With VW Partnership And Progress With Self-Driving Tech, Is Xpeng Stock Undervalued At $9?

XPEV: XPeng logo
XPEV
XPeng

Chinese luxury electric vehicle maker Xpeng stock (NYSE:XPEV) posted mixed delivery numbers for February, selling 4,545 EVs for the month, down  44.9% from January, and down 24% from the year-ago period. The decline was not really surprising, given that automotive sales in China are usually weak in January and February, due to the extended Chinese New Year holiday, which impacts manufacturing and sales. The holiday fell between February 10 and 17 this year, versus last year when it fell between January 21 and 27.  In comparison, Nio delivered 8,132 cars for the month, down 19% from January and 33% lower from the year-ago period while Li Auto sold 20,251 cars, down 35% from January, although it marks an increase of about 22% compared to last year.

XPEV stock has suffered a sharp decline of 80% from levels of $45 in early January 2021 to around $9 now, vs. an increase of about 35% 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; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. 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 seeing tepid demand and scaling back on their electrification goals. For instance, Mercedes-Benz dialed back on its target of going all-electric by 2030, now estimating that only 50% of total sales would be EVs. We’ve seen similar production scalebacks from the likes of Ford as well. While the Chinese EV market is poised to post double-digit growth this year, competition and price wars are mounting and this has been weighing on Xpeng. 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. Last year, Xpeng announced plans to partner with Volkswagen to co-develop two mid-sized VW-branded EVs in a strategic partnership. Last week, the two companies indicated that the first vehicle they intend to develop together will be an SUV for which they will jointly source components. The move to source parts together could help Xpeng cut costs given that VW has been investing in bolstering its EV supply chain in recent years. VW was China’s best-selling car brand until 2022. Xpeng is also seen as a strong player in the self-driving software space. Last month, the company said that its XPeng navigation guided pilot (XNGP) feature which enables self-driving in several scenarios would be available across China, for use in all roads. The offering was initially available only for highway driving scenarios. See our analysis of Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? for a detailed look at how Xpeng stock compares with its rivals Li Auto and Nio.

Returns Mar 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 XPEV Return -3% -37% -79%
 S&P 500 Return 0% 6% 127%
 Trefis Reinforced Value Portfolio -1% 4% 637%
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[1] Returns as of 3/6/2024
[2] Cumulative total returns since the end of 2016

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