What happened

XPeng (XPEV -3.62%) stock crashed on Tuesday as the market reacted sharply to the China-based electric vehicle (EV) maker's second-quarter numbers. XPeng shares were down 10% as of 1 p.m. ET after having fallen by as much as 13.5% earlier in the day.

High costs are eating into XPeng's bottom line, and its bummer guidance has spurred fears of decelerating growth among investors.

So what

XPeng delivered 34,422 EVs in the second quarter, up almost 98% year over year. That sounds great, but there are two things worth noting here.

First, XPeng launched its P5 family sedan last year and started deliveries only in September, which means there was no contribution from this vehicle in the second quarter of 2021. That pretty much explains the big year-over-year jump in deliveries as sales of its other EV, the P7 sports sedan, rose only about 39% year over year in Q2.

Second, and more importantly, XPeng's Q2 deliveries were sequentially flat and therefore indicate slowing demand -- something XPeng confirmed with its outlook.

XPeng expects to deliver 29,000 to 31,000 vehicles in the third quarter, representing only about 13% to 20% growth year over year. The number also means XPeng expects a considerable drop in its third-quarter deliveries versus its first and second quarters. That's not what investors expect to see.

To make matters worse, XPeng's vehicle margin fell from 11% to 9.1% in Q2, and its net loss more than doubled to $403.2 million as raw material and battery costs mounted.

Now what

Cost headwinds could continue to hurt XPeng, but slower deliveries will prove to be a bigger challenge for the company. XPeng's vehicle price increases from earlier this year could also be backfiring amid rising competition, and the promotional offers that the company has been doling out in recent weeks could further pressure its margins.

The only respite in sight right now is the upcoming launch of XPeng's G9 SUV in September. Initial response as gauged from pre-orders has been strong for the G9, and it should help XPeng's delivery numbers rebound as it exits this year. If the Chinese economy falters in between, though, XPeng stock will have a harder time regaining its mojo.