believes that expanding volumes is critical, and will continue to prioritize volumes into 2024, as well as improving profitability through cost reductions.

(Image credit: CnEVPost)

Xpeng's (NYSE: XPEV) management said it expects price competition in China's electric vehicle (EV) market to continue until traditional OEMs can't make a profit on internal combustion engine (ICE) vehicles and there's no room for further price cuts.

Goldman Sachs analyst Tina Hou's team visited Xpeng on December 15 and hosted a group meeting where the company's management provided that judgment.

Reducing costs through technological innovation is therefore important to Xpeng, the company's management said, according to a research note Hou's team sent to investors today.

Xpeng believes that expanding volumes in the current competitive environment is critical, and that the company will continue to prioritize volumes and improve profitability through cost reductions going into 2024.

The company's management said there are two main areas of cost reduction, the first being general upstream cost optimization, such as lower battery prices, which should be passed on to consumers.

The other cost reduction measure that differentiates between OEMs is lower costs based on technology and engineering know-how, which the company's management believes sets Xpeng apart from its peers.

Currently Xpeng's ADAS (Advanced Driver Assistance System) has a BOM (bill of materials) cost of RMB 25,000, compared with RMB 20,000 to RMB 30,000 for its peers, the company's management said.

Xpeng is further reducing the ADAS BOM cost, mainly by adopting fewer sensors, including LiDAR and millimeter-wave radar, its management said.

City NOA is a key differentiator for Xpeng, and its management believes that once the company achieves its goal of covering 200 cities, the gap with lower-tier players will widen as there will be higher cost advantages and faster technology iterations.

Xpeng's cost-cutting measures are already having a positive impact at this stage, for example, the facelifted version of the G9 is priced at RMB 40,000 to RMB 50,000 less than the original version but is able to realize higher margins, according to the Goldman Sachs research note.

Xpeng's new models, which are expected to be launched in the second half of 2024, will realize a 25 percent cost reduction through technological innovations that will lead to higher margins, according to the note.

Goldman Sachs' communication with Xpeng's management also touched on exports. Xpeng will increase exports to expand into overseas markets such as Germany and France, with plans to export left- and right-hand drive versions of the G6 in 2024, according to the report.

Xpeng expects to export thousands of P7i and G9 units in 2023 and aims to reach 10,000 units in 2024 after adding the G6.

In the medium to long term, Xpeng is looking to capitalize on its partnership with Volkswagen for international expansion, according to Goldman Sachs.

In terms of product launches, Xpeng will begin deliveries of the X9 in January 2024, launch a new brand codenamed Mona in the third quarter of 2024, and another new model in the second half of 2024, Goldman Sachs' note said.

The number of orders received for the X9 since the start of pre-sales has been generally satisfactory, and the model is expected to have the highest margins in Xpeng's portfolio into 2024, the company's management said, according to Goldman Sachs.

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