It is highly likely that Xpeng is approaching an inflection point in its growth trajectory.

Even if we exclude sales of the MONA model, Xpeng is currently in the early stages of its large-scale expansion and will soon enter into this growth process.

However, things do not always progress smoothly, and Xpeng's growth will also face inherent resistance. The emergence of this contradiction is likely to mark the node of its current round of scale growth.

This article will explore the logical reasons behind Xpeng's upcoming inflection point in growth by reviewing its development over the past year. Then, through the universal principle of change from unity to opposition, it will showcase the transformation of contradictions during Xpeng's growth process from inflection point to node.

‍01

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Xpeng's Methodology and Logic Have Received Positive Feedback

One year ago, amidst a whirlwind of public opinion, Xpeng unveiled its methodology for reversing its unfavorable situation (refer to the article "From Recognition to Consensus: Xpeng's Methodology"). Key performance indicators included:

1. To "clear" Xpeng's early E-platform business and assets (i.e., G3 and P5 models) as soon as possible from an accounting perspective, including related equipment and inventory, thereby freeing Xpeng financially from this long-term burden and preemptively releasing pessimistic financial guidance for Q3 2023.

2. Relying on the G6 model, which still offered industry-competitive pricing, Xpeng aimed to achieve an overall monthly delivery volume of 20,000 vehicles and turn its gross margin positive in Q4 2023.

3. Complete the acquisition of Didi's smart vehicle business to pave the way for the rapid launch of the 150,000-yuan smart driving model (MONA M03), leveraging Didi's unique B-end channel advantages to rapidly increase sales of this model, becoming one of the main engines driving Xpeng's overall sales growth.

4. Following Volkswagen Group's strategic investment, Xpeng continued to deepen its cooperation with Volkswagen, including providing Volkswagen (Anhui) with Xpeng's D-platform (production platform for G9 and P7) vehicle solutions in the form of technical support to help Volkswagen China develop two B-segment pure electric vehicles. Additionally, they explored potential cooperation in future electric vehicle platforms, software technology, and supply chains, aiming for mutual benefit and win-win results.

Following this methodology and considering the above assessment criteria, let's review Xpeng's specific developments and outcomes over the past year:

1. In Q3 and Q4 2023, Xpeng's quarterly deliveries were 40,000 and 60,000 vehicles, respectively, with overall gross margins of -2.7% and 6.2%. Specifically, the gross margins for the automotive sales business were -6.1% and 4.1%, respectively, indicating that the G6 model demonstrated significant market competitiveness and cost-effectiveness, enabling initial improvements in Xpeng's operations.

2. In November 2023, Xpeng officially acquired Didi's smart vehicle business assets, incorporating them into its financial statements. In exchange, Didi received over 58 million newly issued Xpeng shares (accounting for 3.25% of total shares at the time). By the end of July 2024, Xpeng had begun mass production of the MONA M03, and Didi received an additional over 4.6 million newly issued shares (approximately 0.24% of post-issuance total shares), indicating smooth progress in their cooperation. The first two of four delivery milestones have been achieved.

3. September 2024 marked the first month of M03 sales, with total deliveries exceeding 10,000 vehicles, helping Xpeng set a new monthly delivery record of 21,352 vehicles. Orders for the M03 were also substantial (exceeding 70,000 orders by mid-September). Didi's channel contributed significantly to these sales. If the M03 model achieves cumulative sales of 100,000 to 180,000 vehicles in the next 13 months, with 25% of sales coming from the C-end market, Didi will receive up to an additional 14 million newly issued Xpeng shares based on specific sales proportions, completing the third delivery milestone of their cooperation.

4. In December 2023, Volkswagen Group completed its share purchase agreement with Xpeng, with Xpeng issuing over 94 million newly issued shares to Volkswagen (accounting for 4.99% of post-issuance total shares) for a total transaction value exceeding $700 million. The agreement stipulated that Xpeng would provide platform technology for the G9 model, as well as telematics and ADAS software, to jointly develop two pure electric B-segment vehicles with Volkswagen Group, scheduled for production and sale in China in 2026.

5. In February 2024, Xpeng and Volkswagen Group signed a joint development agreement on platform and software technology and reached a joint procurement plan for shared components across their respective models and platforms, indicating deepening strategic cooperation between the two parties with broader scope and content.

6. In Q1 2024, Xpeng delivered fewer than 22,000 vehicles, but its overall gross margin reached 12.9%, with a gross margin of 5.5% for automotive sales and 53.5% for services and other revenue. This indicates that Xpeng significantly increased its revenue through the provision of intelligent technology to Volkswagen, thereby markedly improving its overall financial structure.

7. In April 2024, Xpeng further signed a strategic cooperation framework agreement with Volkswagen Group on electronic and electrical architecture (EEA) technology. Based on its latest generation EEA (currently X-EEA 3.5, with X-EEA 3.0 used in the G9), Xpeng will jointly develop a new EEA, the CEA, with Volkswagen. Volkswagen will apply the CEA to its China-specific CMP platform.

