Chinese EV maker XPeng is making a battery decision it hopes will give it a leg up on the competition.
2 min
Batteries and battery- management systems are to an electric vehicle what a high-quality internal combustion engine is to a gasoline-powered car, so battery decisions can make or break an EV maker. Chinese EV maker XPeng is making a battery decision it hopes will give it a leg up on the competition.
XPeng (ticker: XPEV) is going to start selling LFP-battery-powered electric vehicles soon. China’s Ministry of Industrial Information & Technology recently announced that XPeng was using LFP batteries in vehicles.
LFP is short for lithium-iron-phosphate. Iron is the “F” in that acronym because its elemental symbol is “Fe.” Lithium-iron-phosphate batteries are a little cheaper than top-of-the line lithium-ion batteries, which contain elements such as cobalt and nickel.
LFP batteries are more cost-effective, but with a trade-off. They don’t pack quite as much punch as their more expensive cousins, so the range of the cars that use them is affected.
XPeng, in this case, probably doesn’t mind because most drivers don’t need 482 kilometres, or even 320 kilometres, of daily range. The benefit of a lower purchase cost, for many car buyers, far exceeds the downside of a lower per-charge range. The company will continue to offer vehicles with top-of-the line lithium-ion batteries as well.
It’s an interesting decision for investors to ponder. Offering different batteries in an EV is a little like offering different engines in traditional automobiles. In traditional cars, however, engine options are usually tied to horsepower and speed. In the case of EVs, battery options are more about range.
Billions of dollars are being invested in the EV industry to come up with more powerful, longer-lasting batteries. QuantumScape (QS), for instance, is working on revolutionary solid-state battery technology. QuantumScape doesn’t have sales yet, but it is one of the most valuable automotive suppliers in the world. That’s how important batteries are to the EV industry.
QuantumScape’s batteries will, holders of the stock hope, be less expensive for the same range as existing technology. Commercial offerings are years down the road, though. XPeng’s move is another way to offer less expensive EVs today.
A lower- end XPeng model P7 costs about 230,000 yuan, or about $35,000. With LFP batteries, that price might drop 20,000 to 30,000 yuan, or perhaps $3,000 to $5,000. XPeng declined to comment on new pricing for EVs with the less expensive batteries, but noted that the information will come out soon.
It feels like a sound strategic move and one that investors can expect other EV makers to copy. Car buyers are still learning how to buy EVs. Range and cost, compared with traditional cars, can be a mystery. As options such as LFP batteries proliferate, buyers will begin to feel more comfortable comparing EV models, just like they do when selecting what engine they want in their automobile.
XPeng stock was up 3.3% in premarket trading. S&P 500 and Dow Jones Industrial Average futures were up about 0.5%.
The rise might not be due to the batteries, though. XPeng stock has been on a wild ride lately. Shares dropped 11% Tuesday after investors digested news that deliveries in February were lower than in January. February, however, was affected by the Lunar New Year holiday. Monthly deliveries at Li Auto (LI) and NIO (NIO) dipped as well.
Year to date, XPeng share are down about 26% after finishing 2020 up almost 200% from the stock’s $15 initial public offering price.
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Multinationals like Starbucks and Marriott are taking a hard look at their Chinese operations—and tempering their outlooks.
4 min
For years, global companies showcased their Chinese operations as a source of robust growth. A burgeoning middle class, a stream of people moving to cities, and the creation of new services to cater to them—along with the promise of the further opening of the world’s second-largest economy—drew companies eager to tap into the action.
Then Covid hit, isolating China from much of the world. Chinese leader Xi Jinping tightened control of the economy, and U.S.-China relations hit a nadir. After decades of rapid growth, China’s economy is stuck in a rut, with increasing concerns about what will drive the next phase of its growth.
Though Chinese officials have acknowledged the sputtering economy, they have been reluctant to take more than incremental steps to reverse the trend. Making matters worse, government crackdowns on internet companies and measures to burst the country’s property bubble left households and businesses scarred.
Now, multinational companies are taking a hard look at their Chinese operations and tempering their outlooks. Marriott International narrowed its global revenue per available room growth rate to 3% to 4%, citing continued weakness in China and expectations that demand could weaken further in the third quarter. Paris-based Kering , home to brands Gucci and Saint Laurent, posted a 22% decline in sales in the Asia-Pacific region, excluding Japan, in the first half amid weaker demand in Greater China, which includes Hong Kong and Macau.
