XPeng struggles amid intense EV competition and European tariff threats

Chinese electric vehicle (EV) manufacturer XPeng has reported weaker-than-expected performance for the second quarter of 2023, signalling significant challenges ahead. The company’s revenue for the June quarter was slightly below analysts’ expectations, and its third-quarter revenue forecast also failed to meet market predictions. As XPeng grapples with a decline in demand and increasing competition in the EV market, it faces the pressing need to revitalise its product lineup and address external pressures, such as impending European tariffs.

Stiff Competition and Ageing Lineup

XPeng's June-quarter sales fell short of estimates, primarily due to the intense competition from domestic rivals such as BYD and Nio, as well as global players like Tesla. The company’s current lineup, which has been showing signs of age, struggled to attract new buyers, resulting in weaker sales figures. XPeng’s Hong Kong-listed shares reflected this downturn, dropping 2.7% on Wednesday following the announcement.

The company’s vehicle deliveries are expected to see a marginal year-over-year increase in the third quarter, with projections ranging between 41,000 and 45,000 units. While this is a slight improvement from the 40,008 vehicles delivered in the same period last year, it is far from the robust growth that investors were hoping for.

Strategic Model Refresh

In response to its faltering sales, XPeng has outlined an ambitious plan to rejuvenate its lineup over the next three years. The company aims to introduce a series of new electric vehicles, priced between 100,000 yuan and 400,000 yuan ($14,001.88 - $56,007.51), in an effort to regain market share. This strategy is aimed at challenging competitors such as BYD’s Seagull and Dolphin models, as well as Tesla’s Model 3.

One of the key launches in this strategy is the upcoming MONA M03, a mid-sized sedan expected to debut this month. This model is anticipated to be a crucial player in XPeng's bid to revitalise its market presence and compete more effectively against both domestic and international rivals.

European Tariff Challenges

Adding to XPeng’s woes is the European Commission’s decision to impose tariffs on Chinese-made electric vehicles, a move intended to prevent an influx of EVs benefiting from Chinese state subsidies. This has thrown a wrench into XPeng’s plans for expanding into the European market. The company is now considering establishing a manufacturing plant within the European Union to circumvent these tariffs, a move that could significantly alter its global strategy.

Financial Performance and Market Outlook

Despite the challenges, XPeng’s vehicle margin improved slightly in the second quarter, rising to 6.4% from 5.5% in the previous quarter. This indicates some level of operational efficiency, though it is still far from what the company needs to regain investor confidence.

XPeng’s revenue for the April-June period stood at 8.11 billion yuan ($1.14 billion), aligning with the company’s forecast of 7.5 billion to 8.3 billion yuan. However, this figure fell short of the analysts' average estimate of 8.17 billion yuan, highlighting the company's struggle to meet market expectations.

Looking ahead, XPeng has forecasted third-quarter revenue between 9.1 billion yuan and 9.8 billion yuan, again falling short of analysts’ estimates, which stood at 10.4 billion yuan. This cautious outlook suggests that XPeng remains wary of the current market conditions and the impact of its ageing lineup on future sales.

The Road Ahead

XPeng finds itself at a critical juncture. The company’s ability to navigate the challenges posed by stiff competition, an ageing product lineup, and external pressures like European tariffs will determine its future in the rapidly evolving EV market. While the planned model refresh and potential European manufacturing presence offer a glimmer of hope, the path ahead remains fraught with uncertainty. XPeng's leadership will need to execute its strategy with precision to avoid further setbacks and regain its footing in the global EV race.

(Inputs from Reuters)