8. In Q2 2024, Xpeng delivered 30,000 vehicles, and its overall gross margin further increased to 14.0%, with a gross margin of 6.4% for automotive sales and 54.2% for services and other operations. This suggests that despite no significant change in scale, Xpeng's overall costs were optimized, potentially due to joint procurement with Volkswagen.

9. In July 2024, Xpeng officially signed a joint development agreement with Volkswagen Group on EEA. The two parties will work together to develop the aforementioned CEA for Volkswagen's CMP and MEB platforms in China. Joint development teams will be established in Guangzhou and Hefei, with the first China-produced Volkswagen model equipped with CEA expected to enter mass production within 24 months.

10. In Q3 2024, Xpeng delivered nearly 47,000 vehicles. Given the growth in scale and the continued in-depth cooperation with Volkswagen, it is highly likely that Xpeng's financial structure will be further optimized in Q3 2024.

Clearly, despite the significant negative impact of the industry's new round of price wars on Xpeng's sales at the beginning of this year, Xpeng's financial structure has gradually improved. This adequately reflects the effectiveness of the methodology showcased by Xpeng to the market a year ago.

This indicates that Xpeng's development logic over the past year has transcended the homogenized competition brought about by price wars in the industry. By evolving into an upstream supplier in addition to its primary role as an automaker, Xpeng has temporarily escaped the brutal mode of large-scale competition.

Now, with the recent launch of the new P7+ model as a hallmark, Xpeng has demonstrated the possibility and feasibility of participating in industry price wars. As its strategic cooperation with Volkswagen continues to advance and deepen, Xpeng's growth potential will be continuously unleashed.

At least in the next two to three years (due to Xpeng's relatively small absolute scale), its methodology and development logic will remain relatively smooth and clear.

02

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Volkswagen: The Key to the Effectiveness of Xpeng's Methodology

In fact, the biggest problem presented by Xpeng over the past year has been its inability to participate in price wars and keep up with the industry's declining price trend, which rapidly weakened the market competitiveness of its flagship G6 model launched last year and directly led to a steep decline in sales in the first half of this year.

This is due to constraints such as small scale, high R&D costs, and high production costs.

While cooperation with Didi may help alleviate these constraints to some extent, it is difficult to fundamentally change Xpeng's passive position in price wars.

The MONA M03, positioned as a compact A-segment pure electric vehicle, does not offer significant competitiveness in its non-autonomous driving versions (priced at 119,800 and 129,800 yuan) compared to similar models in the industry. However, its autonomous driving version (priced at 155,800 yuan) is virtually unique in the current market, enabling differentiated competition through autonomous driving capabilities.

The divergence in competitiveness between the autonomous driving and non-autonomous driving versions of the M03 is, in my opinion, related to the pricing anchor point of the M03.

While Xpeng ostensibly sets the price for the M03, its true pricing anchor is within the Didi system. As the third and fourth SOP delivery conditions for Xpeng and Didi require Didi's channels to absorb 3/4 of the target sales, the pricing of the M03 must reference market prices in the ride-hailing industry, limiting its gross margin ceiling. To achieve higher gross margins, Xpeng relies on sales of the autonomous driving version.

From the perspective of ride-hailing drivers, the price difference between the autonomous driving and non-autonomous driving versions of the M03 is 26,000 to 36,000 yuan. Given the tool-like nature of these vehicles, the penetration rate of the autonomous driving version in the ride-hailing market may not be ideal.

While the autonomous driving version may have a higher penetration rate in the C-end market compared to the B-end, consumers at the same price point can also access higher-end models than the M03 (a reflection of the industry's price war outcomes). In this context, the penetration rate of the M03's autonomous driving version in the C-end market requires further market feedback for estimation.

However, given that the ratio of B-end to C-end constraints in Xpeng's SOP delivery terms with Didi is set at 3:1, and the penetration rate of the autonomous driving version was not disclosed in the first-month sales figures for the M03 in September, the space for Xpeng to earn high gross margins through the autonomous driving version is relatively limited.

Therefore, even if the M03 helps Xpeng achieve growth in scale, it is difficult for it to significantly improve its financial structure, making it challenging for Xpeng to participate in industry price wars and develop new competitive models.

However, judging from the configuration and presale price of Xpeng's newly launched P7+ model, the vehicle already demonstrates strong product and price competitiveness in the market, with impressive order volumes.

The decisive factor behind this is the progressive strategic cooperation between Xpeng and Volkswagen. Xpeng not only receives stable and growing revenue from technical R&D services from Volkswagen but also achieves cost savings through joint procurement of some components, thereby breaking the long-term constraints of "small scale, high R&D costs, and high production costs" that have hindered Xpeng's development.

