Xpeng Motors: Target of Criticism, Can It Survive Adversity?

On March 17, 2023, Xiaopeng Motors.US released its Q4 2022 financial report after the Hong Kong stock market closed and before the US stock market opened. The key points are as follows:

"Plummeting" sales leads to a significant drop in revenue. Xiaopeng Motors sold only 22,000 vehicles in Q4, compared to 42,000 in the same period the previous year. This "almost halving" of the delivery volume directly resulted in a 40% year-on-year decrease in revenue. The new model G9 did not satisfy the market, and sales continued to decline;
Poor sales guidance, no sign of improvement. Xiaopeng Motors-W.HK expects to sell between 18,000 and 19,000 vehicles in Q1. Considering that only 5,218 and 6,010 vehicles were sold in January and February respectively, it can be inferred that Xiaopeng expects to sell between 6,700 and 7,700 vehicles in March. Monthly sales are only around 7,000 vehicles, less than half of the previous peak level. We can only hope that P7i will boost sales in Q2;
Compressed gross profit per vehicle becomes a drag. Xiaopeng's single vehicle gross profit briefly emerged in the previous quarter, but fell to single digits again this quarter. The decline in gross profit margin this quarter is mainly due to the increase in costs such as battery materials, which squeezed the gross profit per vehicle, and the company's promotional activities directly compressed the gross profit space per vehicle;
Fixed costs continue to suppress operating profit margin. Facing the company's continuous losses, Xiaopeng also tried to reduce costs this quarter. Although the absolute value of R&D expenses this quarter has decreased, the proportion of R&D expenses has increased due to the significant decline in revenue. Given that the focus is still on "increasing sales volume," the company has further increased its sales expenses in the current market conditions to continue pushing store openings. Due to the fixed nature of costs, the company's operating loss margin has been further widened this quarter.

Dolphin's general view:

Overall, Xiaopeng's financial report this time is not very good. After the market had already lowered its expectations for Xiaopeng, the performance was still below expectations.

Compared to the financial report, the market is more concerned about Xiaopeng's guidance for the next quarter. However, there is no sign of business improvement from the guidance for the next quarter. Delivery guidance is between 18,000 and 19,000 vehicles, with an estimated sales volume of around 7,000 vehicles per month in March, showing no obvious improvement. Considering the guidance for total revenue of 4-4.2 billion yuan, single-vehicle revenue in Q1 will continue to decline to around 200,000 yuan. The company's gross profit margin may also further decline in the next quarter, with a decline in revenue. **

Since that's the case, is Xiaopeng Motors (XPeng) not interesting at all? Not really. Part of the current 'predicament' has already been reflected in the stock price, and the market currently has not overly high expectations for XPeng.

Dolphin Jun thinks there are still a few points to pay attention to regarding XPeng:

1) XPeng has cash reserves and won't die in the short term: As of the end of 2022, the company still has cash and cash equivalents (including long and short-term deposits) of more than RMB 30 billion (corresponding to USD 4-5 billion). Even if it burns through RMB 9 billion annually like last year, it can still continue for 3 years. There is still hope to survive, continue to promote new products, and succeed.

2) XPeng's current valuation is already low: XPeng's current 1.6x price-to-sales (PS) ratio is conceptually low. Compared with other new energy vehicle companies in history,$NIO.US' lowest PS was 1.2x when everyone was dismissing it, and Tesla.US' lowest PS in the past 10 years was 1.38x. Currently, XPeng is already close to the lowest valuation point for new energy vehicle companies.

3) XPeng has a safety cushion: XPeng's current market value is about 7.2 billion U.S. dollars, while its cash and cash equivalents reach 4-5 billion U.S. dollars. As one of the few brands with market recognition in China, XPeng itself has a certain value. Even if it encounters difficulties, it may have opportunities for support or acquisition.

Therefore, although XPeng is still in a predicament, Dolphin Jun believes that the company still has its own capabilities and value. The performance of the P7i will directly affect the company's performance in the short term, and the price reduction of battery materials is expected to ease the company's profit pressure. Part of the predicament has already been reflected in the stock price, and the next step is to see whether the market is willing to gamble on the opportunity of "XPeng" in this predicament.

