Xiaopeng Motor released 22Q1 results, achieving revenue of 7.45 billion yuan, -13% month-on-month; gross profit performance was stable, +0.2pct month-on-month, and performance was in line with expectations. Delivery volume declined month-on-month in April due to the pandemic, but since mid-May, the factory has resumed double-shift production. In the long run, the company's intelligent reserves are sufficient, and the launch of new models is expected to further improve profit levels. Maintain Xiaopeng Motor's “buy” rating.

Finance: The consolidated gross margin was +0.2pct month-on-month, mainly due to increased sales of parts and services. The performance was in line with expectations.

2022Q1 Xiaopeng Motor achieved revenue of 7.45 billion yuan, +153% year on year, -13% month on month; bicycle revenue was 15,700 yuan, an increase of about 10,000 yuan over the previous month. The gross profit performance was relatively stable, with a consolidated gross profit margin of 12.2%, +0.2pct over the previous month; among them, the gross profit margin of the automobile business was 10.4%, -0.5pcts month-on-month. The increase in overall gross profit was mainly due to a 23% month-on-month increase in sales of parts, services, etc. with higher gross profit. In terms of costs, the 22Q1 R&D and SG&A fee rates were 16.4% and 22% respectively. Compared to -0.6 and -1.6 pcts, they all narrowed. The 22Q1 company's operating profit was -1.92 billion yuan (21Q4: -2.43 billion yuan); GAAP net profit was -1,701 billion yuan (21Q4: -1,287 million yuan); Non-Gaap net profit was -1,528 million yuan (21Q4: -1,198 million yuan), and bicycle Non-Gaap net profit was -44,200 yuan (21Q4: -28,700 million yuan). On the cost side, since 22Q1 uses part of the battery inventory, the impact of the battery price increase will gradually be reflected in 22Q2. Orders for the company's price increase are expected to be delivered from the beginning of July '22. We expect the company's 22Q2 gross margin to be under pressure for a short time. With the delivery of price increase orders and the launch of the high-profit model G9, the company's gross margin is expected to increase steadily in the second half of the year.

Supply chain risks are reduced through multiple suppliers and the creation of a highly flexible underlying chip platform; production has resumed in an orderly manner since May. On the production side, affected by difficulties in transporting raw materials caused by the epidemic in East China in April, Xiaopeng Motor sold 9,002 vehicles in April, -42% over the previous month. Since May, the pressure on the supply chain has been gradually decreasing, and the Zhaoqing factory resumed double-shift production in mid-May. Xiaopeng's sales guide for 22Q2 is between 31,000 and 34,000 units (+78.2 to 95.4% compared to the previous year), which corresponds to the average sales volume of 10,000 to 12,500 units in May and June, which is in line with expectations. In terms of supply chain management strategy, the company built a flexible underlying platform to improve the efficiency of chip verification, integration and switching, and minimize the risk of chip supply; in terms of batteries, the company's 22Q2 will also basically complete the multi-supplier layout. Furthermore, the Xiaopeng G9 is scheduled to be officially launched in 22Q3 and large-scale delivery in 22Q4. On the demand side, starting March 21, the price of all Xiaopeng Motor products increased by 10,000 to 20,000 yuan, and orders were rushed. Some of the demand originally in April was preemptively settled in March. However, according to our tracking of model “inquiries”, Xiaopeng's inquiries began to stabilize in mid-May and began to show an upward trend.

The charging strategy was adjusted, and smart software and hardware were tied to charges; the introduction of new models improved profit levels, and the medium- to long-term gross margin target was 25% or more. Starting May 9, 2022, Xiaopeng Motor adjusted the intelligent driving assistance system software XPILOT to standard (previously the software charged 20,000 to 25,000 yuan based on hardware selection) to increase the penetration rate of the XPILOT system. Our measurement software contributed about 1.2 pcts to the company's gross profit in 2021, but due to simultaneous price increases and the contraction of interests such as household charging stations and free electricity, the overall impact on the company's profitability is expected to be minimal. Furthermore, after the introduction of more advanced autonomous driving in the future, the company may also consider charging for services such as time, mileage, and software package+scenario services. Furthermore, the standard intelligent driving assistance system software will increase the penetration rate of high-speed NGP, which is conducive to cultivating user habits and increasing user stickiness. In terms of the new car plan, the company plans to launch a new car each in the B-class and C-class markets in 2023. In addition, existing models will fully cover the price range of 150,000 yuan to 400,000 yuan. The introduction of new models will structurally improve gross profit, and the company's medium- to long-term goal is to increase overall gross margin to 25% or more. The company has sufficient reserves of intelligent self-research technology. In 2022, in-depth self-research on the company's embedded system hardware and underlying software began to generate economies of scale. The Xiaopeng P5 has been equipped with self-developed lidar technology and enhanced ACC/LCC-L functions, and plans to launch the urban NGP function in 2022 H2; after the Xiaopeng G9 is equipped with a higher computing power chip, it will also continue to enhance the experience of full-scene driving assistance functions.

Risk factors: insufficient supply of chips, batteries, etc.; demand continues to fall short of expectations due to rising model prices; increased autonomous driving capabilities and implementation of functions fell short of expectations; sales of new models fell short of expectations; rising risk-free interest rates in the market triggered a decline in the valuation of overvalued stocks.

Investment advice: Considering the impact of the pandemic on Q2 delivery, we slightly lowered the company's 2022 sales forecast to 190,000 units (originally forecast 200,000 units), added the 2023 sales forecast to 340,000 units, and maintained the 2024 sales forecast at 600,000 units. Tesla's current stock price corresponds to 8.5 times PS in 2022; considering that Tesla is already profitable and has leading premiums, the company was given 6 times PS in 2022, corresponding to the US stock (XPEV) target price of 45 dollars, and the Hong Kong stock (09868.HK) target price of HK$177. Currently, the company is leading in local research and development, driving data, algorithm accumulation, etc. We are optimistic that the company will be the first to get tickets for high-level autonomous driving. Maintain a “buy” rating.