Why XPeng's Stock Plummeted 80% in 2022

What happened

Driving nearly 18% higher in 2021, shares of XPeng (NYSE: XPEV) failed to maintain the same momentum in 2022. It didn't take long once the new year began for investors to pump the brakes, then shift into reverse -- and continue backing up for the remainder of the year.

With analysts turning bearish on the stock and lockdowns in China suggesting that there would be reduced demand for XPeng's electric vehicles (EVs), investors continue exiting their positions in 2022. According to data provided by S&P Global Market Intelligence, XPeng's stock plunged 80.3% in 2022.

So what

For several years now, growth investors have hitched rides with EV stocks, recognizing the rapidly rising demand for EVs as a signal that the companies producing the vehicles are bound to prosper. There's a catch, however. When circumstances begin to hinder the potential for these companies to grow, investors take note -- and that's exactly what played out last year for XPeng.

Although XPeng recognized gains on the top line, supply-chain disruptions had a clear impact on the bottom line.

XPEV Revenue (TTM) Chart

XPEV Revenue (TTM) data by YCharts

Management noted that on last year's second-quarter conference call that chip and battery shortages have "greatly challenged" the company since 2021. In addition, the company incurred expenses related to the expansion of its sales network in 2022.

For one, the Chinese government's stringent COVID lockdowns signaled to investors that XPeng's growth in 2022 was in jeopardy. Rising cases of COVID in Shanghai in April, for example, led government officials to impose strict restrictions on residents. Management address this concern -- and the effect on the supply chain -- during last year's first-quarter conference call, stating that, "Starting in early April, COVID-19 infection spiked in certain cities and the related lockdown policies have led to serious challenges to the auto supply chain."

Complementing the news out of China, the commentary from analysts also provided fodder for the bears. In May, analysts from Barclays and JPMorgan cut their price targets to $30 from $39 and to $35 from $42, respectively. Several months later, the pessimism emerged again. In late October, Jeff Chung, an analyst at Citigroup, downgraded XPeng's stock to sell from buy and assigned a $3.18 price target.

Now what

There's no denying that 2022 was fraught with disappointment for XPeng's shareholders. However, the company did report some progress last year that belies the stock's decline. While the quarterly earnings reports showed some signs of concern with regards to the company's financials, XPeng did report growth in the number of units sold, suggesting that customer demand has not ebbed as some have feared.

With regards to the supply-chain disruptions, management expects that the problems stemming from the chip shortage should improve early this year. This, however, is far from a certainty, and the chip shortage may very well continue to plague the company.

Those on the side of the road wondering if now's a good time to park this EV stock in their portfolios must weigh how comfortable they are with the risk. XPeng may continue to battle with chip and battery shortages in 2023, and the company faces strong competition from other Chinese EV manufacturers like Nio and Li Auto. Only those with ample tolerance for risk, therefore, should consider picking up shares.

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Citigroup is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase and Nio. The Motley Fool recommends Barclays Plc. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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