Source: Wall Street News

On the evening of May 21,$XPENG-W (09868.HK)$/$XPeng (XPEV.US)$First quarter 2024 results were released. The month-on-month decline in revenue is already anticipated by the market. However, after many rounds of price cuts and promotions, Xiaopeng's gross margin continued to grow, and the net loss did not continue to expand, showing that the company's efforts on the cost side have paid off.

Furthermore, the new Mona model that Xiaopeng has high hopes for will soon be launched in the second quarter, which is expected to bring about an increase in sales and profits. The most difficult period for Xiaopeng is probably over.

Among the core indicators of concern, Xiaopeng's revenue for the first quarter reached 6.55 billion yuan, up 62.3% year on year, down 49.8%; net loss was 1.37 billion yuan, which narrowed sharply by 41.5% year on year and slightly increased by 1.5% month on month; gross margin continued to remain positive, up 11.2 percentage points year on year, up 6.7 percentage points from month to month to 12.9% month on month.

1. Sales continue to be sluggish, and the new brand MONO has become a lifesaver

In the first quarter of this year, Xiaopeng Motor's sales volume was 21,800 units, up 19.7% year on year and down 63.7% from month to month. It is at the lower limit of the delivery guidelines of 21,000 to 22,500 vehicles given by the company.

In the fourth quarter of last year, Xiaopeng helped bring sales back to the peak level of 20,000 units sold per month with a wave of sales of the new G6 and G9 models. However, it is clear that the launch of popular models is not sustainable enough to boost sales. Even with further supporting price reduction promotions in the first quarter of this year, Xiaopeng's monthly sales have been slow to return to the level of more than 10,000 vehicles, leaving overall sales at the bottom of the overall new car building force.

As for sales expectations for the second quarter of this year, Xiaopeng is also very conservative. The estimated delivery volume alone is 29,000 to 32,000 units, excluding 0.94 million units in April. The average sales volume in May and June is still hovering around 10,000 units.

Considering that Xiaopeng's annual sales target for this year is 280,000 units, and the estimated total sales volume for the first half of this year is only about 55,000 units. There is still quite a gap from the target. If it wants to be completed as scheduled, there will be explosive growth in the second half of the year. And this opportunity may come from Xiaopeng's new brand Mona, which is about to be launched.

Xiaopeng's current main models are basically concentrated in the price range of 200,000 to 300,000, and this price range is already filled with competitive new energy vehicle companies such as Tesla (Model 3 and Model Y), Extreme Krypton (001), and BYD (Han and Tang), and there are also strong new players entering the market, such as Xiaomi (SU7) and Ideal (L6). In fact, it is already at a high level, and sales growth is extremely limited.

Therefore, Xiaopeng will either advance upward into high-end brands or develop low-end brands downward. Looking at it now, Xiaopeng chose to expand downward. Xiaopeng's new brand Mona is expected to be officially launched in June of this year, with a price range of 150,000 yuan to 200,000 yuan.

The Mona brand has definitive orders for 100,000 units every year, and is fully underwritten by Didi. In addition, ToC orders are also expected to reach around 50,000 units every year. This will be a significant increase in sales for Xiaopeng, which only sells around 140,000 units in 2023.

2. Xiaopeng's gross margin bucked the trend, and technology monetization is at first sight

In the first quarter of this year, Xiaopeng basically fell into a price reduction quagmire and launched price reduction promotions one after another. Specifically, in January and March of this year, Xiaopeng offered price discounts of 20,000 to 50,000 yuan for its P7i, G6, and G9 models, respectively.

However, the negative impact of price cuts was partly offset by improvements in the model product portfolio. In the first quarter of this year, Xiaopeng's low-cost G3 and P5 (around 150,000 yuan) sales fell below 10%, while the high-priced models G9, G6, and P7i experienced many price cuts, but still maintained a price level of 200,000 to 250,000 yuan. The high-margin and high-cost X9 model (350,000 to 400,000 yuan) accounted for 36% of sales in the first quarter.

