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XPeng Inc. (NYSE:XPEV) Q3 2023 Earnings Call Transcript

XPeng Inc. (NYSE:XPEV) Q3 2023 Earnings Call Transcript November 15, 2023

XPeng Inc. misses on earnings expectations. Reported EPS is $-4.49 EPS, expectations were $-0.72.

Operator: Hello, ladies and gentlemen. Thank you for standing by for the Third Quarter 2023 Earnings Conference Call for XPeng Inc. At this time, all participants are in listen-only mode. After management's remarks, there will be a question-and-answer session. Today's conference call is being recorded. I will now turn the call over to your host, Mr. Alex Xie, Head of Investor Relations of the company. Please go ahead, Alex.

Alex Xie: Thank you. Hello everyone and welcome to XPeng's third quarter 2023 earnings conference call. Our financial and operating results were issued via Newswire services earlier today and available online. You can also view the earnings press release by visiting the IR section of our website at ir.xpeng.com. Participants on today's call from our management team will include our Co-founder, Chairman and CEO, Mr. He Xiaopeng; Vice Chairman and President, Dr. Brian Gu; Vice President of Corporate Finance and Investment, Mr. Charles Zhang; Vice President of Finance and Accounting, Mr. James Wu, and myself. Management will begin with prepared remarks and the call will conclude with a Q&A session. A webcast replay of this conference call will be available on the IR section of our website.

Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the US Private Security Legislation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from views expressed today. Further information regarding these and other risks and uncertainties is included in the relevant public filings of the company as filed with US Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable laws. Please also note that XPeng's earnings press release and this conference call include a disclosure of unaudited GAAP financial measures, as well as unaudited non-GAAP financial measures.

XPeng's earnings press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. I will now turn the call over to our Co-founder, Chairman, and CEO, Mr. He Xiaopeng. Please go ahead.

Xiaopeng He: [Foreign Language] [interrupted] Hello everyone, today I'm pleased to report to our shareholders and customers that after three quarters of transformation and effort, we have entered into the initial phase of a virtuous cycle, driving improvements in sales, brand image, team morale, and free cash flow. It is extremely difficult to deliver such a turnaround in the smart car manufacturing industry. Therefore, I would like to express my gratitude for your support and patience throughout the journey. Going forward, we're confident in achieving rapid sales growth and notable improvement of gross margin in the fourth quarter. And we're ready to gain considerable market share in 2024, achieving a high growth target that is significantly above the industry average.

China's new energy vehicle industry has witnessed resilience and growth amidst increasingly intensified competition throughout 2023, creating great opportunities to reshape the industry landscape. The competition on electrification and smartification is speeding up the replacement of ICE cars with NEVs. And AI is revolutionizing the technical structure of smart EVs and transforming automakers business models. There are no shortcuts to ADAS technology. The only way to determine whether mass production and the inflection point of ADAS technology have been reached is the achievement of nationwide coverage with low cost, a high level of safety, and great customer experience across different models. During our Tech Day on October 24, we launched the public testing of XNGP in the first batch of 20 cities where high definition maps are unavailable.

Our plan is to expand our coverage to 50 cities by the end of this year. Our technology and AI will empower our customers to use ADAS wherever they drive throughout the country. XPeng has been a pioneer and leader in ADAS technology and its customer adoption. I strongly believe that the demand for ADAS will surge in the next five years, and XPeng will be the preferred smart EV brand for customers. Next year, we'll consolidate and integrate our full stack in house R&D capabilities in a wide range of systems, including the next gen EE architecture, the unified AD -- ADAS domain, smart cockpit and voice assistant, brand new large language models, the next gen chassis and powertrain. As a result, we'll be able to deploy multiple models for the global market rapidly and realize the integration of cars between different platforms, as well as between cars and other vehicles.

I believe this will significantly enhance our engineering capabilities to support various products in the global market, strengthening our edge in smart technologies by integrating different systems. Apart from our commitment to ADAS and smart EV technologies, we have made crucial changes to our corporate strategies, organizational structure, senior management team and product and technology roadmap over the past three quarters. Making various changes of such a magnitude simultaneously could have brought risks and impacts near term results. However, thanks to the mutual trust and endeavors of the whole XPeng team, these changes did not affect our short term performance. Instead, they allowed us to deliver better than expected results. For the Q3 of 2023, our vehicle deliveries exceeded 40,000, representing a 72% increase quarter-over-quarter.