Roughly estimating based on changes in Xpeng's service and other revenue in Q1 and Q2 2024, Xpeng's revenue from Volkswagen in these two quarters was approximately 500 million and 600 million yuan, respectively. With the advancement of strategic cooperation between the two parties, Xpeng is expected to generate at least 2 billion yuan in revenue from Volkswagen in 2024, with this being a relatively stable source of income until 2026.

Based on Xpeng's sales volume and automotive sales revenue in 2023, its automotive sales revenue in 2024 is estimated to be approximately 30 billion yuan. This means that through revenue from Volkswagen, Xpeng can achieve a price reduction space of over 6% per vehicle on average. When considering cost savings from joint procurement with Volkswagen, Xpeng's price reduction space per vehicle may reach around 10%.

This explains the strong product and price competitiveness of the P7+ model, enabling Xpeng to participate in industry price wars.

Looking specifically at Xpeng's cooperation with Didi, while Xpeng can directly achieve growth in scale, it is unlikely to significantly improve its financial structure, making it difficult for Xpeng to participate in industry price wars and develop new competitive models.

In contrast, through cooperation with Volkswagen, Xpeng can directly improve its financial structure, thereby gaining the ability to autonomously expand its scale. This can be achieved either through direct price reductions or by developing more competitive new models like the P7+.

It is clear that whether cooperating with Didi or Volkswagen, Xpeng can ultimately achieve growth in scale. However, cooperation with Volkswagen can directly improve Xpeng's passive position in industry price wars.

Therefore, in Xpeng's methodology, Volkswagen is the key to determining the effectiveness and smoothness of its development logic.

To facilitate scale expansion, Xpeng bet on Wang Fengying and the dealership channel in 2023. The number of its sales outlets increased rapidly from a low of 395 in Q3 2023 to 611 in Q2 2024, a growth of over 50% in less than a year, even without significant changes in sales volumes. This demonstrates Wang Fengying's expertise in traditional dealership channels and suggests that Xpeng's outlet count may approach 800 by the end of 2024, covering over 200 cities.

Clearly, Xpeng has made ample preparations for the early stages of its large-scale expansion.

03

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The Node of Large-Scale Expansion Will Appear Amid Shifting Contradictions

From Volkswagen's perspective, its continued support for Xpeng's scale expansion plan is rooted in the need to validate the technical value and commercial worth of this partner through market mechanisms. Therefore, during this validation period, the contradictory relationship between Xpeng and Volkswagen (i.e., unity and opposition) primarily manifests as unity.

Due to earlier misjudgments and missteps in the Chinese market, Volkswagen not only missed out on the dividends of China's new energy vehicle market but also struggled to keep pace with domestic advancements in new energy technology research and development, while also facing financial pressures from declining returns on investment in China (e.g., Volkswagen (Anhui)'s current return on investment).

This prompted Volkswagen to identify an ideal target company among China's new energy participants (a common practice among large conglomerates). This company should meet certain criteria, such as having a comprehensive technical reserve in electrification and intelligence, controllable scale, simple equity structure, and appropriate pricing.

Of course, the most crucial factor is technology, which is also the hardest to verify. For Xpeng, a technology-driven company with suboptimal scale performance, verification and assessment are even more critical. Only after confirming Xpeng's technical value can Volkswagen proceed to the pricing stage.

In other words, the $700 million equity investment and annual technical R&D service fees of $2 billion to $3 billion represent Volkswagen's validation fees for Xpeng to fully demonstrate its technical capabilities. Xpeng will seize this opportunity to maximize its scale, thereby proving its technical value and maximizing its commercial worth.

Therefore, at least during the value discovery stage, Volkswagen and Xpeng share a high degree of unity in their aspirations to use scale growth to validate the value of this endeavor.

The contradictory relationship between the two parties will emerge during the pricing stage, when Volkswagen's ambivalent attitudes and actions may negatively impact Xpeng's methodology and logic.

As the saying goes, "Success has many fathers, while failure is an orphan." In fact, this is the most significant contradiction in Xpeng's methodology and logic, as the development of any endeavor is never straightforward but rather a dynamic interplay of unity and opposition.

In my opinion, the root cause of this significant contradiction lies in the fact that Xpeng has objectively missed the golden period of high growth in China's new energy vehicle industry, resulting in its current limited scale. Sufficient scale is crucial for an automaker to survive the industry shakeout.

If we refer to the views expressed in the previous article "Restructuring: How Many Automakers Do We Really Need?," Xpeng may ultimately be consolidated during this industry restructuring process.

In this context, Xpeng's optimal solution is to maximize its scale and growth within the limited competitive timeframe and market space, thereby optimizing its own valuation.

For He Xiaopeng, the founder of UC and later an Alibaba executive, he is no stranger to the rules of this industry. Even if you have excellent technical capabilities in a specific field, in a strongly scaled industry, the outcome is basically predetermined.

Therefore, the contradictions and disagreements about Xpeng in the future will eventually erupt at the stage when the public prices it.

But that's a later story. At least at this point in time, Xpeng's scaled development in the next two or three years is in line with the will of both the public and Xpeng.