Introduction | Lead

As NIO vigorously promotes its second brand, Ledo, Xpeng Motors' once-planned second brand, codenamed MONA, has experienced a "downgrade." Recently, after multiple rounds of preheating, Xpeng officially released the first product in the MONA series, the "Xpeng M03."

Produced by | Heyan Yueche Studio

Written by | Zhang Dachuan

Edited by | Heyanzi

Total word count: 2152 words

Reading time: 4 minutes

The release of the Xpeng M03 is crucial for Xpeng Motors at present.

Recently, NIO has seen significant sales growth. With the support of the new Baas policy, its sales exceeded 20,000 units in May, showing a clear upward trend. Next, the more cost-effective Ledo brand is expected to bring considerable incremental sales to NIO. As for Lixiang and AITO, they still maintain a significant lead; while the upward momentum of NIO and ZEEKR is also very evident. In comparison, Xpeng's situation is not as optimistic. In May, Xpeng's sales were only 10,146 units, with cumulative sales of only over 41,000 units in the previous month. Under such circumstances, MONA was highly anticipated by Xpeng. By introducing a new brand priced between 100,000 and 150,000 yuan, it is expected to give Xpeng's sales a boost.

△Xpeng officially released the first product in the MONA series, the "Xpeng M03"

MONA's Offensive Direction

In August 2023, a collaboration between Xpeng and Didi attracted considerable attention. According to the relevant cooperation agreement, Xpeng acquired Didi's assets and R&D capabilities related to its smart electric vehicle project in exchange for 3.25% of its shares, valued at 5.835 billion yuan. At that time, Didi's relatively mature "Da Vinci" project became the current Xpeng M03, and Didi was also hoping to focus its resources on its core business - the mobility sector, while cutting back on its vehicle manufacturing project. Earlier, Didi's collaboration with BYD on the Didi D1 has also been inconclusive.

△Didi hopes to focus on its core online ride-hailing business

On the surface, this collaboration will allow Xpeng to acquire an A-class electric vehicle. However, considering Xpeng's capabilities, building an A-class electric vehicle is not a problem. Therefore, there are deeper reasons behind this collaboration. According to the agreement, Xpeng and Didi reached an annual sales bet of at least 100,000 units and up to 180,000 units for two consecutive years. In 2023, Xpeng's sales were only 141,601 units. In addition to the online ride-hailing market, Xpeng also hopes to enter the consumer market with this electric vehicle. To this end, Xpeng priced the MONA brand between 100,000 and 150,000 yuan, hoping to create a hit model for itself in the consumer market, in addition to the online ride-hailing market, through its high cost-effectiveness.

△Acquiring Didi's electric vehicle assets helps deepen the alliance between Xpeng and Didi

MONA Downgrade Was Unavoidable

However, the domestic automotive market has undergone significant changes over the past year.

On the one hand, the domestic automotive market is highly competitive. Everyone is competing on price and configuration. Moreover, recently, the momentum of domestic plug-in hybrid models has been stronger, while pure electric vehicles have slowed down. Therefore, for Xpeng, there is still uncertainty about how much the introduction of the MONA brand can boost its sales. For Xpeng, it is likely hoping to follow Tesla's example and focus on intelligent driving. Through breakthroughs in forward-looking technologies, it aims to find a new "moat" for itself.

△Xpeng hopes to establish autonomous driving technology as its "moat"

On the other hand, building a brand-new independent sales network is costly, and Xpeng is not financially flush at present. According to Xpeng's first-quarter financial report, its revenue for the quarter reached 6.55 billion yuan, representing a year-on-year increase of 62.3% but a quarter-on-quarter decrease of 49.8%. In the first quarter, Xpeng still incurred a net loss of 1.37 billion yuan, with a slight increase quarter-on-quarter; the only bright spot was gross margin, which reached 12.9% in the first quarter, representing a year-on-year and quarter-on-quarter improvement. In terms of cash reserves, which are crucial, Xpeng had 41.4 billion yuan at the end of the first quarter. While the numbers indicate that Xpeng has considerable funds at its disposal, for an automaker, not only does Xpeng need to continuously invest significant resources in the field of autonomous driving, but even updating models and vehicle platforms is a considerable investment. Creating a brand-new brand, establishing a new sales channel, and increasing the brand's popularity is even more costly. Especially in the past period, a significant change in Xpeng's sales strategy has been to focus more on introducing dealers and cutting unprofitable self-operated stores. Against the backdrop of generally difficult times for domestic dealer groups, attracting investors for MONA may not be an easy task.

△Creating a brand-new brand is a considerable expense for Xpeng

Challenges Facing M03

Everything has two sides. As a series priced at around 150,000 yuan, integrating the MONA series into the Xpeng brand may further lower Xpeng's brand positioning and potentially affect the single-vehicle gross margin of Xpeng's models.

However, for Xpeng Motors, the current focus of controversy is no longer gross margin and brand positioning. Under the ongoing price war, the Xpeng P5 and Xpeng G3 models have already fallen into the original price range of MONA, so there is no longer any issue of lowering positioning and gross margin. Moreover, if the Xpeng M03 can achieve significant sales, its cost can be rapidly reduced. It is not impossible for it to exceed the gross margin of the Xpeng P5 and Xpeng G3. Currently, Xpeng's primary goal is still to increase sales. Only by rapidly increasing sales can Xpeng occupy a place in the fiercely competitive domestic market.

△Xpeng already has cheaper models under its umbrella

However, Xpeng needs to consider whether entering the mobility market with its brand and engaging in online ride-hailing business will give other potential buyers of Xpeng models more concerns. This needs to be differentiated and addressed in advance. Looking at the domestic market, WM Motor, which has now lost any significant voice, was previously keen on the B-end mobility market. After all, no consumer would want to be perceived as a ride-hailing driver. Therefore, in the short term, while the pie in the mobility market is enticing, avoiding brand damage is crucial.

In addition, it is worth noting that multiple regions in China have recently issued warnings about the saturation of the online ride-hailing market. After all, the domestic online ride-hailing market will not continue to expand and grow unchecked. Didi's betting order is only for two years, and Xpeng needs to plan for the future of the M series after that.

△The domestic online ride-hailing market will not grow indefinitely

Commentary

Xpeng Motors downgrading MONA from a second brand to a series is undoubtedly a correct choice in the current market environment. The Chinese automotive market does not necessarily need a brand-new brand but requires core technologies that can compete directly with Tesla's FSD in intelligent/autonomous driving. When the current market competition subsides and domestic excess automotive capacity is cleared, there will still be many opportunities for surviving brands to create second and third brands.

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