Additionally, we achieved positive free cash flow with over RMB1 billion in cash inflow. We're confident of setting a new record for vehicle deliveries in the Q4. Our target is over 6 million units -- sorry, 60,000 units. Regarding product sales, the G6 electric SUV has become the top selling vehicle in the RMB250,000 price range during its first quarter on the market. In October, over 8,700 G6 vehicles were delivered. This early success of the G6 is a strong validation of XPeng’s ability to create and introduce a new benchmark model in the relevant market segment. Thanks to our highly differentiated technologies and effective marketing. By doing so, we're bringing smart EV technologies to a much broader customer base. In September, we launched the 2024 edition XPENG G9 with a higher gross margin than that of the original version.

This cost reduction was made possible through advancements in technology and engineering. In October, we delivered over 4,000 units of G9, making it one of the top selling electric SUVs in the RMB300,000 price segment. In October, we achieved a record breaking sales month with over 20,000 vehicle deliveries and secured the top spot among EV startups for BEV sales volume again. We're excited to announce that we will showcase our flagship MPV, the XPeng X9 at the Guangzhou Auto Show and start presale on November 17th. The X9 is a seven seater pure electric smart MPV built on the SEPA 2.0 architecture. It stands out from traditional MPV models with superior space, design, and maneuvering that perfectly combined the advantages of a MPV and SUV.

A close-up of a luxury electric sports sedan, its sleek body reflecting the energy of progress.
A close-up of a luxury electric sports sedan, its sleek body reflecting the energy of progress.

Moreover, the X9 comes equipped with rear wheel steering as a standard configuration, enabling a turning radius similar to that of the P7. With XNGP, our industry leading technology that does not rely on high definition maps, maneuvering an MPV has never been easier and more agile. These technical capabilities are not found in any other MPV models on the market. X9 will be delivered from the beginning of January 2024. We're confident that X9 will become the top seller in the large electric MPV market. In 2024, we plan to launch highly competitive new models based on the SEPA 2.0 architecture. Additionally, we intend to introduce a new EV brand in the RMB150,000 price segment. Leveraging our partnership with DiDi, China's leading mobility technology platform, we believe that this new brand will greatly accelerate our sales growth and expand our market share in the A Class EV market.

Our team is currently on track to develop MONA, the first model under this brand with an expected launch date in the Q3 of 2024. We believe that MONA is just the beginning of an exciting journey, and we're committed to pushing the boundaries of technology and keeping costs under control. This will enable us to launch smart EV models that boast autonomous driving technology in the mass market segment at a price point of RMB150,000 or RMB20,000. This move will give our product a significant edge over other models in the segment, allowing us to reach a wider audience in the [blue ocean] (ph) market segment. Our President, Ms. Wang Fengying has been leading a significant overhaul of our sales network, making it more efficient, flexible and expanding faster to cover more Tier 3 and Tier 4 cities.

We closed almost 100 low performing stores during the first three quarters this year and launched the Jupiter Project, a program to recruit more competent franchisee partners. We secured investment for over 100 new stores within two months and established cooperation with top tier dealer groups specializing in luxury vehicles. As we head into the fourth quarter, we're accelerating new store openings and expanding our sales network to reach our goal of 500 stores by the end of the year or early next year. These upgrades and rapid expansions coupled with innovations and marketing will become one of the most important drivers for our sales growth in 2024 and beyond. During late September, I had the opportunity to visit the Volkswagen Group's headquarters in Wolfsburg.

We had a detailed discussion with Mr. Blume and Volkswagen's senior management regarding our comprehensive strategic partnership, which helped clarify the blueprint for our long term strategic cooperation in technology. We also explored deeper strategic cooperation opportunities in the international market. Currently, we're jointly developing models based on the G9 platform, which is in full swing. The strategic cooperation in the supply chain is also progressing effectively, and we expect cost reduction in the supply chain to generate meaningful results in the next year. To enhance our cost control, we learn from the best practice of OEMs in the industry. The progress of cost reduction in the entire process of design, R&D and manufacturing and marketing has given me confidence in accelerating the progress to reach the goal of 25% cost reduction by the end of 2024 or even exceeded, which will significantly increase the gross profit margin next year.

