How China EV maker XPeng got back into gear after stalling in 2022
FOLLOWING a spate of rapid growth in previous years, Chinese electric vehicle (EV) maker XPeng in 2022 faced its biggest crisis since its founding.
Co-founder He Xiaopeng was watching his then eight-year-old startup languish, dragged down by a problematic sales culture, weak supply chain management and poor corporate management. There was also the weight of external factors including declining demand and a looming price war that was stunting sales growth.
The end of 2022 was a tough moment for XPeng. The whole sector was in overdrive rushing out models and corralling customers to place orders before government subsidies for EVs stopped at the end of that year.
Serious changes were needed at the company, which is dual-listed in Hong Kong and New York. With larger shareholders voicing concerns, XPeng kicked off a major overhaul of its corporate structure, which would ultimately improve the efficiency of its sales network, streamline supply chain management, and concentrate decision-making with He and a select few executives.
XPeng faced business growth challenges throughout 2022, reflected by the modest 23 per cent growth in annual vehicles shipped, compared with 2021 and 2020, when deliveries surged 263 per cent and 113 per cent, respectively. The gloomy trend persisted into the first half of 2023, when it delivered 41,435 vehicles, down 40 per cent year-on-year.
This decline occurred despite XPeng’s efforts to diversify its product line. In October 2022, amidst the industrywide sales push, the automaker began mass deliveries of the G9 electric SUV, its fourth production model. Management had touted the new model as a future sales driver.
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But the G9 failed to generate the amount of demand expected. He, who is also XPeng’s chairman and chief executive, attributed this to factors including inflated production costs stemming from unnecessary features, such as an expensive sound system, and smart driving systems only being available in some versions. The rollout also suffered due to deficiencies in marketing and sales channel management.
The shake-up had started nearly a year before beginning to yield positive results by the end of 2023. November deliveries more than tripled year-on-year to 20,041 cars, setting a new monthly record.
The company swiftly broke that in December, delivering 20,115 EVs – a 78 per cent annual increase and the third straight month surpassing 20,000 deliveries. It ended 2023 with 141,601 vehicles shipped, up 17 per cent from the previous year.
Concentration of power
During a September interview with Caixin, the XPeng boss recounted the anxiety he felt when shareholders expressed concern about the returns on their investment. In particular, on Nov 1, 2022, the price of XPeng’s Hong Kong-listed shares plummeted to a low of HK$24.75, down 89 per cent from the historical high of about HK$220 in the previous December.
XPeng’s failure to stimulate orders with the G9 drove He to take decisive action. That October the company embarked on an organisational restructuring which led to the establishment of five committees dedicated to addressing issues related to strategy, products and technology, three of which are headed by He himself. The move was seen as a sign of He seeking to tighten his control over the company.
Adding to He’s shine, XPeng sealed a US$700 million investment deal from Volkswagen. Under the partnership, announced in July, the two carmakers are jointly developing at least two new battery-powered models. Analysts said that the partnership underscored the recognition of He’s efforts in turning the company around, especially with his bet on self-driving technology.
Two months after the Volkswagen deal, XPeng launched a new G9 model, which removed many of the features from the car that He had deemed unnecessary, including the expensive sound system.
Integrating sales channels
Founded in 2014, XPeng initially only sold cars through its own stores.
But with the increasing popularity of its P7 electric sedan, which hit the market in April 2020, the automaker began building ties with external dealerships to boost sales. Two sales channels were formed and managed independently by two vice-presidents, and competition soon brewed.
Sales representatives from XPeng’s own stores were able to access dealerships’ customer databases and would often use tactics like offering extra post-sale perks to convince customers to cancel orders placed through dealerships and instead place the orders with them, a former mid-level executive at XPeng told Caixin. To win back customers, some dealerships had to lower prices, the person added.
The internal scheming stemmed from a competitive culture that turned cutthroat during XPeng’s expansion — employees are encouraged to aggressively pursue additional business opportunities, regardless of the approaches taken, in order to secure their positions and qualify for stock options.
The company put an end to this toxic sales system in December 2022, unifying the two sales channels under the management of vice-president Wang Tong. Wang is a former senior executive of UC Browser, a company that He co-founded in 2004 and sold to Alibaba Group Holding a decade later.
The consolidation led to the closure of some inefficient XPeng stores and takeover of others by external dealerships, with the goal of enhancing sales efficiency and preventing unfair competition within the company.
Resolving the conflicts between the two sales channels was a major factor contributing to the company’s recent sales momentum, an industry expert monitoring auto sales told Caixin.
But the pick-up in sales is also partly due to XPeng’s recruitment in January 2023 of industry veteran Wang Fengying, former vice-chairwoman of Great Wall Motor, as president to oversee product planning, product portfolio management and sales operations.
Wang pointed out multiple times that XPeng has shortfalls in cost control, He told Caixin. “She has filled in an expertise void regarding automobile hardware within the company,” he said.
In just months, Wang led the consolidation of the firm’s trading and sales teams as well as cleaned up various lines of business operations.
As at March 2023, XPeng had 254 stores and 166 external dealerships. By September, the firm had pivoted its sales strategy to have dealerships play a bigger role in driving sales.
Supply chain management
Well-established automakers typically pay their suppliers on a six-to-nine-month timeframe. XPeng shortened this to 90 days by the start of 2023, a move aimed at stabilising its supply chain as the company tried to improve its gross margin.
This is a crucial step for startups in the EV industry like XPeng, which find it difficult to earn suppliers’ trust due to their small-scale production and susceptibility to demand fluctuations, a person working for an EV-battery company told Caixin.
In April 2023, XPeng unveiled SEPA2.0, a next-generation integrated technology architecture that enables 80 per cent of the major components the company uses to be compatible with a number of its models including the new G9, G6 and X9.
The architecture will also reduce XPeng’s future models’ R&D cycle by 20 per cent, it said.
Having a high component compatibility rate across an increasing number of models will help XPeng increase its bargaining position in negotiations with suppliers over prices, He added.
Controlling costs became increasingly important for carmakers in 2023 when a price war erupted in China’s highly competitive auto market.
With industry titans including Tesla and BYD putting pressure on peers by slashing prices, smaller competitors “must lower production costs or develop a new product that leading players do not offer”, said Zhou Lijun, the chief analyst at Yiche Research.
Overall, XPeng continues to remain loss-making. Net losses widened to 3.9 billion yuan (S$737.2 million) in the third quarter of 2023 from 2.4 billion yuan in the same period in 2022, according to the company’s earnings report released in November.
It booked 8.5 billion yuan of revenue across the same period, up 25 per cent on the year. CAIXIN GLOBAL
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