Down 43% Over The Past Month On Competition Worries, What’s Next For Xpeng Stock?

Chinese luxury electric vehicle maker Xpeng stock (NYSE:XPEV)  delivered 8,250 vehicles in January, up 58% year-on-year but down 59% from December. Growth was driven in part by the company’s new  X9 MPV, which began deliveries in January and the G6 Ultra Smart Coupe which goes head to head with Tesla’s popular Model Y vehicle. However, the decline versus December was due to seasonality, which impacts the broader Chinese automotive space. China celebrates close to a full week of the Lunar New Year holidays during January, making it a lean period for the car industry. Xpeng also began upgrades at its Zhaoqing plant in Guangdong province in late January and this is also temporarily impacting its output. In comparison, rival Nio delivered 10,055 vehicles for January, marking an 18% increase from 8,506 units a year ago although it was down almost 44% from 18,012 units delivered in December. Li Auto delivered 31,165 vehicles in January 2024, marking an increase of 105.8% versus the last year although it was down from the 50,353 units the company delivered in December.

XPEV stock has suffered a sharp decline of 80% from levels of $45 in early January 2021 to around $8 now, vs. an increase of about 30% 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 47% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – 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 and even for the megacap stars GOOG, TSLA, and MSFT. 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, indicating a softer-than-expected uptake. While things have remained positive in China, competition is mounting and this has resulted in considerable price wars, with EV behemoths including Tesla and BYD slashing prices to spur sales. This has been reducing Xpeng’s pricing power and financial performance 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. That said, there are some positives as well. Following the close to 43% correction over the last month, Xpeng stock now trades at under 2x estimated 2023 revenues. Moreover, per consensus estimates, sales are likely to expand by over 80% in 2024.  Xpeng is also 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 in a strategic partnership. See our analysis of Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? for a detailed look at how Nio stock compares with its rivals Li Auto and Xpeng.

[1] Returns as of 2/6/2024
[2] Cumulative total returns since the end of 2016

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