Xpeng, a prominent Chinese electric vehicle (EV) maker, recently revealed its plans to implement cost-cutting measures and leverage its partnership with Volkswagen in order to reduce losses. In an exclusive interview with CNBC, Xpeng stated that it anticipates these strategies will substantially improve its gross margin and financial position.
The company’s second-quarter net loss stood at 2.8 billion yuan, surpassing the estimated loss of 2.13 billion yuan, according to Refinitiv consensus. As a result, Xpeng’s U.S.-listed shares dropped by 4.28% on Friday. However, on Monday, the company’s Hong Kong-listed shares traded more than 2% higher.
Xpeng’s Deliveries and Cost-Cutting Measures
In the second quarter, Xpeng delivered a total of 23,205 vehicles, marking a 32.58% decline compared to the same period last year. To address the financial challenges, Xpeng is focused on reducing costs across its entire business. The company aims to achieve significant gross margin improvement by 2024.
By the end of 2024, Xpeng aims to save 50% on intelligent driving features and reduce its total vehicle bill of materials (BOM) costs by up to 25%. These measures are expected to enhance profitability and strengthen the company’s financial position.
Cooperation with Volkswagen
Xpeng’s collaboration with Volkswagen is expected to play a vital role in the company’s recovery. Volkswagen has invested approximately $700 million in Xpeng, acquiring a 4.99% stake. The partnership involves the development of two new EV models for the Chinese market, integrating Xpeng’s advanced driver-assist software. The new vehicles are expected to be released by 2026.
Impact on Xpeng’s Financial Performance
Xpeng’s partnership with Volkswagen is expected to contribute significantly to its bottom line starting next year. Furthermore, the company plans to launch updated versions of its current models and introduce new models with more favorable gross margins. Xpeng anticipates that these developments will lead to increased sales volume growth and improved profitability.
Despite reporting a wider-than-expected loss in the second quarter, Xpeng’s revenue met expectations. The company’s second-quarter revenue amounted to 5.06 billion Chinese yuan, representing a 31% year-on-year decrease. However, Xpeng’s gross margin turned negative, reaching -3.9% compared to the positive 10.9% recorded in the same period last year.
Outlook for Xpeng
Xpeng aims to turn its business around this year after experiencing significant challenges in 2022. The company faced a tough macroeconomic environment in China and intense competition from domestic rivals and Tesla. However, Xpeng believes the demand for EVs in China remains robust, with potential for growth despite the economic backdrop.
Moving forward, Xpeng plans to boost sales by enhancing its product mix, improving operating efficiency, and focusing on cost control. The company expects to break even by 2025 and anticipates greater profitability and improved cash flow in the coming years.
In conclusion, Xpeng is implementing strategic cost-cutting measures and leveraging its partnership with Volkswagen to narrow its losses and improve its financial position. The company aims to reduce costs, increase gross margins, and introduce new and updated EV models to drive sales growth and enhance profitability. With these strategies in place, Xpeng is optimistic about its future prospects in the highly competitive Chinese EV market.
