After Falling (-80%) in 4 Months, Is It Time to Buy Xpeng Stock?

Key Points

• Chinese electric vehicles (EV) sales for Xpeng are still hitting quarterly high double-digits
• Xpeng vehicle margins have fallen for the past three sequential quarters from 11.9% to 10.9%
• China has delayed the release of its GDP report causing speculation of a recession and a collapse of investor confidence
• Chinese stocks continue to face delisting on the U.S. exchanges and investor sentiment has collapsed
• China’s zero-COVID policy continues to strangle its economy and impact global supply chains
• Geopolitical tensions may dampen international expansion plans for Chinese automakers as regulators clamp down

Chinese electric vehicle (EV) maker Xpeng NYSE: XPEV stock has plunged more than (-83%) on the year as the sector sees mass valuation shrinkage. Its peers NIO NYSE: NIO and Li Auto NYSE: LI are also down big for the year at (-66%) and (-45%), respectively. EV sales momentum seems to have peaked out as underscored by Tesla’s NASDAQ: TSLA top line miss causing its shares lose some of its buoyancy. While there isn’t one smoking gun piece of material news causing shares to fall, it’s the sum of the parts of bad news likely causing the continuous selling. There are a number of headwinds lending to the worsening investor sentiment in Xpeng shares. The Chinese economy is in bad shape stemming from a tanking real estate market with the implosion of major developers like Evergrande and Shimao Group. The rising dollar and rampant inflation is may have tipped its economy into a recession, but we won’t know until they release the GDP report, which has been delayed.

Zero-COVID Policy

China’s zero-COVID policy continues to wreak havoc as it shuts down entire local economies in an unpredictable and unending stop-and-go manner. For example, Macau was just about to re-open to mainland tourist groups again only to have restrictions reimposed literally a week later due to COVID cases. Arguably, the biggest flaw with a zero-COVID policy is the inability to develop herd immunity in addition to the economic devastation it causes. The government has implied the zero-COVID policy will stay in force for the foreseeable future as speculators' assets it could last for up to five years. While President Xi Jinping reinforced his backing of its domestic electric vehicle (EV) technologies during the 20^th National Congress address, it won’t put financial interests ahead of national security (IE: zero-COVID). Chinese automakers already have a 5% penetration in Europe and is expected to grow to 9% to 18% by 2025, but that could be hindered by regulators as geopolitical tensions rise. However, investors must ponder the question is the sell-off is overdone

Double Digit Growth in Q2 2022

On August 23, 2022, Xpeng released its fiscal second-quarter 2022 results for the quarter ending June 2022. The Company reported an earnings-per-share (EPS) loss of (-$0.42) missing analyst estimates by (-$0.10). Revenues climbed 97.7% year-over-year (YoY) to $1.11 billion. Deliveries were 34.422, up 98% from 17,393 in year ago period. Quarterly gross margins fell 100-basis points to 10.9%. Physical stores grew to 388 stores in 142 cities. Xpeng branded self-operated charging network grew to 977 stations including 793 Xpeng self-operated supercharging stations and 184 destination charging stations. Xpeng ended the quarter with $6.18 billion in cash, cash equivalents, and short-term investments and long-term deposits.

CEO Comments

Xpeng CEO He Xiaopeng commented, “We are on track for the official launch of our flagship G9 SUV in September 2022. The G9 is expected to become the industry’s new benchmark for comfort, luxury, and advanced technologies in the medium- to large-size SUV segment. With the G9, we have taken both electrification and smart technologies to new heights. These new technologies will be integrated into our future models and alongside our extraordinary product design, we will set the bar for an unparalleled driving experience. We are accelerating the pace of new product launches to round out our offering with vehicles priced between RMB150,000 to RMB500,000. In 2023, we plan to roll out two new competitive models that will further propel rapid sales volume growth,”

Here’s What the Charts Say

Using the rifle charts on the weekly and daily time frame provides a near-term view of the landscape for XPEV stock. The weekly rifle chart downtrend has been falling for 16 out of 17 straight weeks. The weekly breakdown triggered on the break below the $22.28  Fibonacci (fib) level. The weekly downtrend is led by the falling weekly 5-period moving average (MA) at $10.41 followed by the 15-period MA at $17.75. The weekly stochastic has fallen under the 20-band and hasn’t been able to bounce for two months. The last weekly market structure low (MSL) buy signal triggers on a breakout through $25.14. The daily rifle chart has been in a downtrend that is again retesting its daily 5-period MA resistance at $8.19 followed by the 15-period MA resistance at $9.47. The daily stochastic is attempting to bounce though the 10-band. The daily lower Bollinger Bands (BBs) sit at $5.19. The daily upper BBs sit at $15.57. Attractive pullback levels for speculators sit at the $8.15 fib, $7.59 fib, $7.29 fib, $6.84 fib, $6.31 fib, and the $5.63 price level. 

CEO Stock Buyback Headscratcher

On Sept. 25, 2022, it was reported that Xpeng co-founder, CEO, and chairman, Mr. Xiaopeng He, purchased 2.2 million ADS at an average price of $13.58 per ADS through his wholly-owned Simplicity Holding. American depository shares (ADS) are similar to American Depository Receipts (ADR) which represent foreign company shares held by U.S. depository banks and traded on the U.S. exchanges. Keep in mind that these aren’t actual shares of the underlying company since only Chinese citizens are allowed to own Chinese stocks. They are representative of the underlying company’s U.S. dollar-denominated equity shares of the foreign company. CEO He controls 20.5% of the total issued share capital between himself, Simplicity Holding, and Respect Holding Limited. Usually, a large insider purchase in the open market tends to place a floor on the stock price, but that wasn’t the case with Xpeng. Shares managed to bounce briefly to $14.83 the following day, only to plummet for the next four straight weeks to $7.51. This is below its IPO opening price of $23.10 from Aug. 27, 2020.

September 2022 Deliveries

On Oct. 3, 2022, Xpeng announced a monthly deliveries of 8,456 Smart EVs comprised of 4,634 P7 sport sedans, 2,417 P5 family sedans, 1,233 G3i compact SUVs and 184 G9 Flagship SUVs, which are expected to be delivered in mass starting in October. Total Q3 2022 deliveries rose 15% to 29,570. Year-to-date deliveries were 98,553 representing a 75% YoY increase over 2021.

Bernstein Analyst Says XPEV is Oversold

On Oct. 13, 2022, Eunice Lee, an analyst at Bernstein, noted that the sell-off in XPEV shares is overdone considering the valuations and fundamental outlook. She commented, “On EV/sales multiple, Xpeng now trades at 0.8x one-year forward EV/sales and 0.5X two-year forward EV/sales, which are lower than valuation multiple ascribed to traditional OEMs including Great Wall and GAC, despite that Xpeng has a better top line growth and margin expansion prospects. Xpeng’s revenue and gross profit CAGRs stand at 60% and 80%, respectively through 2024E.”