Revenue growth and losses are expanding, but it still takes time for Xiaopeng Automobile to reduce costs and increase efficiency, and turn losses into profits.
On November 15th, Xiaopeng Motors announced its performance report for the third quarter of 2023. The report shows that Xiaopeng Automobile's revenue in the third quarter was 8.53 billion yuan, a year-on-year increase of 25.0% and a month on month increase of 68.5%. However, Xiaopeng Automobile has not yet achieved quarterly profit, with a net loss of 3.89 billion yuan and a gross profit margin of -2.7% in the third quarter.
Faced with losses, Xiaopeng Automobile CEO He Xiaopeng once again elaborated on the goal of cost reduction effectiveness during the third quarter financial report conference call. He said, "It is expected that the cost reduction of the supply chain next year will produce significant results. In addition to the full process cost reduction of design, research and development, and manufacturing, we are confident in accelerating and even surpassing the 25% cost reduction target by the end of 2024, which will significantly increase the gross profit margin next year
Automotive analyst Zhong Shi also told a reporter from China Times, "Reducing costs and increasing efficiency requires considering various factors. It may have already had an effect in some aspects, but the presentation is not so 'explicit'. Reducing costs and increasing efficiency will take some time
(screenshot of Xiaopeng Automobile's third quarter financial report)
Revenue growth, gross profit turning negative into profit still takes time
From the core performance data, Xiaopeng Automobile's operating performance in the third quarter was mixed. The quarterly sales of over 40000 vehicles, revenue of 8.53 billion yuan, car sales revenue of 78.4 billion yuan, and cash reserves of 36.5 billion yuan all give Xiaopeng Automobile confidence in growth after experiencing the worst half year report. It is expected that the total revenue in the fourth quarter will reach 12.7-13.6 billion yuan, an increase of approximately 86.1% to 99.3% year-on-year.
However, unlike the soaring revenue, Xiaopeng Automobile's net profit is still losing money and showing an expanding trend. The net loss in the third quarter was 3.89 billion yuan, an increase of 63.6% year-on-year and 38.6% month on month. So far, in the first three quarters, Xiaopeng Automobile has accumulated a loss of about 9.03 billion yuan, approaching the full year loss of last year (9.14 billion yuan).
Regarding the continuous expansion of losses, Xiaopeng Automobile explained in its announcement that it suffered a loss of 970 million yuan in the third quarter due to changes in fair value. This "non cash loss" is mainly due to the rise in stock prices, which has led to a corresponding increase in the value of Volkswagen Group's investment related shares. According to generally accepted accounting standards, fair value needs to be recognized in current profit and loss.
In July of this year, Xiaopeng Automobile reached a cooperation agreement with Volkswagen, under which Volkswagen will increase its capital to Xiaopeng Automobile by approximately $700 million. After the cooperation was reached, Xiaopeng Automobile's stock price rose, with the closing price rising from $13 or $14 before the cooperation to $18.36 on September 29th.
In fact, excluding the losses caused by changes in fair value, the situation of Xiaopeng Automobile in the third quarter did not reverse. According to the financial report, Xiaopeng Automobile's third quarter non GAAP net loss (excluding fair value change loss) was 2.79 billion yuan, an increase of 570 million yuan year-on-year and 120 million yuan month on month, respectively.
Meanwhile, the gross profit margin of Xiaopeng Automobile has not yet reversed the negative situation. In the third quarter, Xiaopeng Automobile's gross profit margin was -2.7%, a decrease of 16.2 percentage points from the same period last year and an increase of 1.2 percentage points from the previous quarter. Meanwhile, the gross profit margin of car sales was -6.1%, a decrease of 17.7 percentage points compared to the same period last year and a quarterly increase of 1.2 percentage points.
Xiaopeng Automobile explained that the year-on-year decrease was due to inventory impairment related to G3i, which had a negative impact on the gross profit margin of automobiles in the third quarter of 2023 by 2.9 percentage points; Increase in sales promotions and expiration of subsidies for new energy vehicles.
The second brand is about to debut, reducing costs and increasing efficiency, achieving results next year
Faced with expanding losses and still negative gross profit margins, Xiaopeng Automobile has chosen to reduce costs and increase efficiency by promoting a series of future oriented cooperation and adjustments, including expanding its circle of friends and changing its sales channel network.
