Chinese EV maker Xpeng expects cost cuts, Volkswagen deal to narrow losses

Xpeng expects price cuts and its Volkswagen partnership to slender the agency’s losses, the Chinese EV maker advised CNBC in an unique interview on Monday.

On Friday, the agency logged its largest quarterly loss since its U.S. itemizing in August 2020. Its second-quarter web loss was 2.8 billion yuan, bigger than the two.13 billion yuan loss anticipated in accordance with a Refinitiv consensus estimate. Its U.S.-listed shares closed 4.28% decrease on Friday. On Monday afternoon, Xpeng’s Hong Kong-listed shares had been buying and selling greater than 2% increased.

Xpeng’s second-quarter deliveries totaled 23,205, a 32.58% drop from 34,422 deliveries in the identical interval a yr in the past.

On Friday, CEO He Xiaopeng stated the corporate is slicing prices throughout the business and that ought to “substantially drive gross margin improvement in 2024.”

In April, Bloomberg reported the corporate was planning to trim manufacturing prices, together with saving 50% on clever driving options by the top of 2024.

“From an expense perspective, we went through a very significant business reorganization as well as changes that we have made. We start to see the regaining of the growth momentum that we have in our business,” Brian Gu, vice chairman and co-president of Xpeng, advised CNBC’s “Street Signs Asia” on Monday.

Xpeng is making an attempt to revive its business this yr, after its share value sank by greater than 80% in 2022. The agency struggled with a tricky macroeconomic setting in China and a value warfare amongst home rivals and Tesla, which slashed the costs of its Model S and Model X final week.

“The demand side actually remains pretty robust. I think it continues to grow despite the economic backdrop. But the same time, the competition has intensified in the first half, with more players launching more new models and being very aggressive on price competition,” stated Gu.

“In order to gain better profitability, we also have endeavor to spend a lot of time on cost cutting. Later next year, we expect our total vehicle BOM [bill of materials] costs to be reduced by up to 25%. That will give us a big tool to increase profitability as well,” stated Gu.

In automotive manufacturing, BOMs listing all of the elements required to construct a automobile, similar to an engine, brakes, seats and dashboards.

BofA Securities stated in a report Monday that it expects Xpeng’s cooperation with Volkswagen to “improve its financial position and likely enhance its supply chain management.”

BofA upgraded Xpeng from “neutral” to “buy” at $22 per share, up from its earlier value goal of $16.30 per share.

In late July, Germany’s Volkswagen Group stated it’s injecting about $700 million in Xpeng and taking a 4.99% stake within the firm.

The partnership will see each corporations co-developing two new EVs that may incorporate Xpeng’s superior driver-assist software program for the Chinese market with a rollout goal for 2026.

Global and native automakers are selling superior tech to compete in China — the world’s largest EV market. BofA Securities in a May report stated it expects China to carry 40%-45% market share in 2025.

“With the Volkswagen agreement, we also anticipate meaningful contribution to our bottom line starting next year. So that’s also another tool we can use to increase our profitability,” stated Gu.

In addition to deliberate new fashions, Xpeng has “updated versions of current models” set to be launched subsequent yr, stated Gu.

“We anticipate those new models will carry more favorable gross margins which also will help our profitability and product mix,” stated Gu.

The agency expects its newest mannequin — the G6 Ultra Smart Coupe SUV, which was launched on the finish of the second quarter — to spice up margins.

“We see an improving product mix and a stronger cost control improving its gross profit margin in 2024-2025E. We expect its new model pipeline in second half of 2023 to 2025 to improve its sales volume growth,” stated BofA Securities.

— CNBC’s Michael Bloom contributed to this report.