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XPeng (NYSE: XPEV)
Q4 2023 Earnings Call
Mar 19, 2024, 8:00 a.m. ET

Delving into the Discussion

• Opening Statements
• Q&A Session
• Key Participants

Opening Statements:

Facilitator

Greetings, esteemed guests. Your unwavering presence for XPeng Inc.’s fourth-quarter and fiscal year 2023 earnings call is greatly appreciated. All attendees are currently in a receptive mode, awaiting insights from the company’s management team. Subsequent to their remarks, an interactive question-and-answer period will ensue.

Today’s discourse is being meticulously documented. I now transfer the baton to our host, Mr. Alex Xie, the adept head of investor relations. Please proceed, Alex.

Alex Xie — Head of Investor Relations

Greetings, one and all. Welcome to XPeng’s thrilling fourth-quarter and fiscal year 2023 earnings call. Our fiscal and operational outcomes were disseminated earlier today via newswire services and are accessible online. The earnings press release is also retrievable from the IR enclave on our official website at ir.xiaopeng.com.

Engaged in today’s session from our leadership contingent will be our co-founder, chairman, and CEO, Mr. He Xiaopeng; vice chairman and president, Dr. Brian Gu; vice president of corporate finance, investments, Mr. Charles Zhang; vice president of finance accounting, Mr. James Wu; and myself. The proceedings will kick off with prepared insights and culminate in an engaging Q&A segment. A replay of this event will be viewable on our website’s IR department. A quick reminder that today’s deliberations may feature forward-looking statements in compliance with the U.S. Private Securities Litigation Reform Act of 1995.

Anticipate deviations between expressed views and the company’s tangible results as per the inherent uncertainties regarding forward-looking statements. Additional risks and uncertainties are stipulated in the company’s public filings with the U.S. Securities and Exchange Commission. Finally, the earnings press release and this call may contain unaudited GAAP and non-GAAP financial parameters, with a reconciliation in the earnings press release.

I now pass the mic to our co-founder, chairman, and CEO, Mr. He Xiaopeng. The floor is yours.

Xiaopeng He — Co-Founder, Chairman, and Chief Executive Officer

[Foreign language] Greetings, esteemed audience. I am delighted to relay the exhilarating journey of our escalating delivery volume through each quarter of 2023, reaching beyond 60,000 units in Q4, a 171% surge year over year. This monumental feat is a testament to our proactive overhaul of business strategies and organizational structures alongside novel product launches. In aggregate, 140,000 units found their way to customers in 2023. Our concerted focus on platform-centric R&D, technology-induced cost reductions, and operational enhancements is yielding fruitful outcomes.

Q4 saw our gross margin climb to 6.2%, with a 10% vehicle margin escalation from the preceding quarter. The second half of 2023 witnessed a positive free cash flow exceeding RMB 6 billion and marked the inception of a positive full-year operating cash flow. As of end-2023, a robust cash reserve of over RMB 45 billion fortifies our financial stance for premium growth in a fiercely competitive domain. This, I dare say, is the tip of the iceberg, with more enhancements and triumphs awaiting us in 2024.

[Foreign language] 2024 heralds our decade of founding commemoration and ushers in a year rife with cutthroat competition in China’s auto industry. The outset of the year witnessed an industry-wide pricing skirmish, escalating by the day. Against this backdrop, several EV startups have shuttered operations while illustrious tech entities have bid adieu to auto ventures. These dynamics underscore intensified competition for smart EVs amid heightened price wars, prompting recalibrations across several strategic domains.

We’ve fortified our organizational framework and operational efficiency across the board. The caliber of our operations and end-to-end customer experience has significantly advanced. Cognizant of the impending larger scale, our prowess in products, technologies, and supply chains has undergone radical enhancement. Sales and service competencies across China and global markets have been bolstered.

Accessible and budget-friendly full-scenario ADAS in autonomous driving has been realized. Global expansion has been fast-tracked. In essence, our gaze stretches beyond near-term gains, underpinning a long-term orientation fortified by boundless growth forecasts. As we craft strategies for the EV showdown’s climax, an array of strategic vistas excite me.

Organizational realignments are bearing fruit as new product cycles await. Over 10 vehicle models are set to launch in the next three years, including variants tailored for international markets. Leveraging modularity and R&D efficiency sector is contained. AI propels our autonomous driving odyssey, enabling broader model deployment at lower costs. International forays illuminate fresh growth channels. [Foreign language] Future competition transcends short-term market share wins, spotlighting an automaker’s mettle in sustaining leadership through enduring leadership.

