In the competition among new forces in the automotive industry, NIO and Xiaopeng have demonstrated resilience and growth potential in the third quarter of this year. Despite maintaining a leading position in terms of sales volume, profitability, and cash flow management, NIO and Xiaopeng have proven their competitiveness to the market through stable sales growth and improved performance.The progress of these two companies indicates that the new forces in the automotive industry are gradually overcoming early challenges and entering a more mature and stable development stage. Their turning point seems to be just around the corner.<h2>1. Q3 Sales Volume: Ideal Sets New Record, NIO and Xiaopeng Back on Track</h2>In the third quarter of this year, there was still a certain gap in sales volume between NIO, Xiaopeng, and Ideal, but it has significantly narrowed compared to the nearly three-fold difference in sales volume in the first half of the year.1) Ideal Sets New Sales Record, but Production Capacity Bottleneck Becomes Incremental ResistanceIdeal, the sales champion, broke through the 100,000-unit mark for the first time in the third quarter, reaching 105,000 units. However, the high growth momentum in sales volume for Ideal may be difficult to sustain. While demand is not a problem, as monthly sales volume gradually approaches Ideal's production capacity bottleneck, the sales volume has already started to be limited before the expansion of the Changzhou factory and the full production of the Beijing Shunyi factory.Currently, Ideal's sales volume in October and November is around 40,000 units. The MoM growth rate in November is only 1.5%. It can be seen that the sustained growth of Ideal's sales volume is indeed facing significant challenges.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/6fc89723-8c47-4905-907c-15c1d65717cf.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/6fc89723-8c47-4905-907c-15c1d65717cf.png"/>2) NIO's Sales Volume Returns to Over 15,000 Units, but Sustainability Needs to be TestedNIO's sales volume in the third quarter reached 55,400 units, with July's sales volume once surpassing the 20,000-unit mark. Obviously, after the successful completion of the transition between new and old models, NIO's delivery volume has been significantly increased, with monthly sales volume basically stable at over 15,000 units.However, in the fourth quarter, NIO has not been able to maintain high sales growth. Sales volume in October and November has gradually declined, and it is unlikely to reach the 20,000-unit monthly sales volume.It is worth noting that after completing the lineup of six core models, including ES7, ES6, EC6, ET7, ES8, and ET5, NIO is unlikely to launch new models in the short term. The next new model or brand is most likely to be related to NIO's independently established mid-to-low-end brand, Alps and Firefly, with a probable launch time in the second half of next year.Previously, NIO has been continuously launching new models to attract consumers and maintain its competitive position. However, this vacuum period of more than half a year without new models will pose a challenge to NIO's sales volume and profitability. Whether NIO's six existing models can sustain the sales flag is crucial for NIO.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/a0e6edb3-7a5c-4a2e-a0f0-c5750e1b6e0c.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/a0e6edb3-7a5c-4a2e-a0f0-c5750e1b6e0c.png"/>（3）Xiaopeng's monthly sales continue to increase for 10 consecutive months, reaching the threshold of 20,000 unitsXiaopeng has shown a clear trend of starting low and ending high this year, and its monthly sales are currently stable at a level of over 15,000 units. In the third quarter, sales reached 40,000 units.For the fourth quarter, Xiaopeng's expectations are also very optimistic, with sales expected to reach 59,500 to 63,500 units. Sales in October and November also exceeded 20,000 units, which is in stark contrast to the sluggish sales of less than 10,000 units in the first half of the year.In the future, Xiaopeng is expected to continue its sales recovery with the help of the hot-selling G6, which was launched after its listing, and the 2024 G9, which was launched in September (with 15 days of pre-orders reaching 15,000 units).<h2>2. Q3 Profit: Ideal gross profit margin surpasses Tesla, NIO and Xiaopeng start to alleviate pressure</h2>In the first half of this year, NIO and Xiaopeng were hovering near the breakeven point, with Xiaopeng's gross profit margin even turning negative, resulting in a situation where selling one car would result in a loss. Fortunately, in the third quarter, both Xiaopeng and NIO gradually alleviated the pressure of profitability.