Q1 Gross profit margin hits a new high for 6 quarters, has XPeng's most difficult days passed? | Jianzhi Research

On the evening of May 21st, XPeng released its first-quarter performance for 2024. The revenue decline was within market expectations, but despite multiple rounds of price cuts, XPeng's gross profit margin still maintained positive growth, and the net loss did not continue to expand, showing that the company's efforts on the expense side have paid off.

In addition, XPeng's highly anticipated new brand model, Mona, is set to be launched in the second quarter, expected to bring growth in sales and profitability, indicating that XPeng may have already overcome its most difficult period.

Among the key performance indicators, XPeng's first-quarter operating income reached 6.55 billion RMB, a year-on-year increase of 62.3%, a quarter-on-quarter decrease of 49.8%; the net loss was 1.37 billion RMB, a significant narrowing of 41.5% year-on-year, a slight increase of 1.5% quarter-on-quarter; the gross profit margin continued to be positive, with a year-on-year increase of 11.2 percentage points and a quarter-on-quarter increase of 6.7 percentage points to 12.9%.

1. Continuous low sales, new brand MONO as a lifesaver

In the first quarter of this year, XPeng sold 21,800 vehicles, a year-on-year increase of 19.7%, a quarter-on-quarter decrease of 63.7%, falling below the lower limit of the company's delivery guidance of 21,000-22,500 vehicles.

Last year's fourth quarter saw XPeng's sales return to a peak level of monthly sales of 20,000 vehicles with the hot sales of new models G6 and G9. However, it is clear that the sustainability of the sales promotion effect of popular models is not strong enough. Even with further supporting price promotions in the first quarter of this year, XPeng's monthly sales volume has still not been able to return to above 10,000 vehicles, placing its overall sales volume at the bottom among new forces in the overall car-making industry.

XPeng's sales expectations for the second quarter of this year are also very conservative, with an estimated delivery volume of 29,000-32,000 vehicles. Excluding 9,400 vehicles in April, the average sales volume in May and June is still hovering around 10,000 vehicles.

Considering that XPeng's full-year sales target for this year is 280,000 vehicles, with only about 55,000 vehicles expected to be sold in the first half of the year, there is still a significant gap to be bridged to achieve the target on schedule, requiring explosive growth in the second half of the year. And this opportunity may lie in XPeng's upcoming new brand, Mona.

XPeng's current main models are mainly concentrated in the price range of 200,000-300,000 RMB, where there is already fierce competition from competitive new energy vehicle companies such as Tesla (Model 3 and Model Y), ZEEKR (001), BYD (Han and Tang), and continuously emerging strong new players such as Xiaomi (SU7) and Li Auto (L6), indicating intense competition and limited sales growth in this price range Therefore, XPeng is either moving upmarket to high-end brands or expanding into mid-to-low-end brands. Currently, XPeng has chosen to expand downwards. XPeng's new brand, Mona, is expected to be officially launched in June this year, with a price range of 150,000 to 200,000 yuan.

The confirmed annual orders for the Mona brand are 100,000 vehicles, fully underwritten by Didi Chuxing. In addition, the annual toC orders are also expected to reach around 50,000 vehicles. For XPeng, which had a total annual sales volume of only about 140,000 vehicles in 2023, this will represent a significant increase in sales volume.

2. XPeng's gross profit margin is growing against the trend, with initial signs of technology monetization

In the first quarter of this year, XPeng was basically caught in a price reduction quagmire, launching a series of price promotion activities. Specifically, XPeng offered price discounts ranging from 20,000 to 50,000 yuan for its P7i, G6, and G9 models in January and March this year.

However, the negative impact of price reductions was somewhat offset by improvements in the product mix. In the first quarter of this year, the sales proportion of XPeng's low-priced models G3 and P5 (around 150,000 yuan) had dropped to below 10%, while the high-priced models G9, G6, and P7i, despite experiencing multiple price reductions, still maintained price levels of 200,000-250,000 yuan. The high-margin and high-unit price X9 model (350,000-400,000 yuan) accounted for 36% of sales in the first quarter.

