[Reuters Breakingviews] Xpeng's smart cars confront commoditisation

HONG KONG, March 19 (Reuters Breakingviews) - Xpeng’s 9868.HK smart cars are starting to look a lot less special. The Chinese electric-car maker built its brand on the back of years of investing in sophisticated assisted driving systems rivalling those of Elon Musk's Tesla TSLA.O. Now automakers are offering similar technology to customers at ever more affordable prices. The erosion of a key selling point of Xpeng's vehicles will keep the $22 billion loss-making company's stock volatile.

Its earnings on Tuesday sent the New York-listed shares down almost 8%. Pioneering products helped Xpeng grow revenue by 33% to 40 billion yuan ($5.5 billion) in 2024. Its Mona brand, launched last year, included advanced assisted driving for vehicles priced below 200,000 yuan. But BYD 002594.SZ, 1211.HK , the world’s largest electric-car maker, started offering its God’s Eye system in February at no extra charge for models upwards of 100,000 yuan. Geely is offering assisted driving for cars priced at 150,000 yuan. This week, Tesla decided to provide “full self-driving” functions for free for a limited period in China.

There is competition at the cutting edge, too. Alongside its earnings, Xpeng boasted it would be first to offer Chinese drivers Level 3 advanced driving – allowing drivers to take their hands off the wheel. That also looked less special after Geely’s Zeekr Intelligent Technology ZK.N and Guangzhou Automobile 601238.SS both unveiled plans for similar products on the very same day.

On the earnings call, co-founder and CEO He Xiaopeng insisted the company maintains “a very significant first mover advantage” because it has developed everything from hardware to software in-house. To be sure, this expertise has enabled Xpeng to sell research and development services to Germany's Volkswagen VOWG.DE. Xpeng has spent close to a fifth of revenue on research and development over the last five years. But ultimately that may not be enough to counter its rivals' scale; Xpeng held 1.1% of the global electric car market in 2024, per Bernstein. BYD boasts a 24% share and could gather bigger datasets to train systems.

Nonetheless, Xpeng is doubling down on its expensive high-tech strategy as it strives to establish a gap with its rivals. Earlier this month, the group announced plans to start mass-producing flying cars in 2026 and continue a foray into robotics. Those sorts of ambitions complicate He's hope that Xpeng could turn a net profit in 2025. The Chinese upstart is chasing futuristic ideas as consumers turn reluctant to pay for them.

Follow @KatrinaHamlin on X

CONTEXT NEWS

Chinese electric-car maker Xpeng on March 18 reported a net loss of 5.6 billion yuan in 2024, compared with 10.38 billion yuan in 2023. Revenue rose by 33.2% year-on-year to 40.1 billion yuan. The company’s New York-listed shares fell almost 8% to close at $24.56 on the same day.

Xpeng's R&D spend is equivalent to around a fifth of revenue