（1）Ideal stands out with a gross profit margin surpassing Tesla and BYDIn the third quarter, Ideal's net profit reached RMB 2.81 billion, a sharp contrast to the loss of RMB 1.64 billion in the same period last year, and even exceeded the market's expected RMB 2.375 billion. Moreover, its gross profit margin surpassed the giants of the new energy vehicle industry, Tesla (Q3 gross profit margin of 17.9%) and BYD (Q3 gross profit margin of 22%), reaching 22%.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/ee857cd8-aaf7-47c3-a065-59e9b638293f.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/ee857cd8-aaf7-47c3-a065-59e9b638293f.png"/>However, it is worth noting that due to the strong listing of Huawei's Wanjie M7 with sustained high-growth orders, Ideal also felt the pressure. After October, Ideal offered discounts ranging from RMB 26,000 to RMB 30,000 for its L-series models, indicating that the price war has also affected Ideal, which has always claimed &#34;no price reduction&#34;. Whether Ideal's profitability can continue to maintain a high level in the future needs further confirmation.（2）Xiaopeng's gross profit margin has not turned positive yet, but it is within reachAlthough Xiaopeng has not completely solved the problem of negative gross profit margin and expanding net losses in the third quarter, there are signs of recovery.Among them, relying on the high popularity of two high-priced models—the G6, which became a hit as soon as it was listed, and the 2024 G9, which received a large number of orders—Xiaopeng's unit revenue finally began to rebound. In the third quarter, the MoM growth was RMB 5,000, reaching RMB 196,000. This also led to the first MoM increase in gross profit margin this year, with an increase of 1.2 percentage points to -2.7%, breaking the trend of continuous decline. The fourth quarter is expected to bring the dawn of turning negative into positive.However, Xiaopeng's net loss is still expanding, but there is a reason for this quarter. Due to the change in fair value of the forward equity sales agreement related to the issuance of shares by Volkswagen's strategic minority shareholders, the fair value change loss of Xiaopeng's derivative liabilities was included in a non-cash loss of CNY 970 million. Excluding this abnormal impact, Xiaopeng's net loss was only CNY 2.92 billion, with limited MoM growth.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/2af06355-925f-475b-8372-9f86c3d88bbe.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/2af06355-925f-475b-8372-9f86c3d88bbe.png"/>(3) Cost reduction and unit price recovery, NIO's gross margin improves slightlyPreviously in the second quarter, NIO's price reduction strategy (CNY 30,000 reduction, 6.5%-10% reduction for all models) and poor sales performance (6% YoY decline, 24.2% MoM decline to 23,500 units) had a significant impact on NIO's profitability.This situation has changed slightly in the third quarter, with a MoM increase of 7 percentage points in gross margin to 8%. Although there is still a gap compared to NIO's previous gross margin level of around 12%, the improvement in profitability is evident. On one hand, NIO's revenue per vehicle has increased significantly in the third quarter. The sales of NIO's ES6 model (around CNY 350,000) surpassed the previous popular low-priced model ET5 (below CNY 300,000) in the third quarter, allowing NIO's revenue per vehicle to break free from the embarrassing situation below CNY 300,000, with a MoM increase of CNY 8,600 to CNY 314,000.On the other hand, the price of raw material lithium carbonate has dropped significantly in the third quarter, resulting in a decrease in NIO's per vehicle cost. The prices of battery-grade lithium carbonate and lithium hydroxide have dropped from CNY 306,000/ton and CNY 272,000/ton at the beginning of the third quarter to the current CNY 149,000/ton and CNY 149,500/ton, a decrease of 51.3% and 55% respectively, leading to a MoM decrease of CNY 7,000 in NIO's per vehicle cost.<h2>3. Q3 Expenses: Li Auto increases investment to catch up, Xiaopeng sees rare decrease</h2>Previously, Li Xiang, in order to maintain his advantage in the new energy vehicle market, continued to invest in new models and technological research and development, so the expense expenditure remained relatively rigid. However, there has been a change in the uniformity of Li Xiang's expense expenditure in the third quarter.