XPEV - XPeng: Back On Track With Smart Electric Platform Architecture

2023-12-18 12:59:07 ET

Summary

• XPeng's Smart Electric Platform Architecture has helped reduce costs, leading to increased deliveries of the G6 and G9 models.
• SEPA helped the monthly delivery total jump to about 20,000 in both October and November while previous monthly highs were closer to 15,000.
• The integration of SEPA in XPeng's vehicles has improved manufacturing capabilities and reduced body weight, enhancing performance and range.

Introduction

My thesis is that XPeng ( XPEV ) management was correct when they said Smart Electric Platform Architecture (“SEPA”) would help them get back on track with deliveries.

Per my June article , XPeng had a poor start to 2023 in terms of monthly deliveries. Much of the reason for this was due to elevated costs leading to selling prices which were too high. Per an April Reuters article , XPeng’s new SEPA system helps reduce costs substantially:

SEPA 2.0 will help Xpeng to reduce costs of powertrain systems including batteries by 25% and those of intelligent driving systems by 50% by the end of 2024, Brian Gu, Xpeng's president, told reporters in Shanghai on Sunday.

Due to reduced costs from SEPA, XPeng is able to offer the G6 model and the 2024 G9 model at attractive prices such that deliveries have picked up substantially in the last few months.

At the time of this writing, RMB 1,000 is equivalent to $140.61.

SEPA Power/Charging

The April 2023 Next-Gen Technology Architecture - SEPA 2.0 presentation talks about the architecture-based solutions XPeng has in place to boost charging efficiency. XPeng says their 800V High Voltage Silicon Carbide (“SiC”) solution can add up to 200 km of range within five minutes of charging. Their 800V system was available on older G9 models produced without SEPA but now the 800V SiC system will be standard for all vehicles built with SEPA . The 800V tech is explained with an analogy of pouring water into a pool from a very big bottle. Lesser voltage systems have a smaller opening in the bottle but the 800V system has a very big opening such that the pool can be filled faster.

800V systems are the future; Tesla ( TSLA ) is using them for the new CyberTruck.

SEPA Intelligence

Intelligence was highlighted at the April 2023 SEPA 2.0 presentation. SEPA allows XPeng to sell a larger number of vehicles at a lower cost. This helps them get more vehicles on the road with their leading navigation on autopilot (“NOA”) systems. The more NOA vehicles they have on the road, the more data they have for making advanced driver assistance system (“ADAS”) improvements. XPeng used to call their NOA Navigation Guided Pilot (“NGP”) and now they call it XNGP. It was discussed in the April 2023 NSEPA 2.0 presentation. Due to SEPA, XNGP costs will be lower and improvements will be consistent (emphasis added):

XPeng’s in-house full-scenario ADAS solution is the ultimate form of driver assistance and will come as standard on all future XPeng models for the Chinese market. With SEPA 2.0 architecture, XNGP’s overall R&D efficiency will increase by 30%, while ADAS software model adaptation costs will reduce by 70% . Backed by China’s largest and only operational autonomous driving supercomputing center, closed-loop data feedback and self-evolving AI system, XNGP will consistently evolve and upgrade its driving assistance skills. It targets takeover frequency less than once per 1000 km in highway scenarios in 2023 and takeover frequency less than once per 100 km in urban scenarios by 2025.

CEO Xiaopeng believes autonomous driving comes down to safety, wide application and affordability. He says XNGP is already well safer than humans in terms of collisions per tens of millions of kilometers. XNGP is based on vision such that radar is reduced to a complementary function. As such, XNGP is less reliant on maps than other autonomous driving systems in China. CEO Xiaopeng explains the way XNGP will improve in the future with over-the-air (“OTA”) updates:

And so when we first launch it, you can expect it to have one year of driving experience but in the future, its driving experience can grow significantly. On a yearly basis, we will do four OTAs and each OTA will increase the driving experience by one year. That is to say next year, XNGP can achieve about four to five years of driving experience and they never get tired and never doze off which is very important.

CEO Xiaopeng goes on to explain the importance of having consistency with respect to hardware and software such that the costs can be kept low:

Right now with our SEPA 2.0 architecture, we are able to make the highest level of our intelligence assisted driving XNGP, a standard configuration. In the future, we also will take into consideration the compatibility and upgrade of some of our past platforms as well and the overall R&D efficiency of autonomous driving will be increased by 30% and the adaptation costs will be reduced by 70% and that is why in the past it was so expensive to do upgrades. The more products you have, the more expensive it becomes. Only with a unified structure, can it be possible to control costs.

