Deutsche Bank expects Xpeng to report mixed results for the second quarter, while the outlook for the third and fourth quarters will show meaningful sequential improvement driven by a strong G6 order book.

Xpeng (NYSE: XPEV) will report its unaudited financial results for the second quarter on Friday, August 18, before the US markets open. Deutsche Bank analyst Edison Yu's team has provided their preview and shared their thoughts on the company's recent key developments.

For Xpeng's second-quarter earnings, no big surprises are expected, while the outlook for the third and fourth quarters will show meaningful sequential improvement driven by a strong G6 order book, the team said in a research note sent to investors on August 6.

Beyond that, the focus is shifting to the optionality Xpeng possesses with Volkswagen and potentially other OEMs via a high-margin recurring "technology service revenue" stream", the team said.

Previous figures show that Xpeng delivered 23,205 vehicles in the second quarter, exceeding the upper end of the company's guidance range of 21,000 to 22,000 vehicles.

Those second-quarter deliveries were up 27.29 percent from 18,230 vehicles in the first quarter, but down 32.59 percent from 34,422 vehicles in the same period last year.

Xpeng had previously guided for second-quarter revenue of between RMB 4.5 billion ($625 million) and RMB 4.7 billion, a year-on-year decrease of about 36.8 percent to 39.5 percent.

Yu's team expects Xpeng to post mixed results in the second quarter, with promotions hurting margins.

Specifically, the team expects revenue of RMB 4.94 billion, a gross margin of 2.5 percent and adjusted earnings per share of RMB -2.64.

That compares with analyst consensus estimates of RMB 4.83 billion, 4.8 percent and RMB -2.32, respectively, in a Bloomberg survey.

The team expects Xpeng's second-quarter vehicle margin to be -1.1 percent, an improvement of 140 basis points from the previous quarter.

For the third quarter, the team expects Xpeng's management to guide for deliveries of about 40,000 units.

Xpeng's new SUV, the G6, sold 3,900 units in July and is expected to sell close to 10,000 units in September, supported by strong orders of at least 35,000-40,000 units, according to the team.

(Image credit: CnEVPost)

Most customers opted for the higher-end Max trims, which surprised Xpeng management and led to long wait times of up to 12 weeks, Yu's team noted.

Looking ahead to the fourth quarter, the team expects that Xpeng may offer a cheaper P7i sedan with lithium iron phosphate (LFP) batteries, a mini update to the G9, and launch the all-new X9 MPV.

These new moves are expected to contribute incremental volume to take Xpeng's fourth-quarter deliveries above 55,000 units, the team said.

Yu's team raised their delivery forecast for Xpeng in 2023 by 10,000 units to 140,000 units.

In terms of gross margins, the team expects Xpeng's vehicle margins to rebound to 3-5 percent in the second half of the year on the back of a favorable product mix and cost savings, a significant improvement from the negative first half.

Xpeng has seen some big news happen over the past month, including Volkswagen's July 26 announcement that it would invest about $700 million in the Chinese EV maker.

Xpeng will start generating "technical service revenue" from Volkswagen next year, well before the two Volkswagen-branded EV models that the German automaker is co-developing with it begin production in 2026, the team noted.

The team expects the deal with Volkswagen to generate more than RMB 1 billion in revenue for Xpeng in 2026, growing to nearly RMB 3 billion by 2028.

In addition to the Volkswagen deal, Xpeng confirmed on August 2 that its head of autonomous driving, Wu Xinzhou, would be leaving the company, with local media reporting that he would be joining Nvidia, possibly as the US-based chip giant's global senior vice president.

Yu's team believes that while it's certainly not a positive headline, the shift is natural and they would not over-analyze circumstances.

"Recall, Tesla saw several high-profile departures over the years including Andrej Karpathy (Director of AI) and Jim Keller (Head of Autopilot) yet continued to make rapid advancements in FSD," the team wrote.

($1 = RMB 7.2048)

Xpeng to report Q2 earnings on Aug 18