Dear Happy Investor, In this analysis, we examine Xpeng stock (XPEV). Xpeng is an EV manufacturer, and its XPEV shares fall under "EV stocks." This type of stock recently rose hard, only to fall hard. Now, after the decline, what is the price expectation of Xpeng shares? What is its financial valuation and would we want to buy Xpeng stock for the long term?
On to the analysis!
Stock Analysis: Xpeng (XPEV)
XPeng Inc. is a Chinese startup that designs, develops, manufactures, and markets intelligent electric vehicles. The company line consists of environmentally friendly four-door sports sedans (the P7) and an SUV (the G3). The XPeng G3 SUV and P7 sports sedan were successful when they were introduced in 2018 and 2020, respectively. In January, XPeng reported 12,922 car deliveries, up 115 percent over the same month last year.
The company targets Tesla's product designs. Xpeng's latest model - P7 - competes directly with the Model 3 from Tesla. With the same design and targeting the same groups of users, Xpeng P7 set its price lower to attract customers.
The company is heavily focused on autonomous driving and has over 300 employees in China and California. According to the founder, Xiaopeng He, Xpeng has always given intelligence, and electric power systems equal weight. The insight into the long-term plan helped Xpeng form a user community and build a reputation as an innovator.
Price Forecast Xpeng (XPEV)
According to Barrons, based on analysts' offering, the average price target for Xpeng (XPEV) stock is $250.76, with a high estimate of $411.51 and a low estimate of $84.33.
According to Tip Rank, based on analysts' offerings, the average price target for Xpeng (XPEV) stock is $39.41, with a high estimate of $55.60 and a low estimate of $30.00.
According to Money.CNN, based on analysts' offerings, the average price target for Xpeng (XPEV) stock is $35.79, with a high estimate of $61.05 and a low estimate of $12.51.
We do not really understand why Barrons is giving such a high stock price expectation of Xpeng. This seems inaccurate.
Xpeng shares buy or not based on financial analysis
Within the Happy Investors Community you can find extensive stock analysis. In this article we will not provide a comprehensive financial analysis of Xpeng (XPEV), but below you will find a brief summary for inspiration.
- Valuation: Xpeng shares are comparatively expensive. Ratios like EV/Sales, Price/Sales and P/B are at x5 - x2 relative to competitors
- Growth: According to the forecast, Xpeng is growing enormously. Revenue growth of above 100% is expected. For 2023 the forecast is 80% growth. Profit growth is unknown in our data
- Profitability: the net margin is currently at -22%
- Momentum: the momentum of Xpeng shares is stabilizing and thus doing relatively well in the short term of 3 months. Especially considering other equity markets are collapsing
Xpeng shares are relatively expensive. But the automaker is growing tremendously in sales. Its current market capitalization is about $24 billion. For the long term, there is great potential, especially given that they operate in (mainly) the Chinese market. Is this company capable of realizing not only rapid sales growth, but also profit growth? If so, this would be an interesting consideration.
Purely on the basis of financial analysis, we are doubtful about buying Xpeng shares. Within the sector of car manufacturers alone, Xpeng shares score relatively poorly. The shares are comparatively more expensive, while the profitability is less attractive.
Is there still a reason to buy Xpeng stock? Yes there is. For the long term. Revenue growth is very impressive. The crucial question for this growth stock is to what extent it will become profitable in the long term. If Xpeng can sustain both revenue and earnings growth, it may well offer nice returns.
Whether we buy Xpeng? No, not really. First of all, it is a Chinese company. This gives more uncertainty. Moreover, we currently see much better opportunities in Value. The coming years may be less favorable for growth stocks, but the best stocks with strong Value can still offer high returns (and dividends).
However, it is an interesting company and we expect long-term potential from Xpeng. If you buy shares in it, we wish you the very best. Hold for 5 - 10 years.
Strengths and Weaknesses of Xpeng (XPEV)
Let's continue Xpeng's strategic analysis to determine whether we want to buy XPEV stock for the long term.
Strengths of Xpeng
- XPeng offers its customers a comprehensive product mix. In the EV industry, it helps the company cater to various customer segments.
- In China, XPeng has strong brand recognition and brand awareness both with existing customers and with potential new clients. With strong brand equity, XPeng has continued to acquire new customers and build profitable relationships with both new and loyal customers.
- In the EV sector, XPeng holds a strong position. With it, the company has been able to scale its new products quickly.
- XPeng's Human Resources department is integral to the success of the company in the industry.
- The EV market is a volatile market with a lot of players who strive to innovate, but XPeng has a track record of successful consumer-driven innovation.
- Xpeng claims its P7 has an autonomous driving system built to Level 3 (L3), while the majority of manufacturers, including Tesla, are still at L2 or L2.5.
Weaknesses of Xpeng
- The common shortcoming of XPeng is that there are few models on sale. In comparison with Mercedes- Benz, and BMW, XPeng offers consumers fewer options. In terms of model selection, XPeng should expand its selection of models.
- XPeng is concentrating on the SUV market at the moment, but its sales are not great.
- XPeng's lack of endurance is another common shortcoming. In first-tier cities such as Beijing and Shanghai, there are many charging stations for new energy vehicles, but the supply and demand imbalance will only become more severe in tiers two and three.
- Due to the Covid-19 pandemic and blockage of the Suez Canal, the global supply chain of XPeng was disrupted. The XPeng supply chain is still heavily dependent on the existing supply chain despite a few precautionary changes.
- XPeng Inc's quality control department has a lower budget than its competitors. As a result, it lacks consistency among its various outlets and may damage its quality.
- XPeng needs to increase its marketing and advertising efforts outside its home market of China in order to penetrate international markets.
- Local workers make up the majority of XPeng Inc's workforce, and workers of other races are in small numbers. Diversity in the workplace makes it difficult for employees with different racial backgrounds to adjust, which results in talent loss.
Threats and Opportunities for Xpeng (XPEV)
The company has some opportunities and threats that you want to consider.
Opportunities for Xpeng
- According to CEO He Xiaopeng, XPeng aims to produce the flying car in mass by 2024. In addition, XPeng wants to keep the vehicle's price under RMB 1 million ($157,000). If the company can accomplish these two goals, it is a great opportunity.
- With the government's financial support and people's concern for the environment, electric vehicles, such as XPeng, are rising in popularity currently.
- Collaboration with local players may also provide XPeng with opportunities for growth in international markets. XPeng is able to combine global processes and execution skills with local expertise.
- A long development cycle and deep industrial accumulation are essential in the automotive industry. Xpeng can improve its efficiency as a tech-oriented company by choosing contract manufacturing to make up for its productivity disadvantages.
- XPeng's models feature a series of fashionable and user-friendly technologies, positioning it as a pioneer in car intelligence. By maintaining an innovative spirit, Xpeng is able to build a fan community with followers who enjoy new technologies. Xpeng is able to offer more aggressive pricing due to customers' willingness to pay for its new models.
Threats for Xpeng
- In recent years, new energy vehicles have had a bright future, and XPeng has had to contend with a large number of competitors, such as NIO and Li Auto, to grab a share of the market.
- XPeng Company is currently far behind some Japanese and American automobile industries in terms of core technologies and manufacturing processes, so it cannot make short-term technological advances.
- As the market trends have changed recently, Xpeng's business development may become more uncertain. China has announced it won't subsidize new energy vehicles with prices over CNY 300 thousand between 2020 and 2022.
- One other industry-affecting factor is that Tesla has opened a factory in Shanghai, which will result in significant tax benefits when it sells in the Chinese market. With these events, Tesla reduced the price of the Model 3 by more than 20% early this year, narrowing the price gap to less than USD 10 thousand between the Xpeng P7 and Model 3. Tesla's better brand image and stronger industrial capability will increase the pressure on Xpeng P7's sales because of its less competitive pricing.
- Electric vehicle development has entered a stage of requiring high-quality products, which has increased the demands on manufacturers of power batteries and IGBT chips. The existing market situation consists of CATL, Panasonic, Samsung, SKI, Eve Energy Co., Ltd, BYD, and Sunwooda, as well as other battery manufacturers. A funnel-shaped supply-demand relationship indicates a relative shortage of supply that indirectly affects the delivery of orders from Xpeng Company.
Risks analysis of Xpeng (XPEV)
The company is relatively new, and its research and development efforts are uncertain. Stock Xpeng is therefore subject to volatility. With relatively few EV competitors, the company occupies a large market. However, due to the growth of XPeng (XPEV), investors should expect the stock to be impacted by negative sentiment from time to time. Besides, XPeng faces the same delisting risk as other Chinese ADRs if the US and Chinese governments cannot agree on audit access.
According to Xpeng's quarterly report, deliveries in Q3 increased by 159% year-over-year but were still less than the previous quarter's deliveries of 41.750. And the company's gross margin increased by 1% to 12.2%. However, losses increased by US$268.3m. Since the company has US$6,58b in cash, it can continue to make losses for about 6 more years without regaining profitability.
Also, the share price of Xpeng has fluctuated over the past three months, and the company has diluted shareholders over the past year. The risk level of the company is high.
Conclusion: to buy Xpeng shares or not?
Buy Xpeng shares or not? The choice is up to you. Based on financial analysis, we would not want to buy Xpeng stock given the current uncertainty of both China and potential economic recession. However, based on strategy, Xpeng could become an interesting EV player. Sure, they have some backlog but the market is huge and continues to grow. Whether it is a good long-term investment we do not dare to state with certainty. In any case, we should expect strong price volatility from Xpeng shares.
All in all, there is reason to investigate this company more closely and continue to follow it. But for now, we skip Xpeng and prefer to get our results from safer value stocks.
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