In other words, in the first quarter of this year, Xiaopeng's sales volume was certainly not as good as expected, but the “quality” of sales was improved. This also allowed Xiaopeng Bike's revenue to continue to grow. It was 254,000 yuan, an increase of 50,000 yuan over the previous year, and an increase of 60,000 yuan over the previous year.

Looking further from the perspective of gross margin, in the first quarter of this year, Xiaopeng's gross margin increased 11.2 percentage points year over year, and 6.7 percentage points month over month to 12.9%. In the context of the brutal price war in the first quarter, it not only far surpassed the new second-tier car builder Zero Run (Q1 gross profit margin -1.4%), but also not far worse than NEV giant Tesla (Q1 gross profit margin of 17.35%).

However, the source of growth in Xiaopeng's gross margin, in addition to improvements in the model product structure, is also a high increase in gross margin in service and other businesses. As Xiaopeng stated during the conference call, Xiaopeng will differentiate itself from traditional car manufacturers this year, and will focus on providing technology export to other car companies.

In the first quarter of this year, Xiaopeng's service and other business revenue reached 1 billion yuan, bucking the trend of 22%. The gross margin was as high as 53.9%, up 24.3 percentage points year on year and 15.7 percentage points month on month. This portion of revenue comes mainly from the partnership with Volkswagen.

This marks that Xiaopeng has achieved a unique model of increasing profits and internationalization potential through intelligent technology output based on the electric vehicle business. The cooperation model between Xiaopeng and Volkswagen is expected to be replicated in the future.

However, it is worth noting that Xiaopeng's price reduction continues. In April and May, Xiaopeng once again cut the main models G6 and G9 by 10,000 yuan and 20,000 yuan respectively. In the short term, Xiaopeng's focus has completely returned to sales growth, and price reduction and volume maintenance have once again become a strategic focus.

Fortunately, Xiaopeng's cash reserves are quite sufficient, and there is no risk of a shortage of funds yet. As of the first quarter of 2024, Xiaopeng's cash and cash equivalents, restricted cash, time deposits, etc. were 41.4 billion yuan, an increase of 7.28 billion yuan over the previous year, and a decrease of only 4.3 billion yuan over the previous year.

3. Expense side high expenses have slowed down

On the cost side, in particular, Xiaopeng continued to maintain high growth in R&D expenses. There seemed to be no “rigidity” in the first quarter of this year, and expenses slowed down. In the first quarter of this year, Xiaopeng's R&D expenses were 1.35 billion yuan, up 4.2% year on year and 3.3% month on month.

The development progress of Xiaopeng's new model came to an end after the launch of the X9 at the beginning of the year, and the upcoming Mona has basically been developed. Therefore, Xiaopeng's investment in research and development of new models has indeed recovered; most of it is still in the field of intelligent driving.

Of course, there is nothing wrong with this. As Tesla FSD enters the countdown to China, domestic new energy vehicle companies do need to hurry up the progress of urban NOA expansion, update intelligent driving technology, and attract more users to enable intelligent driving functions.

Xiaopeng has indeed surpassed expectations at these points. At the end of February this year, Xiaopeng achieved the official opening of unplanned advanced urban assisted driving functions in all cities across the country (the goal is to complete it by the end of the year); at the same time, in March, Xiaopeng's monthly active user penetration rate of XNGP urban intelligent driving also reached 82% (initial target was 80%); Xiaopeng's OTA was also upgraded in mid-March, and traffic capacity at intersections increased by 72%.

As for sales expenses, Xiaopeng Motor reduced the cost of advertising lights when sales volume was low, and launched the “Jupiter Plan” channel transformation plan. Instead of being obsessed with expanding store channels, it selectively reduced the number of inefficient stores and covered cities. In the first quarter of this year, Xiaopeng's sales network was 574, covering 178 cities, down 3 from month to month. Sales expenses were 1.39 billion yuan, which was basically the same as the previous year, with a decrease of 28.3% over the previous year.

In summary, Xiaopeng's persistent problem of sluggish sales is expected to be improved through Mona's listing. At the same time, the plight of poor gross margin can also be increased by providing technical export to other car companies. The most difficult period for Xiaopeng is probably over.

editor/tolk