Mohit Oberoi
While the wider markets have recovered from their lows, there has been a splendid rally in Chinese stocks, especially Xpeng Motors (NYSE: XPEV). Several analysts have expressed apprehension over the recent rise in XPEV stock.
Xpeng Motors stock rose 15% yesterday and was up another 15% in US premarket price action today. It however pared gains in regular trading. The stock has almost doubled from its 52-week lows. The rally in XPEV stock might look intriguing as last week it only reported weaker than expected Q3 earnings but also disappointed markets with its November deliveries.
Xpeng Motors generated revenues of $960.9 million in the third quarter of 2022. The revenues rose 19.3% YoY but trailed analysts’ estimates. It reported a net loss of around $330 million in the third quarter of 2022.
While losses narrowed slightly from the previous quarter, they were significantly higher than in the third quarter of 2021. Its gross margin also fell by 90 basis points YoY to 13.5%.
Xpeng Motors is Looking at Cost Cuts
Over the last couple of years, markets were ready to overlook losses and cash burn as the focus was on growth. Not many sectors bring the kind of growth potential as electric vehicles. EV (electric vehicle) stocks rallied sharply in 2020 and Tesla rose 740% in the year.
The rally continued in the first half of 2021 but since then the rise in bond yields and weakening macro environment has taken a toll on growth stocks. The scenario has turned bleak over the last few months and even established companies like Alphabet, Meta Platforms, and Amazon are under pressure to cut costs.
During the Q3 2022 earnings call, Xpeng Motors also said that it is looking to cut costs and has reviewed its strategy. in his prepared remarks, Xpeng Motors CEO He Xiaopeng said, “Our management team has recently conducted an in-depth review of our growth strategy, products and operation.”
He added, “We have already carried out organization restructuring and changed some of our strategies. I am confident that our industry-leading smart and electrification technologies will allow us to build competitive products appealing to a broad customer base.”
Hongdi Brian Gu, XPEV’s President said, “We will implement prudent cost control initiatives and improve operational efficiency.”
XPEV’s Deliveries Plummeted in November
Over the last couple of months, Xpeng Motors has disappointed markets with its delivery reports and November was no different. It delivered 5,811 vehicles in November which was way below the 15,613 cars in the same month last year.
In the first 11 months of 2022, Xpeng Motors delivered 109,645 cars. Its cumulative deliveries now stand at 247,418. Earlier this year, XPEV looked set to surpass NIO in terms of deliveries. However, after subpar performance over the last few months, the gap had only widened between the two.
NIO stock has crashed this year amid the sell-off in Chinese EV stocks. However, last month, Deutsche Bank said that the worst looks over for the company and reiterated its bullish call on the company. There is a guide on how beginners can buy NIO stock. Most analysts are bullish on NIO given its premium brand positioning.
Analysts have downgraded Xpeng Motors stock
However, analysts have turned cautious about Xpeng Motors stock. Citi double-downgraded the stock from a buy to a sell. Jefferies also downgraded Xpeng Motors stock to underperform and lowered its target price to a mere $4.2. In their note, Jefferies analysts led by Johnson Wan said, that the “honeymoon stage” for EVs is coming to an end in China.
They added, that XPEV “faces tough competition with existing models reaching the end of their life cycles and a weak product pipeline that will likely continue to drag sales into 2023. They warned that the recently launched G9 SUV wasn’t received well in China and blamed Xpeng Motors’ “missteps in product and pricing strategy” for market share losses.
In November, it delivered 1,546 G9 SUVs which it said came “against a challenging operating backdrop which affected G9’s production ramp-up and delivery services in certain area.”
Xpeng Motors said that deliveries would increase “significantly” in December as “G9’s production ramp-up accelerates under normalized operating conditions.”
What’s Fuelling the Rise in XPEV Stock?
There seems some bottom fishing in XPEV stock at lower levels. The rise in US-listed Chinese stocks is also helping the stock’s upwards price action. Also, the valuations might appear cheap to some investors. At the end of September, Xpeng Motors had cash and cash equivalents of $5.64 billion while its market cap is still around $10 billion.
Also, markets might have overlooked Xpeng Motors autonomous driving business. At the annual event held in October at its headquarters in Guangzhou, Xpeng Motors unveiled the company’s next-generation neural network-based perception architecture, data management platform, and closed-loop AI. It also featured the latest developments in its mobility business, including robotaxis and robotics.
Xpeng Motors Also Has Autonomous Driving Business
Xpeng Motors has a partnership with Alibaba for autonomous driving. We have a guide on how to buy Alibaba stock. Recently, NIO and Tencent entered into an agreement to deepen their partnership in autonomous cars.
As for the rally in Xpeng Motors, while a section of markets might see it as a bubble, others point out that despite the rise the stock is still down sharply for the year, underperforming its peers.
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This article was written for Business 2 Community by Mohit Oberoi.
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