The following is a specific analysis of XPeng's financial report by Changqiao Dolphin Jun:

1. Continuous decline in sales, when will it hit the bottom?

The first core of new forces in this stage is always delivery volume. If the delivery volume does not increase, scale effects cannot be formed. Under the current situation where the first two months before 2023 are not very optimistic, whether XPeng can turn the tide in March depends on the delivery guidance for the first quarter.

1.1, quarterly sales volume drops below 20,000, March is still uncertain

XPeng's previous launch of the P5 vehicles not only enriched the product line, but also brought about an increase in volume. After more than a year of market digestion, however, the traditional three models (G3/P7/P5) are no longer capable of attracting more new users. In order to continue the growth of sales, the market urgently needs the company to launch new models.

However, the long-awaited G9 did not bring good market response. In the first complete quarter after its launch (22Q4), G9 only brought about 6,000 units in sales, and the company's quarterly delivery volume fell to 22,000 units. The short-term rise in December when sales broke 10,000 has to do with factors such as pre-purchase rush and the driving force from G9 deliveries. But from the sales volume over several continuous months, "G9" is a relatively unsuccessful product, and the sales of new models quickly "dropped." Due to disappointment with the G9, the market has lowered the company's delivery expectations for the first quarter. However, the company has given a delivery guidance of 18,000-19,000 vehicles for the first quarter, which continues to decline. This is also the first time the company's quarterly deliveries have fallen below 20,000 vehicles since the second half of 2021. Dolphin estimates that Xiaopeng's March deliveries will be only around 70,000 vehicles, although they have slightly rebounded from the previous month, it is difficult to return to the past glamour of "breaking ten thousand" in a single month.

The G9, which the company launched with great effort last year, although it enriched Xiaopeng's product matrix, did not bring more improvement in terms of volume. However, new energy vehicle enterprises without explosive products are hard to stand out in the competition. Therefore, the company will launch new models, the "P7i", in the first quarter, mainly to upgrade the company's original star product, the P7.

The P7 has indeed been Xiaopeng's old model and was once the company's explosive product. Since its release in 2020, it has supported Xiaopeng's entire sales volume. Today, Xiaopeng's improvement on its own star product shows the company's determination to "turn the tide". Although the launch of the new model will boost the company's deliveries in the short term, whether the P7i can be successful remains to be seen by the market. But for Xiaopeng, which has been unable to bring explosive products for a long time, time is running out.

Xiaopeng's frequent decline in vehicle sales directly leads to the situation of "losing money again and again". The market's focus on Xiaopeng has shifted from "when will it become profitable" to "can it survive and for how long". Fortunately, Xiaopeng has gone public early. By the end of 2022, the company's cash and cash equivalent assets (including long- and short-term deposits) still amounted to more than RMB 30 billion. In other words, at the current rate of cash burning, Xiaopeng can still survive for another three years.

Based on the current quarterly losses and the situation of no explosive product models, the company realizes that there are some internal problems. Xiaopeng has started to adjust its management structure on the one hand and simplify its product range on the other. However, the specific effects have not been reflected in the first quarter guidance, and it remains to be seen whether they can bring overall improvement to the company. In terms of stabilizing the single-vehicle income, it relies on the G9. Compared with the significant decline in delivery volume, Xiaopeng's bike revenue is still stable. From the delivery structure of various models, G9 began shipping this quarter. However, the shipment of higher-priced model G9 did not bring an increase in bike revenue to the company.

It can also be seen that G9's pricing and P7's customers overlap slightly, which has squeezed some of P7's sales. At the same time, some models are being promoted when sales are poor, which also affects the overall bike revenue.

Combining the company's guidance for the first quarter, Dolphin estimates that Xiaopeng's bike revenue for the first quarter may once again decline to around 200,000 yuan. Due to the current weak market demand, the company will continue its product price reduction and promotion strategy in the first quarter.

In addition to sales guidance, another very important indicator each financial report is the bike gross profit: this quarter, the gross profit per car sold is only 11,900 yuan, a significant decline of 12,000 yuan compared to the previous quarter, mainly due to the company's product promotion.

The cost level of each model is determined when it is designed on that platform, while the gross profit space is more supported by the premium of the selling price relative to this cost when pricing.

Starting from price and cost, let's take a look at Xiaopeng's bike gross profit margin in this quarter:

① High cost: The main material of new energy battery, lithium carbonate, is still at a high price in this quarter, and the high cost puts pressure on the company's gross profit margin from upstream.

