XPeng Inc.
Company
Profile
Management
Team
Business
Model
Products
& Innovations
Distribution
Manufacturing
Valuation
Company Profile
Xpeng is a leading smart electric vehicle company which began its
operation in 2015. It is a Cayman Islands holding company. According to
the People's Republic of China (PRC) laws and regulations, the provision of
value-added telecommunication service in the PRC is subject to foreign
restriction and licenses requirements. Therefore, the Group’s operations are
mainly conducted by its subsidiaries in China and through contractual
arrangements with the Group VIEs.
·
(Guangzhou) Zhipeng IoV Technology Co.,
Ltd.
Primary business: development and operation of an Internet
of Vehicles (IoV) network involving the Xpeng App
·
(Guangzhou) Yidian Zhihui Chuxing
Techonology Co., Ltd
Main business:
provision of online-hailing services through online platform including
the Youpeng Chuxing App
·
(Guangzhou) Xintu Technology Technology Co., Ltd
and its 100% owned subsidiary, Jiangsu Zhipeng Kongjian Information
Techonology Co, Ltd or Zhipeng Kongjian
Primary business of
Zhipeng Kongjian: operation of land surface mobile surveying,
preparation of true three-dimensional maps and navigation electronic
maps
Figure 1 Equity structure of VIEs of Xpeng Inc.
Management Team
Mr. Xiaopeng He (born in 1977) is Principal Shareholder of Xpeng Inc, Chairman of the Board and Chief Executive Officer. In 2004, he co-founded UCWeb as a mobile browser maker at the beginning. In 2014, It was acquired by Alibaba Group for RMB 30 billion. After the acquisition, Mr. He worked several years as senior executive of Alibaba Mobile Business Division for Alibaba. In 2017, he resigned and joined Xpeng as chairman.
My opinion: Being a billionaire at a very young age and starting EV manufacture sounds very familiar 😊 Mr. He is also developing flying vehicle. The newest model Xiaopeng Huitian X2 was displayed last year. X2 is a pure electric autonomous flying car made of 100% carbon fibre. It costs around RMB 1 million. If you are interested, you can watch the video her. Always chasing his dreams, sounds also very familiar 😊 At the beginning of June this year, Mr. He showed a short video (her) about his flying experience with X2. It flied as high as 20 meters with a speed of 5 m/s. Mr. He is determined and also very energetic pursuing innovations. I think Xpeng will become more and more competitive under his ‘reign’.
Business
Model
The primary source of Xpengs revenue is vehicles sales.
Xpeng also offers software and services which contribute to increase customer
engagement, maximize customer lifetime value and improve margins.
EVs of XPeng is differentiated from its competitors by attractive
design, high performance, smart technology functions and proven safety and
reliability.
My opinion: These features are superior to the
traditional vehicles but they are common features for the new EV companies. The
more detailed comparisons for the EVs from the different companies are
presented in the separate post.
Products and Innovations
Xpeng vehicles are attractive to middle-class consumers in China. It primarily
targets the mid- to high- end segment in Chinas passenger vehicle market with
prices ranging from RBM 150k -400k.
The current selling models:
Ø P7 (sports sedan) with a price range
of RMB 239.9k – 429.9k
Ø P5 (family sedan) with a
price range of RMB 177.9k -249.9k
Ø G3i
(compact SUV) with a price range of RMB 168.9k -201.9k
The coming models:
Ø G9 (SUV) in June 2022 with a price
around RMB 400,000k.
Ø Two more new expensive models will
be launched next year.
Figure 2 Smart EV roadmap of Xpeng
Inc.
Source: Annual and Transition
Report (foreign private issuer) 20-F.
Advanced driver assistance
systems (ADAS) Software
ADAS are designed to assist drivers in driving and parking functions. XPILOT is Xpengs proprietary ADAS which is designed for driving behavior and road conditions in China.
