According to the research report released by Guosheng Securities, it maintains a 'buy' rating for XPeng Motors-W (09868). Considering the fierce competition in the automotive industry, the profit forecast has been adjusted appropriately. It is estimated that the company's sales volume for 2024-2026 will be approximately 0.16/0.35/0.4 million vehicles, with total revenue reaching 38.7/71.1/85.4 billion yuan and non-GAAP net profit margin at -16%/-7%/-2%. Taking into account the continuous deepening of cooperation with Volkswagen and the forecast for split business, the main business revenue for 2024 is estimated to be 36.8 billion yuan, and the net profit brought by Volkswagen cooperation in 2024 is 1.1 billion yuan. The target price is set at HK$37.3.

Zhongsheng Securities' main points are as follows:

Q2 performance slightly exceeded expectations, with further growth in technology cooperation revenue.

The company's Q2 revenue was 8.11 billion yuan, a high-speed growth of 60% YoY. In terms of car sales, the average unit price in Q2 slightly declined due to competition, but the sales volume increased to over 0.03 million vehicles, resulting in car sales revenue of 6.8 billion yuan, a YoY increase of 54%. Service and other revenue reached 1.29 billion yuan, a QoQ increase of 0.29 billion yuan, mainly due to 1) the increase in car ownership and 2) the growth of technology research and development service sales related to the strategic cooperation with Volkswagen's open platform and software. The Q2 gross margin turned losses into gains, and the QoQ increase was 1.1% to 14%, in line with expectations. Due to the growth in sales volume bringing economies of scale, the expense ratio narrowed, resulting in a Q2 non-GAAP net loss of 1.22 billion yuan with a loss rate of 15%. Looking ahead to Q3, the company expects to deliver 0.041-0.045 million vehicles, a YoY growth of 2.5%-12.5%; and revenue of 9.1-9.8 billion yuan, a YoY growth of 6.7%-14.9%. In addition, the company's cash reserve is still abundant, with cash and cash equivalents, restricted cash, short-term investments, and time deposits totaling 37.3 billion yuan at the end of Q2.

Accelerating expansion into overseas markets is expected to improve profitability.

1) In terms of sales volume, XPeng's Q2 overseas sales exceeded 10% for the first time. According to XPeng's earnings conference, the G9 has become the top-ranked mid-sized pure electric SUV in Norway, Denmark, and Israel, and also entered the top three in Sweden, the Netherlands, and other countries. Looking ahead to Q3, XPeng will launch the G6 left-hand drive and right-hand drive versions for delivery in August, which is expected to further boost overseas sales. The company expects that the proportion of overseas car sales in Q3 will exceed 15%. 2) In terms of channels, the company is gradually expanding into markets outside of Europe. As of the end of July, XPeng has entered 30+ countries and regions with more than 70 stores, and it is expected that the number of overseas stores will double in the second half of the year. 3) In terms of profitability, due to the company's positioning in the mid-to-high-end segment in overseas markets, overall profitability is good. The gradual expansion into overseas markets in the future will help improve the overall level of profitability for the company.

Entering a strong product cycle in Q3, the profitability of the next generation of products is promising.

1) In terms of vehicle models, on August 8, the MONA M03 began pre-sale and will be officially released on August 27. In Q4 of this year, the company will release the P7+ based on the new generation of automated driving hardware platform. From 2025 to 2026, the company will continue to introduce new models at a relatively fast pace, with an expected release of over 8 new models in the coming years. 2) In terms of channels, the company further expanded its physical sales network in Q2, with the number of stores increasing from 574 at the end of Q1 to 611 at the end of Q2, achieving the target of 600 stores one quarter ahead of time. 3) In terms of profitability, the company's guidance maintains the gross margin at a low to mid-teens level in the second half of the year, with the possibility of an increase in vehicle gross margin. Looking at future new cars, the company has exceeded the automated driving hardware BOM cost reduction target on the P7+ model, with an expected double-digit gross margin. The new models in the coming years are also expected to benefit from cost reduction through technology, joint procurement with Volkswagen, and internal cost control.

The expanded cooperation between xpeng and Volkswagen presents a promising revenue realization prospect.

On July 22, the company announced that xpeng has signed a strategic cooperation agreement with Volkswagen Group for the joint development of electronic and electrical architectures. The scope of the joint development has expanded from the previous CMP platform to cover the CMP and MEB platforms produced in China. The significance of this collaboration includes: 1) covering a wider range of vehicle models; 2) the MEB platform is a strategic platform for the global market, and the joint development of this platform also lays the foundation for possible future overseas market cooperation. Considering only the domestic market, the company is expected to achieve hundreds of millions of RMB in quarterly revenue over the next 3 years through platform software cooperation with Volkswagen and joint development cooperation with EEA.

Risk Warning: Risks include lower-than-expected sales of new car models, slower-than-expected product launch pace, slower-than-expected advancement and implementation of intelligent driving capabilities, intense competition, and lower-than-expected cost improvement and gross margin increase.