XPeng To Offer Cheaper Batteries. The EV Industry Continues to Mature.

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.

Requiring more than 30 percent of household income to service a home loan has long been considered the benchmark for ‘housing stress’. Yet research shows it is becoming the new normal. The 2024 ANZ CoreLogic Housing Affordability Report reveals home loans on only 17 percent of homes are ‘serviceable’ if serviceability is limited to 30 percent of the median national household income.

Based on 40 percent of household income, just 37 percent of properties would be serviceable on a mortgage covering 80 percent of the purchase price. ANZ CoreLogic suggest 40 may be the new 30 when it comes to home loan serviceability. “Looking ahead, there is little prospect for the mortgage serviceability indicator to move back into the 30 percent range any time soon,” says the report.

“This is because the cash rate is not expected to be cut until late 2024, and home values have continued to rise, even amid relatively high interest rate settings.” ANZ CoreLogic estimate that home loan rates would have to fall to about 4.7 percent to bring serviceability under 40 percent.

CoreLogic has broken down the actual household income required to service a home loan on a 6.27 percent interest rate for an 80 percent loan based on current median house and unit values in each capital city. As expected, affordability is worst in the most expensive property market, Sydney.

Sydney

Sydney’s median house price is $1,414,229 and the median unit price is $839,344.

Based on 40 percent serviceability, households need a total income of $211,456 to afford a home loan for a house and $125,499 for a unit. The city’s actual median household income is $120,554.

Melbourne

Melbourne’s median house price is $935,049 and the median apartment price is $612,906.

Based on 40 percent serviceability, households need a total income of $139,809 to afford a home loan for a house and $91,642 for a unit. The city’s actual median household income is $110,324.

Brisbane

Brisbane’s median house price is $909,988 and the median unit price is $587,793.

Based on 40 percent serviceability, households need a total income of $136,062 to afford a home loan for a house and $87,887 for a unit. The city’s actual median household income is $107,243.

Adelaide

Adelaide’s median house price is $785,971 and the median apartment price is $504,799.

Based on 40 percent serviceability, households need a total income of $117,519 to afford a home loan for a house and $75,478 for a unit. The city’s actual median household income is $89,806.

Perth

Perth’s median house price is $735,276 and the median unit price is $495,360.

Based on 40 percent serviceability, households need a total income of $109,939 to afford a home loan for a house and $74,066 for a unit. The city’s actual median household income is $108,057.

Hobart

Hobart’s median house price is $692,951 and the median apartment price is $522,258.

Based on 40 percent serviceability, households need a total income of $103,610 to afford a home loan for a house and $78,088 for a unit. The city’s actual median household income is $89,515.

Darwin

Darwin’s median house price is $573,498 and the median unit price is $367,716.

Based on 40 percent serviceability, households need a total income of $85,750 to afford a home loan for a house and $54,981 for a unit. The city’s actual median household income is $126,193.

Canberra

Canberra’s median house price is $964,136 and the median apartment price is $585,057.

Based on 40 percent serviceability, households need a total income of $144,158 to afford a home loan for a house and $87,478 for a unit. The city’s actual median household income is $137,760.

XPeng To Offer Cheaper Batteries. The EV Industry Continues to Mature.

Chinese EV maker XPeng is making a battery decision it hopes will give it a leg up on the competition.

New research suggests spending 40 percent of household income on loan repayments is the new normal