Figure 3 Navigation guided pilot (NGP)
Xpengs proprietary algorithms for
XPLIOT contains:
Ø Localization
and high definition map fusion
Ø Perception
algorithm and sensor fusion
Ø Behavior
planning, motion planning and control
Equipment for ADAS
There are generally three artificial recognition approaches:
Ø Pure
Vision Recognition – camera-based vision alone
Ø RADAR
(Radio detection and ranging) – based on radio waves
Ø LiDAR
(Light detection and ranging) – based on laser
Elon Musk (2019) said lidar is a fool’s errand and anyone replying on Lidar is doomed. He meant expensive sensors are unnecessary. For Musk, LiDAR is merely a crutch. Currently, Teslas cars with LiDAR have been spotted on the roads. Tesla is likely using LiDAR to help train their machine learning algorithms, using it as the ground truth when checking for accuracy. It implies that Lidar does provide more accuracy compared with radar and camera.
Cost:
Ø An automotive Lidar sensor: above $1,000 per car.
Ø A radar sensor: $50 -$200.
Ø The best consumer dash cameras tend to be within a price range of $60 -$150. It can be as cheap as $30.
Powertrain
Powertrain is In-house research
and development. Xpeng EVs powertrain consists of the battery system, electric
drive system, high voltage system, vehicle control unit (VCU).
Xpeng utilizes Lithium Nickel
Manganeses Cobalt Oxide (NCM), cells and LFP cells for their batteries.
Charging solutions
Xpeng vehicles can be charged
through either of the following ways:
Ø Charge
their EVs by home chargers
Ø Xpeng-branded super charging stations (772 Xpeng-branded super charging stations, covering 308 cities in China as of December 31, 2021)
Ø Third-party charging piles
Distribution
Xpeng utilizes an omni-channel sales model to achieve a
consistent brand image, customer experience and price across all channels.
Physical stores are operated by either Xpeng directly or franchising. With the franchise model, Xpeng is able to
pursue an asset-light strategy.
As of December 31, 2021, Xpeng consists of 357 physical
stores and 117 service centers which cover 140 cities in China. Xpeng is also expanding into other
international markets.
December 2020 – the G3 was delivered to the customers in
Norway
August 2021 – the P7 was delivered to the European
customers
February 2022 – Launched the first physical store in
Stockholm, Sweden
March 2022 – The first physical store in Westfield Mall,
Holland
April 2022 - opened
the first physical store in Copenhagen, Denmark
Manufacturing
Since 2017 Haima Auto has manufactured vehicles for Xpeng.
In consideration of commercial development needs, the termination of
cooperation was signed in 2021. Instead, Vehicles of Xpeng are produced in its
own factory – Zhaoqing plant. Another two plants are also under construction
which are scheduled to be completed around 2023. The capacity of the three
plants is expected to achieve 500,000 units per year.
Valuation
Xpeng is at nearly the same stage as NIO. EPS is still
negative. FFCF model is applied to estimate its intrinsic value. More
explanations regarding the model are depicted in the paragraph of valuation of
NIO.
XPeng’s life cycle
It is difficult to predict what strategies Xpeng will take besides the three plants -one existing and two under construction. I have divided Xpeng’s life cycle into 3 stages:
Stage 1: 2022 -2026 highly growth period
Stage
2: 2027 -2031 slow down period
Two
scenarios: baseline: 5% real growth rate; better: 15% real growth
rate
My comments: It is highly uncertain.
It is highly likely that Xpeng would build more factories to increase capacity.
Stage
3: from 2032- plateau with 2% real
growth rate
Global economy
The increasing prices of raw materials have forced Xpeng
to raise its price by RMB
10-20 thousand this year. It implies that Xpeng can pass price increases along to consumers. However, the final sales will show the degree of Xpengs ability of transferring costs.
Stage 1: 2022 -2026, 3% inflation
Stage
2: 2027 -2031, 2% inflation
Stage
3: from 2032 -, 1% inflation
EV market prospect
The same as the paragraph in NIO.
Production Capacity
According to the recent quarterly conference meeting, the shortage of chips and batteries from suppliers have been the obstacles for the production. The problem is supposed to be mitigated this year. Guided by the production capacity of the three plants (Tabel 1), I have made the predictions of production for two scenarios – called baseline and better scenarios. Until now, XPeng has only these three factories in the pipeline.
