Recent challenges have rocked Chinese electric vehicle (EV) producer, Xpeng, but brighter days may be on the horizon. In an exclusive chat with CNBC on Monday, Brian Gu, vice chairman and co-president of Xpeng, shed light on the company’s strategies to navigate tough economic waters and intensifying competition.
Last Friday, Xpeng recorded its steepest quarterly loss since its U.S. debut in August 2020. Surprisingly, it was a whopping 2.8 billion yuan, overshadowing the predicted loss of 2.13 billion yuan.
This grim news caused a dip in the company’s U.S. shares, which declined by 4.28%. However, on Monday, there was a rebound as the Hong Kong-listed shares rose by over 2%.
The downturn wasn’t isolated to finances. Xpeng’s second-quarter deliveries took a significant hit, decreasing by 32.58% from the previous year’s numbers. This decline can be linked to a challenging economic scenario in China and aggressive price cuts by competitors, notably Tesla’s recent price reduction for its Model S and Model X.
However, the future isn’t bleak. CEO He Xiaopeng announced, “the company is cutting costs across the business” with expectations that these measures will “substantially drive gross margin improvement in 2024.”
These assertions align with previous reports from Bloomberg in April, which indicated Xpeng’s aim to cut manufacturing expenses, targeting a 50% savings on intelligent driving features by 2024’s end.
Brian Gu further elaborated on their strategic shifts, saying, “From an expense perspective, we went through a very significant business reorganization… We start to see the regaining of the growth momentum that we have in our business.”
Gu remains optimistic about the demand side, stating it “remains pretty robust.” Despite this, he acknowledged the heightened competition, as more players are entering the market, and prices are becoming increasingly competitive.
Enhancing profitability is paramount for Xpeng. Gu revealed plans for next year, intending to “reduce our total vehicle BOM [bill of materials] costs by up to 25%.” Simplified, the BOM encompasses all elements needed to assemble a vehicle, like the engine and seats.
An encouraging update came from BofA Securities. Their Monday report projected that Xpeng’s collaboration with the automotive giant, Volkswagen, would “improve its financial position and likely enhance its supply chain management.” They also upgraded their rating for Xpeng, from “neutral” to “buy.”
Volkswagen’s recent investment in Xpeng has been substantial. The German automaker announced a $700 million investment in July, securing a 4.99% stake. This union aims to co-develop two new EVs, infusing Xpeng’s high-end driver-assist software, specifically for the Chinese clientele, with a launch slated for 2026.
As global and local automakers scramble to gain a foothold in China, the world’s dominant EV marketplace, collaborations like these are pivotal. Gu wrapped up by emphasizing the importance of the Volkswagen deal, predicting a “meaningful contribution to our bottom line starting next year.”