XPENG-W Phone Conference: Significant Increase in September G6 Deliveries, Gross Margin Turns Positive in Q4

On Friday, August 18th, after the Hong Kong stock market closed and before the US stock market opened, XPENG-W released its second-quarter performance report for the period ending June 30, 2023.

According to the earnings report, XPENG-W achieved a revenue of 5.06 billion yuan this quarter, slightly exceeding the expected 4.91 billion yuan, with a MoM growth of 26%. Compared to the same period last year, which was 7.44 billion yuan, there was a YoY decrease of 31.9%. The gross profit margin dropped to -3.9%, lower than the expected 4.79% and the 10.9% from the same period last year. The gross profit margin for automobiles specifically was -8.6%, compared to 9.1% from the same period last year and -2.5% in the first quarter of this year.

For the third quarter, XPENG-W provided a sales guidance of 39,000 to 41,000 units, with a monthly average of 13,000 to 13,700 units. The revenue is expected to be between 8.5 billion and 9 billion yuan, with a YoY increase of 24.6% to 31.9%.

XPENG-W CEO He XPENG-W, along with Dr. Gu Hongdi, Honorary Vice Chairman and Co-President of XPENG-W, and other executives participated in a conference call to interpret the earnings report and answer analysts' questions.

He XPENG-W pointed out that at the end of June, XPENG-W launched its first car, the G6, based on the Fuyao architecture platform, which quickly became a phenomenal hit. With the platform-based cost reduction strategy and a pricing strategy that prioritizes scale, advanced technology has successfully entered the mainstream consumer group with a price range of 200,000 to 300,000 yuan.

He XPENG-W mentioned that XPENG-W is working closely with suppliers to enhance the G6, especially the Max version. It is expected that the delivery volume of the G6 model will significantly increase in September this year, driving monthly deliveries of XPENG-W to exceed 15,000 units. The goal for the fourth quarter is to achieve monthly deliveries of over 10,000 units for the G6 model. Furthermore, XPENG-W will launch more popular models based on the Fuyao architecture. With the rapid increase in G6 production capacity and the update of existing models, XPENG-W aims to achieve a monthly delivery target of 20,000 units in the fourth quarter.

At the same time, He XPENG-W expressed confidence in deepening the cooperation with Volkswagen Group. They aim to establish a stronger strategic synergy and share economies of scale in the next generation of electric vehicle platforms, software technology, and supply chain.

He XPENG-W emphasized that the era of software-defined cars in the past will become history, and the era of AI-defined cars is just beginning. XPENG-W will be the main driver of this trend and will lead a highly intelligent team to plan for autonomous driving, intelligent cockpit, overall electronic architecture, and multiple smart innovative technologies.

He XPENG-W stated that in the past, no car company could launch a competitive fully autonomous driving car in the 150,000 yuan price range due to cost reasons. However, with relentless technological innovation and cost reduction throughout the entire process, his perspective has changed. He is confident that launching a fully autonomous driving car in the mainstream 150,000 yuan price range will greatly promote the widespread adoption of intelligent vehicles. XPENG-W's Intelligent Assisted Driving Software XNGP will continue to make significant breakthroughs in experience and coverage in the second half of this year, further advancing the process of user recognition and usage, and widening the technological gap with followers. The development of XNGP, which does not rely on high-precision maps, is progressing rapidly. This week, a large number of professional media have already test-driven the engineering version in multiple districts of Beijing. We are confident that XNGP, which does not rely on high-precision maps, will be open in approximately 50 cities by the end of the year.

XPENG-W emphasized that as of now, we are confident in achieving the goal of reducing overall costs by 35% by the end of 2024, and exceeding this goal in multiple aspects. The cost reduction measures will significantly enhance product competitiveness and lead to a substantial improvement in XPENG-W's gross margin in 2024. The gross margin is expected to turn positive in the fourth quarter.

