Chinese EV maker Xpeng expects cost cuts, Volkswagen deal to narrow losses
A XPeng Inc. G6 electric sport utility vehicle (SUV).
Qilai Shen | Bloomberg | Getty Images
Xpeng expects cost cuts and its Volkswagen partnership to narrow the firm’s losses, the Chinese EV maker told CNBC in an exclusive interview on Monday.
On Friday, the firm logged its biggest quarterly loss since its U.S. listing in August 2020. Its second-quarter net loss was 2.8 billion yuan, larger than the 2.13 billion yuan loss expected according to a Refinitiv consensus estimate. Its U.S.-listed shares closed 4.28% lower on Friday. On Monday afternoon, Xpeng’s Hong Kong-listed shares were trading more than 2% higher.
Xpeng’s second-quarter deliveries totaled 23,205, a 32.58% drop from 34,422 deliveries in the same period a year ago.
On Friday, CEO He Xiaopeng said the company is cutting costs across the business and that should “substantially drive gross margin improvement in 2024.”
In April, Bloomberg reported the company was planning to trim manufacturing costs, including saving 50% on intelligent driving features by the end of 2024.
“From an expense perspective, we went through a very significant business reorganization as well as changes that we have made. We start to see the regaining of the growth momentum that we have in our business,” Brian Gu, vice chairman and co-president of Xpeng, told CNBC’s “Street Signs Asia” on Monday.
Xpeng is attempting to revive its business this year, after its share price sank by more than 80% in 2022. The firm struggled with a tough macroeconomic environment in China and a price war among domestic rivals and Tesla, which slashed the prices of its Model S and Model X last week.
“The demand side actually remains pretty robust. I think it continues to grow despite the economic backdrop. But the same time, the competition has intensified in the first half, with more players launching more new models and being very aggressive on price competition,” said Gu.
“In order to gain better profitability, we also have endeavor to spend a lot of time on cost cutting. Later next year, we expect our total vehicle BOM [bill of materials] costs to be reduced by up to 25%. That will give us a big tool to increase profitability as well,” said Gu.
In automotive manufacturing, BOMs list all the parts required to build a vehicle, such as an engine, brakes, seats and dashboards.
BofA Securities said in a report Monday that it expects Xpeng’s cooperation with Volkswagen to “improve its financial position and likely enhance its supply chain management.”
BofA upgraded Xpeng from “neutral” to “buy” at $22 per share, up from its previous price target of $16.30 per share.
In late July, Germany’s Volkswagen Group said it is injecting about $700 million in Xpeng and taking a 4.99% stake in the company.
The partnership will see both companies co-developing two new EVs that will incorporate Xpeng’s advanced driver-assist software for the Chinese market with a rollout target for 2026.
Global and local automakers are promoting advanced tech to compete in China — the world’s largest EV market. BofA Securities in a May report said it expects China to hold 40%-45% market share in 2025.
“With the Volkswagen agreement, we also anticipate meaningful contribution to our bottom line starting next year. So that’s also another tool we can use to increase our profitability,” said Gu.
In addition to planned new models, Xpeng has “updated versions of current models” set to be launched next year, said Gu.
“We anticipate those new models will carry more favorable gross margins which also will help our profitability and product mix,” said Gu.
The firm expects its latest model — the G6 Ultra Smart Coupe SUV, which was launched at the end of the second quarter — to boost margins.
“We see an improving product mix and a stronger cost control improving its gross profit margin in 2024-2025E. We expect its new model pipeline in second half of 2023 to 2025 to improve its sales volume growth,” said BofA Securities.
— CNBC’s Michael Bloom contributed to this report.
President of Microsoft North America Judson Althoff speaks on stage during We Day at KeyArena on April 23, 2015 in Seattle, Washington.
Mat Hayward | Getty Images
Microsoft‘s top-ranking sales leader, Judson Althoff, has been promoted to a bigger role as CEO of the company’s commercial business.
Satya Nadella, Microsoft’s CEO, wrote in a memo on Wednesday that marketing and operations will move under Althoff’s organization. Most of Microsoft’s revenue comes from commercial offerings such as productivity software subscriptions and cloud-based Nvidia chips for running artificial intelligence models.
“Our success depends on enabling commercial and public sector customers and partners to combine their human capital with new AI capabilities to change the frontier of how they operate,” Nadella wrote in the email. “To accelerate this, we will increasingly need to bring together sales, marketing, operations, and engineering to drive growth and strengthen our position as the partner of choice for AI transformation.”
Althoff, who joined from Oracle as president of Microsoft’s North America business in 2013, was already among Microsoft’s highest-paid executives, receiving over $23 million in total pay in the 2024 fiscal year. His most recent title was executive vice president and chief commercial officer.
Under Nadella, who replaced Steve Ballmer as CEO in 2014, Microsoft has more frequently used the CEO title for select executives.
LinkedIn has had a CEO since Microsoft acquired the company in 2016. Last year Microsoft hired Mustafa Suleyman, a co-founder of the DeepMind AI lab now owned by Google, and made him CEO of a group called Microsoft AI that includes Bing. And GitHub, which Microsoft bought in 2018, had a CEO until last month, when Thomas Dohmke left the company.
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Yusuf Mehdi, executive vice president and consumer chief marketing officer at Microsoft, speaks at a company briefing in Redmond, Wash., on May 20, 2024. Microsoft unveiled a new category of PC that features generative artificial intelligence tools built into Windows, the company’s world-leading operating system.
Jason Redmond | AFP | Getty Images
Microsoft said Wednesday that it will stop promoting a consumer subscription for artificial intelligence services and introduced a bundle blending AI features with traditional productivity apps.
The software company introduced Copilot Pro at $20 per month in early 2024. Microsoft 365 Family, which allows for up to six users and 6 terabytes of cloud storage, goes for $12.99 each month. The new Microsoft 365 Premium tier essentially combines both and will cost $19.99 a month.
“Other AI tools stop at chat — we deliver that plus so much more,” Yusuf Mehdi, Microsoft’s consumer marketing leader, wrote in a statement provided to CNBC.
Microsoft is not discontinuing Copilot Pro, a spokesperson said.
Technology companies have been trying to capitalize on the broad interest in tapping generative AI models to compose documents and create videos.
Microsoft offers a free version of its Copilot assistant, in line with Anthropic, Google and OpenAI, all of which sell paid subscriptions for consumers.
Microsoft 365 Premium comes with higher usage limits than the free Copilot and productivity software subscriptions targeting consumers.
As was the case with Copilot Pro and with consumer Microsoft 365 subscriptions, the new offering enables conversations with Copilot in Microsoft’s Office apps such as Word, Excel and PowerPoint.
Microsoft is sweetening the new offer with forthcoming access to two AI reasoning agents that so far have only been available to corporate workers with Microsoft 365 Copilot subscriptions.
OpenAI relies on Microsoft’s Azure cloud to run its ChatGPT assistant and its underlying models, and Microsoft incorporates the models into its Copilot. Microsoft has invested more than $13 billion in OpenAI. The companies are partners that also compete.
Microsoft reported 89 million consumer subscribers for Microsoft 365 services in the June quarter, up 8%. Revenue growth from those products has accelerated for three quarters in a row, reaching 20% in the June quarter.
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