Seeing your competitor undergo dramatic changes in fortune can be unnerving as there’s the fear that the same will happen to you. For electric vehicle maker Xpeng, Nio’s period of stock swings is a wakeup call for China’s EV startup boom.
Xpeng and Nio are Tesla-like Chinese startups competing with more established automakers such as Warren Buffett-backed BYD. Like Tesla, Xpeng and Nio design, manufacture and sell EVs through company-owned online and offline channels.
Both have raised large sums of cash from noted investors. Xpeng itself is backed by Alibaba, Foxconn and Xiaomi founder Lei Jun. As late, it’s seeking to raise at least $500 million in funding.
Nio’s investors include Tencent, Hillhouse Capital and Shunwei Capital, a venture fund co-founded by Lei Jun. Its shares were trading at around $2.50 apiece in June, a big fall from the $11.60 high it achieved shortly after debuting on NYSE in September.
The reasons for the slump are varied. Sales slowed down in the first quarter against a backdrop of subsidy reduction and macroeconomic headwinds in China. Losses amounted to $390.9 million in the period. To cope with sluggish performance, Nio said it would delay the rollout of its next-gen products to focus on existing models. It also planned to slash costs by cutting R&D spending and its workforce.
Nio’s stock rout “is a good lesson for the rest of us… to try to be more efficient and more sustainable,” said Xpeng president Brian Gu at the Rise conference in Hong Kong on Wednesday. The five-year-old company aims to do so by building mass-market products rather than a luxury brand, which allows it to have “less capital deployment.”
“Our capital efficiency is also high. We probably use a quarter of the capital to reach the same delivery numbers as Nio, for example,” Gu claimed.
Xpeng began deliveries in December and had shipped 10,000 models by mid-June. Nio sold 11,300 units between June and December last year, according to China Association of Automobile Manufacturers (report in Chinese).
In the long run, Xpeng remains optimistic about the Chinese EV industry. The country shipped 1.26 million units of alternative fuel cars last year, representing a 61.7% increase year-over-year, per data from CAAM. Of all the alternative energy passenger cars sold, 75% were all-electric.
Overall, only 4.5% of China’s vehicles sold last year used alternative fuels. The sector is tipped to pick up speed over time. The CAAM forecasts that China will sell more than two million alternative fuel vehicles in 2020.
“Definitely, market sentiment is swayed by stock prices, but I don’t think that really sways people’s long-term enthusiasm for EVs. This is almost a certainty that the [EV] revolution is coming,” Gu added.
With plans for an initial public offering, Xpeng may not be far off from testing investor sentiments. While it doesn’t yet have a timeline for selling shares to the public, Xpeng’s chief executive officer told CNBC in March that the startup will focus on “business before considering the IPO.”