In this article, we introduce XPeng (Chinese: 小鹏汽车)(NYSE: XPEV)(HKEX: 9868), a Chinese start-up founded in 2015 which manufactures and sells "smart" electric vehicles targeting the mid- to high-end range of China's automobile market.
This article is part of our China auto industry series, which includes:
An Overview of China's Auto Industry (forthcoming)
State-Owned Auto Companies: Changan Automobile, SAIC (Part 1 and Part 2)
Traditional Private Auto Companies: Great Wall Motor, Geely, BYD (Part 1 and Part 2)
Value-For-Money Auto Companies: Wuling Motors
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Introduction And Corporate History
XPeng is a Chinese start-up company founded in 2015 that designs, develops, and manufactures "smart" electric vehicles targeting the mid- to high-end segment of China's automobile market.
XPeng claims to differentiate itself from competitors through attractive designs, an interactive "smart" mobility experience, and relatively long vehicle driving ranges (although we don't find the driving ranges of XPeng vehicles to be significantly longer than other similar electric vehicles). The company also develops advanced driver assistance systems (ADAS) software in-house for deployment on its automobiles, while all of XPeng's electric vehicles can be upgraded through firmware updates that introduce technical enhancements and new functionalities. Indeed, management believes continuous software innovation to be another critical value proposition for the company.
XPeng's first car (the G3) was launched in December 2018, while the brand's second car (the P7) was launched in May 2020. In 2021, XPeng launched the company's third car (the P5), with deliveries starting in September that year. A fourth car (the G9) was unveiled at the end of 2021, with an official launch expected in Q3 2022.
As of December 2021, XPeng had 357 stores and 117 service centres across 140 cities in China, in addition to a self-branded network of super charging stations comprising of 772 stations across 308 cities.
XPeng went public on the New York Stock Exchange (NYSE: XPEV) in August 2020, and followed with a dual listing on the Hong Kong Stock Exchange (HKEX: 9868) in July 2021.
XPeng has three main car models:
We walk through each model briefly below.
The G3 is a compact SUV and XPeng's first car to be released with deliveries starting at the end of 2018.
In July 2021, a mid-cycle facelift version of the G3 was introduced (called the G3i) with deliveries starting the following month. The original G3 was gradually phased out with the introduction of the G3i.
The P7 is a four-door sports sedan and XPeng's second car to be released with deliveries starting in May 2020. XPeng markets the P7 as the brand's flagship model.
Subsequently, XPeng released a limited edition P7 Wing (Chinese: P7 鹏翼版) aimed to maximize the sporty style of the P7 with a pair of specifically-designed front doors that are typically only available in luxury sports cars.
The P5 is a family sedan and XPeng's third car to be released with deliveries starting in September 2021. XPeng claims that the P5 is the first mass-produced electric vehicle in the world to be equipped with automotive-grade light detection and ranging (LIDAR) technology in order to enhance perception capability.
Note: generally speaking, the LIDAR technology is suppoed to be more accurate than other visual recognition technologies.
In November 2021, XPeng unveiled the company's fourth car, the G9 SUV (which looks like an SUV version of the flagship P7 sedan). The G9's price is higher than XPeng's other existing models (except the P7 wing), while an official launch is expected in Q3 this year.
Note: LFP edition cars refer to XPeng's expanded product offering of lithium iron phosphate (LFP) batteries for the G3 and P7 models starting in March 2021. LFP batteries are typically cheaper than traditional lithium nickel manganese cobalt oxide (NCM) batteries, which allows XPeng to deliver more value to customers by producing cars with superior autonomous driving features at more attractive price points. Notably, Tesla is also adopting LFP batteries in the company's standard range vehicles, while LFP batteries also have the additional benefits of being safer and more stable (i.e. less prone to explosions or fires) as well as having a longer lifecycle.
For further information, refer to XPeng's announcement here and additional engineering-specific information here.
In this section, we turn to a financial overview of XPeng.
Revenue and Profit Margins
#1: XPeng Generated Total Revenue of RMB21 Billion in 2021, Although Operating Income and Net Income Are Still Negative
XPeng's total revenue grew from RMB10 million in 2018 to RMB21 billion in 2021, although the company's operating income is still negative due to high research and development (R&D) and selling, general, and administrative (SG&A) expenses. Net income is higher than operating income due to interest income, fair value gains on long-term investments, and fair value gains on derivative liabilities.
