While Chinese electric vehicle (EV) maker Xpeng Motors (XPEV) managed to close in the green last year, the stock fell sharply from its 2023 highs. The shares have looked weak in 2024, as well; they've lost more than 14% so far this year, and are down over 23% in the last three months.
Last year was an eventful one for Xpeng Motors, and it announced its new low-cost SEPA 2.0 platform. It also partnered with Volkswagen (VWAGY), which not only took a stake in the company, but will also co-develop vehicles with Xpeng for the Chinese market.
Why 2023 Was a Pivotal Year for Xpeng Motors
Under another agreement, Chinese ride-hailing app Didi took a stake in Xpeng in exchange for its self-driving business. As part of the agreement, Xpeng will launch a new EV brand under the “MONA” project - which will produce EVs priced in the ballpark of $20,000.
The company also started delivering its G6 SUV last year, which received a good reception and became the top-selling vehicle in its category. Its monthly deliveries also hit a new record high in December, while it reached a milestone of 60,000 deliveries in Q4 for the first time in history. Earlier this month, the company also launched its X9 MPV (multi-purpose vehicle).
Xpeng Motors has also expanded the coverage of its Advanced Driver Assistance System (ADAS) to over 250 cities a year ahead of schedule. The announcements and progress that XPEV has made over the last year aren’t reflected in its price action, though - and the stock trades at less than 1.5x its projected 2024 revenues, which looks on the lower side.
Why Is Xpeng Motors Stock Dropping?
Xpeng Motors stock has been dropping largely because of the continued sell-off in Chinese stocks. Other China-based names, like Alibaba (BABA) and JD.com (JD), have also been hit with heavy selling amid growing pessimism towards Chinese shares, as the mainland’s economy continues to falter - and the ongoing tech crackdown hasn't helped Chinese stocks, either. Also, reports of Alibaba selling its stake in XPEV further added to the EV stock's woes.
Why 2024 Is a Crucial Year for Xpeng Motors
I believe 2024 is a crucial year for Xpeng Motors, and the company has to transition from “announcements” to “execution.” While Xpeng Motors has made good traction on its deliveries, they have been in the ballpark of 20,000 for three months now. The numbers show an impressive YoY rise – thanks to the low base – but the sequential growth has been negligible over the last couple of months.
In contrast, fellow Chinese automaker Li Auto (LI) has made impressive gains, and its monthly deliveries topped 50,000 in December – which, for context, was higher than the combined deliveries of NIO (NIO) and XPEV. This year, markets would like to see Xpeng Motors scale up its deliveries meaningfully. Also, the company is set to launch the “MONA” brand this year, and it will be interesting to see how that shapes up.
Apart from delivering on the top line, Xpeng Motors’ management has a lot on its plate in terms of the bottom line, also. The company posted negative gross margins in the second and third quarters of 2023, but has said that margins will “significantly increase” in 2024 as it strives to cut costs by 25%.
XPEV Stock Forecast
Xpeng Motors has received a consensus rating of “Moderate Buy” from analysts, and its mean target price of $18.02 is 43.8% above current prices. Also, the Street-high target price of $25.40 implies the stock doubling from these levels.
In my previous article, I noted that XPEV is among the growth stocks that could double in 2024. To achieve that feat, not only does Xpeng Motors need to improve both its deliveries and margins considerably, but it will also need a supportive macro environment.
The Chinese economy continues to slow down structurally, while concerns over its real estate sector continue to increase. The tremors from the real estate sector are being felt in the overall economy, especially the banking sector, and earlier this week Chinese shadow bank Zhongzhi filed for bankruptcy.
All of that said, I believe that despite the increased risks of investing in Chinese stocks, Xpeng Motors is one name that has attractive risk-reward dynamics, and is a good buy at these prices.
On the date of publication, Mohit Oberoi had a position in: XPEV , NIO , JD , BABA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