XPeng: Driving Innovation and Expansion in the Smart Technology Market

Revolutionizing Marketing Strategies

The automotive landscape is a battleground, with technological prowess and market dominance as the ultimate prizes. XPeng, a trailblazer in smart technology, knows this all too well. To seize strategic opportunities and thrive in a competitive arena, the company is doubling down on innovation and addressing organizational inefficiencies.

Shifting away from traditional automobile marketing methods, XPeng is embracing decentralized social media platforms to amplify its reach. By tapping into user-generated content and galvanizing its customer base, the company successfully spread its brand’s reputation like wildfire, reaching far beyond tier-one cities to captivate a national audience.

Strategic Sales Expansion

While navigating the choppy waters of restructuring its sales channel network, XPeng faced challenges but emerged stronger for it. Strategic closures of underperforming stores and partnerships with strong franchisees through the Jupiter Projects injected new life into the company’s sales strategy.

As XPeng sets its sights on expanding its presence in low-tier cities, the company aims to increase its sales network to a staggering 600 stores by the third quarter of 2024. With a laser focus on enhancing customer experience and accelerating deliveries through an innovative franchise model, XPeng is poised for exponential growth.

Innovation in Product Development

At the heart of XPeng’s success lies its unwavering commitment to product innovation. By amalgamating smart technologies, powertrains, and vehicle platforms into a comprehensive intelligent platform, the company ensures maximum compatibility and fosters cost reduction through economies of scale.

The launch of game-changing models like the X9, a versatile vehicle appealing to a broad customer base, catapulted XPeng to new heights. Witnessing unprecedented success with the X9 becoming the best-selling model in its category within months, XPeng solidified its reputation as a leader in autonomous driving technology.

Pioneering AI-Powered Smart Cars

Looking ahead to the future’s horizon, XPeng places its bets on AI-powered smart EV technology as the cornerstone of its growth. By spearheading the development of AI-enabled ADAS and AI-defined cars, the company is at the vanguard of the impending shift towards smart EVs in the automotive industry.

Firmly committed to promoting equity and inclusivity in autonomous driving, XPeng aims to democratize cutting-edge technology and make it accessible to a broader audience. Through strategic investments in AI, talent acquisition, and technological advancements, XPeng is charting a course towards a future where innovation reigns supreme.

In a volatile and rapidly evolving market, XPeng’s relentless drive for innovation and expansion sets it apart as a beacon of hope in the sea of automotive giants.

XPeng’s Road to Success: Driving Towards Global Expansion and Financial Excellence

Xiaopeng He — Chairman and Chief Executive Officer

Millions of miles traveled, numerous challenges faced, XPeng Motors, a prominent name in the smart electric vehicle (EV) industry, continues its journey towards excellence. The company’s advanced XNGP assisted-driving experience has been making waves, with highways experiencing a robust 67% utilization rate and urban areas following closely at 49%. To elevate this experience even further, XPeng eyes a pivotal move: benchmarking it against Waymo’s robotaxi service in the urban sprawl of San Francisco.

Driving Innovation and Cost-Efficiency

As XPeng’s ADAS technology gears up for a transformative phase, cost optimization takes the driver’s seat. The company targets a 50% reduction in XNGP-related hardware costs by unveiling a cutting-edge model set for a grand launch in the latter half of this year. With these enhancements, XPeng aims to enhance the competitiveness of its smart EVs, making them more appealing for tech-savvy consumers worldwide.

Accelerating Global Expansion

Adapting to the ever-changing automotive landscape, XPeng is eyeing a global conquest. Riding on the rising popularity of electric vehicles (EVs) worldwide, the company plans to rev up its overseas business expansion significantly by 2024. Recent forays into Northern Europe have been met with resounding success, with the XPeng G9 emerging as a top-seller in the mid to large BEV SUV category.

Strategic Alliances and Financial Milestones

Strategic seeds sown with the Volkswagen Group are starting to bloom bright for XPeng. With a robust collaboration in platform and software services, XPeng foresees these services contributing significantly to its financial results by 2024. This alliance not only strengthens XPeng’s footing in the industry but also promises a harmonious relationship of mutual benefits and shared strengths.

Operational Adaptations for Future Growth

Ever-evolving and adaptive, XPeng initiated a transformative wave to enhance its competitiveness. Marketing strategies have been fine-tuned, underperforming stores phased out, and the supply chain optimized for rapid product launches. Despite facing intensified competition, XPeng remains resilient, expecting a notable jump in vehicle deliveries in the near future.

A Financial Deep Dive

Delving into the financial realms, VP of Finance James Wu unveils the fourth quarter’s performance for 2023. With a staggering year-over-year revenue growth of 153.9% and a quarter-over-quarter surge of 53%, XPeng’s financial trajectory is on a steep incline. Despite operational costs impacting margins, XPeng’s strategic investments and collaborations are fortifying its financial position, ensuring sustainable growth in the long run.

