Copy

TechNode

PREMIUM

A WEEKLY NEWSLETTER ON CHINA'S TECH, EXCLUSIVELY FOR MEMBERS
Read this chapter in your browser 
CHAPTER 154

Drive I/O | Nio, Xpeng, and Li Auto face more challenges after a mixed 2021

By Jill Shen, April 25, 2022

Although Nio, Xpeng Motors, and Li Auto recorded explosive growth in 2021, the US-listed share prices of the Chinese EV trio still trade much lower than their all-time highs. As the poster children of China’s electric vehicle revolution, the three automakers reported in March mixed results for 2021, with record revenue and significant losses. 

All three EV makers have seen doubled revenues and deliveries surge in their home market. And yet, having lost a total of nearly $10 billion in just 2021 alone, the US-listed EV trio is still struggling to make money. The share prices of Nio and Xpeng have slumped to under $30, falling over 60% from their respective highs two years ago, as they show no signs of turning a profit any time soon while facing risks of delisting from US exchanges.

Xpeng is expanding at a faster pace and higher cost than its competitors. In 2021, the company posted its biggest net loss in its eight years of operations, while revenue more than tripled to nearly RMB 21 billion ($3.3 billion). Li Auto has managed to make its business more efficient than its rivals, reporting a net loss of RMB 321.4 million last year, which is less than one-tenth of Nio’s and Xpeng’s losses. Nio’s sales growth slowed markedly last year, and yet the company earned the most among the three, thanks to its higher-margin luxury cars.

Key figures

Strong growth: Xpeng stole a march on Nio in the Chinese EV space in 2021, with its deliveries jumping 263% year-on-year to 98,155 vehicles. Nio, meanwhile, delivered 91,429 vehicles with a 109.1% yearly growth rate, Li Auto delivered 90,491 vehicles. Although Xpeng delivered the most vehicles among the three EV companies, it earned the least due to a lower selling price of RMB 196,000 for its offerings, almost a half of Nio’s and Li Auto’s prices. 

Heavy losses: With an aggressive expansion of its sales footprint and production capacity, Xpeng reported a record loss of RMB 4.86 billion last year, exceeding Nio’s RMB 4 billion for the first time over the past four financial years. Nio’s annual loss was 24.3% lower than a year ago, helped by growing sales, but the company expects to double its spending on research and development this year to ramp up the development of its self-driving technology. Li Auto once again proved to be better managed in terms of profitability. It increased net profit by 175% to RMB 295.5 million in the fourth quarter and kept annual losses far lower than competitors.

Other takeaways

New models: All three companies promised to speed up the launch of new models to keep their businesses strong, despite an intensifying global supply chain crunch. Nio began deliveries of its first sedan ET7 to customers in the eastern city of Hefei on March 28, with deliveries of its second sedan ET5 expected to start in September. In addition, the company is rushing to launch ES7, a new medium-sized SUV featuring its latest assisted driving technology, in the third quarter. During the same period, Xpeng is expected to deliver its second SUV model G9, in the hopes of grabbing a share of the high-end market from its peers. Meanwhile, Li Auto, which currently only has one model, will launch its second SUV L9 by June of this year, chief executive Shen Yanan confirmed during its earnings call on Feb. 25.

New plants: All the three EV makers are expanding their manufacturing capacities aggressively as orders continue to grow faster than supply. Nio’s second factory, scheduled for completion in Hefei in the third quarter, has the potential to produce 300,000 vehicles a year, the same capacity as its first plant, according to CEO William Li during the company’s earnings call on March 25. Both Xpeng and Li Auto plan to have three plants in the country by the end of 2023 with a total capacity of at least 500,000 and 750,000 vehicles, respectively, executives told investors during their earnings call. However, production could be disrupted by various supply chain shortages in the short term, while Xpeng CEO He Xiaopeng expects this situation to improve starting the second half of this year.


Conclusion

Looking ahead, the Chinese EV trio is still under pressure to capture demand and drive profitable growth in the short term. They face severe production problems due to chip shortages, rising material prices, and the recent lockdowns in Shanghai and nearby regions. Still, the companies are plotting a path to profitability in the long term, with some analysts expressing optimism about the EV upstarts achieving these goals. The gross margins for Nio, Xpeng, and Li Auto had improved to 18.4%, 12.5%, and 21.3% last year, respectively, and executives say that the companies could break even no later than 2024. 

As the industry faces challenges with supply chain constraints, including rising battery prices and a chip crunch, the sequential improvement in Li Auto’s gross margin could be “more limited” in 2022, Bernstein analysts led by Eunice Lee wrote in a March 1 note. And yet, that number could reach 25% in the longer term, as production volumes ramp up and fixed costs decline, Lee added.

The last week

Automakers in China still face many hurdles as some resume production
The Shanghai factories of Tesla and SAIC started producing again on Tuesday following weeks of lockdown due to a wave of omicron infections that have put the country’s auto production in a deep freeze. However, further halts loom large, as many other auto parts makers struggle with getting government permits to restart operations.

Pinduoduo gears up for on-demand retail push: report
Pinduoduo is seeking offline retailers to join its platform as the e-commerce titan tries to expand into on-demand retail businesses, local media outlet Beijing Business Today reported on Monday. As a latecomer to the game, Pinduoduo enters a crowded sector that already includes established incumbents such as Meituan, Ele.me, and JD Daojia.

SILICON | How Shanghai’s semiconductor industry is coping with lockdown (Views)
The semiconductor supply chain faces a new problem: the Shanghai lockdown. Shanghai is an important center for the semiconductor industry in China holding a complete supply chain of design, fabrication, and ATP (assembly, test, and packaging). In each of these verticals, Shanghai accounts for roughly 20% to 25% of China’s sales. The city is also famous for SMIC, China’s premier chip fabrication company.

Ant expands in Asia and Europe as more countries begin to reopen
Ant Group, the company behind China’s popular mobile payment service Alipay, is seeing an accelerated adoption rate for its payment services outside of China, less than two years after launching a pilot cross-border payment project.

Apple’s supply chain in China hit hard by lockdowns in eastern China
Apple’s supply chain companies in China face major production disruptions as Chinese cities follow the country’s strict covid policies with full and partial lockdowns since late March to tackle a new wave of Covid-19 outbreaks. Although Shanghai and nearby cities have recently begun to assist manufacturers in resuming operations, analysts still expect major disruptions to Apple’s shipments. 

OnePlus expands gaming phone offering with new Ace series
OnePlus, the Chinese smartphone maker owned by Oppo, launched a new product line named Ace, targeting the global mobile gaming market. The company released the first model of the series on Thursday, pricing at RMB 2,499 ($384).
We're looking forward to telling you all about the latest developments next week. Till then,
 
The TechNode Team
Enjoyed this newsletter, but want more? 
Listen to our podcasts on everything that counts in China
 China Tech Talk I China Tech Investor 

Follow TechNode everywhere

Twitter Twitter
Facebook Facebook
Website Website
LinkedIn LinkedIn
Enjoy this chapter in your browser
Copyright © 2022 TechNode, All rights reserved.


Want to change how you receive these emails?
You can update your preferences or unsubscribe from this list.

Email Marketing Powered by Mailchimp