XPeng Deliveries Surge Almost 2.5x. What’s Next For The Stock?

XPEV: XPeng logo
XPEV
XPeng

Chinese luxury electric vehicle maker Xpeng stock (NYSE:XPEV)  had a stellar November, selling a record 20,041 vehicles, up 2.4x from last year. This also marks a slight increase from the 20,002 vehicles the company delivered in October. Growth was driven primarily by the G6 Ultra Smart Coupe – the company’s fifth model, which goes head to head with Tesla’s popular Model Y vehicle.The G6 remains the best-selling battery electric SUV in China in the RMB 200,000 to RMB 250,000 price segment ($27,500 to $34,300). Xpeng’s delivery growth was well ahead of rival Nio which delivered 15,959 vehicles for November, marking an increase of 12% from November 2022. However, Li Auto stock (NASDAQ:LI) remains the largest and fastest growing of the three luxury EV players, delivering 41,030 vehicles, a solid increase of 2.7x versus last year. Li has benefited from demand for its unique vehicles which combine gasoline generators with batteries to extend the range of EVs and reduce range anxiety.

Despite the strong recent performance, XPEV stock has suffered a sharp decline of 65% from levels of $45 in early January 2021 to around $15 now, vs. an increase of about 20% for the S&P 500 over this roughly 3-year period. However, the decrease in XPEV stock has been far from consistent. Returns for the stock were 18% in 2021, -80% in 2022, and 63% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 19% in 2023 (YTD) – indicating that XPEV underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks.
In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could XPEV face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a recovery?

There are concerns about global EV demand, with most mainstream automakers, including Volkswagen, Mercedes, Ford, and GM indicating a softer-than-expected uptake. Automotive chip suppliers have also indicated weaker-than-expected uptake for automotive semiconductors for the fourth quarter. However, demand doesn’t appear to be an issue at the moment in China, with overall automotive sales rising by 10% for October, with battery electric vehicles accounting for more than a quarter of total automotive sales. That being said, competition is mounting and this has resulted in considerable price wars, reducing Xpeng’s pricing power. Xpeng’s financial performance has been quite weak of late. For Q3, the company posted its widest-ever net loss since going public, while its vehicle gross margins came in at negative 6.1%, down from 11.6% in the year-ago period.

While Xpeng stock trades at about 3.2x forward revenues, ahead of even Li Auto, which is a slightly faster-growing company, there are some positives for Xpeng. Xpeng is seen as a strong player in the self-driving software space and the company is also partnering with Volkswagen to co-develop two mid-sized VW-branded EVs

 Returns Dec 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 XPEV Return -3% 63% -62%
 S&P 500 Return 0% 19% 104%
 Trefis Reinforced Value Portfolio 1% 29% 565%
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[1] Month-to-date and year-to-date as of 12/6/2023
[2] Cumulative total returns since the end of 2016

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