Xpeng (XPEV) earnings report Q2 2023

Xpeng on Friday reported a wider-than-expected loss in the second quarter, sending the Chinese electric car maker’s shares down more than 7% in pre-market U.S. trade.

The net loss was wider than the 2.7 billion yuan loss reported in the second quarter of last year. It was also the highest quarterly loss that Xpeng has posted since going public in August 2020.

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

Here’s how Xpeng did against Refinitiv consensus estimates for the second quarter:

• Net loss: 2.8 billion yuan loss vs. 2.13 billion yuan loss expected
• Revenue: 5.06 billion Chinese yuan ($693.7 million) vs. 5.06 billion yuan expected, representing a 31% year-on-year fall.

Xpeng also said that its gross margin turned negative 3.9% compared with positive 10.9% during the same period of 2022.

The company is attempting to turn around the business this year, after a torrid 2022 during which its share price crashed 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 to positive 9.1% in the same period of last year. Xpeng 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 on the expiry of Chinese electric vehicle subsidies.

Xpeng’s is hoping its latest car — the G6 Ultra Smart Coupe SUV — which was launched at the end of the second quarter, will boost 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 substantially improve,” Brian Gu, co-president of Xpeng, said in the Friday earnings press release.

Xpeng previously disclosed that it delivered 23,205 cars in the second quarter of 2023, logging a 27% quarter-on-quarter rise and beating its own forecast. In July, the Guangzhou-headquartered firm delivered 11,008 vehicles in July, up by 28% on the month.

That’s the sixth consecutive month of delivery growth, underscoring the early signs of a recovery, at least for deliveries.

Xpeng said that it expects vehicle deliveries to be between 39,000 and 41,000 in the third quarter, representing a year-over-year increase of approximately 31.9% to 38.7%. The figure would also sit higher than the deliveries recorded in the second quarter.

The company forecast its revenue will be between 8.5 billion yuan and 9 billion yuan in the third quarter, representing a year-over-year increase of around  24.6% to 31.9%.

Xpeng has also reorganized its management structure and experienced an overhaul over the past few months, in a bid to unlock growth.

Rising deliveries have given investors some confidence that a turnaround is underway, with the stock of Xpeng up by more than 50% this year.

The automaker has also got backing from German car giant Volkswagen, which invested $700 million in Xpeng last month, taking a 4.99% stake. The firms will jointly develop two electric vehicles for the Chinese market.