② Declining price: In the case of poor sales, the company has adopted a strategy of product promotion. Price reduction promotions have compressed the company's gross profit margin from downstream.

With "rising cost and falling price", the company's bike gross profit this quarter has plummeted to just over 10,000 yuan, a new low in nearly two years.

In terms of business, service and other gross profit margins have increased this quarter. The lightning rod of the company's gross profit margin this quarter is the automotive sales gross profit margin, which has plummeted to 5.7%. This directly led to the company's overall gross profit margin falling to 8.7%, far below the market expectation of 11.8%.

Second, the decline in revenue was as much as 40%.

This quarter, Xiaopeng's total revenue was 5.14 billion yuan, a year-on-year decrease of 40%, lower than market expectations of 5.686 billion yuan, mainly due to the unit price being slightly lower than expected. a) Car Sales Revenue: With the release of the G9, there were high expectations for both revenue and individual car revenue.

However, the G9 did not live up to expectations in terms of quantity. The expectation was that some G3 users would be converted to the more expensive G9 model. But based on the final sales figures, it appears that G3 and G9 are targeting different consumer groups.

In terms of price, there was no significant increase in individual car revenue. The expectation was that the higher-priced G9 would boost individual car revenue. However, promotions under sluggish overall demand have prevented an increase in individual car revenue, and in the end it did not meet the market's expectations.

In the end, car sales revenue was only 4.66 billion yuan, not only did it not bring growth, but also a direct YoY decline of 43%.

b) Services and Other: In this quarter, services and other income was 179 million yuan, a YoY growth of 30%, approximately 10% of the car sales revenue. The Dolphin Jun noticed that this proportion is slowly increasing and may be related to the self-driving services that Xiaopeng excels in.

III. Fixed costs, continuing to suppress the operating profit margin

Xiaopeng Motors is positioned to empower sales and brand with intelligence. It is destined to continue to increase R&D to form and solidify its advantages. At the same time, the company is in a rapid expansion phase and needs to increase investment in sales and service networks. In the short term, based on the company's long-term strategy, costs cannot be lowered, which will also suppress profits.

From the situation in this quarter, Xiaopeng's R&D expenses have slightly decreased to 1.23 billion, an absolute reduction. However, the R&D expense ratio still remains at 24%, a new high in the past two years.

Sales and administrative expenses climbed to 1.76 billion this quarter. Due to sluggish demand, the company increased marketing, promotional, and advertising expenses this quarter. In the background of weak demand, the company's stores continue to expand, highlighting this cost rigidity.

Especially since Xiaopeng is committed to fast sales, it opened for franchising in 2021 (NIO and IDEAL are all direct sales), and franchise sales commissions began to be reflected in the financial statements from the second quarter of 2021.

This store is still expanding rapidly in the fourth quarter. At the end of this quarter, its stores increased by 13 from the end of the previous quarter to 420 stores, and it still covers 143 cities.

Due to the rapid slowdown in car sales, the fixed costs cannot be diluted, and the company's expense ratio has risen sharply, totaling 58% of the revenue. Gross profit margin plummeted, expense ratio increased, and the company's operating profit margin significantly declined. The operating loss rate for this quarter is 49%.

In other words, the company's revenue this quarter was 5.1 billion yuan, and the loss reached 2.5 billion yuan.

Additionally, the net loss for this quarter was 2.36 billion yuan, which was 150 million yuan less than the operating loss of 2.5 billion yuan, mainly due to interest income this quarter. However, this is not closely related to the company's main business, and the focus on profits is on operating profit.

The above is a interpretation of Xiaopeng Motors' quarterly report. As for the company's predictions for next year's automotive competition trends, gross profit trend judgment, organizational structure adjustment progress, new car planning, intelligentization, and self-research progress, Dolphin Jun will follow up on whether there are relevant interpretations in the company's performance conference and sort them out.

Here are Dolphin Jun's deep research and tracking comments on Xiaopeng, including:

Financial Report Season

November 30, 2022 Telephone Conference Call "What did Xiaopeng say on the conference call with an overnight pull close to 50%? (Summary)"

November 30, 2022 Financial Report Review "It is still necessary for Xiaopeng to "restructure its bones" despite poor performance"

August 24, 2022 Telephone Conference Call "G9 and B-Class "Model Y", or Xiaopeng's Last Effort (22Q2 Conference Call)"

August 23, 2022 Financial Report Review "Xiaopeng is still far from "making money""

May 24, 2022 Telephone Conference Call "Xiaopeng: Q3 is the quarter to see price increases and significant rebound in gross profit margin (conference call summary)"

May 23, 2022 Financial Report Review "Top sales, biggest loss: Will the market still buy into Xiaopeng's scheme?"

