Recently, Xpeng Motors has been making headlines in the electric vehicle industry, particularly after the impressive performance of its models, the M03 and the P7+. The company reported its best quarterly results ever, demonstrating a significant turnaround in its financial metricsThe CEO, He Xiaopeng, maintained a pragmatic perspective at the performance briefing, aware of the intensifying competition on the horizon and the necessity for continued efforts to navigate the challenges ahead.

The third-quarter earnings report, released on the evening of November 19, revealed that Xpeng recorded a total revenue of 10.1 billion yuan (approximately $1.4 billion), marking a year-on-year increase of 24.5%. Notably, the automotive revenue alone accounted for 8.8 billion yuan, nearly 87% of the total revenueThe remaining revenue of 1.31 billion yuan came from services and other collaborations, particularly from its partnership with Volkswagen

Sales of vehicles continue to be the dominant revenue stream for Xpeng.

During the third quarter, Xpeng initiated large-scale deliveries of the M03 model, achieving an overall delivery of 21,400 vehicles in September aloneImpressively, the M03 accounted for over 10,000 units of these deliveries, contributing to almost 50% of the total monthly sales and bolstering the quarter's overall delivery volume to 46,500 vehicles—a 16.3% year-on-year increaseThis surge in deliveries played a pivotal role in driving the company's revenue growth.

Xpeng achieved a record high gross margin of 15.3% during this quarter, up 2.7% from the previous yearThe gross margin for vehicles reached 8.6%, while the profit margin for services and other revenue sources significantly soared to 60.1%. Analysts suggest that maintaining a gross margin exceeding expectations at 6.9% amid the popularity of the competitively priced M03 wasn't an easy feat

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The primary factor contributing to this success appears to be the substantial decline in manufacturing costs per vehicle, thereby enhancing the overall profitability of the cars produced.

Notably, the average selling price of Xpeng vehicles dropped by 37,000 yuan to 189,000 yuanThis reduction is attributed to two main factorsFirstly, the introduction of models priced between 119,800 and 155,800 yuan led to a 23% increase in their proportion within the model lineupSecondly, there were significant price cuts across the board for various models—G9 saw a 10,000 yuan reduction, the older P7i was reduced by 15,000 to 26,000 yuan, and the high-spec G6 received a 15,000 yuan cut—ultimately impacting the overall selling price of Xpeng cars.

In contrast, the cost per vehicle also decreased by 39,000 yuan to 173,000 yuanThe drop in costs outpaced the decline in selling prices, resulting in Xpeng earning 16,000 yuan for each vehicle sold, a 2,000 yuan improvement compared to the preceding quarter, thus boosting the gross margin for vehicles to 8.6%.

During the performance briefing, He Xiaopeng emphasized the importance of improving vehicle gross margins, setting the P7+ as a new benchmark

He expressed optimism that the new models and significant upgrades planned for the following years would incorporate a range of platform technologies introduced with the P7+, aiming to achieve a double-digit gross margin for future models.

Moreover, the consistently high profitability from Xpeng's other business endeavors has been critical in enhancing the overall gross margin figuresFollowing the commencement of Xpeng's collaboration with Volkswagen in July last year, they agreed to co-develop two models of mid-sized electric vehicles based on the G9 platform and Xpeng’s intelligent driving capabilities by 2026. This partnership expanded in April of this year, with plans to incorporate Xpeng’s latest EEA 3.5 electronic architecture into Volkswagen’s platforms in China.

Since the third quarter, Xpeng has not only reaffirmed its technical licensing fees associated with the G9 platform and software but has also commenced confirming fees for Volkswagen’s use of Xpeng’s EEA electronic architecture

This has resulted in increased income and improved gross margins from other business segments.

Looking ahead, due to the enhancement in gross margins, Xpeng managed to reduce its net loss by 53.5% year-on-year to 1.81 billion yuan in the third quarterWith the accelerated deliveries of the high-margin P7+, Xpeng is optimistic about achieving a quarterly break-even point sometime next yearGao Hongdi, Xpeng’s vice chairman and co-president, reiterated the company’s commitment to reach this financial equilibrium by the end of next year.

On a broader financial scale, Xpeng managed to control its operating expenses in the third quarter within market expectationsThe R&D expenditure stood at 1.63 billion yuan, reflecting a 25.1% increase compared to the previous year but falling short of market forecasts of 1.72 billion yuanThis budget primarily focused on smart technology development and new vehicle research, emphasizing Xpeng's commitment to leveraging its advanced algorithms, which are transitioning to a purely visual approach in intelligent driving technologies.

As of the third quarter, Xpeng’s cumulative R&D expenses for the year had reached 4.45 billion yuan, with the company projecting a total R&D budget of around 7 billion yuan for the entire year

This suggests potential increases in R&D investments in the upcoming fourth quarter.

The company reported its selling, general, and administrative expenses at 1.63 billion yuan, marking a 3.5% decline year-on-yearXpeng attributed this to reduced employee compensation costsHowever, compared to the second quarter, these expenses rose by 3.8%, primarily driven by increased sales commensurate with more commission payments to franchised dealers and heightened marketing spending linked to the launch of the Mona model.

Encouraged by these stable financial results, Xpeng has issued optimistic forecasts for the fourth quarter, surpassing market expectationsHe Xiaopeng indicated that Xpeng anticipates total revenues ranging from 15.3 billion yuan to 16.2 billion yuan, reflecting a year-on-year increase of approximately 17.2% to 24.1%. The projected number of vehicle deliveries is between 87,000 and 91,000 units, representing a growth of approximately 44.6% to 51.3% year-on-year.

Though October's delivery figures were already known at 24,000 vehicles, this means that November and December will need to achieve monthly delivery figures between 31,500 and 33,500 vehicles to meet the company's delivery targets

However, ongoing challenges with the M03’s delivery have arisen, as many customers who placed orders in September have reported delaysGiven that various local subsidies conclude by December 31, 2024, several of these customers may miss out on enticing fiscal incentives for their purchases.

In response to these delays, He Xiaopeng stated that Xpeng has put in place double-shift production plans, which would bring the annual production capacity of its Guangzhou and Zhaoqing factories to an estimated 200,000 to 300,000 unitsThe company has already formulated a production strategy through 2026 and is working with suppliers to boost their capacityAdditionally, predicted delivery figures for November are set to exceed 30,000 vehicles, with P7+ deliveries in December slated to surpass 10,000 units.

Looking toward the future, He Xiaopeng disclosed that Xpeng is primed to enter a robust product cycle in the coming year, unveiling several vehicles boasting strong AI and autonomous driving capabilities