Gross margin turns negative across the board, Q2 of XPENG-W faces some challenges | Insight Research

The XPENG-W of the first half of the year was criticized by the market due to sluggish sales and plummeting profits. On the evening of August 17, he released his second quarter performance report. Among the indicators of core concern, XPENG-W's operating income in the second quarter reached 5.06 billion yuan, slightly exceeding market expectations of 4.91 billion yuan. Although it still decreased by 31.9 year-on-year, it increased by 25.5 month-on-month. Net loss was 2.8 billion yuan, up 3.7 year-on-year and up 19.7 month-on-month. Gross profit margin fell from positive to negative to -3.9%, with gross profit margin for automobiles falling to -8.6%, it was down 6.1 percentage points from the first quarter. In the past, there was an ideal burst performance to compare, XPENG-W it was naturally worse, but even compared with its previous quarter level, the profit level fell again and again, making XPENG-W's performance this time is hardly excellent. However, on the bright side, in the second quarter of this year, XPENG-W's operating income finally ended the unfavorable situation of a sharp decline in the same period for two quarters, and saw the dawn of returning to positive growth. In addition, with the coming of the high prosperity peak season of "golden nine silver ten" in the auto market in the third quarter, the sales volume of XPENG-W also returned to the level of more than 10000 vehicles in July, making a turnaround. Whether XPENG-W can quickly pull up its own sales with the best-selling new model G6 has become a key factor in whether XPENG-W can break away from the profit-making line in the second half of the year. ## 1. The sales volume in the first half of the year is still one of the core indicators for the new car-making forces at this stage, and XPENG-W obviously did not do well in this area in the first half of this year. XPENG-W sold 41400 vehicles in the first half of this year, down 40% year on year. Among them, the sales volume in the second quarter was slightly stronger, reaching 23200 vehicles. Although the sales volume exceeded the company's previous guidance of 21000-22000 vehicles, it still dropped by 32.5 year on year.! On the bright side, although the absolute value of XPENG-W sales is still pulling, XPENG-W ended the embarrassing situation of five consecutive quarters of month-on-month decline in sales in the second quarter. At the same time, XPENG-W returned to the level of more than 10,000 vehicles to 11000 vehicles in July at the beginning of the second half of the year, up 27.7 percent from the previous month.! In addition, according to the XPENG-W's sales guidance for the third quarter of this year, the delivery volume is expected to be 39000 to 41000 vehicles in the third quarter, up 31.9 to 38.7 percent year on year. Since XPENG-W sold 11000 vehicles in July, this means that the average monthly sales volume of the XPENG-W in the following August and September will remain at least around 14500 vehicles, and there will be no risk of falling below 10,000 vehicles again. In the fourth quarter, it is expected to hit the sales volume of 20000 vehicles. On the whole, the XPENG-W is still in a state of month-on-month recovery and sales are improving, which must be attributed to the success of XPENG-W new and old models. The XPENG-W new model G6 exploded when it came on the market. In just half a month, the scale delivery volume exceeded 3900 vehicles, which brought huge growth momentum to the overall sales of the XPENG-W, and also pulled the XPENG-W out of the quagmire of low sales. In the second half of the year, as XPENG-W sales pick up, its gross margin and cash flow are also expected to improve. ## 2. Operating income is finally dawning, but bicycle income is still declining in the second quarter of this year. XPENG-W operating income increased 26% month on month for the first time in nearly five quarters, reaching 5.06 billion yuan, slightly exceeding the market expectation of 4.91 billion yuan, ending the declining trend of operating income, mainly due to the growth of XPENG-W sales in the second quarter, reaching 27.3, basically the same as the growth rate of operating income.! But it is worth noting that after the XPENG-W's bicycle revenue fell below the 200000 yuan mark in the first quarter, it was still declining in the second quarter, further approaching the 190000 yuan mark to reach 191000 yuan. We can only expect that the high sales volume of the XPENG-W explosive new model G6 can restore the decline. The previous idea of XPENG-W to increase the bicycle income through the high-priced G9 has obviously been completely defeated with the poor sales volume of the model. ## 3. Gross profit margin fell below the life-and-death line. The continuous decline in XPENG-W profit level did not come to an end in the second quarter. After the gross profit margin of automobiles turned from positive to negative to -2.5% in the first quarter, the overall gross profit margin of XPENG-W also fell to -3.9% in the second quarter, completely in the unfavorable situation of losing money and selling one car at a loss.! In addition, the XPENG-W's expanding net loss shows no sign of convergence, reaching 2.8 billion yuan in the second quarter, up 3.7 percent year-on-year and 19.7 percent month-on-month, a record high.! XPENG-W to the sharp decline in gross profit margin this time, it is mainly because the G3 series of old models may withdraw from the market, so it is necessary to impair the inventory of G3i and compensate the inventory purchase commitments made by the corresponding suppliers, thus having a negative impact of 4.5 percentage points on the gross profit margin of automobiles. If this level of gross margin is added back, the decline in auto gross margin in the second quarter of XPENG-W will shrink to 1.6 percentage points, although it is still negative -4.1 per cent. It is worth noting that since the second half of the year, Tesla has launched the same price reduction and promotion strategy as at the beginning of the year, which undoubtedly has a great impact on XPENG-W with serious overlap in product models and price ranges. Whether the follow-up XPENG-W can resist the pressure and quickly pull up its own sales through the best-selling of the new model G6 has become a key factor in whether the XPENG-W can break away from the profit-making line in the second half of the second half of the year. ## 4, high research and development spending is still rigid, but store expansion spending has slowed down intelligent battlefield competition is still very fierce, although the current XPENG-W is one step ahead, in the first echelon, but Wei Lai, ideal, Avita and ask the world and other new energy vehicles are closely followed. If XPENG-W want to ensure their advantages in the field of intelligence, it is necessary to maintain rigidity in part of the high expenditure on the cost side, in which R & D investment is difficult to reduce in the short term. In the second quarter of this year, XPENG-W spent as much as 1.37 billion yuan on research and development, up 8.1 percent year-on-year and 5.5 percent month-on-month.! On the contrary, XPENG-W did not continue to increase its investment in the expansion of its sales network, domestic urban coverage and advertising expenditure. In the second quarter, XPENG-W sales expenses reached 1.54 billion yuan, down 7.3 percent from the same period last year. As a result, the expansion rate of stores slowed down. As of the end of the second quarter, the number of physical sales networks in XPENG-W reached 411, a decrease of 14 compared with the first quarter.! However, considering that the overall sales volume has picked up after the successful launch of the new model G6 in XPENG-W, the promotion of subsequent models and the enhancement of brand influence still need investment, so it is also difficult to continuously reduce the sales expenses in a short period of time. After experiencing the worst performance in the history of the first half of this year, XPENG-W sales, word of mouth, or profitability basically fell to the bottom. Looking forward to the second half of the year, the XPENG-W can achieve a headwind turnaround, return to the first echelon of new car-making forces, so that the market can re-see the hard power of XPENG-W brands.