XPeng's financial performance in the first quarter and its outlook for the second quarter will be weak, though the company may see a turnaround after the launch of G6, according to Edison Yu's team.

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XPeng (NYSE: XPEV) will report its unaudited financial results for the first quarter on May 24 before the US markets open. As usual, Deutsche Bank analyst Edison Yu's team provided their preview.

XPeng's performance will be weak in the first quarter and the outlook for the second quarter is likely to be subdued, but a turnaround in the second half of this year may be in the cards after the launch of the new SUV G6, according to a research note sent to investors today.

First quarter earnings

Previously released data showed that XPeng delivered 18,230 vehicles in the first quarter, slightly above the lower end of the guidance range of 18,000 to 19,000 vehicles.

The company's previous revenue guidance for the first quarter was RMB 4 billion to RMB 4.2 billion, a decrease of about 43.7 percent to 46.3 percent year on year.

XPeng sales have been weak since the second half of last year, with deliveries of just 5,218 units in January. It rebounded to 7,079 units in April, essentially flat from March.

Yu's team expects XPeng to report revenue of RMB 4.04 billion and adjusted earnings per share of RMB -2.52 for the first quarter.

The team expects XPeng's gross margin to be 5.0 percent and vehicle margin to be 0.4 percent in the first quarter, or down 530 basis points sequentially, as price cuts and promotions hurt margins.

This compares to the current consensus analyst estimates of RMB 4.24 billion, 6.1 percent and RMB -2.09, respectively, in a Bloomberg survey.

Subdued second quarter

Yu's team believes that XPeng deliveries are likely to be subdued in the second quarter as the G9 has struggled to gain order flow and supply constraints have hampered P7i deliveries.

G9 sales have been below 1,000 units for the past three months, and a summer price cut is likely, the team said.

XPeng management has said that orders for the P7i have increased unexpectedly and will increase more meaningfully in June and beyond. As a result, Yu's team expects XPeng to guide for low-mid 20,000 range second-quarter deliveries.

Deliveries of the upcoming G6 will begin in late June and the model will not make a significant contribution in the second quarter, according to the team.

G6 is the swing factor

In the company's fourth-quarter earnings call on March 17, XPeng management said the G6 will be officially launched and delivered by the end of the second quarter, with a price range of RMB 200,000 ($28,590) to RMB 300,000.

XPeng's monthly sales target for the G6 is 2-3 times that of the P7, He Xiaopeng, the company's chairman and CEO, said during the call.

XPeng unveiled a new architecture called SEPA (Smart Electric Platform Architecture) 2.0 at a technology conference in Shanghai on April 16, saying the G6 will be the first model built on the architecture.

The architecture will shorten the development cycle of future models by 20 percent and optimize development efficiency significantly. Interchangeability and interoperability of common and modular components between new models will reach 80 percent, enabling XPeng to meet diverse customer needs at an optimized cost, it said at the time.

Yu's team believes that the G6 will need to be successful for XPeng to be truly relevant again in the marketplace.

On a relative basis, XPeng management sees the G6 selling 2-3 times as many units as the P7, which means at least more than 5,000 units per month, according to Yu's team.

"Our view is XPeng will price G6 below Model Y in hopes of attracting consumers with its sleeker design and newer interior," the team wrote.

With the increased production of the G6, XPeng management believes total monthly deliveries could reach 15,000 units at some point in the third quarter.

"This seems achievable and we model XPeng reaching this level in Sep with potentially some help from a midcycle P5 face-lift ('P5i')," the team said.

($1 = RMB 6.9959)

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