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XPeng’s Second-Quarter Net Loss Enlarged on Sales Recession

August 21, 2023: On Friday, XPeng’s Second-Quarter Net Loss Enlarged on Sales Recession, shipping the Chinese electric car designer’s shares down over 7% in premarket U.S. trade.

The net loss was more extensive than the 2.7 billion yuan loss reported for the second quarter of the previous year. It was also the most significant quarterly loss that Xpeng has posted since going public in August 2020.

Despite the impact on profit, the Chinese company’s second-quarter revenue met expectations.

Xpeng also said its gross margin turned negative at 3.9% compared with a positive 10.9% in 2022.

The company is attempting to turn around the business this year after a torrid 2022, during which its share price sank by more than 80%.

Xpeng is operating in a weak Chinese economy with depressed consumer spending while at the same time facing cut-throat competition in China from other upstarts like Nio and Li Auto, as well as giants BYD and Tesla.

Competition is still ramping up as a price war develops in the world’s second-largest economy. Tesla this week cut the price of its Model Y and Model S cars and offered discounts on existing inventory of the Model S and Model X in China.

Xpeng said its vehicle margin was negative 8.6% in the second quarter, compared with positive 9.1% in the same period last year. The company blamed this decline on “inventory write-downs and losses on inventory purchase commitments” related to its G3i vehicle, as well as on increased sales promotions and the expiry of Chinese electric vehicle subsidies.

Xpeng hopes its latest car, the G6 Ultra Smart Coupe SUV, launched at the end of the second quarter, will improve margins.

“With the G6 and other new products accelerating sales growth, we expect gross margin to gradually recover while operating efficiency continues to improve and free cash flow to improve substantially,” Brian Gu, co-president of Xpeng, said in the press release.

During the same-day earnings call, Xpeng CEO He Xiaopeng said that the company is undergoing cost-saving initiatives that should “substantially drive gross margin improvement in 2024.”

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XPeng’s Second-Quarter Net Loss Enlarged on Sales Recession