(1) Cannot lose in intelligent driving, new models are being accelerated, Li Auto becomes a major player in R&amp;D expenditureIn the third quarter of this year, Li Auto's R&amp;D expenditure reached CNY 2.43 billion, a YoY increase of 56.1% and a MoM increase of 16.1%. The main reason is that, in addition to extended-range models, Li Auto has started to rapidly develop pure electric new models and make them a reality, as well as accelerate its efforts in the relatively lagging field of intelligent driving technology.In December, Li Auto will launch its first pure electric MEGA model, and continue to launch three pure electric models and one extended-range model next year, becoming the new energy vehicle company with the most models in the market.In addition, in the second half of the intelligent battlefield, Ideal is slightly behind compared to leading players such as Xiaopeng and Huawei. It has not yet started city pilot projects, so Ideal needs to increase investment in intelligent driving to avoid falling behind.Furthermore, the rapid increase in Ideal's sales volume is closely related to the rapid expansion of its sales channel network. By the end of the third quarter of this year, Ideal had 361 retail centers and coverage in 131 cities, an increase of 24 centers and 3 cities compared to the previous period. However, the expansion of the channel network has also led to a significant increase in sales expenses. By the end of the third quarter, sales, general, and administrative expenses reached CNY 2.54 billion, a year-on-year increase of 68.8% and a MoM increase of 10.2%.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/825eabbe-72b5-41d8-9088-a6519381550a.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/825eabbe-72b5-41d8-9088-a6519381550a.png"/>(2) Store optimization and cost reduction for XiaopengIn contrast, Xiaopeng has invested heavily in the field of intelligent driving and sales network, surpassing the other two players in terms of both intelligent driving technology and the number of stores. Therefore, Xiaopeng has been able to reduce its expenses.By the end of the third quarter of this year, Xiaopeng reduced the number of physical sales networks by 16 to 395 in order to eliminate inefficient stores, resulting in a small increase in sales expenses. In the third quarter of this year, Xiaopeng's sales expenses reached CNY 1.69 billion, an increase of only 4% compared to the same period last year and a MoM increase of 9.6%.As for research and development investment, Xiaopeng, as a leading player in the field of intelligent driving, only needs to maintain its advantage steadily after completing the transition from high-precision maps to mapless mode. It does not need to invest heavily like Ideal and NIO in order to catch up with the leading car companies. Therefore, Xiaopeng's research and development investment has declined for the first time this year, reaching CNY 1.31 billion, a year-on-year decrease of 12.9% and a MoM decrease of 4.5%.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/229ec35d-1c5c-4fec-b93a-e960c25069c3.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/229ec35d-1c5c-4fec-b93a-e960c25069c3.png"/>(3) NIO's high expenses due to diversified investmentsNIO's research and development expenses in the third quarter reached CNY 3.039 billion, a year-on-year increase of 3.2%. The launch of NIO's new brands such as Alps requires resource allocation, and NIO is also continuously investing in the upgrading of its charging/swapping system and in the development of smart phones. Therefore, it is difficult for NIO to reduce its research and development investment in the short term.NIO's sales and administrative expenses reached CNY 3.61 billion, a year-on-year increase of 33.1%. By the end of the third quarter of this year, NIO's sales and service network is still expanding rapidly, with an increase of 12 NIO Centers to 137, an increase of 33 NIO Spaces to 304, and an increase of 394 battery swap stations to 1,951.With more and more competitors like Wanjie, Deep Blue, and Jike joining the new energy vehicle industry, the industry has become increasingly competitive. Wei Xiaoli's ideal of not being mediocre has already taken the lead in finding its own path. As for NIO and Xiaopeng, whether they will fade into the crowd or achieve a comeback will soon be revealed, because they really don't have much time left.

XPEV

09866

09868

02015

LI AUTO-W, NIO-SW, and XPENG-W have shown resilience and growth potential in the third quarter of this year, with both sales and performance improving. Although LI AUTO-W's sales reached a new high, production capacity constraints have become a barrier to further growth. NIO-SW's sales have returned to a level of over 15,000 units, but its sustainability still needs to be tested. These new forces in the automotive industry are gradually overcoming early challenges and entering a more mature and stable development stage.

Wallstreetcn

NIO Inc. USD OV

XPeng

NIO-SW

Li Auto

XPENG-W

LI AUTO-W

Q3 LI AUTO-W temporarily hits sales ceiling, NIO-SWXPENG-W finally reaches turning point | Insight Research