Q1: Regarding the supply issue of XPENG-W G6, how will the supply level of G6 be improved and its sales volume ensured?

A: G6 has unique competitiveness in the price range of 200,000 to 300,000 yuan, so based on the orders received, the order volume of G6 will continue to maintain a strong level.

The main challenge at present is that the preparation for the Max version and related intelligent components is not sufficient. We can also see that the production capacity in August, September, and October is rapidly increasing. Therefore, our unified goal is to achieve a monthly production volume of over 10,000 units in the fourth quarter. We are gradually breaking down the steps to prepare for achieving this goal.

Based on the current situation of XPENG-W, including the response of the supply chain after the launch of G6, all supply chains are making efforts to ramp up, so I believe the situation will continue to improve.

Q2: How does the management view the restart of this round of price wars? Will there be corresponding adjustments to the pricing strategy of future models, and what impact will it have on the gross margin per vehicle in the future?

A: The price changes by competitors have not had a significant impact on our sales, especially on the sales of G6.

When we priced G6, we anticipated the competitive pressure, and I believe the measures we have taken have been effective. Before discussing pricing and profit margin trends, I would like to emphasize that our current strategic focus is to ensure our scale growth, which is the most important strategic focus for this year. We have already successfully gained momentum in growth, and we estimate that quarterly revenue will return to our historical average level, which will help us achieve economies of scale in the long term.

Another focus for us is to achieve strong cash flow in the second half of this year. As you have heard before, with the increase in deliveries, we expect to achieve sufficient cash flow in the second half of the year. I believe this is important for improving our financial situation.

I just want to add that our focus is very clear, which is to achieve sales volume and economies of scale, which will obviously help improve our gross margin. As mentioned in our previous presentation, our manufacturing costs have been affected by policy changes in Q1. As our production volume increases in Q2 and Q3, our gross margin will rise. With a better product portfolio in the second half of this year, we expect the gross margin to gradually recover. And converted to full-time in the fourth quarter.

With the increase in our delivery volume in the second half of the year, we have seen a significant improvement in cash flow in the second quarter. We expect to achieve overall positive operating cash flow in the second half of the year and have a healthy cash reserve by the end of this year.

Q3: When is the expected turnaround for operating profit?

I believe that our overall goal for the company's profit and loss balance and cash flow forecast has not changed significantly. By 2024, we aim to achieve positive cash flow and achieve overall profit and loss balance by 2025.

Q4: As we enter the sinking market in the second half of this year or next year, will it increase channel sales expenses for the second half of this year and next year?

We are actually making changes to our sales channels and strategies, seeking more partners to become our sales investors, store investors, and sales agents. This will allow us to penetrate lower-tier cities better and optimize our sales capabilities.

We believe that this will bring higher efficiency gains and lower sales and marketing costs. By refocusing on partnerships and setting higher standards for our sales partners, we will further improve quality and efficiency.

Q5: Regarding XPENG-W's intelligent assisted driving software XNGP, how does it achieve non-HD map-assisted driving, and what are the cost differences compared to HD map-assisted driving?

The XNGP City NGP feature is the core of the XNGP system, which brings the highway pilot system into busy city roads, enabling a point-to-point, hands-free driving experience. Through hardware collaboration, it provides the XNGP system with rich data collection and fusion perception capabilities, allowing the vehicle to accurately understand its surroundings.

Without high-definition maps, there are many challenges. It requires an "eye" to observe the surrounding environment, including text, patterns, and the distance of surrounding vehicles in front and behind, and make decisions based on changes in the environment within a few seconds.

Q6: Does it require higher computing power? How to reduce costs? Is it achieved by using better algorithms to reduce the demand for computing power or by using high-computing chips?

The demand for computing power and memory increases as the requirements for multimodal perception fusion and reasoning increase. However, from another perspective, we have already achieved the XNGP City NGP feature, so we believe that we can do better in this field. We rely on technological innovation and innovative management methods to achieve significant cost reductions.