On March 17 2023, XPeng released its Q4 2022 earnings report. Thereafter, the subsequent earnings conference call was held.
He Xiaopeng — Co-Founder, Chairman, and Chief Executive Officer
Hello, Everyone. In 2022, XPeng delivered more than 120,000 electric vehicles, a year-over-year increase of 23% and ranking No. 10 among emerging EV makers in China as measured by vehicle insurance registration volume. Throughout the year, a challenging macro environment and increasingly intense competition in the NEV market placed pressure on our performance.
Pressure, adjustments, and goals
Amidst this pressure, we saw an opportunity to become a first mover in tackling the challenges faced by industry and examine inhibitors to our business growth at the same time. At the end of last year, I rapidly and decisively conducted a review of our strategies and implemented a series of significant adjustments to our organizational structure with a focus on improving areas of weakness. We have decided to start the change with ourselves and revamp the business with a start-up mindset on an elevated platform with new angles. I believe XPeng is approaching an inflection point as we have clearly identified what our goals are and what our strengths and weaknesses are.
We’re now building recovery momentum in ourselves and market share expansion. As we do this, we’re placing a high premium on improving our organization and cost efficiency to fortify our strong foundation and better position our company for sustainable growth over the long term. Our overarching goal is to make XPeng a leader in the Chinese EV market and ultimately win the global EV race. What excites me is that our strategic adjustment has induced meaningful results in the first quarter of this year, which gives me confidence that we will achieve sustainable and greater breakthroughs in the next few quarters.
New XPeng president, Ms. Fengying Wang
My first step to the organizational restructure started with changes and upgrades in our top leadership. Ms. Fengying Wang has joined our team as president of the company, bringing us more than 30 years of experience in the automotive industry. Fengying is taking full responsibility for our product planning and sales operations and is also in charge of our product platform management scheme.
Her extensive industry experience, in-depth market insight, and strong execution capabilities will help our product capture customer demand more accurately, while greatly improving efficiency in our sales and services divisions. At the same time, the adaptations to our management organization are geared toward a flatter and more concentrated structure. Since February, all design, R&D, production, supply chain, and organizational management functions directly report to me. I believe that these shifts will significantly improve our planning capabilities and lift the efficiency of our decision-making and execution in the coming months.
More importantly, these adjustments have effectively refreshed our execution and competitiveness. For the foreseeable future, I will remain focused on lifting the labor efficiency across our organization by multiple times so as to generate increased customer value with the same headcount and greatly reduce costs across a full range of processes through technology and management innovation.
Product planning and design
With regard to our product planning and design, we concentrate on customer perceived value and product differentiation in our innovation. We’ll make substantial changes to future products model configuration, mix, whole vehicle, modularized design, and consistency in smart features.
In terms of interior and exterior styling and design, to meet XPeng customers’ high standards for aesthetics, I am directly running the styling design division and building three teams that compete with each other to generate creative ideas. These initiatives will continuously improve our interior and exterior styling and space design capabilities. At the same time, I incorporated the net promoter score, or NPS, into the core performance indicators for a variety of business functions and requires feedback collection on a monthly basis. The NPS performance evaluation will anchor the transformation of our product planning, design, and development toward a customer-centric pathway.
I believe our new products, our OTAs, and new services to come will demonstrate substantial progress.
Branding and marketing
In terms of branding and marketing, we’ll harness our core differentiation in autonomous driving to the full extent and enhance customer perception. We are broadening our addressable market, expanding our penetration from Tier 1 and Tier 2 cities, to Tier 3 and Tier 4 cities. So, far we have completed a preliminary merge between our branding and marketing teams and refreshed our overall strategy.
This will help us improve the quality, effectiveness, and flexibility of marketing activities in an effective way going forward, while significantly reducing marketing expenses. We have already flattened out the management hierarchy in our sales network. Furthermore, we are enhancing our network coverage, increasing competitive capabilities in our front-line sales staff and developing XPeng’s powerful, data-driven sales touch points in order to achieve significant strides in sales growth.
On March 10th, we officially launched the new P7i sports sedan, which is an upgraded version of our highly successful P7 model.
Deliveries to customers also commenced in this month. Pleased to see our in-store traffic and test driving volume both hit new heights in recent months following the P7i’s launch. This new product’s smart features, styling, design, and performance, among other clear advantages in rivalry with similar products, were well received among customers. Amid the market’s prevailing weakness in new order intake, our result outperformed the market.
Our new order intake in February increased 100% over the previous month. With the strong momentum of P7i orders, following its official launch, we expect to see a considerable month-on-month growth of total new order intake in March. This marks an initial success, following our comprehensive transformation, which is also boosted our company morale.
Our second new product model coming up this year, the G6, will make its debut at the Shanghai Auto Show.
Its official launch and vehicle deliveries will occur around the end of the second quarter. The G6 will bring the most advanced electrification and smart mobility technologies to the 200,000 to 300,000 yuan-priced NEV SUV market. With unrivaled interior space, range, styling, and interior decoration, we believe the G6 will become the top-selling model in its market segment. Following the ramp-up of G6 mass production, we expect G6 monthly sales target to be two to three times that of its P7 predecessor sales.
In addition, in the second half of 2023, we’ll launch a brand new BEV 7-seat MPV. This new MPV model is designed to cater to customer cohorts that demand larger interior room while serving the needs of our family customers for a human-machine Copilot.
AI, GPT technology integration
Recently, ChatGPT 4.0 and other AI-based applications have created a buzz among hundreds of millions of users on the massive potential of generative AI models. I am also very excited about this.
