Xiaopeng Motors partners with Didi: The beginning of a double-edged sword

On August 28th, Xiaopeng Motors announced its acquisition of Didi's intelligent car development assets for a total consideration of HKD 5.835 billion.

The acquisition will be completed through the issuance of new shares, with a maximum of 91.13 million shares issued, accounting for approximately 5% of the expanded share capital. Didi will become a strategic shareholder of Xiaopeng Motors, with a lock-up period of 24 months for the initial shares.

The issuance of new shares will be completed in four batches: 58.16 million shares will be issued on the delivery date of the acquisition; 4.63 million shares will be issued when mass production models begin delivery; 14.05 million shares will be issued when the first phase of new vehicle deliveries reaches 180,000 units; and 14.27 million shares will be issued when the second phase of new vehicle deliveries reaches 180,000 units.

Within just one month, Xiaopeng has added two major shareholders and partners, driving up its stock price.

At the end of July, Volkswagen invested USD 700 million to acquire approximately 5% of Xiaopeng's shares, and on the first day of the announcement, the stock price soared by 34%. Didi, on the other hand, exchanged 5% of its shares through business cooperation, causing the stock price to rise by 10% on the same day.

The addition of these two partnerships in a short period of time may seem more beneficial than detrimental, but it is also a double-edged sword. If everything goes smoothly, Xiaopeng will soar to new heights, but if there are obstacles in its development, it may burden its current sales momentum.

All in Autonomous Driving, the beginning of a double-edged sword?

Xiaopeng Motors announced that the first A-level intelligent electric vehicle launched in cooperation with Didi will serve as the opening of Xiaopeng's brand-new lineup. This new car, codenamed "MONA," is expected to go into mass production in 2024 with a price positioning of approximately RMB 150,000.

Didi will provide full ecosystem empowerment for the MONA model, including intelligent cockpit, intelligent driving, and shared mobility market. This aims to accelerate the commercial application of autonomous driving assistance and intelligent cockpit technology in the market.

He Xiaopeng stated that Didi had been involved in the development of the MONA model, and Xiaopeng will complete the entire production, research and development, and sales of the MONA model based on Didi's preliminary work.

The MONA model is mainly targeted at the TO C market, while also considering the TO B market. A few SKUs of this brand are designed for shared models, with the main SKU focusing on creating a high-level autonomous driving experience at the price of RMB 150,000, introducing Xiaopeng's NGP autonomous driving system, which is the most prominent advantage of this model.

In terms of sales expectations, He Xiaopeng is very optimistic about the sales competitiveness of this product, with an annual sales volume of at least 100,000 units, which is expected to be much higher than this number. He also mentioned that "the A-level market has a huge volume, which has great amplification value for intelligence in terms of scale and profitability."

He Xiaopeng's story this time is also straightforward, as he has already planned the next five years, aiming to increase his sales through the Didi ride-hailing market. The ultimate goal is to achieve autonomous driving taxi services through the Didi platform, which is almost the same as Musk's future plans. Expectations are indeed beautiful. If they can be realized, Xiaopeng will become a big bull stock. But can reality meet expectations?

Although Xiaopeng's key figure in autonomous driving, Wu Xinzhou, has left Nvidia, Wu Xinzhou has facilitated a deeper cooperation between Nvidia and Xiaopeng, which seems to allow Xiaopeng to maintain its advantage in intelligent driving.

It is difficult to determine the technical concerns, but Xiaopeng may encounter the following problems on its path to realizing its future plans.

Will Xiaopeng walk the same path of past failures?

As early as 2018, Xiaopeng and Didi attempted a cooperative model.

At that time, Xiaopeng was facing financial constraints. Through this cooperation, they jointly developed a pure electric MPV, which shared the same platform as the Xiaopeng ONE and created a new exclusive model for Didi's "优享" and "拼车" services.

Didi was responsible for the operation of the vehicles in subsequent travel scenarios. The internal code name for this project was D01, and it was originally planned for mass production in early 2020.

In the end, due to high costs and Xiaopeng's focus on its main battlefield, both parties did not make additional investments, and the joint venture company, Juediandianxing, ended in bankruptcy.

Although Xiaopeng's conditions are more mature now than a few years ago, it is worth considering whether cooperation will be successful due to past precedents.

Xiaopeng has given guidance to MONA, expecting annual sales of 100,000 units, stating that it is very likely to exceed expectations. However, MONA's biggest advantage is its price of around 150,000 yuan, with Xiaopeng's software installed. But there are two issues:

Vehicles priced at around 150,000 yuan, such as the Aiways and GAC, are positioned for ride-hailing services. The number of ride-hailing drivers is already saturated. Will the saturation situation ease by next year? How much growth potential is there? In addition, the implementation of assisted driving on ride-hailing vehicles is also influenced by regulations, which is a factor affecting commercialization.

Another issue is that if Xiaopeng fails to penetrate the high-end market and falls back to the 150,000 yuan range, although it will be launched under a different brand, it may eventually form a brand perception as a ride-hailing vehicle through Xiaopeng's sales channels, which will inevitably have an impact on Xiaopeng's mainline models.

This also shows that Xiaopeng is currently eager to find sales, which is why it is willing to abandon its previous brand image and squeeze into the ride-hailing market.

In addition, Xiaopeng's current vehicle models are priced in the range of 200,000 to 300,000 yuan. The overall gross profit margin in the second quarter of this year decreased from 1.7% in the first quarter to -3.9%. Xiaopeng stated that the gross profit margin is expected to turn positive in Q4 this year and aims to achieve a 25% cost reduction target before next year. However, can the gross profit margin of lower-priced vehicle models be guaranteed?

Conclusion

Xiaopeng and Xiaopeng are now heading in two extremes. Xiaopeng is focused on stabilizing the present and doing well in current sales, with less emphasis on the future layout of autonomous driving. Xiaopeng's choice of an aggressive layout for the future is certainly a good thing, but what is more important for Xiaopeng at the moment is to recover the gross profit margin and address the issue of cash flow shortage in order to better embark on the path to the future.

Therefore, the launch of the new business line is a bold challenge for Xiaopeng. If the MONA model sells well and the introduction of autonomous driving brings in considerable revenue through software, it will be beneficial. However, if the sales are poor, it will impose a corresponding burden on the sales impact.