Electric vehicle maker Xpeng, known as the "Tesla of China," said it will pull out of the low-priced car market. With the surge in EV makers overheating competition and fueling a price war, attention is on whether China's auto industry is entering a phase of structural transition.
On Apr. 6, according to China Business News and local financial information platform Eastmoney, CEO Xiaopeng He said in a recent media interview that "it is meaningless to make cheap, low-revenue cars," adding that the company will not enter the market for vehicles priced below 100,000 yuan (about 21.9 million won).
◇ Profit margin stuck at 2.9% amid fierce competition
The declaration comes as a profitability crisis across China's auto industry deepens. Despite rising sales, profitability in China's auto industry is deteriorating. According to the China Passenger Car Association, in Jan.–Feb. this year, the industry's revenue fell 0.9% from a year earlier, expense rose 0.2%, and net profit fell 30%. The average profit margin was 2.9%, about half the manufacturing average of 5.8%.
Secretary-General Cui Dongshu said, "The recent decline in the auto industry's revenue is severe," and projected that profitability pressures will intensify. CEO He also said, "Current EV makers do not have proper business models and are in a highly competitive environment," adding, "By 2030, China's auto market will be led by five companies." He added the company aims to "promote healthy competition" by moving away from price wars.
◇ Xpeng formalizes shift from 'car company → AI company'
Xpeng signaled a strategy to shift the focus of competition from price to technology. The six new models unveiled this month secured competitiveness not through price cuts but by sharply boosting artificial intelligence (AI) performance. They are equipped with an in-house AI chip and an Autonomous Driving model offering up to 1,500 TOPS (trillions of operations per second) of compute. Prices range from 119,800 to 151,800 yuan (about 26.21–33.21 million won).
The company's change in direction is also evident in its reorganization. Xpeng recently changed its name from "Xpeng Motors" to "Xpeng Group," formalizing its transition from a simple finished-vehicle manufacturer to a physical artificial intelligence (AI) technology company. It plans to expand its business from EVs into Autonomous Driving, robotaxis, humanoids (human-shaped robots), and flying cars.
According to Eastmoney, to that end Xpeng invested 9.5 billion yuan (about 2 trillion won) in research and development last year, about half of which went to AI. This year, AI investment is expected to rise to 7 billion yuan (1.5312 trillion won). CEO He said, "The auto industry is not a particularly good business model even among hardware industries," adding, "Automakers must move beyond a single revenue model and find a second growth curve."