Xpeng Motors plans to raise $600 million, with a valuation of $4 billion

Bloomberg cited people familiar with the matter as saying that this month, Xpeng Motors expects to raise more than $600 million from investors including Alibaba. After the financing is completed, its valuation will be close to $4 billion.

It is reported that Xpeng Motors will raise funds in both US dollars and RMB. Prior to this, the four-year-old startup had completed a financing of approximately US$350 million led by Alibaba Group and Foxconn in January this year. So far, Xpeng Motors has not commented on the company's new fundraising plan.

He Xiaopeng, co-founder of Xpeng Motors, said he hopes to bring cheap but decent smart cars to young Chinese consumers who cannot afford Tesla, just as Xiaomi did in the smartphone market.

“Young Chinese people want three things: new brands, high quality and low prices,” He Xiaopeng said in an interview at Xpeng Motors’ new U.S. software development center in Mountain View, Calif. “That’s like Xiaomi’s model.”

Investors are pouring billions of dollars into China’s electric-vehicle sector on the expectation that the world’s largest auto market will build its own massive electric and self-driving car industry, with local companies taking a leading role in manufacturing and supply chains, as well as software and other technologies. While electric vehicles still account for a small fraction of total auto sales in China, their market share is growing rapidly as Beijing pushes for adoption and takes steps that favor domestic technology over foreign technology.

In the first five months of this year, China's electric vehicle sales more than doubled from a year earlier to about 328,000, according to the China Association of Automobile Manufacturers. China is already the world's largest electric vehicle market, with sales of electric vehicles in the Chinese market more than double that of the United States last year, according to statistics from the International Energy Agency. The Chinese government aims to increase annual sales of electric vehicles in China to 2 million by 2020. The government's plan to limit production of traditional gasoline cars, coupled with subsidies for buying electric vehicles, is accelerating the shift.

Manufacturing Challenges

Potential demand may be huge, but soaring valuations of start-ups have raised concerns about a bubble. China currently has many electric vehicle manufacturers showing off their futuristic prototypes at auto shows. But some industry insiders warn that many of them lack the resources to truly bring these prototype electric vehicles to the mass market.

Even Tesla has faced challenges in mass-producing electric vehicles. Even the company’s Model 3, which is aimed at mainstream consumers, has been expensive and difficult to manufacture, and it only reached its production target late last month, according to Tesla’s statement. Many Chinese electric car manufacturers have not even released their first electric cars yet.

Xpeng Motors plans to start selling its first electric car in China in November. The company said it expects the car to cost 280,000 yuan (US$42,133) or less, more than half the price of Tesla's cheapest model, which costs more than US$100,000 in China. The actual price consumers pay for Xpeng cars could be even lower because of government subsidies.

Xpeng is currently working with FAW Group's Haima Automobile to manufacture electric vehicles at the latter's auto plant in Zhengzhou. Xpeng is also expanding its sales network. The company plans to open 20 retail stores and 750 charging stations in China by the end of this year.

Competition in China's electric vehicle market will be fierce, as the industry is already crowded with many well-funded electric vehicle manufacturers. BYD already makes electric vehicles and is also expanding its manufacturing of automotive batteries. NIO, which released its first electric car in December last year, is currently preparing to raise $2 billion in an initial public offering in the United States. WM Motor, founded by Shen Hui, former global senior vice president of Volvo and chairman of Volvo China, is also currently developing its own electric vehicles.

Xpeng is leveraging its alliance with Alibaba Group. For example, He said Xpeng's connected vehicles will incorporate Alibaba's mapping technology, cloud computing platform, music streaming services and Alipay payment system. Xpeng is also using Alibaba's video site Youku to run video ads to promote its brand. Alibaba Vice Chairman Joseph Tsai is also a member of Xpeng's board.

In the Chinese tech world, He Xiaopeng is known as the founder of the mobile browser UCWeb, which was acquired by Alibaba Group in 2014. In the same year, He Xiaopeng co-founded Xiaopeng Motors with two automotive engineers. He Xiaopeng resigned from Alibaba Group last year to focus on Xiaopeng Motors' business.

R&D promotion

To stay ahead of other Chinese competitors, Xpeng Motors is strengthening its research and development capabilities. After setting up a research and development team in the United States in December last year, Xpeng Motors opened a research and development center in Mountain View two months ago. The research and development team, led by Gu Junli, the former head of Tesla's autonomous driving technology, focuses on the development of autonomous driving and other software-related technologies.

Like Tesla, Xpeng is banking on its ability to build self-driving cars. "Electric cars are only tomorrow's cars, and the day after tomorrow will be dominated by AI cars," He Xiaopeng said, referring to self-driving cars powered by artificial intelligence technology.

Although Xpeng Motors' R&D team has recruited some technicians from Tesla, Apple and Microsoft in the United States, the team's current task is to develop software and autonomous driving technology for the Chinese market. For example, the parking function in China is different from that in the United States.

Electric cars will be ubiquitous on China's roads in the future. "Now is the time when the consumer market is ready. We will eventually launch good products that people can afford," said Gu Hongdi, vice chairman and president of Xpeng Motors. "I think this is the beginning of the explosion of electric vehicles."

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.