March 29, 2022 Telephone Conference Call "Rapid channel sinking has opened up the ceiling for Xiaopeng's vehicle deliveries (2021 Q4 report conference call summary)"

channel=t2204281&invite-code=FRQWBJ)》

2022 Q3 Earnings Call of Xpeng (09868.HK,$XPeng.US) on November 30, 2022: https://longbridgeapp.com/lives/118058?channel=n118058

2022 Q2 Earnings Call of Xpeng (XPEV.US/09868.HK) on August 23, 2022: https://longbridgeapp.com/lives/115885?

2022 Q1 Earnings Call Summary of Xpeng: https://longbridgeapp.com/topics/811761?invite-code=032064

2021 Q4 Earnings Call of Xpeng: https://longbridgeapp.com/topics/683883?invite-code=032064

2021 Q3 Earnings Review of Xpeng: https://longbridgeapp.com/topics/1083946?invite-code=032064

2021 Q2 Earnings Review of Xpeng: https://longbridgeapp.com/topics/1083178?invite-code=032064

2021 Q1 Earnings Call Summary of Xpeng: https://longbridgeapp.com/topics/1368547?invite-code=032064

2021 Q1 Earnings Review of Xpeng: https://longbridgeapp.com/topics/1365965?invite-code=032064

2021 Q1 Earnings Review of Xpeng: https://longbridgeapp.com/news/35685925

2021 Q1 Earnings Call Summary of Xpeng: https://longbridgeapp.com/topics/811761?invite-code=032064

2021 Q1 Earnings Review of Xpeng: https://longbridgeapp.com/news/35685925

2021 Q1 Earnings Call Summary of Xpeng: https://longbridgeapp.com/topics/811761?invite-code=032064

2021 Q1 Earnings Review of Xpeng: https://longbridgeapp.com/topics/1368547?invite-code=032064

2021 Q1 Earnings Review of Xpeng: https://longbridgeapp.com/topics/1365965?invite-code=032064

2021 Q1 Earnings Review of Xpeng: https://longbridgeapp.com/topics/1083946?invite-code=032064

2021 Q1 Earnings Review of Xpeng: https://longbridgeapp.com/topics/1083178?invite-code=032064

2021 Q1 Earnings Review of Xpeng: https://longbridgeapp.com/topics/35685925

Live stream of Xpeng Q2 Earnings Call on August 23, 2022: https://longbridgeapp.com/lives/115885?

Live stream of Xpeng Q3 Earnings Call on November 30, 2022: https://longbridgeapp.com/lives/118058?channel=n118058 channel=nl115885)》

On May 23, 2022, "Xiaopeng Motors (XPEV.US/09868.HK) 2022 Q1 earnings conference call" was held. (https://longbridgeapp.com/lives/12897?channel=nl12897&invite-code=FRQWBJ) "

On March 28, 2022, "Xiaopeng Motors (XPEV.US/09868.HK) 2021 Q4 earnings conference call" was held. (https://longbridgeapp.com/live/9329?channel=nl9329&invite-code=FRQWBJ) "

On November 23, 2021, "Xiaopeng Motors (XPEV.US) 2021 Q3 earnings conference call" was held. (https://longbridgeapp.com/lives/4748) "

On September 15, 2021, "Xiaopeng P5 Super Launch Conference" was held. (https://longbridgeapp.com/lives/2488) "

On August 26, 2021, "Xiaopeng Motors (XPEV.US) 2021 Q2 earnings conference call" was held. (https://longbridgeapp.com/lives/1900?channel=nl1900&invite-code=032064) "

On May 13, 2021, "Xiaopeng Motors (XPEV.US) 2021 Q1 earnings conference call" was held. (https://longbridgeapp.com/lives/40) "

On April 14, 2021, "Xiaopeng P5 debut launch conference" was held. (https://longbridgeapp.com/lives/20) "

Risk disclosure and statement for this article: Dolphin Investment Research Disclaimer and General Disclosure