Automotive Author: Hang Yang, Ivan Platonov Editor: Luke Sheehan, Zhiqing Chen Mar 23, 2021 10:41 AM (GMT+8)

Riding the wave of Chinese EV frenzy.

XPeng

● Xpeng experienced a triumphant 4Q with cheerful delivery figures and financials.

● The company is strategically responding to the growing demand for autonomous vehicles in China.

● A new self-driving-version model is in the pipeline.

● The management gave a conservative 1Q 2020 prediction.

● Our Xpeng view matches our NIO view: buy the next dip.


An outstanding quarter

In 4Q 2020, Xpeng delivered 12,964 vehicles; the revenue was USD 436.92 million, beating the market estimates (Bloomberg Consensus) by USD 27 million. The gross margin was 7.4%, much stronger than the Street's estimation of 6.5%. But the USD -0.15 EPS missed the consensus by USD 0.02 based on Seeking Alpha data. The management revealed a similar reason to NIO, explaining such performance by the foreign exchange rate factor (a stronger yuan and a weaker dollar). In nominal numbers, the company's net income beat the market expectation.

There were other key factors contributing to the unexpected growth, according to the earning call: Xpeng's self-driving technology has been a significant factor in acquiring customers. For instance, 20% of P7s have XPILOT 3.0, a version released two months ago.

This figure is significantly higher than the active rate of Tesla's FSD in China – and many analysts' expectations. Besides, He Xiaopeng, the CEO of Xpeng, also said that “the mileage assisted by the NGP as a percentage of the drivable mileage of NGP, exceeded 50% among those P7s that activated the NGP.”

What about the chip and battery shortage?

Apart from regular reports, given the background of a tight global supply chain, Xpeng also responded to the impact during the earnings call. The company didn't directly indicate the potential influence of chip and battery shortage, claiming to expect a 'healthy growth' for 2021. We tend to believe this viewpoint as we deem the firm's management reliable.

Other than that, the company's projected March delivery of 4,223 units is far behind the figure of 6,015 units delivered in January. We think the management kept a conservative stance as it gave an outlook for the future. Thus, the March figure may surprise us given 1Q is a weak quarter on auto selling historically.

An exciting roadmap

Except for the production and delivery, the management also unveiled its plans for the third model, XPILOT 3.5, 4.0, European expansion, Lidar and production ramp-up. 

The third model will be released in 2Q 2021, produced en masse in 3Q and delivered at the beginning of 4Q. The motor will be equipped with Lidar and NGP 3.5 software. The upcoming NGP will allow cars to drive on major urban roads. Furthermore, a conversation about the 4.0 version also took place, projecting that this version will launch at the beginning of 2022.

It seems the company iterates self-driving features faster than typically expected. By far, P7 achieved long-distance high-speed driving without human intervention. To widen the gap, the company is preparing to double its R&D team headcounts in 2021 to better accommodate the next-gen computing platform.

In short, by the end of 2021, Xpeng is likely to exceed 100,000 annually unit production capacity by selling three models, including two capable of level-3 self-driving. The high level of autonomous driving will elevate Xpeng's market position to become the leader in the EV market, with vehicles' prices ranging from CNY 100k to 400k.

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Xpeng's software is slept on

After a few rounds of evaluations, we believe that Xpeng has been regarded as an EV startup of equal importance to NIO and Li Auto.

Based on Bloomberg, NIO's EV/Forward revenue is around 2x higher than Xpeng's. But on indicators such as NGP's take rate, usage and consumers' degrees of satisfaction and others, the company has overtaken its competitors on self-driving capability. By contrast, Li Auto's car has no similar Pilot functions and is currently hiring talents to address that. The iteration of NIO's NOP fell behind NGP. As Xpeng keeps improving self-driving, they will sell more vehicles embedded with the new and more expensive version of NGP, generating a higher revenue. From this aspect, software revenue is usually compensated with high multiples.

Overview

Xpeng has proved its ability to produce and sell popular models in 2020. Its prospective new launches are highly likely to bolster investors' confidence. By the end of 2021, Xpeng will have three models, including two supporting urban area self-driving cars with Lidar. Although the global chip shortage may interrupt its production, it will not ruin Xpeng's fundamentals. Last but not least, we share our views on NIO with Xpeng, from which we believe that the recent occasional sell-off is a good opportunity to invest in these high-quality EV companies. Furthermore, NIO, Xpeng and Li Auto all have plans to go public in Hong Kong this year. The intention is very clear: they are all scaling up and are utterly serious about the booming Chinese EV space.

EV