Zeekr is reportedly jumpstarting its stalled plan to list in New York as valuations for its peers rapidly fall.
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As the global war for NEV market share intensifies, the company could get an edge through its joint venture with US-European auto giant Stellantis.
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Nio's partnerships with the country's oil behemoths underscore its ambition to speed up the expansion of its battery swapping network, industry experts said.
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NIO's about-face highlights the plight now facing China's EV makers, as they try to navigate an unexpected turn in the road that analysts say could stretch on for some time to come.
This article by Trevor Mo was first published in The Bamboo Works, which provides news on Chinese companies listed in Hong Kong and the United States, with a strong focus on mid-cap and also pre-IPO companies.
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Key Takeaways:
NIO cut its prices last week, reversing its previous position, in response to slowing sales growth over the past two months after many of its rivals made similar reductions.
Smaller firms could be the most vulnerable if the current EV price war drags on, due to their thinner margins compared to larger peers.
Used to being praised for its cutting-edge electric vehicles (EVs), NIO Inc. (NIO.US; 9866.HK) found itself in unfamiliar terrain last week when it became the target of online sarcasm after announcing it would slash prices for all of its electric vehicles (EVs) by 30,000 yuan ($4,209).
Just two months earlier, CEO William Li had proclaimed he would never join the price war now throttling his sector, saying such blind cuts would only lead to "unhealthy competition".
NIO's about-face highlights the plight now facing China's EV makers, as they try to navigate an unexpected turn in the road that analysts say could stretch on for some time to come. Smaller firms are in the most difficult bind since further cuts will further erode their already thin margins. But refusing to stay in the cutting game risks losing sales to industry heavyweights such as BYD (1211.HK; 002594.SZ) and Tesla (TSLA.US).
We'll look shortly at how the recent price war is affecting China's smaller homegrown EV makers, which also include Li Auto (LI.US; 2015.HK), Leapmotor (9863.HK) and XPeng (XPEV.US; 9868.HK), as well as non-listed peers like WM Motor. But first, we'll shift into reverse to see how the ongoing months-long price war has evolved.
Things began last October when Tesla cut prices for its Model 3 and Model Y by as much as 9 percent, then further slashed prices as much as another 13.5 percent in January.
Those cuts prompted others to follow suit, with XPeng announcing reductions in January for its G3i SUV and P5 and P7 sedans by as much as 13 percent. BYD joined the following month by cutting the price of its 2021 Han EV model by 20,000 yuan in Beijing, and the 2021 Qin EV by 15,000 yuan.
Other brands, from domestic heavyweights like GAIC, SAIC, and FAW, to foreign names like Ford, Volkswagen, BMW, and Toyota, also joined the bloodbath. The cuts followed Beijing's retirement of one of the main government incentive programs for EV purchases at the end of last year, which previously helped to double the sector's sales in 2022.
The price war later spilled into the fossil fuel vehicle sector as well, with automakers rushing to clear inventory before a new set of stringent emissions standards takes effect in July.
As of late March, more than 40 carmakers had gotten sucked into the Chinese price war by offering discounts on electric and gas-powered vehicles, according to local media outlet Yicai, which cited data from third-party consultancy Positioning Pioneers.
As the cutting gained traction, about 20 percent of passenger cars being sold in China came with discounts of 10,000 yuan or more, according to PingWest, another local news outlet, citing data compiled by research group China Auto Market.
Driving consolidation
The price war is already showing signs of driving consolidation in a crowded sector whose growth was fueled in no small part by strong government incentives that are now being rapidly phased out.
As the war drags on, bigger players are increasingly cementing their leading positions, while smaller ones face sluggish sales. In the first four months of this year, three companies – BYD, Tesla and GAC Aion – held a combined 50.1 percent share of the pure-battery EV market, up from 42.7 percent in the same period a year ago, according to the China Passenger Car Association (CPCA). BYD led the trio with 24.9 percent of the market, up 7.4 percentage points year-on-year.