Unveiling XPeng’s Strategic Roadmap and Addressing Investor Inquiries

Insights on XPeng’s Product Strategy

Renowned analyst Tim Hsiao from Morgan Stanley inquired about XPeng’s rigorous product launch schedule and the potential risk of cannibalization. He touched on a pressing issue faced by automakers – the decline in sales of existing models upon the introduction of new ones.

Xiaopeng He, the visionary Co-Founder, Chairman, and Chief Executive Officer of XPeng, elaborated on the meticulous planning that goes into product development. He emphasized the criticality of futuristic planning in the automotive realm. He highlighted the streamlining of operations, supply chain optimizations, and meticulous preparation that XPeng has undertaken over the last 12 to 18 months. The company aims to bolster efficiency and quality while balancing short-term gains with long-term strategies.

Xiaopeng He, in response to the second part of the question, disclosed XPeng’s XNGP process devised to prevent cannibalization by ensuring distinct product positioning.

Strategic Competence in the Face of Competition

Analyzing competition, Tim Hsiao of Morgan Stanley probed XPeng on its approach to combatting price wars and enhancing sales amidst fierce rivalry.

Xiaopeng He proffered a multifaceted response underlining the importance of a solid foundation, innovation, and prioritization of quality over scale. He acknowledged the role of marketing, sales, service capabilities, and product functionality at both macro and micro levels. The termination of underperforming dealers underscored XPeng’s commitment to enhancing sales and service efficiency.

Evaluating Collaborative Ventures

Ming Hsun Lee from Bank of America delved into XPeng’s collaboration with Volkswagen, seeking quantifiable insights on cost-saving measures through joint component procurements. This partnership reflects a strategic move by XPeng to leverage synergies and optimize resources.

These probing inquiries reflect investors’ keen interest in XPeng’s growth trajectory and operational intricacies. The responses provided a glimpse into XPeng’s meticulous planning, competitive resilience, and collaborative ventures driving the company’s strategic evolution in the dynamic automotive landscape.

XPeng’s Strategic Developments Fuel Optimism Among Investors

Gear Up for Growth

XPeng, the dynamic force behind cutting-edge platforms and software services, recently announced a groundbreaking Master Agreement with their collaborative G9 platform. This strategic pact promises vast potential for the projects in the pipeline, propelling their trajectory to new heights.

Moreover, XPeng has ventured into a joint procurement program with Volkswagen, signifying a noteworthy level of platform and component integration. By leveraging Volkswagen’s stellar supply chain prowess, XPeng anticipates significant cost optimizations and aims to swiftly elevate their cost structure to meet market competitiveness.

As the joint sourcing program unfolds, initial positive outcomes are already materializing, foreshadowing a promising partnership that could enhance profitability and fortify XPeng’s market position.

Monumental MONA Project

Excitement ripples through XPeng as they gear up for the imminent launch of the MONA sub-brand, hailed as a potential game-changer in its category. Crafted with a blend of top-tier design and innovative smart functionalities, XPeng’s MONA product is poised to stand out from the crowd.

The strategic positioning of MONA encompasses a dual-channel marketing approach, initially targeting the 2C channel to establish itself as a premium offering before delving into distribution via the 2B channel.

As the MONA project unfolds, XPeng’s meticulous plans for continuous product enhancement promise a bright trajectory ahead. Stay tuned for the official launch event, where all the captivating features and capabilities of MONA will be unveiled to the eager audience.

Robust Growth Projections

Looking ahead to 2024, XPeng remains optimistic about the potential for substantial growth, driven by a robust product lineup and strategic launch schedule. The company aims to surpass market growth rates and capture significant market share, buoyed by an upward trajectory in sales performance.

While discretion is exercised in providing specific delivery numbers, XPeng’s focus on enhancing sales and marketing channels alongside new product launches bodes well for a prosperous year. With MONA’s impending entry into the market, expectations are high for capturing sizable sales volumes in the competitive A-class segment.

Internationally, XPeng’s expansion initiatives are set to bear fruit with significant sales volume anticipated from new markets. The company eyes a surge in deliveries from international sales, signaling a strong growth momentum on the global front.

Driving Technological Excellence

Amidst discussions of technological leadership in autonomous driving, XPeng upholds its position as an industry frontrunner. In a landscape where competition intensifies, XPeng remains committed to iterating and advancing their autonomous driving capabilities.

Collaborating with tech giant Huawei, XPeng recognizes the distinctive advantages that each entity brings to the table. With a strong emphasis on brand development and marketing, XPeng has honed its focus on autonomous driving prowess, laying the groundwork for sustained innovation and differentiation in this critical domain.