It represents a brand new phase of artificial general intelligence which on premise — with on premise deployment that does not rely on cloud end, which not only redefines the pathway to realize autonomous driving, but also increases its efficiency. Given this development, there is an even higher possibility that autonomous technology further advances from L4 to L5. We expect to incorporate GPT technology deeply into XPeng’s business across the board to create groundbreaking user experiences and exceptional improvements to our operational efficiency.
City NGP, autonomous driving
In late March, we began accelerating the rollout OTA rollout of City NGP, compatible with multiple models in several cities, including Guangzhou, Shenzhen, and Shanghai.
Through City NGP’s OTA, we took the lead in mass producing the transformer-based BEV time-series network, or XNET in China, which achieved a milestone in deep-learning algorithm development and application. In the second half of this year, XNGP, powered by XNET’s deep-learning algorithms, will no longer depend on a high-definition map. That said, XNGP will be supporting drivers on more urban roads across over 10 cities in China. Results from our testing showed the new version of XNGP outperformed peers’ actual on road performance in the United States.
This leads us to believe XPeng’s autonomous technology and its customer adoption is approaching a pivotal turning point. We have built notable leadership in smart technologies, as well as customer adoption of smart technologies compared with peers. We’re driving our technology roadmap and commercialization pathway to cross over the inflection point and reach an accelerated growth curve. While keeping high safety standards remains a top priority of our technology advancements, we’ll also be focused on rapid development to improve scenario coverage, user experience, and software and hardware cost optimization.
Looking ahead, we expect that, through continuous OTA upgrades, XNGP’s driving skills will escalate every year and, in two to three years, reach a level that is equivalent to a human driver with three years of driving experience. We also expect that the number of manual takeovers per 100 kilometers will be reduced to one or fewer. Regarding cost efficiency, we plan to cut XNGP’s BOM cost significantly next year and adjust our sales model from one that bundles sales of software and hardware, to one that splits the sales of software and hardware, which is going to enable autonomous driving on all of our new vehicles and allow more customers to use the latest autonomous driving capabilities. In pursuit of breakthroughs in the aforementioned three realms, we will bring great value to our customers and build our competitive edge in technologies, delivering long-term sustainable revenue growth at scale and with improved margin contribution.
The next five-years — the golden age for autonomous driving
It has been said that the past five-year period was the golden age for new energy vehicles. I believe the next five-year period will be the golden age for autonomous driving. During the five years to come, XPeng’s highly advanced autonomous driving technology and our efforts in optimizing our organization and making up for our weaknesses will help XPeng accelerate our ability to gain top market share. In the face of fierce competition, in addition to our leadership in autonomous driving and aesthetic design, while greatly improving our product planning abilities, marketing efficiency, and organizational capabilities, I believe more powerful cost control will be the core competitive edge that will enable XPeng to secure its leadership in the EV market.
Entering a new phase of car-making in a unified system
We’ll advance the platform-based approach and technology innovation to propel our cost-reduction strategy. Entering 2023, we’re applying a full platform engineering approach for our BEV vehicle platform, electrical and electronic architecture, powertrain system, and ADAS software and hardware development. This signals that we are entering a new phase of car-making in a unified system. In this way, we’re able to develop products with superior product quality and customer experience at a faster pace and at a lower cost.
In the past, our R&D strengths were primarily manifested by our leading product performance. In the future, our R&D strengths will be underlined by maintaining the leading performance while achieving remarkable cost reductions. We have mapped out our strategic execution roadmap with associated cost reduction, including an over 50% decrease for autonomous driving costs and about 25 decrease for vehicle hardware costs, including powertrain over to 2023 to 2024 periods by means such as technology innovation and optimized configurations. I’m pleased to see that the design, technology, R&D, supply chain, and manufacturing teams are now working in a synergistic way to make our efforts and products more competitive through innovation.
In terms of cash liquidity, our cash on hand at the end of 2022 amounted to over RMB 38 billion. As we have nearly completed our investment in our two manufacturing bases over the past few years, including this year, our capex will decline substantially. We have also established three powerful vehicle platforms that can support a series of new model launches over the next three years. Our R&D will further concentrate on initiatives that best correspond to with long-term trend and further differentiate our products in terms of customer experience and cost.
Improvements in operating efficiency
We’ll also pursue improvements in operating efficiency throughout the entire process. For example, within our sales operations, we strive to improve same-store efficiency by optimizing our store network. We believe these cost optimization efforts will strive to deliver a material results beginning in the coming several months, including in the second half of this year. It has always been my intention to build a successful company that can grow in scale instead of a small company in a niche market, or just any generic company out there.
Pursuing greater victories in the medium and long term
Expanding our scale and market share to achieve economy of scale in both software and hardware is the primary goal in our long-term strategy. Although the product and management adjustment cycle in the automotive industry is more difficult than other industries and takes a longer period of time, we’re still willing to sacrifice short-term sales and more patiently pursue greater victories in the medium and long term. Excitingly, as we rapidly implement adjustment and changes to our management, in addition to instituting a host of upgrades and iterations in our product portfolio and marketing capabilities, we have seen encouraging changes and positive results.
Significant growth from Q3 2023
I’m firmly convinced that beginning in the third quarter of this year, XPeng’s monthly sales number will achieve significant growth, both sequentially and year over year, as well as be much higher than the industry’s average growth rate. I would reiterate that our current focus is on building and improving our capabilities in organization, product design, marketing, and cost control. Continuous efforts in refining management and accelerated new product launches in the era of autonomous driving will lead us to the next level of exponential growth. We’ll continue to strive for this goal.
Q1 2023 delivery projection
Lastly, we expect our total vehicle deliveries to be between 18,000 and 19,000 units in the first quarter of 2023 and revenue to be between RMB 4 billion and RMB 4.2 billion.