As the big names gained share, many smaller brands moved in the opposite direction. XPeng reflected that group, symbolically dropping off the list of the top 10 EV makers in the first four months of this year.
NIO managed to increase its share by 0.3 percentage points, but its 27.1 percent growth rate in vehicle deliveries during the period was far behind BYD and Tesla, which each recorded more than 60 percent year-on-year growth.
Facing such slowing growth, it comes as little surprise that NIO has finally joined the price war. But it also remains to be seen whether the move will significantly boost its sales.
XPeng's experience suggests otherwise. Its massive price cuts in January failed to lift sales, and the company's total vehicle deliveries actually plunged by 47.3 percent in the first three months of this year.
Another smaller EV startup, Leapmotor, announced similarly dismal results after rolling out its own massive price cuts. The company's vehicle deliveries tumbled by 51.3 percent in the first quarter to 10,509, according to its latest quarterly report.
Not all smaller players have suffered. Li Auto – the last holdout in the intensifying price war – delivered 52,584 vehicles during the first quarter, up 65.8 percent year-on-year. The company also recorded a 933.8 million yuan net profit for the period, making it one of the few EV makers that has been able to operate profitably. Both BYD and Tesla recorded profits during the period, while NIO, XPeng, and Leapmotor all lost money.
The smaller companies' dismal bottom-line performance is reflected in their profit margins that sharply trail their larger peers. NIO, XPeng, and Leapmotor all recorded gross profit margins of less than 2 percent during the first quarter, well behind BYD's 17.9 percent and Tesla's even higher 19.3 percent for its EV business.
That brings us back to the dilemma now confronting smaller firms that will find it increasingly difficult to wage a prolonged price war that sucks up their dwindling cash hordes, with skeptical investors unlikely to provide fresh funds.
NIO's cash fell to 37.8 billion yuan by the end of March from 45.5 billion three months earlier, while XPeng's fell to 34 billion yuan from 38 billion yuan over the same period. Those declines are likely to continue, or even accelerate if the price war continues.
The war has already left a number of the smallest major EV makers teetering on the brink of insolvency. One of those is WM Motor, a former highflyer that is currently facing a financial crunch that saw it reportedly slash salaries and implement mass layoffs late last year and into 2023. Data from the CPCA showed that WM Motor sold just 457 vehicles in the first two months of 2023, down 92.4 percent from the year-ago period.
BREAKING: NIO cuts starting prices by $4,200 for all models and makes battery swap benefits optional
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XPeng forecast its deliveries would drop about 46% in the first quarter, but expects to rebound in the second half with a steady stream of new product launches. | XPeng US | XPeng HK
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This article by Trevor Mo was first published in The Bamboo Works, which provides news on Chinese companies listed in Hong Kong and the United States, with a strong focus on mid-cap and also pre-IPO companies.
Key Takeaways:
Last year was a tough one for former electric vehicle (EV) highflyer XPeng Inc. (XPEV.US, 9868.HK), which stumbled badly in the second half of the year on a series of major missteps. But investors seem to be buying into the company's newly detailed comeback story, driving up its valuation ratios past its top two rivals in the days after its latest results announcement.
Only time will tell if the rally is justified, following a dismal 2022 that XPeng would probably rather forget. In the race for buyers in China's ultra-competitive electric vehicle (EV) market, XPeng spent last year falling further behind its two main rivals, Li Auto (LI.US; 2015.HK) and NIO (NIO.US; 9866.HK), as its losses also ballooned.
XPeng's revenue rose by a modest 28% to 27 billion yuan ($3.9 billion) for all 2022, according to its latest earnings report issued earlier this month. Its vehicle deliveries for the year rose by a similar 23% to 120,757 units, slowing sharply from the triple-digit growth in the previous two years. The company's net loss nearly doubled to 9 billion yuan, despite a drop in both sales and marketing and R&D expenses.
The annual slowdown covered up fourth-quarter results that looked far worse as the company rapidly lost momentum in the second half of the year. Its revenue fell 40% year-on-year during the quarter to 5.14 billion yuan, as its vehicle sales tumbled by an even larger 47%.
