In June 2020, three notable figures in the Chinese automotive sector, Li Bin, Li Xiang, and He Xiaopeng, shared a photograph on a social media platform, reflecting on their strugglesHe Xiaopeng humorously captioned the picture, describing themselves as "three hardworking individuals reminiscing about difficult times." At that moment, their primary objective was to secure funding to ensure the survival of their companies while maintaining production and deliveriesSoon, their perseverance paid off as their respective firms began establishing themselves as significant players within the burgeoning electric vehicle market in China.

However, the tides began to shift when Tesla, the global leader in electric cars, initiated a price reduction strategyWhile NIO and Li Auto managed to navigate the challenges posed by this aggressive market maneuver, Xiaopeng Motors found itself struggling to competeThe company, founded by He Xiaopeng, appears to be the most vulnerable among the trio of leading Chinese EV manufacturers, often found in the crosshairs of Tesla’s pricing strategy.

The connection between Xiaopeng Motors and Tesla runs deep, as founder He Xiaopeng was previously a devoted admirer of the American carmakerHe even invested in Tesla stocks, reportedly earning enough to purchase a couple of airplanes along with owning four Tesla vehicles by himselfIn April 2014, when Tesla delivered its first Model S to customers in China, He was among the first recipients.

Despite this admiration, He Xiaopeng’s relationship with Tesla later soured as he established Xiaopeng Motors as a direct competitor to his once-beloved brandHe has openly stated that his inspiration for launching Xiaopeng Motors derived from Tesla and, as the company progressed, it showed marked influence from Tesla’s innovation and technology

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For example, both companies emphasized smart assisted driving technologies, presenting similar product positioning and marketing strategies.

In pursuit of developing its autonomous driving systems, Xiaopeng Motors extensively recruited technology experts from Tesla, including key contributors to the Autopilot system and artificial intelligence specialistsThe similarities didn’t end with personnel; numerous Xiaopeng models drew visual and functional comparisons to their Tesla counterpartsThe Xiaopeng G3 received the label of "Chinese Tesla," while the P7 was criticized for closely resembling the Tesla Model 3 in terms of design and features.

On June 1, 2019, when the local production price of the Model 3 was revealed, He Xiaopeng took to Weibo, claiming that the Model 3 lacked competitiveness against the Xiaopeng P7. The competitive landscape shifted significantly when the Model 3’s pricing fell between 328,000 and 525,000 RMB, with smaller delivery timelinesIn comparison, the Xiaopeng P7 launched in April 2020, offered an extended range and a lower price point, allowing it to achieve significant sales, even surpassing its competitors for a time.

As 2021 rolled in, Xiaopeng Motors delivered nearly 100,000 cars, marking a significant year-on-year increaseThe company's strategy of pricing its P7 lower than Tesla was largely successful, propelling it to the top of the new automotive forces in ChinaHowever, this success was short-lived, as the aggressive pricing strategies of Tesla began to undermine Xiaopeng’s market position.

By the end of 2022, while Xiaopeng Motors reported a total of over 120,000 deliveries, it fell short of the ambitious target it had set earlierMeanwhile, competitors like Nio and Li Auto surpassed Xiaopeng in total sales volume, forcing the company down from its prior leadership position.

Heading into 2023, Xiaopeng faced a grim outlook

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The company projected that its first-quarter deliveries would fall between 18,000 and 19,000 vehicles, representing a staggering decrease of around 45% compared to the previous yearIn stark contrast, both Nio and Li Auto anticipated sales increasesThis stark disparity highlighted Xiaopeng's struggles amidst shifting consumer preferences and increased competition.

The reasons behind Xiaopeng's declining performance were clearly articulated by He Xiaopeng during a financial report conferenceHe noted that the combination of a challenging macroeconomic environment and fierce rivalry in the electric vehicle sector resulted in a substantial strain on the company, leading to operational challenges and diminished sales performance.

Notably, while competitors like Nio and Li Auto had developed unique selling propositions around battery swapping and range-extending technologies, respectively, Xiaopeng continued to rely heavily on smart driving technologies which heavily mimicked Tesla's offeringsWithout sufficient differentiation, Xiaopeng was pulled into a full-blown price war with Tesla.

Tesla's price reductions began in October 2022, with significant cuts made to its Model 3 and Model Y models that reached up to 37,000 RMBBy the beginning of 2023, prices continued to drop further, aligning closely with Xiaopeng’s price rangeThis reinvigorated public debate regarding Xiaopeng's competitive edge, as the once-clear price gap with Tesla diminished rapidly.

As Xiaopeng scrambled to respond, price adjustments for its models ensued, but not without consequencesThe company's profit margins declined significantly, falling from 11.5% in 2021 to 9.4% by the end of 2022. This response was compounded by rising production costs and increased sales discounts, flooding Xiaopeng with continuous losses that totaled over 9.14 billion RMB for the same year, indicating a sharp increase of nearly 88% from the previous year.

Concerns arose around Xiaopeng potentially becoming the first casualty of the new automotive landscape amidst the fierce competition

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Nonetheless, reports indicate that the company still maintains a substantial cash reserve of 38.25 billion RMBIf Xiaopeng were to continue incurring losses at the same rate as observed in 2022, it would take around four years for those funds to deplete.

In the face of these challenges, Xiaopeng has initiated multiple cost-cutting measures, aiming to streamline its operations and manufacturing processesHe Xiaopeng announced plans to overhaul key areas, including the electric vehicle platform, electronic architecture, and the integrated driving software, to achieve a more efficient production system capable of delivering better quality vehicles at competitive prices.

Moreover, Xiaopeng aims to lower the costs associated with autonomous driving by over 50% in the coming years, along with a 25% reduction in overall vehicle hardware costs, which may create a new wave of competitive pricing strategiesNotably, He Xiaopeng also highlighted plans to disaggregate the pricing of the advanced smart driving package, introducing it as a standard feature across all models in the future.

A significant change has been made at the leadership level as well, with Wang Fengying, a seasoned veteran in the automotive industry, joining as Xiaopeng's new presidentHer extensive experience, particularly with Great Wall Motors, where she successfully led innovation and branding strategies, is expected to inject new life and direction into Xiaopeng as it seeks to rebound from its current challenges.

Moreover, Xiaopeng's internal structures have undergone significant changes to eradicate inefficiencies that previously blighted its operationsBy merging its direct sales and authorized dealership teams, the company hopes to ensure a cohesive strategy moving forwardDispensing with the earlier divisive structures allows for a unified response to market dynamics, enabling quicker adaptation to customer preferences.

Wang Fengying's arrival is anticipated to be pivotal, as she champions streamlining product offerings, exemplified by her cutting down the P7i model variations to just four core versions

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