XPeng (XPEV) Stock Falls 45% YTD: Is This a Buying Opportunity?

XPeng Inc. XPEV is facing a challenging time on the bourses of late, with its shares plummeting roughly 45% since the beginning of the year, significantly underperforming the industry and the S&P 500.

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Image Source: Zacks Investment Research

This decline reflects broader challenges in the electric vehicle (EV) market, including subdued demand and concerns over infrastructure. From an all-time high of roughly $70 a share in 2020, the stock is now hovering at around $8 per share. The exuberance surrounding e-mobility in 2020 inflated valuations across the EV sector, including that of XPeng. So, corrections were inevitable. But after such a steep fall in its stock price, does XPeng present a compelling buying opportunity at current levels?

 

XPEV Poised to Bounce Back

Impressive Product Portfolio & Delivery Growth: XPeng’s fleet includes models like the P7, P5, G6, G9, and the latest entrant, X9. XP MPV’s cumulative deliveries have totaled 10,000 units since its launch in January. The model maintained its leading position in China’s all-electric MPV and three-row model segments. In the first five months of 2024, XPENG delivered a total of 41,360 Smart EVs, a 26% year-over-year increase.

Additionally, it is set to launch its mass-market MONA-branded EV next month, priced under 200,000 yuan ($27,630), which will feature Level 2 autonomous driving capabilities. This is likely to drive growth prospects.

Solid Q1 Results & Upbeat Guidance: XPeng's latest quarterly results have been promising, with revenues totaling $906.9 million, up 62.3% year over year. Vehicle margin improved to 5.5% from negative 2.5% in the first quarter of 2023 and 4.1% in the fourth quarter of 2023, thanks to cost reduction and improved product mix.  Although XPEV incurred a net loss of $190 million, the loss narrowed by 41.4% on a yearly basis.

XPeng expects second-quarter deliveries in the band of 29,000-32,000 units, which implies an uptick of 25-37.9% from the year-ago period. It envisions revenues within RMB 7.5-8.3 billion, implying year-over-year growth of 48.1-63.9%.

Expansionary Efforts Praiseworthy: XPeng's ambitious expansion plan is clear with its recent entry into European markets. Last month, XPeng ventured into France, its tenth destination in Europe, where it will introduce the G9 and G6 premium battery-powered mid-size SUV models. Sales success in Norway and Denmark, particularly with the G9 model, underscores its growing presence.

Moreover, the company's penetration into right-hand drive markets like Hong Kong and Southeast Asia, exemplified by partnerships with distributors such as TrueEV in Australia, highlights its global growth strategy. These strategic moves position XPeng for sustained expansion and market penetration, reinforcing its status as a key player in the EV industry.

Autonomous and AI Strides: The company's proprietary autonomous driving technology and advanced AI capabilities give it a competitive edge in the rapidly evolving EV landscape. XPeng aims to achieve a Level 4 autonomous driving experience in China by 2025.

The company showcased its innovative XOS 5.1.0 at the Beijing Auto Show 2024, integrating AI into smart cockpits and driving systems. Leading with its XPlanner neural network-based model, XPeng enhances its XNGP ADAS capabilities, offering a human-like driving experience. Additionally, the AI Valet Driver previewed by XPeng leverages advanced AI for superior visual perception and control. These advancements position XPeng at the forefront of smart driving innovation.

 

Valuation of XPeng Below 5-Year High

While XPeng's valuation remains high compared to the industry, it is significantly below its five-year high. The price-to-sales ratio indicates that XPeng is trading at a forward sales multiple of 0.92, below its median of 2.57 over the last five years but higher than the industry average.

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Image Source: Zacks Investment Research

 

Growth Estimates for XPEV

The Zacks Consensus Estimate for XPEV’s 2024 and 2025 sales implies year-over-year growth of 47% and 73%, respectively. The consensus estimate for the 2024 bottom line is pegged at a loss of 97 cents per share, implying an improvement from a loss of $1.68 incurred in 2023. For 2025, the loss is expected to narrow further to 48 cents/share. Over the past 30 days, the estimates for XPEV’s 2024 and 2025 loss per share have narrowed.

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Image Source: Zacks Investment Research

 

Conclusion

While the company is currently incurring losses, this is a common challenge among various EV pure plays. As XPeng scales up its production, it is expected to gradually reduce costs and improve its financial performance. Undeniably, XPeng faces stiff competition but its aggressive growth trajectory, coupled with an unwavering focus on innovation and customer experience, places it in a promising position.Investors could consider buying the dips, anticipating a potential rebound in the stock price. With its mission to revolutionize the Chinese auto market through innovation and smart connectivity, XPeng is well-positioned for long-term success in the EV industry.

XPEV currently carries a Zacks Rank #2 (Buy) and has a VGM Score of B. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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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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