Let's look at the cash flow. We had approximately RMB36.5 billion in cash at the end of the Q3 of 2023, and we generated over RMB1 billion in positive free cash flow during the same quarter. With our new products and technology driven cost reduction, we expect to see a significant improvement in our gross margin resulting in even stronger positive free cash flow in the Q4. This is an important milestone for us to achieve profitability at scale in the long term. Looking ahead, we're projecting our total vehicle deliveries to be between 59,500 and 63,500 units in the fourth quarter of 2023 with a quarter-over-quarter growth rate of 48.7% to 58.7%. We expect our revenue to be between RMB12.7 billion and RMB13.6 billion during this period. We are committed to implementing transformation primarily in our organization and marketing strategy, which we believe will produce more favorable results in 2024 and beyond.

This in turn will enable us to accelerate our growth and expand our scale from the fourth quarter of 2024. Our aim is to capitalize on global opportunities arising from our leadership in smart EV technologies, improve our organizational efficiency and gain a dominant market share. Our ultimate goal is to establish XPeng as the top smart EV company by 2020 -- by 2030. Thank you, everyone. And with that, I'll now turn the call over to our VP of Finance, Mr. James Wu, to discuss our financial performance for the Q3 of 2023.

James Wu: Thank you, Xiaopeng. Now, I'd like to provide a brief overview of our financial results for the third quarter of 2023. I'll reference RMB only in my discussion today, unless otherwise stated. Our total revenues were RMB8.53 billion for the third quarter of 2023, an increase of 25% year-over-year and an increase of 68.5% quarter-over-quarter. Revenues from vehicle sales were RMB7.84 billion for the third quarter of 2023, representing an increase of 25.7% year-over-year and an increase of 77.3% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly attributable to the accelerating sales growth of the G6 in the third quarter of 2023. Gross margin was negative 2.7% for the third quarter of 2023 compared with 13.5% for the same period of 2022 and negative 3.9% for the second quarter of 2023.

Excluding the negative impact attributable to the G3i and the production as we described in the prior quarter, the gross margin would have been breakeven for this quarter. Vehicle margin was negative 6.1% for the third quarter of 2023 compared with 11.6% for the same period of 2022, and negative 8.6% for the second quarter of 2023. The year-over-year decrease was explained by: first, the inventory write downs amounting to RMB0.23 billion related to the Model G3i as we finished the rest of the production in its life cycle with a negative impact of 2.9 percentage points on vehicle margin; and secondly, increased sales promotions and the expiry of new energy vehicle subsidies. The quarter-over-quarter increase was primarily attributable to the improvement in our product mix and battery cost reduction.

R&D expenses were RMB1.31 billion for the third quarter of 2023, representing a decrease of 12.9% year-over-year and a decrease of 4.5% quarter-over-quarter. The year-over-year and quarter-over-quarter decreases were mainly in line with the development timing and progress of new vehicle programs. SG&A expenses were RMB1.69 billion for the third quarter of 2023, representing an increase of 4% year-over-year and an increase of 9.6% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were primarily attributable to the higher commissions paid to our franchise stores. As a result of the foregoing, loss from operations were RMB3.16 billion for the third quarter of 2023 compared with RMB2.18 billion for the same period of 2022 and RMB3.09 billion for the second quarter of 2023.

Fair value loss on derivative liability was RMB0.97 billion for the third quarter of 2023. On July 26, 2023, our company entered into an agreement with Volkswagen Group to issue up to 4.99% of our company's ordinary shares for a fixed purchase price of $15 per ADS. Until the transaction closes, fluctuations in the fair value of the forward share purchase agreement were measured through profit or loss, resulting in a non-cash loss of RMB0.97 billion for this quarter. Net loss was RMB3.9 billion for the third quarter of 2023 compared with RMB2.38 billion for the same period of 2022 and RMB2.8 billion for the second quarter of 2023. Non-GAAP net loss, which excludes share based compensation expenses and fair value loss on derivative liability was RMB2.79 billion for the third quarter of 2023 compared with RMB2.22 billion for the same period of 2022 and RMB2.67 billion for the second quarter of 2023.

As of September 30, 2023, our company had cash and cash equivalents, restricted cash, short term investments and time deposits in total of RMB36.48 billion. The positive free cash flow in Q3, as Xiaopeng mentioned earlier, was the main driver for our higher quarter-over-quarter cash balance. To be mindful of the length of our earnings call, I would encourage listeners to refer to our earnings press release for more details on our third quarter financial results. This concludes our prepared remarks. We'll now open the line to questions. Operator, please go ahead.

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