Xpeng expects software revenue from VW JV this year

Chinese OEM Xpeng says it expects to begin generating revenue from its partnership with German player Volkswagen (VW) this year.

Xpeng and VW are building two EVs – both on Xpeng's G9 platform – for the Chinese market, as the German manufacturer aims to strengthen its presence in the region. VW Group sold 191,800 EVs in China in 2023.

The more immediate revenue opportunity to come out of the deal for Xpeng is not the platform licensing fee, but software licensing.

"We are happy to see that strategic synergies have started to materialise. By 2024, we expect revenue generated from platform and software services to become a meaningful and ongoing contributor to our financial results, especially to gross margin," Xpeng CEO He Xiaopeng told analysts on the OEM's quarterly call.

Xpeng did not specify which software services will generate the revenue, but did say it has been increasing long-term investment in AI. In Q2 of this year the firm will achieve mass production of an "AI enabled ADAS with large model capabilities."

Xpeng did not comment when asked by an analyst how many hardware components it has been able to purchase as part of its joint sourcing agreement with VW.

The company did confirm that the partnership has contributed to improving its cost structure and has already begun to drive efficiencies in its supply chain.

"On the cash front, we've achieved an important milestone of operating cash flow positive for the full year of 2023. This, together with the strategic investment from Volkswagen, helped bolster our liquidity," CFO James Wu told analysts.

As of December 31, 2023 the company had cash, cash equivalents, restricted cash, short term investments and time deposits totalling RMB45.7bn ($6.3bn).