Shares in Chinese automaker Xpeng Inc. (XPEV) took a hit in early trading Friday as the company reported a larger-than-expected quarterly loss, signaling the intense competition in China’s electric vehicle market. The company’s second-quarter revenue came in at 5.06 billion yuan ($700 million), a 32% decrease from the prior-year quarter, with gross margins plummeting to negative 3.9%. The significant loss of RMB2.8 billion ($390 million) or RMB3.25 ($0.45) per ADS highlights the challenges Xpeng faces in the face of fierce competition and a price war.
Xpeng’s struggle to maintain its position in the market has been exacerbated by domestic rival BYD and industry giant Tesla, both of which have capitalized on the growing demand for electric vehicles. Tesla’s aggressive price cuts have disrupted the market, causing Xpeng to lose its first-mover advantage. However, there is a glimmer of hope for Xpeng, as recent China EV sales data for July showed a second consecutive month of double-digit gains for the company, while Tesla suffered a 30% decrease. Xpeng’s CEO, He Xiaopeng, expressed confidence in a new cost-cutting initiative that aims to drive gross margin improvement by 2024.
Chinese automaker Xpeng Inc. (XPEV) reported a larger-than-expected quarterly loss, causing its shares to drop by about 5% in early trading on Friday. The company’s second-quarter revenue came in at 5.06 billion yuan ($700 million), a 32% decrease from the prior-year quarter. Gross margins were negative 3.9%, compared to 10.9% the previous year, due to inventory writedowns on its G3i crossover sports utility vehicle. Xpeng reported a record quarterly net loss of RMB2.8 billion ($390 million), or RMB3.25 ($0.45) per ADS, compared to RMB2.70 billion in the year-ago quarter.
While Xpeng saw an increase of 25.9% in vehicle sales on a quarterly basis, sales were still down 36.2% compared to the previous year. The company’s management attributed the decline in margins to higher demand for its SUV. Co-president Hongdi Brian Gu expressed optimism, stating that with the launch of new products, they expect gross margin to recover gradually and operating efficiency to improve, leading to substantial improvement in free cash flow.
Xpeng faces tough competition in the Chinese electric vehicle market. Domestic rival BYD and Tesla have taken control of the market, with Tesla disrupting the industry with a series of price cuts. Despite positive signs in recent China EV sales, which showed a second consecutive month of double-digit gains for Xpeng and a 30% decrease for Tesla, Xpeng has lost its first-mover advantage. Xpeng CEO He Xiaopeng mentioned a cost-cutting initiative that is expected to drive gross margin improvement by 2024.
Despite the challenges, Xpeng’s shares have rallied 57% year-to-date. The company remains optimistic about its future prospects, with plans to improve gross margins and increase sales growth with the launch of new products. With the ongoing price war in the Chinese electric vehicle market, Xpeng will need to continue innovating and finding ways to stay competitive in order to regain its position in the industry.
Takeaways:
- Xpeng reported a larger-than-expected quarterly loss, leading to a drop in its share price.
- The company’s revenue was 32% lower than the previous year, with negative gross margins due to inventory writedowns.
- Xpeng saw an increase in vehicle sales on a quarterly basis, but sales were still down compared to the previous year.
- Xpeng faces tough competition in the Chinese electric vehicle market from domestic rival BYD and Tesla.
- The company remains optimistic about its future prospects, with plans to improve gross margins and increase sales growth with new product launches.