A July 5th Nvidia G6 article says XNGP is powered by the cutting-edge Nvidia Drive Orin compute and XPENG’s full-stack software developed in-house:

The G6 model comes with two NVIDIA DRIVE Orin systems-on-a-chip (SOCs), which deliver 508 trillion operations per second ((TOPS)) of high-performance compute for real-time processing of data streaming in from the vehicle’s 31 driving sensors. The XNGP driving system makes the G6 a standout among today’s EV landscape as automakers jockey for position in the highly competitive China market.

A July 19th CnEVPost G6 article by @ChinaDriven talks about XNGP’s movement away from static HD maps. Per the article, XPeng was one of the first Chinese OEMs with NOA and they are known as a leader in this area. The CnEVPost writer took a test drive and said the XNGP was excellent on the highway but suffered issues with consistency and dependability in the city. An August MIT Technology Review article by Zeyi Yang @ZeyiYang also talks about XPeng’s lead with NOA, saying they were the first to launch it in city settings as opposed to just highway settings.

SEPA Vehicle Integration

Integration and advanced manufacturing were stressed at the April 2023 SEPA 2.0 presentation. Like Tesla, XPeng uses heavy casting machines. The front and rear integrated aluminum die casting tech has many benefits:

[It] enables more uniform fabrication of the car body, bringing more stable control and a better driving performance. It also improves torsional rigidity by 83% compared to a traditional car body, enhancing body safety, while at the same time reducing body weight by 17% versus traditional bodies, further boosting EV range.

Per CEO Xiaopeng at the April 2023 SEPA 2.0 presentation, XPeng is ahead of peers in China with respect to casting:

In previous models, some of our peers were able to only produce one or part of the aluminum die casting. But in our system, we have done R&D for two or three years and now we are capable of completing the front and we are integrated [the] aluminum die casting body.

Xiaopeng goes on to say casting helps reduce the body weight by 17% and it simplifies the welding production area. S&P Global says XPeng uses the 7,000 ton LK press for casting with the G6 model. Tesla led the way with casting but now many other OEMs are doing it including XPeng, BMW, Ford, Hyundai, Nio, Volvo, Zeekr and others. A post from @lucagrecoita shows XPeng and Zeekr using LK as their casting manufacturer:

Tesla and others use IDRA:

BMW uses ItalPresse-Gauss while Changan uses Yizumi:

In addition to casting, the April 2023 SEPA 2.0 presentation talks about integration with respect to the cell integrated body (“CIB”), the chassis platform and the smart manufacturing platform. Regarding CIB, benefits will be realized as the battery back is integrated in the car body such that the cabin design is optimized, vertical space is added, battery safety is increased and driving performance is improved due to a better center of gravity. Per the April 2023 SEPA 2.0 presentation, SEPA integrations allow XPeng to add a higher number of models in future years at a lower cost:

So our new electric drive system, the new CIB system and the new cockpit system, all are doing this while maintaining a good look. One of our most important features at the same time is that it's compatible with a wide range of suspension systems. We used to ignore the compatibility with different models and different architectures so that's why we were only able to produce one new model every year. Now a lot of our domestic peers have these problems. Can they produce several models a year? For example in 2025 based on this SEPA 2.0 architecture, we aim to produce multiple models without increasing the cost.

G6 Model

Per CEO Xiaopeng’s comments at the June 2023 G6 launch event, XPeng’s vision has always been to disrupt the market and explore future innovation; they focus on technology. The G6 is the first model with their SEPA 2.0 architecture which Xiaopeng says is composed of high-level smart assisted driving plus efficient powertrain and manufacturing capabilities. Xiaopeng notes that customers in China desire a long driving range, fast charging and advanced vehicle intelligence. The G6 has a full stack self-developed 800V x power electric drive. It is manufactured with aluminum die casting integration technology for both the front and rear of the car body. They incorporated XNGP active safe driving to man machine co-piloting. The 800V architecture for the G6 allowed XPeng to reduce power consumption. The July 19th CnEVPost G6 article by @ChinaDriven mentioned earlier says the G6 charged rapidly before their test drive, doubling the range of the Tesla Model Y in five minutes. A July CarNewsChina review by @chinacarstravel says the following about the G6:

Another major selling point for the XPeng G6 is the 800V architecture given by the SEPA 2.0 platform. Where this really counts is with the time taken to charge. Using XPeng’s own 3C chargers up to 300 km of range can be added in 10 minutes. It should be pointed out that the car is very efficient, this is partly due to aerodynamic optimization but also attempts at reducing weight and advantages the 800V architecture brings. In the single-motor, 87.5kWh NCM battery version range is 755km under China’s CLTC standard, a very impressive figure.