XPeng's vehicle deliveries for the year put it behind Li Auto and NIO, which delivered 133,246 and 122,486 units in 2022, respectively, according to their latest annual reports. XPeng fell to third in the race among that trio, all venture-funded startups, after leading the other two in 2021 with 98,155 EV deliveries, versus 90,500 for Li Auto and 91,400 for NIO.
XPeng's reversal of fortune owed to a series of missteps. The biggest was a sort of “identity crisis” for its flagship product, its midsize G9 SUV, which launched last September. The G9 was sold as a series with a range of prices from as little as 309,900 yuan to as much as 469,999 yuan, based on different configurations, such as driving range and software capability.
Such a strategy was meant to impress customers by offering a wide range of options. But it failed to make a splash, and the G9 sold a dismal 6,189 units in the final quarter of last year – a far cry from the 35,000 units XPeng had aimed to deliver by the end of 2022.
XPeng is grappling with a lack of consistency in its marketing strategy, said Wang Cun, an analyst with the China Automobile Dealers Association (CADA). "Its G9 models seek to target high-end customers with two of its largest competitors – NIO and Li Auto – in mind. But it definitely has yet to build up a high-end brand awareness among customers," said Wang.
Comeback brewing?
Despite the poor performance, investors greeted XPeng's latest earnings with enthusiasm. The company's shares ended up 6% the day of the announcement, and continued gaining in the following days. Its Hong Kong close of HK$9.62 last Friday was 15% higher than where it traded before its earnings release on March 17.
That rally lifted XPeng's shares to a price to sales (P/S) ratio to just over 4 times, ahead of NIO and Li Auto, at 2 and 3.37 times, respectively. Investors may have been encouraged by XPeng Chairman and CEO He Xiaopeng's positive outlook for 2023 after the difficulties in 2022.
"I believe XPeng is approaching an inflection point," said He, predicting a comeback for the company this year. "As we have clearly identified what our goals are and what our strengths and weaknesses are, we're now building recovery momentum in our sales and market share expansion."
He said XPeng had implemented a series of strategy adjustments to help regain its previous momentum. Central to that is an ongoing company restructuring, which began last October after the disappointing G9 rollout.
The restructuring aims to give XPeng a "flatter and more concentrated structure," He said, using a term that often implies layoffs through elimination of middle-management jobs.
But even if it can create a leaner, more efficient company, XPeng's road to recovery will be pocked with obstacles created by external market factors.
Most notably, China's EV market has started to slow considerably after several years of rapid expansion. New-energy vehicle (NEV) sales in China reached 933,000 units in the first two months this year.
That was up just 20.8% year-on-year, marking a sharp slowdown from a near doubling in sales for all of last year, after the expiration of national subsidies for NEV purchases at the end of 2022, according to the latest data from China Association of Automobile Manufactures.
The sharp slowdown touched off a price war that has rapidly heated up. It started with price cuts by Tesla (TSLA.US) late last year, which were quickly followed by nearly all major brands in China. Analysts have warned the price war could spark a long-anticipated consolidation in the Chinese EV industry, wiping out less competitive and smaller players.
XPeng hasn't been spared from the price war's effects, announcing discounts of up to 36,000 yuan for some of its models in late January. But those cuts have yet to translate to greater sales.
The company expects its vehicle deliveries to plummet 45% to 47.9% year-on-year during the current quarter to around 18,000 to 19,000 units, similar to the fourth-quarter decline rate, He said.
He added XPeng expects its deliveries to gradually pick up in the second half of the year with its launch of new models. Among those, the P7i – a new generation sedan to complement its earlier P7 model – started delivery this month. The company will also start shipping a G6 compact SUV in June, and a seven-seat multipurpose vehicle in the second half of the year.
CADA's Wang believes XPeng could stand a chance of catching its rivals, but only if it moves swiftly to rectify some of its missteps. Despite the difficult road ahead, Wang said XPeng is in a relatively good position to survive the current price war, with over 38 billion yuan in cash and short-term investments at the end of 2022.
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