Source: Beast Finance Author: Beast Finance
The pros and cons of Xpeng Motors’ acquisition of Didi’s smart electric vehicle business
According to the terms of the deal disclosed by both parties after Xpeng Motors and Didi reached a cooperation, Didi (DIDI) will sell its smart electric vehicle business to Xpeng Motors (XPEV) for US$744 million. Xpeng Motors said it will use Didi's global mobile ecosystem will launch an A-class electric vehicle project code-named "MONA" in fiscal 2024. In doing so, Xpeng will target the low-cost electric vehicle market where it hopes to achieve mass production capacity and expand its leadership in self-driving vehicles.
Beast Finance believes that this transaction has pros and cons, which means that this transaction is completely a good thing for Xpeng Motors shareholders.
On the positive side, Xpeng Motors will have the opportunity to expand its leadership in autonomous driving technology, especially with the G6 coupe model being brought to market by Tesla (TSLA) A direct competitor of Model Y, and equipped with Xpeng Motors’ latest autonomous driving technology.
Equipping its electric vehicles with autonomous driving technology will also make Xpeng Motors more competitive in China's fiercely competitive electric vehicle market, especially considering that Tesla's autonomous driving technology is not yet fully available in China.
It was not until the second quarter of this year that Xpeng Motors announced that it was conducting fully autonomous driving tests on some models including P7, G9 and P5 in Beijing. Earlier this year, Xiaopeng Motors had launched an advanced driver assistance system called XNGP in cities such as Guangzhou, Shenzhen, and Shanghai, which is equivalent to Tesla's Fully Self-Driving (FSD), but Tesla's FSD is in China is currently not fully available, and a company like Xpeng that offers this technology has a significant competitive advantage over EV makers that don't.
Xpeng aims to roll out its advanced driver assistance systems to all Xpeng customers (via a software update) by the end of fiscal 2024.
According to the research report of Precedence Research, in the next ten years, the autonomous driving market will usher in explosive growth, and Beast Finance believes that this may bring strong growth to companies like Xiaopeng Motors. As autonomous driving technologies mature, the size of the global autonomous vehicle market will also experience strong growth and is expected to reach mass market potential in the short to medium term.
Precedence Research predicts that the size of the global autonomous vehicle market is expected to grow from US$122 billion in fiscal 2022 to US$2.4 billion in fiscal 2032, which means that the market will have an implied annual growth rate of 34% over the next decade. Overall, the self-driving car market is expected to grow 10-fold over the next decade, which will help create huge opportunities for companies like Xpeng Motors, which is already investing in its own self-driving technology A lot of money.
Source: Precedence Research
While Xpeng Motors could benefit from acquiring Didi's smart electric vehicle business, launching a new low-priced electric vehicle brand is also a good thing, but it also comes with considerable risks.
Xpeng Motors currently plans to mass-produce low-priced electric vehicles (priced below 150,000 yuan) with its project code-named "MONA" in fiscal 2024 and enter the market. Although this may increase Xpeng Motors' sales, it may also Therefore, it affects Xpeng Motors’ average selling price and profit margin. In addition, entering the low-margin mass market also represents a change in Xpeng Motors' strategy, which comes at a time when various electric vehicle manufacturers are trying to cope with the pressure caused by the price war initiated by Tesla.
At present, Xpeng Motors' profit margin has continued to deteriorate for two consecutive quarters. Xpeng Motors' profit margin in the second quarter of 2023 was negative 8.6%, a decrease of 6.1 percentage points month-on-month and a year-on-year decrease of 17.1 percentage points. This is also the second consecutive quarter in which Xpeng Motors has reported negative automotive profit margins.
While Xpeng Motors plans a massive strategy in its new electric vehicle segment, given the low prices and its deteriorating profit margins, Beast Finance believes investors will Hopes that its profit margins can be significantly improved may be dashed or reduced again. For analysis of Xpeng Motors’ profit margins, please refer to the previous article by Beast Finance, “Slowing demand, escalating price wars, and continued deterioration of profit margins have had a serious impact on Xpeng Motors.”
Xpeng Motors’ valuation: Best to stay on the sidelines for now
Although Xpeng Motors’ stock price rose after it announced its cooperation with Didi, from a valuation perspective, Beast Finance is not optimistic and will not buy Xpeng Motors shares. The reasons have already been mentioned: Peng Motors' delivery growth in China lags behind that of its rivals, and profit margins continue to deteriorate. Additionally, Xpeng Motors' current share price is too high compared to competitors with stronger delivery growth.
Therefore, Beast Finance will continue to wait and see after Xpeng Motors reaches a cooperation with Didi, and wait for Xpeng Motors' valuation indicators to improve before making any plans.
Although Xpeng Motors' market value is still the lowest in the industry, its P/S ratio has reached 2.1 times, making it still the most expensive among China's three electric vehicle manufacturers.
Risks faced by Xpeng Motors
For Xpeng, its biggest risk has nothing to do with missing out on China's self-driving car market. On the contrary, Boldbeast Finance believes that it has to do with its profit margins, which have already deteriorated again in the second quarter, and the newly launched low-priced, low-margin electric vehicle brands may only further exacerbate this problem. If Xpeng fails to turn around in terms of profit margins, it may have a harder time convincing investors that it can mass-produce electric vehicles at a profit.
in conclusion
Xpeng's partnership with Didi has allowed Xpeng to solidify its position in China's self-driving car market, with the company aiming to bring its advanced driver assistance software to all Chinese cities by 2024, an ambitious goal The goal also improves Xpeng Motors' attractiveness to its potential customers and its competitive advantage in the Chinese electric vehicle market, especially when Tesla's FSD is not yet fully available in China.
While we like the Xpeng deal with Didi from an autonomous driving perspective, the shift in strategy to the entry-level EV market suggests that Xpeng's margins may still be under a lot of pressure ... …This is why we think investors reacted too optimistically after Xpeng Motors announced its partnership with Didi.
For these reasons, and the fact that Xpeng's valuation is still high relative to its competitors, Boldbeast believes that investors should wait for Xpeng's share price to drop before making plans.