Chinese EV upstart Xpeng pushes back profit goal after horror year

Chinese electric vehicle maker Xpeng has pushed back its profit goal until 2025, after a horror year in which its shares plunged 80% and it delivered less than half its annual sales target.

Having previously aimed to break even by late 2023 or early 2024, the Guangzhou-based carmaker now expects to turn an operating profit in 2025, CEO He Xiaopeng told Bloomberg News.

To achieve that goal, He is making a bold bet on full self driving, a technology even Elon Musk’s electric car pioneer Tesla hasn’t been able to perfect despite years of work. He is aiming to snare at least 20% of what he calls the “all-intelligent vehicle” market, referring to cars “infinitely close to Level 4 autonomous driving” where the vehicle can handle complex urban situations. At Level 4, while a human driver can take control of the car, they’d also be able to, in theory, nap while riding in the vehicle.

While no mass-produced passenger cars currently available meet that definition, He said rapid developments in technology will see the market grow to around five million vehicles a year in five years. Grabbing a fifth of the market would require Xpeng to make one million cars a year, vastly more than the 120,757 it shipped in 2022 — which also fell well short of its 250,000 target.

“Our top priority now is scale,” He said in an interview at Xpeng’s Guangzhou headquarters, adding it may not be possible for a “small but beautiful” carmaker with revenue of less than 100 billion yuan (roughly R258bn) to survive in China in five years’ time. Xpeng hasn’t reported full-year results yet, but posted revenue of just 21.7 billion yuan for the first three quarters of 2022.

Xpeng was one of the hardest hit carmakers during China’s Covid-19 restrictions and lockdowns last year because its only factory and many key suppliers are based around Guangdong province and Shanghai, two areas that were most affected by the curbs. Guangzhou is the capital of Guangdong.

The company has also been caught in a price war triggered by Tesla, earlier this month slashing the prices of some models by as much as 12.5%.

All that sent Xpeng’s US-listed shares tumbling in 2022. Once valued at almost $50bn (roughly R871.5bn) — or more than US giant Ford at the time — the company’s market value has plunged to just $8.7bn (roughly R151.6bn).

As part of its planned comeback, Xpeng is restructuring the company’s management team, improving its planning capability and making operations more client focused, He said. The carmaker will also simplify its product offering. While it has only four models, Xpeng was criticised for its confusing array of electric motor, battery, software, and interior configurations within each model. The number of suppliers will also be reduced, He said.

When its latest model, the G9 sports utility vehicle, went on sale in September, Xpeng came under fire for its complicated configuration and pricing system, for example. It had six variants based on the type of motors, the driving range and some intelligent features, along with more optional features customers needed to pay for, such as the music system, autonomous driving features and fast charging batteries, and was forced to revamp the strategy in just two days.

“I myself will play a stronger role and do more,” said He, adding it may take a few years for an organisational restructure that started at the end of last year to pay dividends. As part of the changes, the company will streamline its design and manufacturing to three platforms to improve efficiency and control costs. Some executives have also been redeployed, including co-founder Xia Heng, who stepped down as executive director. Xpeng added a new president Monday — Wang Fengying, a female executive who’s an industry veteran having worked at Great Wall Motor Co. for more than 30 years.

It remains to be seen whether Xpeng can strengthen its relationship with suppliers given its worse-than-expected performance last year and potential challenges this year, said Wang Hanyang, an auto analyst at Shanghai-based 86Research. Suppliers may not be fully co-operative with Xpeng’s planned production expansion if they can’t be certain the goals will be met, he said.

“The company is probably experiencing its hardest time now and it still remains a question whether it can win customers back,” Wang said.

To help control costs and concentrate on core products, Xpeng won’t seek to develop its own battery cells like rival Nio is doing and BYD has done, a move that had previously been under discussion, He said. Rather, he will leave it to battery makers to compete on cost and effectiveness.

The battery supply issue, which has troubled the EV industry for the past year, will “not simply be eased, but won’t be a problem” in the next five years, He said.

As part of its push into autonomous driving, a key task for the second half of this year will be to develop a version of self driving that doesn’t rely on high-definition maps and expand that into 50 to 100 cities, He said. From 2024, the company aims to upgrade its intelligent systems to not only drive the car, but also learn the driving habits of owners and make automatic adjustments.

“You will feel very comfortable because you like the driving logic and mode that copies yourself,” He said. All vehicles will eventually be equipped with full autonomous driving technology as standard and in the long run, these intelligent features may become a main profit source for the company, he added.

Still, the commercialisation of self driving will need accommodating policies and regulations, as well as the public to accept the technology, vice-chair Brian Gu said in the same interview. It will also take longer for the international market to be compatible with the full autonomous driving system Xpeng is developing, Gu said. Xpeng recently opened four showrooms in Europe after its initial entry into Norway in 2020.

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