Tesla's presence could be a 'positive catalyst' for China's electric vehicle market

Key Points
  • Tesla's presence in China will be a positive factor in the domestic electric vehicle market's development, according to Brian Gu, president at Xpeng Motors. 
  • He explained that Tesla's success in the country would bring a "good supply chain" and better "user experience" for consumers. 
  • Xpeng Motors is a local electric vehicle start-up that recently raised $400 million from investors as it plans to ramp up the production of new car models to take a larger slice of market share. 
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The future of the car industry is in electrification, Xpeng Motors president says

Tesla's presence in China will be a positive factor for the domestic electric vehicle market's development, according to a senior executive at Xpeng Motors.

Xpeng Motors is a local electric vehicle start-up that recently raised $400 million from investors as it plans to ramp up production of new car models to take a larger slice of the market.

"I think Tesla coming to China will be a positive catalyst for the EV market," Brian Gu, president of Xpeng Motors, told CNBC's Nancy Hungerford and Christine Tan on Tuesday.

"I always believe that having a good product that really gets the consumer interested and expands the overall market is good for the industry," Gu said at CNBC's East Tech West conference in the Nansha district of Guangzhou, China. He explained that Tesla's success in the country would bring a "good supply chain" and better "user experience" for consumers.

Gu pointed out that Xpeng's cars do not compete in the same price range as Tesla vehicles. Xpeng has launched and started deliveries of its G3 SUV and earlier this year, unveiled its P7 sedan.

Xpeng Motors Technology Ltd.'s G3 electric sport utility vehicle (SUV) is displayed at the 2018 Guangzhou International Automobile Exhibition.
Qilai Shen | Bloomberg | Getty Images

For its part, Tesla set up its first Gigafactory outside the United States in Shanghai, which is expected to reduce labor costs and improve profit margins.

"So, I think having them lead the way to expand the market will be good news for us as well," Gu said.

Demand for electric cars

Favorable government policies, including subsidies to auto firms, have driven growth in China's electric vehicle market. But as Beijing winds down that support, investors turn cautious and experts warn of failures among the dozens of electric car start-ups in the country.

That is happening against a backdrop of falling auto sales in China.

"It definitely had an impact on our sales," Gu said. The "Chinese auto market has seen a decline after 20 years of uninterrupted growth and, also, the new energy market, because of the subsidy cut this year, experienced declined for the first time in recent history."

That said, Gu predicted demand for electric vehicles will continue to rise as countries implement stringent carbon emission standards that will make traditional cars costlier to maintain.

IPO would be a 'natural event'

When asked about tentative plans to go public, Gu said that the path to an initial public offering would be a "natural event."

"I don't set a date or a target for IPO because I think when the business progresses to (a) certain stage (and) markets are ready, an IPO will happen very naturally," he said, adding that the company is keeping its listing options open to places like the U.S., Hong Kong and China.

Xpeng is still not profitable and Gu predicted the start-up needs to reach an annual production rate of 150,000 vehicles to get to "company-level profitability."

"We think it's probably in the next two to three years," he added, referring to the timeline in which he expects Xpeng to become profitable.