The Future of XPeng: Insights into Innovation and Expansion

An Exciting Road Ahead for Autonomous Driving at XPeng

In the dynamic landscape of the automotive industry, the pursuit of excellence in innovation is akin to a high-speed race toward the future. XPeng, a key player in this race, is placing a strategic focus on autonomous driving technology. The recent dialogue with XPeng executives unveils a compelling narrative of ambition and foresight.

Strategic Expansion and Market Penetration

Discussing the core aspects that drive consumer interest in an automobile, XPeng executives highlighted the critical importance of functionality, safety, and affordability. However, they also emphasize the broad scope for expansion into international markets, a move aimed at bolstering revenue streams and profitability.

Autonomous Driving in China: A Growth Opportunity

China emerges as a pivotal arena for autonomous driving technologies, fueling a collective enthusiasm among the populace. While acknowledging a nascent public demand for autonomy, XPeng commits to ramping up efforts in the next eighteen months, eyeing a transformative shift in the landscape.

The Unique Identity of XPeng in the Automotive Sector

XPeng’s CEO underlines the company’s distinct identity, highlighting specialization in vehicles and the prowess in autonomous driving. Positioned as a stalwart in the domain, XPeng’s strategic differentiation sets a compelling tone for its future trajectory.

Insightful Queries and Strategic Responses

Unveiling a New Brand: Strategic Channel Expansion

A foray into a new brand prompts questions on sales channels and gross margin levels. XPeng plans to integrate the new brand within existing stores while envisioning dedicated outlets in the future. The finance VP shares insights, projecting healthy margins while hinting at a robust commercialization strategy.

Supply Chain Challenges and Strategic Resilience

Challenges in the supply chain, as seen with the X9 model, prompt reflections on mitigation strategies. XPeng’s proactive approach involves optimizing supplier networks, fostering long-term partnerships, and streamlining product modules for enhanced efficiency and quality assurance.

Accelerating Towards Autonomous Driving: XPeng’s Projections

XPeng’s trajectory towards full autonomous driving in China gains momentum, with an optimistic outlook for surpassing projections. The company’s focus on ADAS systems and innovative testing methodologies underscores a commitment to pioneering advancements in smart autonomous driving.

Closing Remarks: Shaping a Bright Future in Automotive Innovation

The dialogue with XPeng executives unveils a roadmap teeming with strategic insights and a vision for transformative growth. Anchored by a commitment to innovation and consumer-centric approaches, XPeng’s journey in the automotive realm paints a picture of resilience, foresight, and unwavering ambition.

XPeng Optimizing ADAS with Advanced Computing Power

Ramping Up Computing Power for Enhanced Performance

XPeng, in its relentless pursuit of excellence, aims to bring down costs while fortifying its systems on a grand scale. The company envisions a future where the Advanced Driver-Assistance Systems (ADAS) sector sees a significant reduction in expenses. In the competitive landscape, XPeng acknowledges the presence of more economical solutions offered by others.

Harnessing Large Models for Breakthroughs in Vehicle Technology

The utilization of large models, with their superior computing power and robust central processing units (CPUs), holds great promise for accelerating the development and enhancing the performance of XPeng’s vehicles. These technological advancements are poised to expedite success in the market, especially in scenarios characterized by limitations, ultimately driving the realization of fully autonomous driving at a faster pace. XPeng places unwavering confidence in these advancements.

The Impact of Non-HD Maps on ADAS Advancements

XPeng recognizes the accelerated growth trajectory facilitated by non-high definition (HD) maps in the realm of autonomous driving technology. Contrary to initial expectations of a linear progression, the integration of non-HD maps has propelled progress at an astonishing rate. The company firmly believes that leveraging this data and observing its practical implications will synergize with the large model technology, furthering the development of ADAS in the autonomous driving space.

Closing Remarks

As the conference call draws to a close, XPeng’s commitment to innovation and technological advancement shines through. The valuable insights shared by the participants underscore the company’s dedication to optimizing ADAS through cutting-edge computing power and strategic collaborations.

Alex Xie — Head of Investor Relations

Xiaopeng He — Co-Founder, Chairman, and Chief Executive Officer

James Wu — Vice President, Finance and Accounting

Tim Hsiao — Morgan Stanley — Analyst

Ming Lee — Bank of America Merrill Lynch — Analyst

Charles Zhang — Vice President, Corporate Finance and Investment

Brian Gu — Vice Chairman and President

Ben Wang — Deutsche Bank — Analyst

Tina Hou — Goldman Sachs — Analyst

Xinchi Yin — Citic Securities — Analyst

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