XPeng 2024

juli 27, 2024

XPeng 2024

Xpeng Inc. Valuation

Company Profile
Management Team
Business Model
Products & Innovations
Major partners
Distribution
Manufacturing
Valuation

Company Profile

Xpeng is a leading smart electric vehicle company that began operations in 2015. It is structured as a Cayman Islands holding company. According to the laws and regulations of the People's Republic of China (PRC), the provision of value-added telecommunication services in the PRC is subject to foreign restrictions and licensing requirements. Therefore, the Group’s operations are primarily conducted by its subsidiaries in China and through contractual arrangements with the Group's Variable Interest Entities (VIEs).

Figure 1 displays XPengs VIEs and their major activities.

Figure 1 VIEs and their principal activities

Management Team

Mr. Xiaopeng He (born in 1977) is the Principal Shareholder, Chairman of the Board, and Chief Executive Officer of Xpeng Inc. In 2004, he co-founded UCWeb, initially a mobile browser maker. In 2014, UCWeb was acquired by Alibaba Group for RMB 30 billion. Following the acquisition, Mr. He served for several years as a senior executive in Alibaba's Mobile Business Division. In 2017, he resigned from Alibaba 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. Always chasing his dreams, sounds also very familiar 😊 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’. If you are interested, you can watch the video her. Xpeng has opened reservation for flying car this year (video).

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 differs 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 article.

Products and Innovations

Vehicles

Xpeng vehicles appeal to middle-class consumers in China, primarily targeting the mid- to high-end segment of the passenger vehicle market, with prices ranging from RMB 150,000 to 400,000. However, Xpeng has recognized that significant sales growth is constrained unless their cars are priced in the lower range. The mid- to high-end market has limited demand compared to the lower-priced market. To address this, Xpeng is expanding its car portfolio through acquisitions and partnerships. The company plans to debut MONA, a lower-priced car, this year.

Figure 2 Smart EV roadmap of Xpeng Inc.

At the end of 2023, Xpeng ceased the production of the G3 and G3i models. In the second half of 2024, two new cars are expected to be launched:

1) MONA, priced around RMB 150,000, is the result of a cooperation between Xpeng and DiDi.

2) F57, offering even more space than the P7 model.

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.

XPILOT 3.0 (released in 2021)- support navigation guided pilot (NGP in Figure 3) for highway driving and advanced automated parking, which is a function of XPLIOT 3.0.

XPLIOT, 3.5 (released in 2022) - strengthens its perception capability with the help of LIDAR.

XNGP (Navigation Guided Pilot) is XPengs full-scenario ADAS solution which provides advanced driver assistance. It has been rolled out since March 2023. XNGP has also been available in cities without HD map coverage since November 2023. It expands XPengs geographical coverage in China. XNGP is a much more advanced assistance system than XPLIOT. According to Sohu, the hardware of XNGP includes dual LiDARs, millimeter-wave radars, ultrasonic sensors, cameras, and dual NVIDIA Orin-X chips, providing a total computing power of 508 Tops. The system features 31 sensors in total. With the coordination of software and hardware, the Xpeng XNGP has pioneered city-level NGP intelligent navigation assistance driving.

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.

Compared with RADAR, LiDAR is more accurate. However, the performance of LiDAR will be significantly degraded in conditions of extreme weather, e.g. heavy rain, snow and fog while RADAR will continue to perform as well as if it were a clean and sunny day. But remember, in the extreme weather, human vision is also negatively affected which implies it will impair the performance of camera as well. It seems radar is very necessary.

Cost (in 2021):

Ø An automotive Lidar sensor is above $1,000 per car.

Ø A radar sensor is $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.

My thoughts: The customization of ADAS to road condition in China is considered a key factor which differentiates Xpeng from the other smart EVs. Xpeng is expanding to international markets. The advantage of infusion of high definition map disappears. At the same time, the ever maturing algorithm and more advanced technology will improve accuracy of the assistant system.

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 claims to be differentiated by the key powertrain features, such as battery safety, range noise, drivability and digitalization. It rolled out 800V high-voltage SiC platform on the G9 which results in greater energy consumption efficiency and charging efficiency compared to EVs built on a 400V platform.

Battery

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

As of December 31, 2023, 1,108 XPeng self-operated charging stations including 902 supercharging stations and 206 destination charging stations.

Ø Third-party charging piles

Major Business Partner

1. DiDi

On August 27, 2023, Xpeng and DiDi signed a Strategic Cooperation Agreement to cover various areas, including the R&D of the new Smart WV model and the operation of Xpeng's Smart EV models on DiDi’s ride-sharing platform. DiDi is a leading mobility technology platform offering app-based services such as ride-hailing, taxi-hailing, designated driving, hitch services, and other forms of shared mobility. Additionally, DiDi provides services like food delivery and intra-city freight transport.

