1Q22 performance review: Gross margin is under pressure, software business model transformation Xiaopeng's 1Q22 revenue increased 153% year-on-year and decreased 13% month-on-month, which is basically in line with Bloomberg's unanimous expectations.
Automobile gross margin fell 0.5pp to 10.4% month-on-month in 1Q22, 1.1 pp lower than Bloomberg's unanimous forecast. We think the main event that exceeded expectations was the company's announcement that the intelligent driving software will be adjusted from a separate fee to the standard P5/P7 mid-range and high-end models to expand penetration. Xiaopeng expects 31-34,000 vehicles to be delivered in 2Q22 (down 1-10% month-on-month; 30% month-on-month in 2Q21); revenue is expected to be 68-7.5 billion yuan, 10-18% lower than Bloomberg's unanimous forecast. We believe that the company's automobile delivery volume/gross margin is under pressure due to repeated outbreaks of the epidemic and blockage of the supply of core components. As a result, we adjusted our revenue forecast for 2022/2023/2024 to -3%/+1%/-1% to $371/740/102.7 billion. Due to Xiaopeng's leading position in the field of intelligent driving, we gave Xiaopeng 7.3x 22-year EV/sales (previous value: 8.4x 22-year EV/sale, comparable company average: 3.7x) and lowered the target price to HK$180 (previous value: HK$205). Keep “buying.”
Software: Switch from paid subscriptions to standard models
Previously, Xiaopeng used a separate fee of 20,000 to 25,000 yuan for the XPILOT software, which is similar to the Tesla model. On 5/9, Xiaopeng announced that XPILOT software will be included as standard functionality for the company's high-end P5/P7 models. We believe this decision reflects the current state of the software industry in the Chinese market and will help the company increase the number of users using its industry-leading ADAS solutions. The company announced that its penetration rate of XPILOT 3.0/3.5 in P5 in the first quarter of '22 was over 50%, and the selection rate of high-speed NGP was about 70%. We expect XPILOT's penetration rate to increase further after the software business model is adjusted.
Automobile gross profit margin: Affected by repeated epidemics, rising battery prices and chip shortages Affected by supply chain shortages caused by repeated epidemics, the company delivered 9,002 vehicles in April 2022, down 42% month-on-month (China's NEV market: 38% month-on-month decline). The gross margin of Xiaopeng Motor's business fell 0.5 pp to 10.4% month-on-month, 1.1 pp lower than Bloomberg's unanimous forecast. At the same time, ASP rose 3% month-on-month, indicating pressure on the cost side. To cope with gross margin pressure, Xiaopeng: 1) raised prices for all products by 7-10% in March; 2) diversified the chip and battery supply chain to reduce BOM costs. Management's long-term gross margin target remains 25%, and the main drivers are new products and supply chain adjustments.
Maintain “buying” and lower the target price to HK$180
Taking into account the impact of factors such as repeated epidemics, battery price increases, chip shortages, and automobile price increases, we lowered the 2022 automobile delivery forecast by 6% to 169,534 vehicles, maintaining the 2023/2024 delivery forecast of 329,534/433,283 vehicles; adjusting the 2022/2023/2024 revenue forecast to -3%/+1%/-1% to 371/740/102.7 billion yuan. Since Xiaopeng is second only to Tesla and higher than other comparable companies in the field of intelligent driving, we gave Xiaopeng 7.3x 22-year EV/sales (previous value: 8.4x 22-year EV/sale, comparable company average: 3.7x) and lowered the target price to HK$180 (previous value: HK$205). Keep “buying.”
Risk warning: chip shortages, rising battery prices, slowing demand for new energy vehicles, and ADAS function iterations falling short of expectations.