Xpeng Expects Cost Cuts and Volkswagen Partnership to Help Narrow Losses
Xpeng, a Chinese EV maker, anticipates that cost reductions and its partnership with Volkswagen will help decrease the company’s losses, according to an exclusive interview with CNBC. The firm recently reported its largest quarterly loss since its listing in the US in August 2020. Its second-quarter net loss exceeded expectations, resulting in a decline in its US-listed shares. However, Xpeng’s Hong Kong-listed shares saw an increase on Monday afternoon.
The company’s second-quarter deliveries experienced a significant drop compared to the same period last year. In response, Xpeng’s CEO announced plans to cut costs throughout the business, aiming to substantially improve gross margins by 2024. Bloomberg previously reported that the company intends to reduce manufacturing costs, including intelligent driving features, by 50% by the end of 2024.
Brian Gu, vice chairman and co-president of Xpeng, stated that the company has undergone significant business reorganization and changes, resulting in a regaining of growth momentum.
Xpeng Strives to Revive Business Amidst Challenges
Xpeng is working towards revitalizing its business after experiencing an over 80% decline in its share price in 2022. The company faced challenges due to a difficult macroeconomic environment in China and intense price competition among domestic rivals and Tesla. However, Xpeng remains optimistic about the demand for its vehicles, which continues to grow despite the economic backdrop. The company is focusing on cost-cutting measures and expects a reduction of up to 25% in total vehicle BOM costs by next year, increasing its profitability.
Xpeng’s Collaboration with Volkswagen Expected to Enhance Financial Position
According to a report by BofA Securities, Xpeng’s partnership with Volkswagen is projected to improve the company’s financial position and supply chain management. As a result, BofA upgraded Xpeng’s rating from “neutral” to “buy” and increased its price target per share. The collaboration between Xpeng and Volkswagen involves co-developing two new electric vehicles for the Chinese market, incorporating Xpeng’s advanced driver-assist software. The partnership is expected to contribute significantly to Xpeng’s bottom line starting next year.
Product Expansion and Cost Control to Drive Xpeng’s Profitability
In addition to launching new models, Xpeng plans to introduce updated versions of its current models next year. The company expects these new models to have more favorable gross margins, thereby improving profitability and product mix. The recently launched G6 Ultra Smart Coupe SUV is also anticipated to boost margins. BofA Securities predicts that Xpeng’s improving product mix, stronger cost control, and new model pipeline will contribute to sales volume growth and gross profit margin improvement in the coming years.
