Shares of China EV soared after XPeng unveiled “incredible” cost savings

Chinese electric vehicle inventories rose Monday as XPeng (XPEV) announced a new production process that it says will lower costs.

According to the company, the updated Smart Electric platform, known as SEPA 2.0, will improve research and development cycles by 20 percent.

“It will make rapid advances in technology available to our customers as standard, with faster software upgrades, impressive cost savings, and superior product experience,” said He Xiaoping, Chairman and CEO of XPeng in a press release Sunday.

Shares of XPeng rose more than 11 percent in early trading Monday as other Chinese automakers Nio (NIO) and Li Auto (LI) were also in the news.

SEPA 2.0 will cut costs for powertrain systems, including batteries, by at least 25 percent, Xpeng chief Brian Guo told reporters in Shanghai on Sunday. The upgrade will cover a wide range of models from small sedans to hatchbacks and pickup trucks, helping XPeng reduce costs across its lineup.

The SEPA 2.0 announcement comes as shipments of XPeng have fallen for four straight quarters. As other Chinese electric vehicle companies saw deliveries surge amid an ongoing price war, XPeng shipments fell 46.8% in the latest quarter compared to the same period a year earlier. Xpeng is set to launch its first model with SEPA 2.0, the G6 Ultra Smart Coupe SUV, at the 2023 Shanghai Auto Show on Tuesday.

“We envision that this evolutionary smart engineering will drive the development of smart EV technology over the next three years,” Xiaopeng said in a press release.

Xpeng still lags behind market leaders Tesla (TSLA) and BYD (BYDDF) in the Chinese electric vehicle market. BYD led new energy vehicle sales in March with a market share of 35.5%, while Tesla accounted for 14%.

Tesla has it teased A new generation model of its own that should also cut costs further. This comes as the automaker has breached pricing five times since January.

Wall Street analysts believe the price cuts have reinvigorated demand, as Tesla delivered a record 422,875 vehicles globally in the first quarter.

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But with Tesla’s quarterly earnings report expected on Wednesday, the impact of price cuts on margins will be the focus of investors.

“When you really look at how you can cut costs, it’s really a great way to gain market share,” RBC Capital Markets’ lead equity analyst for global auto companies recently told Yahoo Finance Live. “And there will be some near-term pressure on profitability, no doubt, but I think the market really understands that.”

Josh is Yahoo Finance Correspondent.

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