"We expect generally soft results and a weak 1Q23 outlook due to challenging demand and pricing dynamics," Edison Yu's team said.
XPeng US | XPeng HK
XPeng (NYSE: XPEV) will report fourth-quarter earnings on Friday, and as usual, Deutsche Bank analyst Edison Yu's team provided their preview.
"We expect generally soft results and a weak 1Q23 outlook due to challenging demand and pricing dynamics," the team said in a research report sent to investors yesterday.
XPeng will report its unaudited financial results for the fourth quarter and fiscal 2022 on Friday, March 17, before the US markets open.
It delivered 22,204 vehicles in the fourth quarter, above the upper end of the guidance range of 20,000 to 21,000, but down 46.82 percent year-on-year and down 24.91 percent from the third quarter.
XPeng's previous revenue guidance for the fourth quarter was RMB 4.8 billion to RMB 5.1 billion, representing a year-on-year decrease of about 40.4 percent to 43.9 percent.
"We expect a soft quarter with deliveries already reported at 22,204, above management's guidance range (20,000-21,000), but with promotional activity hitting margins," Yu's team wrote.
The team expects XPeng to post revenue of RMB 5.4 billion yuan and a gross margin of 11.5 percent in the fourth quarter.
They expect XPeng's vehicle margin to be 8.5 percent in the fourth quarter, down 3.1 percentage points from the third quarter, and adjusted earnings per share of RMB -2.33.
The current analyst consensus in the Bloomberg survey is for revenue of RMB 5.7 billion, gross margin of 12.1 percent and adjusted EPS of RMB -2.25.
For the first quarter, Yu's team expects deliveries to be around 19,000-20,000 units and for gross margin to drop to single digits as price cuts take hold.
XPeng deliveries in January and February were 5,218 and 6,010 units respectively, for a cumulative total of 11,228 units. Insurance registration figures for the past two weeks suggest that the company did not see a significant improvement in deliveries in March.
Uncertainty in 2023
The key to XPeng's relevance going forward is to win back market share, and that could take several quarters to achieve, which has created significant uncertainty this year, Yu's team said.
Demand for the company's flagship SUV, the G9, has clearly been disappointing, despite mostly positive reviews, the team said, adding that they expect XPeng to potentially make pricing or SKU adjustments to the SUV in the coming months.
XPeng's new P7i sedan should help with order volume, but there won't be materially beneficial until the second quarter, the team said.
Most importantly, XPeng's upcoming Tesla Model Y competitor, the G6, needs to reach at least 5,000 units per month by the end of the year to be considered a success, the team said.
The team now expects XPeng to be on track to deliver 145,000 vehicles in 2023, a 10,000-unit downward revision from earlier, taking into account the decline in G9 sales.
How can capacity utilization be improved?
If XPeng's sales continue to be weak, its management may need to get creative to improve its capacity utilization, Yu's team said, adding that the easiest way to do that would be to sign some large fleet deals.
That may be hard in China, considering BYD and GAC have stronger positions in the taxi and ride-sharing segment, but XPeng recently signed deals with some local car rental companies to buy its P7 sedan, the team noted.
XPeng entered into a strategic partnership with local car rental company eHi Car Services on July 19, 2022, and delivered the first few hundred cars to the latter.
On January 9 this year, XPeng signed agreements with car rental company China Auto Rental and Geely's travel service platform Xiaolinggou Travel Technology, and completed the delivery of the first XPeng P7 vehicles in Ningbo, Zhejiang province.
In addition, XPeng has restarted its expansion efforts in Europe, where large fleet deals could make sense due to the region's high percentage of corporate fleets and low availability of cheap BEV options, Yu's team said.
"We note BYD has an agreement with SIXT for 100,000 EVs and XPeng's vehicles fall into a similar price point. BYD also just announced a 5,000 unit agreement with UK's Octopus EV," the team wrote.
Another option is to partner more deeply with traditional OEMs on EVs and robotaxis, which could come in the form of equity investments or strategic alliances, according to the team.
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