Table 1 The factories of Xpeng
|
Zhaoqing Plant |
Current status: 100,000 vehicles per year |
|
The extended base is scheduled to achieve 100,000 vehicles per
year. The production is expected to start from 2022Q3. |
|
|
New Guangzhou Smart EV Manufacturing Base |
Under construction aiming at a capacity of 100,000 units per year. It
is scheduled to start production at the end of 2022 |
|
New Wuhan Base |
Under construction aiming at a capacity of 100,000 units per year. It
is scheduled to start production at the end of 2023 |
Base scenario –produce 600,000 units
in 2026 with a 5% real growth in stage 2.
Table 2 Vehicle deliveries by year
Note: *
refers to the estimated deliveries.
I have defined XPeng as a three-stages
company from 2022. The most common estimation about EV market share is about
50% of the total automobile market in 2030. In 2022, the electric vehicles sold
are expected to take account for 5% market share. In the next 10 years, there is huge
consumption willing for EV. Therefore, the 5% growth rate of deliveries between
2027 -2031 is assigned.
Stage 2: 2027 -2031 slow down period
Two scenarios: baseline: 5% real growth rate; better: 15% real growth rate
My thoughts: It is highly uncertain. It is more likely that XPeng
would have planned at build more plants.
Stage 3: from 2032 into plateau with 3% nominal growth rate
Gross Profit Margin
In the 2022Q1 conference call, Mr. He mentioned 20% gross profit margin is possible with the launch of G9 this year and two new expensive models next year. Xpengs mid-long term gross profit margin target is 25%.
My thoughts: Xpengs gross profit margin is currently very low. The strategies which XPeng has been executed and will carry out will definitely improve the gross margin. The more details can be found in my other post – Comparisons. The question turns out to be whether XPeng can achieve its target in time.
Operating Margin
R&D
The expenses of R&D of the new EV
companies are always quite high. Xpeng’s
investment in R&D of XPeng ranks quite high among its peers which also
leads to a lower operating margin.
SG&A
The combination of direct stores and franchised stores enable
XPeng to pursue an asset-light expansion strategy compared with the direct
stores only strategy among many new EV companies. It is still ambiguous which
distribution mode is best in the long run. The different indicator from financial
reporting will reveal the results in the future.
Discount rate --WACC
I have made a detailed explanation of my choice of WACC in my post
- NIO. I will apply WACC = 10.08% to the valuation of XPeng.
ESG considerations in FCFF model
The same as NIO since
both of their plants are in China.
Taxation
The same as NIO
because their main operations are in China.
A summary of the input
assumptions:
Results
WACC = 10.08%
Ø
USD 1 = RMB 6.7 is applied to convert RMB to
USD
Ø
The terminal value of the company: RMB 343
billion (baseline) / RMB 721 billion (better scenario)
Ø
The present value of terminal company value:
RMB 131 billion (baseline) /RMB 276 billion (better scenario)
Ø
The total present value of the company: RMB 149
billion (baseline) /RMB 362 billion (better scenario)
Ø
Weighted average number of ADS used in computing– basic
and diluted at the end of 2021: 821 million shares.
Ø
After deduction of debt, the price per share
based on DCF model is RMB 175 ($26) and RMB435($65) for the baseline and better
scenarios respectively.
For one month ago, the market price of XPeng was approximately
$20. Recently, it was closed at $35. If the performance of NIO will not be worse
than the baseline scenario and the required return of the investor is no higher
than 10.08%, the long-term target is highly likely to stay above $26. The
market especially for the Chinese Tech companies seems very sensitive to the
interest rate hiking and supply chain situation affected by Covid 19 in China.
Validation of the results
In order to validate the appropriateness of the model assumptions,
I present the multiples to look at the solution from another perspective.
The third stage (terminal) is assumed as the mature period of the
company and hence its multiples are comparable with the industry level and
other mature companies, e.g., Volkswagen and Ford.
For the terminal period, justified P/E = 16 and justified P/S =1.6. P is the terminal value of the equity from
the model. E and S refer to earnings and sales at the first year of the
terminal period.
According to statistics from MSCI World Automobiles Index[1],
fundamentals P/E=15.99 and P/E Fwd=14.31 for MSCI World Automobiles industry.
It seems the P/E from my calculation is close to the industry level which
implies the discount rate is acceptable.
The comparison with Ford and Volkswagen is in the previous post
-NIO.
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