Amid China’s increasingly crowded electric vehicle market, Guangzhou-based XPeng Motors has stood out in recent years with its goal of building the most intelligent vehicles with the most powerful software. Occasionally dismissed as a Tesla copycat, XPeng is now speeding ahead with plans to expand overseas.
Earlier this month, XPeng joined other Chinese EV companies at Europe’s largest auto show in September to promote its vehicles. “Appropriately enough, it was held at the former Munich airport,” says Matthias Schmidt, founder of Schmidt Automotive Research. “It’s like China being in a holding pattern over Europe for a long period now. They’re kind of on their final approach to Europe and that was evident at the show.”
This week, The Wire profiles XPeng, and assesses its competitive position in China’s EV scene, as well as its vulnerability to the EU’s recently announced anti-subsidy investigation.
A SMARTER WAY TO DRIVE
XPeng was co-founded in 2014 by two former senior executives from state-owned Guangzhou Automobile Group, Xia Heng and He Tao, along with former Alibaba executive He Xiaopeng, who had a background in building software for mobile internet users. Inspired by the example of Tesla, He Xiaopeng raised 13 billion renminbi ($2.1 billion) to set up XPeng.
XPeng’s early years coincided with Tesla’s efforts to establish local production in China which nurtured a robust domestic EV supply chain. Tesla’s growing presence helped local players develop their own EV platforms, says Daniel Kollar, head of the automotive & mobility practice at consultancy Intralink Group.
“Why did He Xiaopeng do it? Because the time was ripe and he was one of the few people with the ability to see that it was time to strike when the iron was hot,” Kollar says.
Along with He’s previous employer Alibaba, early investors in XPeng included private equity funds such as GGV Capital, Morningside Venture Capital, IDG Capital, MatrixPartners China, Shunwei Capital and Guangkong Zhongying Capital. The company has also benefited from local government support, including a 4 billion renminbi ($580 million) deal with state-backed Guangzhou GET Investment in 2020 to build an EV manufacturing base in the city.
XPeng initially focused on the premium pricing segment of the auto market, which has a higher EV penetration than other segments. Co-founder He Xiaopeng became the company’s chief executive in 2017; the following year, former JPMorgan Chase executive Brian Gu was appointed its vice chairman and president.
“I thought that was a shrewd move because he’s going to have access to capital where I think a lot of other startups might not have been able to have an easy route to capital as Brian would,” says Tu Le, founder of consulting firm Sino Auto Insights.
Even so, XPeng has consistently made losses since its inception, something it attributed to high research and development costs in its latest annual report.
“XPeng is dedicated to providing a smart mobility experience for the mass market. We aim to offer a smart and premium driving experience with competitive pricing.”
XPeng Motors
XPeng’s entry to the EV market coincided with a highly competitive period for the sector in China, with two close rivals, Li Auto and Nio, arriving on the scene at around the same time. Amid an ongoing EV price war, XPeng’s recent moves show the company is now starting to look beyond the premium market.
XPeng “zagged where their two contemporaries zigged,” says Le from Sino Auto Insights. “So they decided to enter the mass market.”
In June 2023, the company unveiled the XPeng G6 SUV with a price tag starting at 209,900 renminbi ($29,000), putting the vehicle head-to-head with the Tesla Model Y. In 2024, XPeng plans to go further by launching a new brand of EVs with prices in the range of 150,000 renminbi ($21,500).
“XPeng is dedicated to providing a smart mobility experience for the mass market,” XPeng said in a statement to The Wire. “We aim to offer a smart and premium driving experience with competitive pricing.”
Still, in making this move, XPeng runs the risk of tailgating behind an even larger competitor.
“BYD has gone after the mid-market with a vengeance and they’re taking most of the oxygen out of the room, which is going to make it a whole heck of a lot more difficult for these companies who are making the pivot towards the mid-market to be successful,” says Kollar from Intralink.
With more aggressively priced vehicles now entering XPeng’s domestic market, the company plans to bring its premium models to Europe: at the IAA Mobility auto show in Munich, it announced it will start selling cars in Germany next year.
“XPeng haven’t got a legacy or a history or a brand which they can fall back on in Europe; they have to build it up from scratch,” says Schmidt. “And that will be a real challenge for them — to command a premium price without a premium story behind them.”
In July 2023, XPeng announced a strategic partnership with German automaker Volkswagen, in which the two companies agreed to jointly produce two EV models under the Volkswagen brand for sale in China. Volkswagen also gained a 5 percent stake in XPeng for $700 million.
“I think XPeng sees [an opportunity for] help in the international markets,” says Le from Sino Auto Insights. “It helps them likely with filling the capacity out at their factories which should create more flexibility for them.”
Like other Chinese manufacturers, XPeng is not immune to regulatory challenges. The company’s U.S.-listed stock price dropped as much as 2.5 percent on September 13 after European Commission president Ursula von der Leyen announced the launch of an anti-subsidy investigation into Chinese electric vehicles.
“Global markets are now flooded with cheaper Chinese electric cars,” von der Leyen said. “And their price is kept artificially low by huge state subsidies.”
The Chinese government had the foresight to lay down their long-term strategic vision for EVs well ahead of the EU. Now the genie is out of the bottle…we can’t turn back time.
Matthias Schmidt, founder of Schmidt Automotive Research
China’s government has spent heavily to support the EV industry’s development, with subsidies worth $57 billion in the last decade, according to consulting firm AlixPartners. Companies like XPeng have also received financial support from the country’s banks; in 2021, five major institutions including state-owned Bank of China and China Construction Bank, provided the company with 12.8 billion renminbi ($2 billion) in credit. EVs remain exempt from vehicle purchase taxes up to 30,000 renminbi ($4,175) until at least the end of 2025.
Still, some analysts are skeptical that Beijing’s state aid has been excessive, while Chinese EVs share of the European market remains modest at 8.2 percent between January and July 2023, according to data from Schmidt Automotive Research.
“The Chinese government had the foresight to lay down their long-term strategic vision for EVs well ahead of the EU,” Schmidt says. “Now the genie is out of the bottle…we can’t turn back time.”
Aaron Mc Nicholas is a journalist based in Washington DC. He was previously based in Hong Kong, where he worked at Bloomberg and at Storyful, a news agency dedicated to verifying newsworthy social media content. He earned a Master of Arts in Asian Studies at Georgetown University and a Bachelor of Arts in Journalism from Dublin City University in Ireland.