The Da Vinci auto project from DiDi has been taken over by Xpeng through the Strategic Cooperation Agreement. The new car, MONA, which is a developed version of this project, will be launched by Xpeng later this year. This will extend Xpeng's portfolio to the lower-end market.

My opinion: The cooperation with DiDi has significantly strengthened Xpeng's product portfolio. In China, the price range of RMB 150,000 to 200,000 comprises nearly 30% of the total New Energy Vehicle (NEV) market, while the RMB 100,000 to 150,000 range accounts for 35% of the total Internal Combustion Engine (ICE) market in 2023. Notably, the ICE market is twice as large as the NEV market in China.

2. Volkswagen Group

On July 26, 2023, the Volkswagen Group and Xpeng entered into the VW Technical Framework Agreement for strategic technical collaboration and the VW Share Purchase Agreement for a strategic minority investment by Volkswagen Group in Xpeng. This collaboration aims to accelerate the joint development of two B-class battery electric vehicle models for the Chinese market under the Volkswagen brand, as outlined in the VW Technical Framework Agreement. Additionally, the agreement includes a joint sourcing program for common vehicle parts and platforms used by both parties.

Distribution

Xpeng utilizes an omni-channel sales model to ensure a consistent brand image, customer experience, and pricing across all channels. Physical stores are either operated directly by Xpeng or through franchises. The franchised model allows Xpeng to pursue an asset-light strategy.

As of December 31, 2023, Xpeng consists of 500 stores over 181 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, Netherland

April 2022 - opened the first physical store in Copenhagen, Denmark

March 2024 – G9 and P7 were officially launched in German

May 2024 – G9 was launched in France

May 2024 – Announced cooperation with True EV in Australia

Manufacturing

XPeng owns 3 plants :

1) Since 2017, Haima Auto had been manufacturing vehicles for Xpeng. However, due to commercial development needs, this cooperation was terminated in 2021. Now, Xpeng produces its vehicles in its own factory, the Zhaoqing plant, which has an annual capacity of 200,000 units. The Zhaoqing plant produces the G3, G3i, P5, P7, P7i, G9, and will also produce the upcoming MONA.

2) Guangzhou plant – The production at the Zhaoqing plant started at the end of 2022. The plant currently has a capacity of up to 120,000 units per year. It manufactures the G3, G3i, P5, P7, P7i, and G9 models.

3) Wuhan plant – The construction of the Zhaoqing plant was completed on March 31, 2024, and it is currently awaiting approval from the relevant government authorities. The plant's capacity is expected to be 100,000 units per year.

Combining the production capacities from the 3 plants, the total capacity could be 500,000 units in a short time through better planning, double shifts etc.

Valuation

XPeng's EPS is still negative. An FCFF model is applied to estimate its intrinsic value. It is difficult to predict what strategies XPeng will adopt beyond the three current plans. The increasing EV tariffs from the EU, US, and other countries have made it more challenging for XPeng to expand overseas. I have divided XPeng’s life cycle into several slowdown stages with two scenarios: a baseline and a better scenario.

Delivery assumption

XPeng appears to be moving off its high growth path. Last year, its growth rate fell to 17%. Table 1 shows the assumed delivery growth, which I will use as the sales growth assumption in the valuation.

Table 1 Delivery growth assumption for XPeng (2024 – 2030)

Discount rate --WACC

Derived from CAPM:

Rf: risk free rate, 4.2% - current 10 years treasury rate

Β: 2.8 (5 years monthly)

E(Rm)): 7.22% from the average annual return from MSCI World.

By assuming the target capital structure of XPeng with 25% debt and 75% equity, it leads to WACC = 10.19%.

A summary of the input assumptions:

Results

Baseline scenario: $4.1 per ADS

Better scenario: $12 per ADS

On July 26, 2024, XPeng’s U.S.-listed American Depositary Receipts (ADRs) were trading at approximately $8.50.

The puzzle

Based on the production capacities of XPeng's three plants, it could reach 500,000 units in the short term. However, XPeng delivered only 141,601 units last year. Recently, there have been two different explanations for this discrepancy. First, the overproduction capacity of EVs in China. Second, the shortage of components in the supply chain, which has resulted in lower deliveries, especially during the pandemic period. Both explanations seem plausible. Additionally, the US's strict control of exports of advanced semiconductors to China will further delay the supply chain.

This report reflects my personal opinion. Please note that there are high uncertainties in the stock market.

Appendix:

1. XPeng P7 2022 version