XPeng Succumbed To Tesla's Price War But Rising Deliveries Provide Hints Of Recovery

XPeng Inc XPEV issued its second quarter report that showed that the price war that Tesla Inc TSLA recently rekindled took a toll on its margins. Upon the report that contained the EV maker’s greatest loss since going public, XPeng’s U.S. shares tanked 7% in pre-market trade. Besides its in-house issues, XPeng is facing intense competition not only from giants like Tesla and its main China rival BYD Company Limited BYDDY but also from other EV startups like Nio Inc NIO and Li Auto Inc LI.

Second Quarter Highlights

For the quarter that ended on June 30th, Chinese EV maker generated 5.06 billion Chinese yuan in revenue which is approximately $693.7 million, which was in line with Refinitiv’s consensus estimate but marked a 31% YoY fall. Yet, deliveries for the quarter rose 27% quarter over quarter, as XPeng revealed earlier it delivered 23,205 vehicles.  

But net income took a big hit as XPeng made a loss of 2.8 billion yuan which is even worse than 2.1 billion yuan loss that Refinitiv’s survey of analysts expected. 

Gross margin turned negative 3.9% while during 2022’s comparable quarter, it was positive 10.9%. The negative change is owed to an inventory writedowns of G3i crossover sports utility vehicle that came as a result of the popularity of the recently launched G6 SUV.

XPeng’s Turnaround Is Still Not Happening

After a tough year during which its share price crashed by more than 80%, XPeng is trying to turn its business around but Tesla is undoubtedly making it even harder with the price war it initiated at the beginning of the year. This week, Tesla rekindled the price war by lowering the price of its Model Y and Model S while also giving discounts on its China inventory of the Model S and Model X. Moreover, discounts and government initiatives failed to convince Chinese consumers to buy passenger cars as sales in the world's greatest automotive market fell in July for the second straight month. While Tesla and BYD posted record second-quarter deliveries, the intensifying price war price war took a toll on XPeng, widening its losses. 

Outlook

For the undergoing third quarter, XPeng expects to deliver between 39,000 and 41,000 vehicles, which implies YoY growth in the range between 31.9% and 38.7% and certainly an improvement compared to the second quarter. Revenue for the third quarter has been guided in the range between 8.5 billion yuan and 9 billion yuan, which implies YoY growth between 24.6% and 31.9%.

Hints Of recovery

With higher demand for the G6 SUV that was launched in June, XPeng expects gross margin to recover gradually while the automaker continues to work on improving its operational efficiency and free cash flow. In July, Li Auto got a helping hand from Volkswagen (OTC: VWAGY as the German automaker bought a 4.99% stake in the company for $700 million in an effort to regain its throne in China. Together with Volkswagen, XPeng will be developing two EVs for the Chinese market. 

In July, XPeng delivered 11,008 vehicles which translates to a 28% rise compared to June and makes its sixth straight quarter of delivery growth and somewhat hinting of a possible recovery. XPeng has also been undergoing management restructuring as it continues making efforts to unlock growth opportunities. But for now, there are merely hints of a turnaround.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.