#2: 95% Of XPeng's Total Revenue Is Attributable To Vehicle Sales
XPeng generates revenue from two channels: (1) vehicle sales, and (2) services and others, which include maintenance services, super-charging services, vehicle leasing services (i.e. automotive financing), and ride-hailing services. Ride-hailing services refer to XPeng's attempt to increase brand recognition and consumer exposure by allowing potential future customers to experience the brand's automobiles through a small-scale ride-hailing service in Guangdong province. Management states that they currently do not have plans to scale up the company's ride-hailing services in the future.
Breaking down XPeng's revenue by segment, we see that vehicle sales contribute to 95% of total revenue, while services and others account for the remaining 5%.
Note: XPeng started delivering vehicles in Q4 2018
Management plans to increase monetization opportunities and diversify the company's revenue stream through additional content and advanced software system offerings. For example, XPeng rolled out the XPILOT 3.0 ADAS system in January 2021 as a paid option for customers to purchase as an upgrade option in place of the XPILOT 2.5 system that was deployed in existing cars.
#3: XPeng's Gross Profit Margin Turned Positive In 2020 But Is Still Slim
XPeng's gross profit margin turned positive in 2020, but is still very small at 12.5% in 2021. In contrast, the company's operating profit margin is still negative but of decreasing magnitude, reaching a level of -31.3% in 2021.
Note: we omit the operating margin for 2018 as the figure is exorbitantly high (due to low revenues recorded that year since XPeng only started delivering vehicles in Q4) and does not accurately capture the economic nature of the company's continuing operations
#4: Vehicle Sales Generate Small Margins, While Services and Others Are More Lucrative
Breaking down XPeng's gross profit margin by revenue segment, we see that vehicle sales generate very small margins with an average gross profit margin ratio of only 11.5% in 2021. In contrast, services and others seem to be more lucrative, with average gross profit margin ratios between 23% to 33% (management does not explain the drop in 2019 ratio). Given the necessarily high cost of goods sold (COGS) associated with automobile manufacturing and selling, management's plans to monetize advanced software roll-outs and additional content offerings is perhaps an attempt to diversify XPeng's revenue stream in order to benefit from higher-margin drivers.
Vehicle Sales Data
#1: XPeng Delivered 98,155 Cars in 2021 And 34,561 Cars in Q1 2022
XPeng is rapidly ramping up vehicle deliveries, from 29 cars in Q4 2018 to 98,155 cars in 2021 and 34,561 cars in Q1 2022.
Notably, XPeng is becoming increasingly reliant on its own production plants to manufacture new cars. Although XPeng's first car, the G3, was manufactured through a production contract with Haima Automobile (Chinese: 海马汽车), one of China's largest state-owned auto manufacturers, the contract has since expired and XPeng currently produces vehicles at the company's own plant. XPeng is also constructing additional manufacturing bases to further ramp up vehicle production.
#2: In 2021, XPeng Delivered 29,721 G3s, 60,569 P7s, and 7,865 P5s
Breaking down vehicle deliveries by model, we see that XPeng delivered 29,721 G3 (including G3i) cars, 60,569 P7 cars, and 7,865 P5 cars in 2021, with the flagship P7 model dominating delivery numbers.
Cumulatively, 59,105 G3 and G3i cars, 95,058 P7 cars, and 18,351 P5 cars have been sold from inception to the end of Q1 2022.
Note: the G3 category includes both the G3 and the G3i
Lastly, we conclude with some of XPeng's key future business strategies going forward.
#1: International Expansion
XPeng has started and will continue its efforts in expanding internationally, starting with certain European markets. Indeed, in December 2020, the first batch of G3s tailored to the European market was delivered to customers in Norway, while deliveries of the P7 to Europe commenced in August 2021.
#2: Charging Network Expansion
XPeng currently has a network of 772 self-branded super charging stations covering 308 Chinese cities, which management plans to continue expanding in order to better serve customers across China. Doing so could perhaps provide XPeng with a first-mover advantage given that there are very few competitors who have established self-branded charging networks in the country.
#3: Achieving Economies of Scale
As mentioned above, XPeng's operating income and net income are still negative, while the company's operations are also generating net cash outflows alongside continued high levels of capital expenditure. This is not surprising given XPeng's early stage nature as a company, although it remains to be seen how and when economies of scale and financial sustainability can be reached.
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