Per Xiaopeng on the 3Q23 call , the G6 SUV has become the top selling vehicle in China in the RMB 250k price range during its first quarter on the market. He says this early success is a strong validation of XPeng’s ability to introduce a new benchmark model. Per monthly delivery announcements , XPeng delivered 3,900 G6 units in July, 7,068 in August, 8,132 in September, 8,741 in October and 8,750 in November.

2024 G9 Model

Despite the benefits from its 800 V Silicon Carbide (“SiC”) platform, XPeng’s original G9 SUV flopped because it wasn’t built with SEPA so it was overpriced. A September 2023 TechNode G9 article says the redesigned version is built with SEPA and it is $6,300 less than the previous version. Sales have picked up prodigiously as buyers have taken advantage of the price cut. An October CarNewsChina G9 article by @JiriOpletal talks about the use of SEPA in the new 2024 model (emphasis added):

The new G9 is underpinned by Xpeng’s new Smart Electric Platform Architecture (“SEPA”) platform, the same as the G6 compact SUV feature . That is a significant move, as the previous generation G9 was based on the E/E platform. And yes, that is the E/E platform Volkswagen bought from Xpeng and will use for two new EVs for the Chinese market.

Per CnEVPost , XPeng delivered 5,778 G9 units in November and 4,593 in October. The pre SEPA G9 volume was significantly lower in the past, coming in at about 1,000 per month from February to September.

Overall Delivery Numbers

Again, XPeng delivered 8,741 G6 units in October and 8,750 in November. They also delivered 4,593 G9 units in October and 5,778 in November. These SEPA based G6 and G9 units are a big part of the overall delivery improvement in October and November shown in a December CnEVPost article . In other words, SEPA helped the monthly delivery total jump to about 20,000 in both October and November while previous monthly highs were closer to 15,000:

Per the November 2023 China Passenger Car Association (“CPCA”) Sales Ranking Express , XPeng made it back into the top 10 for new energy vehicle (“NEV”) sales in November:

XPeng has 121,486 YTD deliveries which isn’t quite enough to get them in the top 10 NEV list but it is noteworthy that all the XPengs are battery electric vehicles (“BEVs”) whereas many other OEMs on this list have a significant number of PHEVs included in their NEV totals:

Valuation

XPeng CEO Xiaopeng says there are about 32 serious OEMs at this time and he expects this to shrink to about eight in the future. He expects each of these eight OEMs to sell a minimum of three million BEVs per year and he’s trying to get XPeng in the mix. XPeng sells more BEVs than companies like Rivian ( RIVN ) but we don’t hear much about XPeng in the US because they are one of many companies in China with sizable BEV sales. A December 2023 BloombergNEF report shows the importance of China with respect to the global BEV market:

The 3Q23 quarter was the first time XPeng had meaningful G6 units so the financials before that point are fairly limited in terms of telling us about the future economics. XPeng delivered 40,008 vehicles in 3Q23 which is much more than the 15,564 deliveries for Rivian from their 3Q23 shareholder letter . However, the average selling price (“ASP”) is significantly less at XPeng such that the 3Q23 revenue figures for Xpeng and Rivian were $1,169 million and $1,337 million, respectively.

A December 15th Bloomberg article said the stock went down Friday after Alibaba ( BABA ) revealed their intention to sell some of their shares. The 3Q23 results say each ADS represents two Class A ordinary shares. A December 6 filing shows 1,885,355,830 shares outstanding after the allotment to Volkswagen ( OTCPK:VWAGY ). Dividing this in half and multiplying by the December 16 XPEV price of $14.47 gives us a market cap of around $14 billion which is less than Rivian’s market cap of about $18 billion. I view XPeng stock as a hold; one would think Volkswagen did significant due diligence before their investment near today’s levels.

Disclaimer: Any material in this article should not be relied on as a formal investment recommendation. Never buy a stock without doing your own thorough research.

For further details see: