With Deliveries Picking Up And Budget Brand In The Offing, Is Xpeng Stock Attractive?

XPEV: XPeng logo
XPEV
XPeng

Chinese luxury electric vehicle maker Xpeng stock (NYSE:XPEV) delivered a total of 9,393 vehicles in April, up  32% year-over-year, despite the ongoing price war in the Chinese EV market. Growth was largely driven by the ramp-up of sales of the X9 multi-purpose vehicle which was launched in early January with a starting price of about $50,000. Xpeng said that it sold 1,959 units of the vehicle over the month. Xpeng’s growth was better than rival Li Auto, which saw its growth slow over April, with deliveries coming in at  25,787 vehicles, up just 0.41% versus last year, although it was well below Nio which delivered 15,620 vehicles in April, up a solid 134% versus a year ago.

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?

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There are concerns about global EV demand, with most mainstream automakers seeing tepid demand and scaling back on their electrification goals. However, things could be a bit better in China, where the industry sees considerable government support.  China recently announced new incentives of RMB 10,000 (about $1,410) for consumers to trade their older gasoline cars for electric and low-emission vehicles by year-end. However, competition and price wars are mounting. Even EV bellwether Tesla reportedly scaled back production at its plant in Shanghai amid rising competition.

That said, there are some positives as well for Xpeng. The company is seen as a strong player in the self-driving software space. In March, 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 on all roads. The offering was initially available only for highway driving scenarios. The company also said that the adoption rate for its advanced driver-assistance system (ADAS), reached 82% in urban driving scenarios. The company also plans to launch more than 10 brand-new models over the next three years, while also partnering with Volkswagen to co-develop VW-branded EVs in a strategic partnership. Xpeng also intends to move beyond the luxury market toward more mass-market models. The company plans to launch its new sub-brand Mona in the next few months, with the vehicles expected to be priced under RMB 150,000 yuan ($21,000), allowing it to compete head-on with the likes of BYD for much bigger volumes. 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 May 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 XPEV Return 16% -36% -78%
 S&P 500 Return 1% 6% 126%
 Trefis Reinforced Value Portfolio 0% 0% 612%

[1] Returns as of 5/3/2024
[2] Cumulative total returns since the end of 2016

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