Chinese EV maker Xpeng expects cost cuts, Volkswagen deal to narrow losses

Xpeng expects outgo cuts and its Volkswagen concern to constrictive the firm's losses, the Chinese EV shaper told CNBC successful an exclusive interrogation connected Monday.

On Friday, the steadfast logged its biggest quarterly loss since its U.S. listing successful August 2020. Its second-quarter nett nonaccomplishment was 2.8 cardinal yuan, larger than the 2.13 cardinal yuan nonaccomplishment expected according to a Refinitiv statement estimate. Its U.S.-listed shares closed 4.28% little connected Friday. On Monday afternoon, Xpeng's Hong Kong-listed shares were trading much than 2% higher.

Xpeng's second-quarter deliveries totaled 23,205, a 32.58% driblet from 34,422 deliveries successful the aforesaid play a twelvemonth ago.

On Friday, CEO He Xiaopeng said the institution is cutting costs crossed the concern and that should "substantially thrust gross borderline betterment successful 2024."

In April, Bloomberg reported the institution was readying to trim manufacturing costs, including redeeming 50% connected intelligent driving features by the extremity of 2024.

"From an disbursal perspective, we went done a precise important concern reorganization arsenic good arsenic changes that we person made. We commencement to spot the regaining of the maturation momentum that we person successful our business," Brian Gu, vice president and co-president of Xpeng, told CNBC's "Street Signs Asia" connected Monday.

Xpeng is attempting to revive its concern this year, aft its stock terms sank by much than 80% successful 2022. The steadfast struggled with a pugnacious macroeconomic situation successful China and a terms warfare among home rivals and Tesla, which slashed the prices of its Model Y and Model S past week.

"The request broadside really remains beauteous robust. I deliberation it continues to turn contempt the economical backdrop. But the aforesaid time, the contention has intensified successful the archetypal half, with much players launching much caller models and being precise assertive connected terms competition," said Gu.

"In bid to summation amended profitability, we besides person endeavor to walk a batch of clip connected outgo cutting. Later adjacent year, we expect our full conveyance BOM [bill of materials] costs to beryllium reduced by up to 25%. That volition springiness america a large instrumentality to summation profitability arsenic well," said Gu.

In automotive manufacturing, BOMs database each the parts required to physique a vehicle, specified arsenic an engine, brakes, seats and dashboards.

BofA Securities said successful a study Monday that it expects Xpeng's practice with Volkswagen to "improve its fiscal presumption and apt heighten its proviso concatenation management."

BofA upgraded Xpeng from "neutral" to "buy" astatine $22 per share, up from its erstwhile terms people of $16.30 per share.

In precocious July, Germany's Volkswagen Group said it is injecting astir $700 cardinal successful Xpeng and taking a 4.99% involvement successful the company.

The concern volition spot some companies co-developing 2 caller EVs that volition incorporated Xpeng's precocious driver-assist bundle for the Chinese marketplace with a rollout people for 2026.

Global and section automakers are promoting precocious tech to vie successful China — the world’s largest EV market. BofA Securities successful a May study said it expects China to clasp 40%-45% marketplace stock successful 2025.

"With the Volkswagen agreement, we besides expect meaningful publication to our bottommost enactment starting adjacent year. So that's besides different instrumentality we tin usage to summation our profitability," said Gu.

In summation to planned caller models, Xpeng has "updated versions of existent models" acceptable to beryllium launched adjacent year, said Gu.

"We expect those caller models volition transportation much favorable gross margins which besides volition assistance our profitability and merchandise mix," said Gu.

The steadfast expects its latest exemplary — the G6 Ultra Smart Coupe SUV, which was launched astatine the extremity of the 2nd 4th — to boost margins.

"We spot an improving merchandise premix and a stronger outgo power improving its gross nett borderline successful 2024-2025E. We expect its caller exemplary pipeline successful 2nd fractional of 2023 to 2025 to amended its income measurement growth," said BofA Securities.

— CNBC's Michael Bloom contributed to this report.