Financial Report Review "XPeng Motors: Tesla with Negative Factors vs. XPeng with Exceeding Expectations, Who Do You Pick?"

March 9, 2021 Conference Call "XPeng Motors Q4 Conference Call, Not as Exciting as Financial Reports?"

Live Broadcast

November 30, 2022 "XPeng Motors-W (09868.HK,$XPeng(XPEV.US)) 2022 Q4 Earnings Conference Call"

August 23, 2022 "XPeng Motors (XPEV.US/09868.HK) 2022 Q2 Earnings Conference Call"

May 23, 2022 "XPeng Motors (XPEV.US/09868.HK) 2022 Q1 Earnings Conference Call"

March 28, 2022 "XPeng Motors (XPEV.US/09868.HK) 2021 Q4 Earnings Conference Call"

November 23, 2021 "XPeng Motors (XPEV.US) 2021 Q4 Earnings Conference Call"

September 15, 2021 "XPeng P5 Super Launch Event"

August 26, 2021 "XPeng Motors (XPEV.US) 2021 Q2 Earnings Conference Call"

May 13, 2021 "XPeng Motors (XPEV.US) 2021 Q1 Earnings Conference Call" April 14, 2021 XPeng P5 new car debut conference

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