In other words, in the first quarter of this year, although XPeng's sales volume was not satisfactory, the "quality" of sales has improved. This has allowed the trend of continuous growth in per vehicle revenue for XPeng to be maintained, reaching 254,000 yuan, an increase of 50,000 yuan compared to the previous period and 60,000 yuan year-on-year.

Furthermore, looking at the gross profit margin, in the first quarter of this year, XPeng's gross profit margin increased by 11.2 percentage points year-on-year and by 6.7 percentage points compared to the previous period, reaching 12.9%. This not only far exceeds the second-tier new energy vehicle company Leapmotor (Q1 gross margin -1.4%) in the context of a fierce price war in the first quarter but is also not far behind the new energy vehicle giant Tesla (Q1 gross margin 17.35%).

However, the growth in XPeng's gross profit margin is not only due to improvements in the product mix but also to the high growth in the gross profit margin of services and other businesses. As XPeng stated in a conference call, this year XPeng will differentiate itself from traditional automakers by making providing technology output to other car companies one of its key focuses.

In the first quarter of this year, XPeng's revenue from services and other businesses reached 1 billion yuan, an increase of 22% against the trend. The gross profit margin was as high as 53.9%, an increase of 24.3 percentage points year-on-year and 15.7 percentage points compared to the previous period The main part of this income comes from the profit-sharing cooperation with Volkswagen.

This marks XPeng's unique model of enhancing profitability and internationalization potential through the output of intelligent technology on the basis of its electric vehicle business. The cooperation model between XPeng and Volkswagen is expected to be replicated in the future.

However, it is worth noting that XPeng's price reduction is still ongoing. In April and May, XPeng once again reduced the prices of its main models G6 and G9 by 10,000 yuan and 20,000 yuan respectively. In the short term, XPeng's focus has completely returned to sales growth, with price reduction to maintain sales volume once again becoming the strategic focus.

Fortunately, XPeng's cash reserves are relatively sufficient, with no risk of funding shortage for now. As of the first quarter of 2024, XPeng's cash and cash equivalents, restricted cash, time deposits, etc. amounted to 41.4 billion yuan, an increase of 7.28 billion yuan year-on-year, and a decrease of only 4.3 billion yuan quarter-on-quarter.

3. High expenditure on the cost side has slowed down

XPeng, which has been maintaining high growth in expenses, especially in research and development spending, seems to have slowed down in the first quarter of this year. In the first quarter of this year, XPeng's research and development expenses were 1.35 billion yuan, an increase of 4.2% year-on-year and 3.3% quarter-on-quarter.

Wall Street News·Jianzhi Research believes that the development progress of XPeng's new models seems to have slowed down after the launch of X9 at the beginning of the year, and the upcoming Mona has also been basically developed. Therefore, XPeng has indeed reduced its investment in the development of new models, with the main focus still on the field of intelligent driving.

Of course, this is understandable. With the countdown to the entry of Tesla's FSD into China, domestic new energy vehicle companies do need to seize the time to accelerate the expansion of urban NOA, update intelligent driving technology, and attract more users to activate intelligent driving functions.

XPeng has indeed exceeded expectations in these aspects. At the end of February this year, XPeng officially opened the advanced city-assisted driving function without maps in all cities nationwide (with the goal of completion by the end of the year); at the same time, in March, XPeng's XNGP city intelligent driving monthly active user penetration rate has reached 82% (initial target was 80%); XPeng's OTA was also upgraded in mid-March, increasing intersection passing capacity by 72%.

As for sales expenses, XPeng reduced advertising expenses in low sales situations and initiated the "Jupiter Plan" channel transformation program, no longer insisting on expanding store channels, but selectively reducing inefficient stores and the number of covered cities. In the first quarter of this year, XPeng's sales network consisted of 574 stores, covering 178 cities, a decrease of 3 cities compared to the previous quarter, with sales expenses of 1.39 billion yuan, basically flat year-on-year, and a 28.3% decrease quarter-on-quarter In conclusion, XPeng's long-standing challenge of low sales volume is expected to improve through Mona's listing, while the dilemma of poor gross profit margin can also be addressed by providing technological output to other car companies for growth. XPeng's most difficult period may have already passed