On November 13th, Xiaopeng Motors announced that the first delivery of its acquisition of Didi's intelligent vehicle development business assets had occurred on that day. After the initial delivery, all member companies of the target group have become wholly-owned subsidiaries of Xiaopeng Automobile, and their financial performance will be incorporated into Xiaopeng Automobile's consolidated financial statements
Although it is currently unclear the proportion and amount of financial performance that may be merged, it is certain that after the merger of Didi's performance, Xiaopeng Automobile's performance will be a different picture.
The integration of performance is not yet the biggest highlight of this cooperation, but more importantly, Xiaopeng Automobile's "multi brand strategy" will be implemented on its acquired Didi intelligent electric vehicle project, which will launch Xiaopeng Automobile's second brand - MONA.
It is reported that the new brand MONA will shoulder the demand of Xiaopeng Automobile sinking into the market, targeting the "150000 yuan track", and the first product will be launched in the third quarter of 2024. Xiaopeng Automobile will complete all the mass production research and development as well as partial sales of MONA based on the preliminary work, while Didi mainly supports the sales and operation of transportation from an ecological perspective.
It is worth noting that there is a "gambling agreement" here: Xiaopeng Automobile pays 3.25% of the consideration shares in the early stage; After the launch of MONA products, its sales in the Didi travel system reached 100000 vehicles, and Didi can receive additional consideration equity, with a maximum total consideration incentive stake of 5%.
After MONA products are launched, Didi needs to help sell cars.
Therefore, whether in terms of positioning in the 150000 level market or Didi's new model of helping sell cars, MONA will become the presence of Xiaopeng Automobile's sales volume and contribute to Xiaopeng Automobile's economies of scale.
(Initial delivery of 3.25% consideration shares issued by Xiaopeng Automobile to Didi)
At the same time, the cooperation between Xiaopeng Automobile and Volkswagen is also being promoted and expanding overseas business. He Xiaopeng revealed during a conference call, "At the end of September, I visited the Wolfsburg headquarters of Volkswagen Group and discussed in depth with Volkswagen's senior management the next steps of comprehensive strategic cooperation projects. I also actively explored more in-depth strategic cooperation opportunities in the international market
After the two major collaborations were reached, the brand morale of Xiaopeng Automobile was boosted. He Xiaopeng stated that the strategic cooperation with Volkswagen in the supply chain is being promoted, and it is expected that the cost reduction of the supply chain will produce significant results next year. In addition, with the full process of cost reduction in design, research and development, and manufacturing, we are confident in accelerating and even surpassing the target of 25% cost reduction by the end of 2024, resulting in a significant increase in gross profit margin next year.
Eliminating 100 direct stores from the bottom to welcome major changes in sales channels
With Tesla's entry into the Chinese market, the direct sales model has become a "standard" for new car manufacturers and has opened up brand awareness in the early stages. However, with the increase in sales and new energy penetration rate, this model has also brought drawbacks such as heavy asset operation and limited sales network coverage. For Xiaopeng Automobile, the cost of building a new store, as well as the rental, labor, and operating costs after completion, have become a burden.
Therefore, channel transformation has become a new choice for Xiaopeng Automobile to increase and reduce costs. From the release of dealer franchise authorization in July this year to the release of channel adjustment measures for the "Jupiter Plan" in early September, Xiaopeng Automobile's sales channel has changed from the original single chain model to a two legged approach of "direct sales+authorized dealers".
It is reported that this channel change was personally initiated by Wang Fengying, who joined Xiaopeng Automobile as the CEO this year. Our sales channel is undergoing a revolutionary transformation under the leadership of Ms. Wang Fengying, the CEO. It will make the entire system more efficient, flexible, and expand faster, "He Xiaopeng told the media.
After adjustment, "In the first three quarters, Xiaopeng Motors has eliminated nearly a hundred direct stores and completed the investment promotion work for over 100 new sales stores in the past two months," He Xiaopeng told the media. According to the financial report, as of September 30th, the number of physical sales networks of Xiaopeng Automobile is 395.
At the same time, considering that the number of models of Xiaopeng Motors will increase significantly by 2025 compared to now, as well as potential changes and competition in the market in the future, Xiaopeng Motors' future channels will face more third and fourth tier regions, forming a combination of "first and second tier+third and fourth tier cities".
According to the plan, Xiaopeng Automobile will continue to accelerate the establishment of new distribution stores, and achieve the deployment of a sales network of 500 stores by the end of this year and early next year.
After a series of changes and adjustments, Xiaopeng Automobile is about to enter a turning point. He Xiaopeng said, "Starting from the third quarter of this year, we have entered a preliminary positive cycle. I believe that the effects of a series of changes starting this year will be more evident in 2024 and beyond, and we will enter a high-speed development positive cycle by the fourth quarter of next year
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