Xpeng is asking dealers to purchase vehicles for half of their target sales each month, rather than requiring them to purchase the entirety of their target sales as traditional brands do, according to local media.
(Image credit: CnEVPost)
Xpeng (NYSE: XPEV) is reportedly asking its dealers to stock up on inventory as it begins to rely more on the traditional carmaker's sales model to increase volume.
The electric vehicle (EV) maker recently began asking dealers to stockpile inventory, with several dealers saying they have to purchase half of their targeted sales of vehicles from Xpeng each month, according to a report in LatePost today.
Traditional carmakers typically require dealers to purchase vehicles first and sell them after stockpiling a certain amount of inventory, the story noted.
Under that model, the automakers sell the vehicles wholesale to the dealership, which allows for a quick return on capital, with the risk of capital and inventory borne by the dealership.
Typically, carmakers will set monthly tasks for the dealers, or sales targets for each month, according to which the dealers are allowed to stockpile inventory, according to LatePost.
Xpeng adopted a direct sales model at its inception and began allowing dealers to join in 2019. But the company then produced on demand and did not require dealers to cover inventory costs, according to the report.
Starting last December, Xpeng began requiring dealers to buy vehicles from the company, LatePost said, citing people familiar with the matter.
Last December, Xpeng sold 21,015 vehicles, meeting its monthly sales target, the report noted.
Xpeng hosted a dealer investor meeting in February, and one of the dealers in attendance said the EV maker's president, Wang Fengying, re-emphasized the need for dealers to stockpile inventory, according to the report.
Some dealers sell multiple brands of vehicles at the same time, and if they hold inventory of other brands' vehicles but not Xpeng's, they may not sell Xpeng vehicles at full capacity, she said.
Currently, Xpeng only requires dealers to purchase half of their monthly quota of vehicles, rather than requiring them to purchase all of the vehicles like traditional brands would require, according to the report.
Once the dealers have delivered this portion of the vehicles to the customer, they will then purchase additional vehicles from the company, an Xpeng dealer source said.
Dealers' profits come mainly from base commissions, which are drawn from each vehicle sold, and incentive commissions, which are additional incentives for completing bi-monthly assessment, the report noted.
Xpeng, in an effort to encourage dealers to sell more cars, recently adjusted its sales policy by lowering base commissions by 1 percentage point but raising incentive commissions by 0.5 percentage points, according to LatePost.
Dealers who complete the bi-monthly assessment will receive at least 5.5 percent of the total vehicle sales. If they don't fulfill the consideration, the commission is lower than before, according to the report.
Xpeng's sales target for this year is 280,000 units, double compared to last year, the report said, adding that half of the EV maker's targeted sales are guaranteed if all its dealers enforce the requirements.
LatePost spoke with Xpeng about the information, which the company did not directly deny.
"Following the SKU (Stock Keeping Unit) reduction, Xpeng allowed dealers to have a healthy and reasonable inventory in order to better respond to the market and deliver quickly," LatePost quoted the company as saying.
Xpeng used a direct sales model at its inception, with its first 20 stores being directly managed.
In April 2019, a month after the company's first production vehicle, the G3, was delivered, it announced at the Shanghai auto show that it was opening up dealerships and service providers to join.
After that, Xpeng's sales system consisted of both directly-managed and dealer stores. Xpeng's partnership model with dealers at the time was order-based sales, with no inventory at dealerships and uniform retail prices.
In September 2023, LatePost reported that Xpeng launched the Jupiter Project at a dealer conference on September 2 in hopes of attracting large group dealers to its sales system.
On October 9, Xpeng said it had received more than 1,200 applications to join its sales system since the Jupiter Project was launched.
In today's report, LatePost noted that in order to meet the carmakers' sales mandates, some traditional dealerships will be forced to offer discounts on vehicles to get their money back quickly.
However, this can undermine the uniformity of the pricing system, to the detriment of both car companies and consumers.
Xpeng requires dealers to sell vehicles at uniform pricing, according to LatePost.
To stabilize prices, Xpeng introduced penalties including fines, LatePost cited a person familiar with the matter as saying.
Depending on the extent of the drop in car prices, dealers face potential fines ranging from tens of thousands of yuan to hundreds of thousands of yuan, the person said.
