The key to Xiaopeng Motors' (referred to as "Xiaopeng") recovery from a challenging phase lies in its collaboration with Volkswagen and the launch of its second brand, MONAThis synergy is expected to offer the automaker a lifeline as it navigates the increasingly competitive landscape of the electric vehicle (EV) market.
In the first quarter of this year, Xiaopeng achieved a notable milestone by reporting revenue generated from its partnership with Volkswagen for the first timeCoupled with increased sales of its high-priced model, the Xiaopeng X9, the financial results for the quarter reflected a year-on-year improvementHowever, the company faced a significant sequential decline in its financial data due to the effects of the Chinese New Year festivities and intense pricing wars within the market, leading to a striking cut in some figures.
On the evening of May 21, Xiaopeng released its financial report for the first quarter, revealing total revenue of ¥6.56 billion, a staggering 49.8% drop from the previous quarter, with a net loss of ¥1.37 billionDespite this bleak outlook, the company reported a narrowing of losses compared to the same period last yearOf this revenue, sales of vehicles contributed ¥5.54 billion, marking a significant 54.7% decrease sequentially.
The major contributing factors for the reduced vehicle sales were attributed to a decrease in the delivery volumes of the G6 and 2024 G9 models during this periodFurthermore, the seasonal fluctuations in demand added to the downturnXiaopeng's delivery metrics tell a stark story; after delivering over 60,000 vehicles in the last quarter of the previous year, averaging about 20,000 monthly, the company has struggled in 2023, with monthly deliveries failing to exceed 10,000 in the first four months, culminating in a total delivery count of just 21,800 vehicles this past quarter, reflecting a 63.79% decline.
Leveraging its partnership, the service and other revenue segment performed strongly, reporting ¥1 billion in income during the first quarter, marking a 93.1% increase year-on-year and a 22.1% rise compared to the last quarter
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This surge can be traced back to the commencement of technology development service income from strategic cooperation with Volkswagen Group.
During the earnings call, Xiaopeng's chairman, He Xiaopeng, projected a delivery guidance for the second quarter, anticipating between 29,000 to 32,000 vehiclesGiven that only 9,393 vehicles were delivered in April, this projection implies that Xiaopeng would need to achieve average monthly deliveries between 9,803 and 11,303 during May and June to meet its targetsThe overall revenue forecast ranged from ¥7.5 billion to ¥8.3 billion.
Relying on Volkswagen to Improve Profitability
Enhancing profitability is closely tied to the revenues generated from technological development services, which positively impacted Xiaopeng's overall gross marginAccording to the financial report, the gross margin stood at 12.9% for the quarter, an improvement of 6.2 percentage points, while the gross margin for vehicle sales was only 5.5%. In stark contrast, service and other profit margins soared to an impressive 53.9%, largely thanks to these contributions.
In the earnings call, He Xiaopeng pointed out that the first quarter witnessed several hundred million yuan from the platform software service income resulting from the collaboration with Volkswagen—an income stream that is expected to be recurring and with high marginsXiaopeng anticipates that in subsequent quarters, this revenue will continue to grow beyond the initial quarter's figures.
In addition to this, the gross margin enhanced due to the introduction of the high-priced X9 modelThe vehicle, priced between ¥359,800 to ¥419,800, commenced deliveries in January and accounted for 36% of total deliveries for the first quarterDespite XiaoPeng initiating a new pricing strategy in March, the impact on the first-quarter metrics was limited.
Consequently, Xiaopeng's average transaction price per vehicle saw a sequential increase of ¥51,000, reaching ¥254,000. On the other hand, a report from Changqiao Securities noted that the actual cost per vehicle was ¥232,000, which reflects an uptick of ¥41,000 sequentially
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This resulted in a gross profit of ¥22,000 per vehicle, up by ¥10,000, and a gross margin for vehicles likely reaching 8.7%.
The disparity between the reported and actual gross margins was attributed to inventory depreciation and losses on purchase contracts assessed on older model P5, collectively dragging down the auto gross margin by 3.2%.
Continuing Cost Reduction Efforts
As the gross margin has shown improvements, the company's ongoing focus on cost reduction is noteworthyIn the first quarter, Xiaopeng's research and development expenditure amounted to ¥1.35 billion, reflecting a modest increase of 3.3% sequentially, albeit below the market expectation of ¥1.51 billionReports indicate ambitious plans from management to cut costs by 50% for its XNGP series through technological innovation, with total R&D expenditure anticipated to be between ¥7 billion and ¥7.5 billion this year.
Additionally, sales, general, and administrative expenses dropped to ¥1.39 billion, a significant 28.3% decreaseThis reduction was primarily due to lower marketing, promotion, and advertising expenses resultant from plummeting vehicle sales, alongside early successes in reforming the distribution channels—outcomes of the Jupiter Plan initiated by Xiaopeng.
Since the launch of the “Jupiter Plan,” Xiaopeng has increased the proportion of authorized dealerships as part of an effort to expand rapidly into lower-tier markets and enhance its coverage in lesser-known citiesDuring the quarter, the company saw a net increase of 74 storefronts, which provided relief on commission expenditures owing to decreased payments to franchise stores.
Looking forward to the second half of the year, increasing production through the MONA brand is critical
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