With Stock Down 40% This Year, Can Xpeng’s Premium X9 And New Budget Brand Drive A Recovery?

XPEV: XPeng logo
XPEV
XPeng

Chinese luxury electric vehicle maker Xpeng stock (NYSE:XPEV) has seen its stock decline by about 43% year-to-date. This compares to rival Nio stock (NYSE:NIO), which is down by 29% over the same period. However, Xpeng’s delivery performance appears to be looking up. For the month of May, the company delivered 10,146 vehicles, rising by about 35% year-over-year and by close to 8% compared to April. This takes the company’s year-to-date unit sales to 41,360 vehicles, up 26% year-over-year. Xpeng has been benefiting from the ramp-up of sales of the premium X9 multi-purpose vehicle which was launched in early January. However, Xpeng’s deliveries were weaker than rival Nio which sold a solid 20,544 vehicles for the month, representing an increase of 234% year-over-year and a growth of 31% from April.  In comparison Li Auto delivered 35,020 vehicles for the month, up 23.8% year over year.

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 40% for the S&P 500 over this roughly 3-year period. However, the decrease in XPEV stock has not been consistent.  Returns were 18% in 2021, -80% in 2022, and 47% in 2023. In contrast, 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.

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 elevated interest rates and an uncertain EV demand picture, 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 meaningful 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. Xpeng’s financial metrics have been looking up of late. For Q1 2024, the most recently reported quarter, the company saw average revenue per vehicle rise to about $42,000, up from just about $28,000 in the year-ago quarter. This is largely due to a higher mix of sales of the X9 vehicle which costs over $50,000. Xpeng’s gross margins have also picked up, coming in at 13%, up from under 3% in the year-ago quarter driven by higher sales of technical services following the company’s collaboration with the Volkswagen Group relating to platform and software. Xpeng, which is seen as a leading player in the self-driving software space, is seeing adoption rise quickly. For May, the active user penetration rate of Xpeng’s driving assistance tools in urban driving scenarios reached 84%.

Xpeng 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 sometime this month, 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 in the mass market. 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 Jun 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 XPEV Return 0% -43% -81%
 S&P 500 Return 0% 11% 136%
 Trefis Reinforced Value Portfolio 0% 4% 640%

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

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