Xpeng Focuses on Volume Expansion and Cost Reductions to Navigate Continued EV Market Price Competition
Xpeng, listed on NYSE as XPEV, emphasizes the significance of expanding volumes and anticipates sustained price competition in China’s electric vehicle (EV) market. The company’s management envisions this competition lasting until traditional Original Equipment Manufacturers (OEMs) struggle to profit from internal combustion engine (ICE) vehicles, leaving minimal room for further price reductions.
Goldman Sachs analyst Tina Hou and her team conducted a visit to Xpeng on December 15, during which the company’s management shared insights. Xpeng acknowledges the importance of cost reduction through technological innovation. The management conveyed their commitment to prioritizing volume expansion and enhancing profitability through cost reductions, a strategy set to continue into 2024.
Xpeng identifies two primary areas for cost reduction. Firstly, general upstream cost optimization, including lower battery prices, is seen as essential and beneficial for consumers. Secondly, the company distinguishes itself through lower costs based on technology and engineering expertise. Xpeng’s Advanced Driver Assistance System (ADAS) currently boasts a Bill of Materials (BOM) cost of RMB 25,000, compared to RMB 20,000 to RMB 30,000 for its peers. The company plans to further reduce ADAS BOM costs by adopting fewer sensors, such as LiDAR and millimeter-wave radar.
City NOA (Navigation on Autopilot) serves as a key differentiator for Xpeng, with plans to cover 200 cities, gaining cost advantages and faster technology iterations. Cost-cutting initiatives are proving effective, evident in the facelifted G9 model, which is priced lower than the original version while achieving higher margins.
Xpeng’s upcoming models, set to launch in the second half of 2024, are expected to achieve a 25 percent cost reduction through technological innovations, leading to increased margins. The company aims to expand exports, particularly to Germany and France, and plans to export left- and right-hand drive versions of the G6 in 2024.
Xpeng’s collaboration with Volkswagen is viewed as a strategic move for international expansion in the medium to long term. Regarding product launches, the X9 is scheduled for deliveries in January 2024, a new brand codenamed Mona is expected in the third quarter of 2024, and another new model is planned for the second half of 2024. Initial pre-sales orders for the X9 have been satisfactory, with expectations for it to maintain the highest margins in Xpeng’s portfolio through 2024, as per information provided by the company’s management and reported by Goldman Sachs.