Pricing pressure and deflation were common themes in quarterly results. Starbucks , which helped build a coffee culture in China over the past 25 years, described it as one of its most notable international challenges as it posted a 14% decline in sales from that business. As Chinese consumers reconsidered whether to spend money on Starbucks lattes, competitors such as Luckin Coffee increased pressure on the Seattle company. Starbucks executives said in their quarterly earnings call that “unprecedented store expansion” by rivals and a price war hurt profits and caused “significant disruptions” to the operating environment.
Executive anxiety extends beyond consumer companies. Elevator maker Otis Worldwide saw new-equipment orders in China fall by double digits in the second quarter, forcing it to cut its outlook for growth out of Asia. CEO Judy Marks told analysts on a quarterly earnings call that prices in China were down roughly 10% year over year, and she doesn’t see the pricing pressure abating. The company is turning to productivity improvements and cost cutting to blunt the hit.
Add in the uncertainty created by deteriorating U.S.-China relations, and many investors are steering clear. The iShares MSCI China exchange-traded fund has lost half its value since March 2021. Recovery attempts have been short-lived. undefined undefined And now some of those concerns are creeping into the U.S. market. “A decade ago China exposure [for a global company] was a way to add revenue growth to our portfolio,” says Margaret Vitrano, co-manager of large-cap growth strategies at ClearBridge Investments in New York. Today, she notes, “we now want to manage the risk of the China exposure.”
Vitrano expects improvement in 2025, but cautions it will be slow. Uncertainty over who will win the U.S. presidential election and the prospect of higher tariffs pose additional risks for global companies.
For now, China is inching along at roughly 5% economic growth—down from a peak of 14% in 2007 and an average of about 8% in the 10 years before the pandemic. Chinese consumers hit by job losses and continued declines in property values are rethinking spending habits. Businesses worried about policy uncertainty are reluctant to invest and hire.
The trouble goes beyond frugal consumers. Xi is changing the economy’s growth model, relying less on the infrastructure and real estate market that fueled earlier growth. That means investing aggressively in manufacturing and exports as China looks to become more self-reliant and guard against geopolitical tensions.
The shift is hurting western multinationals, with deflationary forces amid burgeoning production capacity. “We have seen the investment community mark down expectations for these companies because they will have to change tack with lower-cost products and services,” says Joseph Quinlan, head of market strategy for the chief investment office at Merrill and Bank of America Private Bank.
Another challenge for multinationals outside of China is stiffened competition as Chinese companies innovate and expand—often with the backing of the government. Local rivals are upping the ante across sectors by building on their knowledge of local consumer preferences and the ability to produce higher-quality products.
Some global multinationals are having a hard time keeping up with homegrown innovation. Auto makers including General Motors have seen sales tumble and struggled to turn profitable as Chinese car shoppers increasingly opt for electric vehicles from BYD or NIO that are similar in price to internal-combustion-engine cars from foreign auto makers.
“China’s electric-vehicle makers have by leaps and bounds surpassed the capabilities of foreign brands who have a tie to the profit pool of internal combustible engines that they don’t want to disrupt,” says Christine Phillpotts, a fund manager for Ariel Investments’ emerging markets strategies.
Chinese companies are often faster than global rivals to market with new products or tweaks. “The cycle can be half of what it is for a global multinational with subsidiaries that need to check with headquarters, do an analysis, and then refresh,” Phillpotts says.
For many companies and investors, next year remains a question mark. Ashland CEO Guillermo Novo said in an August call with analysts that the chemical company was seeing a “big change” in China, with activity slowing and competition on pricing becoming more aggressive. The company, he said, was still trying to grasp the repercussions as it has created uncertainty in its 2025 outlook.
Few companies are giving up. Executives at big global consumer and retail companies show no signs of reducing investment, with most still describing China as a long-term growth market, says Dana Telsey, CEO of Telsey Advisory Group.
Starbucks executives described the long-term opportunity as “significant,” with higher growth and margin opportunities in the future as China’s population continues to move from rural to suburban areas. But they also noted that their approach is evolving and they are in the early stages of exploring strategic partnerships.
Walmart sold its stake in August in Chinese e-commerce giant JD.com for $3.6 billion after an eight-year noncompete agreement expired. Analysts expect it to pump the money into its own Sam’s Club and Walmart China operation, which have benefited from the trend toward trading down in China.
“The story isn’t over for the global companies,” Phillpotts says. “It just means the effort and investment will be greater to compete.”
Corrections & Amplifications
Joseph Quinlan is head of market strategy for the chief investment office at Merrill and Bank of America Private Bank. An earlier version of this article incorrectly used his old title.
