Chinese EV maker Xpeng outlines Europe rollout plan

Along with Nio, Xpeng is the Chinese electric startup most closely trying to match Tesla's success. The automaker delivered 27,041 vehicles in 2020. That included Xpeng's first 100 models in Norway, marking the brand's European sales debut. A U.S. stock listing last year added more than $4 billion to its already healthy cash pile, enabling the company to finance plans to double its EV model range to four. Xpeng President and Vice Chairman Brian Gu discussed the company's plans for Europe and beyond with Automotive News Europe Correspondent Nick Gibbs.

Xpeng recently started selling the G3 electric SUV in Norway. Which other European markets are you targeting?
Europe is a big opportunity because the number of EVs sold there will beat China [in 2020]. But Europe also has a lot of incumbent brands, so we are taking our time and doing a thorough job. We are still discussing our execution plan for the rest of Europe. We have not finalized which countries will be next. That will be revealed in the next four months.

Aren't you worried that Xpeng might miss out on EV-friendly incentives in key markets?
We don't want to be late, but at the same time it's much more important to establish your brand and reputation properly when you're a new entrant. You do this by having the right infrastructure, the right sales and service, and the right brand recognition. It's easy to dump hundreds of vehicles on a country, but that's not how to develop a business.

How will you sell vehicles to Europeans?
It all depends on the country. In Norway, we are working with a local partner [Zero Emission Mobility] to handle sales and service functions. We will provide technical support and software updates. This is similar to what we do in China. We will reveal our plans for other countries later.

What is your plan for the U.S.?
The U.S. will be a more difficult country to crack. Europe is more our focus.

What vehicles do you need for a Europe-wide launch?
We have the G3 [compact SUV] and will evaluate the P7 sports sedan for Europe. In the future, our new vehicle development will have more European specifications in mind.

You have two models now. What comes next?
For China in 2021 we will have a smaller family-sized sedan, the size of a Honda Accord or Toyota Camry. The fourth product coming in 2022 will be an SUV that is larger than the G3 and based on the P7's platform.

Xpeng went public in the U.S. this year, raising about $4.2 billion. What will this money enable you to do?
Capital is quite important for players in this race to stay ahead. We are still very early in the game. If you look at the penetration rate of EVs it's low single digits today, and while it is rising quickly it's still very early. There are other new entrants and also incumbents that have vast resources. So, we have to capitalize to take on those challenges and maintain our leading role in a number of areas, such as technology and artificial intelligence.

What sets Xpeng apart from competitors?
First, our product has the design, features, range and specification to make it very competitive. The P7 has one of the longest driving ranges in China [more than 700km], for example. Second, we develop most of our technologies in-house, especially software. We are probably the only company with in-house full-stack [end-to-end software] development other than Tesla. Most companies are working with Tier 1 suppliers. Third, our product is not designed for the superrich. We don't start with a luxury positioning like Nio or others. Our product is focused around the $30,000 to $45,000 area, which is the most attractive market segment.

When will Xpeng be profitable?
We achieved a positive gross margin last quarter and that is expanding as we speak as our volume grows. As a company that's growing really fast, we have to invest in the future, not just the r&d side, but also lots of investment in autonomous driving, batteries, powertrains, and we also need to lay down the infrastructure to really grow the company in China and in Europe. So, in the near-term, we are not going to achieve profitability very soon because all this investment will have to be amortized by selling a large number of vehicles, but we are confident in the long run this will make us more profitable and competitive.

What is your manufacturing strategy?
We have our own factory in Guangzhou that is producing the P7. The G3 is produced with a contract manufacturer [Haima, a subsidiary of FAW] in central China. We are building a second plant in Guangzhou that will be online by 2022, just in time to manufacture our fourth product [the larger SUV].

So, the traditional way of manufacturing suits you fine?
I think it's a very efficient way to operate, especially when you have enough volume. In the early years we didn't have much visibility on volume, which is why we opted to go with a contract manufacturer. As we increase volume and gain confidence about the sales prospects of our products, having our own plant is much better.

Would you make cars in Europe?
We will absolutely be thinking about this. If you have a large volume you just increase trade tensions between China and Europe [if you only import models], therefore having local capacity is much better. It is also better logistically.

Would you take over someone else's plant?
Every country is different. In China it's better to build your own factory than take over someone else's because when you build something the government will give you a lot of resources. In Europe maybe it's better to buy something.

There are a lot of EV automakers competing in China. What is your outlook for the market?
Today it's very fragmented with dozens of EV brands competing for market share. Only a few will survive, so the market will be more concentrated and dominated by four to six players, each with more than 10 percent of the EV market. Obviously, we want to be one of those players. To do that you have to offer EVs with smart capabilities.

How do you define a smart EV?
First, the cabin has to interact with you. It knows you, can follow your commands, understand your voice and use visual recognition and AI to create a very unique experience. Second, the car has to be able to drive autonomously in most scenarios. Third, the car has to be very easy to update.

When will you offer hands-off autonomous driving in China?
In China we are approaching Level 3 [conditional autonomy] even though no one has fully defined what Level 3 is. Our cars are already functioning as much as they can without human intervention on the highway, but regulations need to know there's human responsibility. We have plans to offer Level 3 autonomy, not just on highways but in city driving situations too, in a year or so.

When will autonomous driving be allowed in China and where?
It needs to be tested more robustly, in terms of error rates and the safety profile. Certain municipalities might be more advanced in allowing it in their cities, but it will take time to get Level 4.

You buy batteries from CATL. Are you doing your own battery cell research?
We are not looking at making batteries. It's very capital intensive, but also a big technology risk that we don't think we should take. We want to work with leading suppliers, but we also want to control some of the key technologies; for example, we do our own battery management systems.

Do you believe flying cars could become reality or is your research more of a publicity generator?
We are definitely not in this for a publicity stunt. We believe that as a smart EV leader we need to think about future mobility, which will come in different forms. Low-altitude flying will be part of that. Clearly there are a lot of things to figure out from the tech and policy perspective. But the research we are doing on batteries and powertrain motors, lightweight materials, sensors, autonomous driving and Al can be deployed in different modes of transportation. That is why I think it's natural to really extend ourselves into other areas such as flying cars and robots for last-mile transportation.