XPeng President on Tesla: Chinese players are quickly catching up

Yahoo Finance’s Brian Sozzi, Julie Hyman, and Myles Udland speak with Xpeng Vice Chairman and President, Brian Gu, about the company’s debut on the Hong Kong Stock Exchange, the launch of the G3i, his message to investors, and the outlook for the electric vehicle market.

Video transcript

BRIAN SOZZI: XPeng is fresh off issuing 85 million shares on the Hong Kong Stock Exchange this week. China based electric vehicle maker is now listed in both the US and Hong Kong, as it seeks to mitigate some geopolitical risk. Joining us now for more on the listing and the company going forward is XPeng President and Vice Chairman, Brian Gu. Brian, always good to speak with you.

Thanks for taking the time over here this morning. So take us through this. This is known as a dual primary listing. So that subjects the company to rules and oversight of both the US and Hong Kong regulators. Why subject the company that type of scrutiny?

- I think this is it.

BRIAN GU: Sure. Yeah. Thank you. Very glad to be here, Brian. Now dual primary listing actually has a number of benefits. One is that the company can be actually listed independently in Hong Kong, which means that it does not rely on a listing status in the US to trade in Hong Kong.

Most of the secondary listing Hong Kong actually rely on US listing. So a primary listing give us the independent listing and trading ability.

Secondly is that the primary listing Hong Kong, that should give us the ability to be eligible for stock net, which means that the China-based A-Share investors can, through stock net, buy our shares in Hong Kong, which will give us the access to the Chinese capital markets, which also allows some of our customers can be our shareholders, which is also always our objective.

So those benefits outweighs the additional hurdles that we need to come-- cross to be listed. On the other hand, those photos also make our company stronger and more compliant because we now satisfy both the Hong Kong and US standards.

JULIE HYMAN: And Brian, it's Julie here. It's good to see you.

BRIAN GU: Hi, Julie

JULIE HYMAN: So, is this also a move to mitigate some of the potential current regulatory risk we are seeing come out of China? Are you, as an executive at a company that is based in China and listed in the US as well as Hong Kong, are you concerned that Chinese regulators are going to say you're no longer allowed to do that, and you can't list in the US anymore? How big a risk is that in your view?

BRIAN GU: Well, to be frank, our two prime listing process, we weren't aware of these regulatory changes. So that wasn't really the factor that factored into our decision to come to Hong Kong. But these changes, which are introduced in the recent days or weeks, are very new. So we're-- really need to study it. But the good thing is that we already listed in the US and now we're listed in Hong Kong.

So we actually have a very solid footing as a dual listed company in global markets. So I think we're very confident that we can actually provide stable access for our development to the capital markets.

MYLES UDLAND: And, you know Brian, certainly there's been a lot of focus on the stock over the last, you know, really six months or so. It's been a name that's been caught up in a number of different trades. I'm curious though about the business, because you guys, along with a couple of your peers in the China EV market reported some positive, pretty positive data for the month of June, in terms of sales trends.

And I'm just curious how that is shaping up as we get into July here? We think back to the trajectory you wrote in the first half of the year and how you're thinking about the second half.

BRIAN GU: Yeah, I think the performance of our business, as well as the overall EV sector in China, has been really strong. I think surprisingly strong. If you look at our monthly delivery, which we disclose every month, we've been probably more than doubling on an annual basis for the 10 or 11 straight months.

So that's astonishing. And also, we have reported in our quarterly earnings, that our gross margin had been increasing every quarter for the past nine quarters. So not only the volume is increasing, but probability is strong.

So I think we're really having a strong momentum in China. And if you look at the industry, the EV penetration in China has gone from 5% about a year ago to 10% today. It's more than doubled for the industry. So I think there is a strong wind behind our backs. I think it will carry through in the second half, because I think the second half typically is the stronger sell season for auto, so we are very hopeful that second half will have a stronger growth.

On top of it, actually we were being introducing brand new models. One will be the facelift G3, which is our first model. Now we have a makeover in the new cycle. And then the fourth quarter will be bringing our third brand new model, P5, to the market. So with two new models and the existing growth, we're very confident we can deliver static growth in the second half.

BRIAN SOZZI: Brian, since you and I last spoke, Tesla is really coming under-- has come under a lot more scrutiny in China regarding quality problems and how it sells its vehicles. Do you think XPeng and even some of your competitors are gaining market share because of these stumbles?

BRIAN GU: Well, I mean, I think Tesla is still very strong in China. I mean, if you look at their delivery numbers in last month. They came back very strongly. It has a tremendous brand in local market. Its products still viewed as a high technology. One of the potential leaders in a number of areas, and also I think that they have been very aggressive with pricing.

So I think Tesla is still going to be a very strong competitor and I think that they have a very commanding market share. Probably not as high as last year, when they have a very dominating share. But on the other hand, I think the Chinese players are catching up very quickly.

Our product, and as well as some of the other products are being introduced by the leading players, have very good and comparable sort of specs, as well as a better user, I think, features, compared to Tesla. And I think we're catching up very quickly. So you can see that in a few-- last few months, our growth has outpaced that industry, as well as Tesla in China.

But I think it's a long race, because I think ultimately this market will not be dominated by one or two companies. They will probably be a number of players occupying probably large market share positions, for example, 10% and above. So that will likely to be the trend and we hope to be one of those top players.

BRIAN SOZZI: And Brian, I know I know XPeng had-- started to export vehicles, what I believe to Norway late or late last year. Do you think it's important that XPeng goes global?

BRIAN GU: Absolutely. I think a smart EV as a product should be a global product. You should not be just designing a technology for one particular market, especially that technology will involve the entire power train, the battery technology, the smart technology, autonomous driving. So much investment going into this product should make it competitive globally, not just in China.

That's why we actually started the effort in Europe. We started selling in small numbers in Norway. We are building our presence in other countries, in Continental Europe. And I think for the next four to 24 months, we'll probably launch our operations in a number of European countries.

So I think by probably 12 to 18 months, we should have our capability built up in Europe and then we want to introduce products that be designed for international markets. So I think that will be when we start to see larger number of our sales.

JULIE HYMAN: And Brian, finally I want to circle back to the listing. And in particular, just to sort of emphasize the point here. For US investors, is there a message that you want to get across to them, amidst this sell off that we're seeing, of course, not just in XPeng, but in Chinese-based US listed companies broadly? Is there a message that you want to make sure American investors know about those US listed shares?

BRIAN GU: Yeah. I think one thing is really must have had to really look at the past and the longer horizon. I mean, Chinese ADRs has been one of the best, well, You know, better performing classes of security. If you look at 10 years or beyond. So it has provided a significant growth and opportunities for US investors, but also along the way, there has been quite a bit of volatility.

And in years like 2012, in years-- there are similar issues have impacted this year's trading in the US, but in the long run, I think because China growth opportunities still very compelling. I think investors taking a longer term view will be very, very much rewarded.

BRIAN SOZZI: All right, we'll leave it there. XPeng President and Vice Chairman Brian Gu, always good to see you. Thanks for staying up for us. I know it's almost 10:00 over there in Hong Kong. We appreciate it.

BRIAN GU: Thank you.