China Specialist, Auto and Industrial Specialist

Victoria Li

Equity Bottom-Up

Li Auto Inc. manufactures automobiles. The Company designs, develops, and sells smart new energy electric sport utility vehicles. Li Auto conducts businesses in China.

<ul>
<li>First quarterly profit in 4Q'22 (first amongst the 3 main emerging brands) has raised expectations of full year profitability in '2023</li>
<li>Launch of BEV will increase production, R&amp;D, platform depreciation and marketing costs</li>
<li>Despite our expection of revenues doubling y/y in '23, profitability may not increase accordingly</li>
</ul>


First quarterly profit in 4Q'22 (first amongst the 3 main emerging brands) has raised expectations of full year profitability in '2023
Launch of BEV will increase production, R&amp;D, platform depreciation and marketing costs
Despite our expection of revenues doubling y/y in '23, profitability may not increase accordingly


Li Auto: First Quarterly Profit, Route to Sustained Annual Profits Will Be Harder

XPeng Inc. designs, produces, and distributes electric vehicles. The Company designs, develops, manufactures and markets smart smart electric vehicles, as well as finance, parts, and maintenance services. XPeng serves customers in China.

<ul>
<li>25% reduction on hardware cost of car production in one year would be remarkable if achieved</li>
<li>Integrating two sales systems into one is a positive move, but not good enough in our view.</li>
<li>Mr. He taking direct resposibility of styling design division is a sign that the company acknowledges that it is a key improvement area for estabilishing brand image</li>
</ul>


25% reduction on hardware cost of car production in one year would be remarkable if achieved
Integrating two sales systems into one is a positive move, but not good enough in our view.
Mr. He taking direct resposibility of styling design division is a sign that the company acknowledges that it is a key improvement area for estabilishing brand image


Xpeng - Bold Intentions on Costs and Sales System Provide Some Silver Linings

Thematic (Sector/Industry)

<ul>
<li>Dongfeng announced 12%-35% subsidy on its retail price to reverse weak sales which has seen most of its factories suspending production</li>
<li>This has triggered a price war with more than 30 brands joining with similar ranges of price discounts/subsidies, most of which are JV brands - some upto 50%</li>
<li>We see a possibility that some of the JV brands exit China this year</li>
</ul>


Dongfeng announced 12%-35% subsidy on its retail price to reverse weak sales which has seen most of its factories suspending production
This has triggered a price war with more than 30 brands joining with similar ranges of price discounts/subsidies, most of which are JV brands - some upto 50%
We see a possibility that some of the JV brands exit China this year


China Auto: ICE Price War Triggered by Dongfeng, JV Players Under Pressure

<ul>
<li>2M2023 retail sales of passengers vehicles down 21% yoy, the biggest decline in 10 years.</li>
<li>Demand recovery is expected from March with signs of warming up starting in NEV segment after price cuts and local supportive police’s introduced </li>
<li>Cost friendly models would continue be preferred. i.e demand in mass market may be stronger than luxury market, PHEV segment may do better than BEV segment</li>
</ul>


2M2023 retail sales of passengers vehicles down 21% yoy, the biggest decline in 10 years.
Demand recovery is expected from March with signs of warming up starting in NEV segment after price cuts and local supportive police’s introduced 
Cost friendly models would continue be preferred. i.e demand in mass market may be stronger than luxury market, PHEV segment may do better than BEV segment


China Auto - Trough Behind Us, Green Shoots Ahead

<ul>
<li>Xpeng has announced it is speeding up its new model launch pipeline by launching 5 new models this year</li>
<li>If all go to plan, Xpeng's sales may hit 30k vehicles/month end of '23 or early '24</li>
<li>The appointment of new President from ICE sector may lead to some market confusion on management and branding in the short term</li>
</ul>


Xpeng has announced it is speeding up its new model launch pipeline by launching 5 new models this year
If all go to plan, Xpeng's sales may hit 30k vehicles/month end of '23 or early '24
The appointment of new President from ICE sector may lead to some market confusion on management and branding in the short term


Xpeng: Accelerated Model Launch Campaign May Surprise

20 years experience as sell side analyst focusing on China's Industrial and Auto sectors