Volkswagen helps Xiaopeng make more money

After collaborating with Volkswagen, Xiaopeng Motors' gross margin in the first quarter of 2024 increased to 12.9%.

Despite a decline in vehicle deliveries, Xiaopeng's revenue in the first quarter was 6.55 billion yuan, which is half of the previous quarter, but the overall gross margin improved by 6.7 percentage points quarter-on-quarter, reaching 12.9%.

The improvement in overall gross margin is not much related to the vehicle sales business — the latter's gross margin is 5.5% — even after the production ramp-up of the higher-priced model X9. The overall gross margin is more attributed to the cooperation with Volkswagen in platforms and software. In the first quarter, Xiaopeng Motors' service and other revenues were about 1 billion yuan, doubling year-on-year and increasing by nearly 200 million yuan quarter-on-quarter.

After the performance was released, Xiaopeng Motors' stock price jumped by more than 25% at the opening, and as of the time of writing, the increase has narrowed to around 8%.

On April 17th, Xiaopeng deepened its cooperation with Volkswagen. According to the latest cooperation agreement signed by both parties, Xiaopeng and the Volkswagen Group will jointly develop a new electronic and electrical architecture based on Xiaopeng's latest generation of electronic and electrical architecture. The new architecture will be applied to the CMP platform developed by Volkswagen for the Chinese market and will begin mass production and installation in vehicles from 2026. The scope of cooperation between the two parties has been further expanded from the previous two B-class electric vehicles.

Software revenue from the Volkswagen Group will also exceed the scale of the first quarter. The management stated, "Considering the nature of the platform and software revenue, it will be a very high-profit-margin business for us."For the current stage of Xiaopeng, it is difficult to reap the benefits of scale from a limited delivery volume. Cooperation with Volkswagen brings a continuous and stable cash inflow, which helps to share the substantial R&D investment made by Xiaopeng in the early stages. The models developed through this partnership will also benefit from Volkswagen's supply chain foundation. As of March 31, Xiaopeng had 41.4 billion yuan in liquid assets (cash and cash equivalents, restricted cash, short-term investments, and fixed deposits).

Without the promotional intensity of the previous quarter, Xiaopeng delivered 21,800 new vehicles in the first quarter, while the expected target for this year is 280,000 units. In March, the entire series of Xiaopeng vehicles experienced a price reduction ranging from 10,000 to 50,000 yuan. At the beginning of April, the 2024 model of the Xiaopeng G9 was further reduced by 20,000 yuan, with the post-subsidy starting price now at 243,900 yuan. A salesperson at a Xiaopeng store in Beijing stated that purchasing a G9 with a stock of over three months could result in an additional discount of nearly 10,000 yuan.

Xiaopeng expects to deliver between 29,000 and 32,000 vehicles in the second quarter, corresponding to a total revenue of 7.5 billion to 8.3 billion yuan. Starting from the second quarter, dealers will also have to purchase 50% of their target sales volume from Xiaopeng each month. Additionally, in the fourth quarter of this year, Xiaopeng will deliver a B-class pure electric sedan under the Xiaopeng brand, which is said to be the first model to achieve a 25% reduction in technology costs.

Xiaopeng Motors Chairman He Xiaopeng said at the performance meeting, "Although the market is very competitive, we must not focus solely on sales volume. We must be versatile. 'Xiaopeng Motors' strategy will not be the same as before, focusing only on sales growth. Instead, we will pursue high quality and efficiency in such a competitive market, comprehensively enhancing the company's capabilities, making our strengths even stronger and ensuring there are no weaknesses." He Xiaopeng said.

The chairman can assess the performance of the company from multiple dimensions, while consumers and the capital market have more direct indicators, such as the progress of Xiaopeng Motors' second brand, MONA. He Xiaopeng said that from the third quarter of this year to 2026, there will be a continuous launch of related models, some of which are all-new and others are revised versions. It is not appropriate to disclose too many details at this stage, but it can be said that the exterior design is good, there is an expectation for different levels of intelligent driving, and there is also an expectation for decent profits.

In the first quarter of this year, Xiaopeng's operating loss was 1.645 billion yuan, and the cumulative operating loss for the last four quarters was 10 billion yuan.

"We used to have a $10,000 model, where for every $10,000 decrease in car price, the overall vehicle sales volume could increase by 1-2 times. We have seen this trend in the price segment above 200,000 yuan, which is the main competitive segment for the original new car forces. If we can reduce the amount - the specific amount will be announced at our press conference - we believe the demand scale will be very large, and it will be 2-4 times the current level." He Xiaopeng said.