XPeng: Attractive Dip Buying Opportunity For 'Tesla Of China'

Summary

• XPeng is one of the fastest-growing smart EV makers in China.
• The company is more similar to Tesla than Nio due to its auto parking, self-driving technology, and growing supercharging network.
• XPeng stock trades at a huge discount to Nio and looks like a great long-term investment.

XPeng (NYSE:XPEV) is a smart EV maker that's based out of China. Founded in 2015, the company draws many comparisons to Tesla (TSLA) in its product design, technology, self-driving capabilities, and self-branded super charging network. While Nio (NIO) receives far more attention and publicity, I think XPeng is more similar to Tesla than Nio is.

Chinese EV stocks reached an all-time high in early February but have sold off lately due to investors chasing more attractive bond yields and the temporary delay in deliveries caused by the Chinese lunar new year.

Data by YCharts

Source: Ycharts.com

However, I believe patient long-term investors will find a lot of value in XPeng's growing brand and footprint in the highly competitive Chinese electric car market.

XPeng's Business Model

XPeng produces 2 EVs: the G3 SUV and the P7 sedan.

Source: Wikipedia.org

The P7 sedan is XPeng's most popular EV and the company has delivered 20,181 p7 sedans as of March 1st, 2021.

Source: Wikipedia.org

In a recent February 2021 delivery update, XPeng delivered a total of 2,223 EVs. Deliveries fell substantial from an all-time high of 6,015 during January 2021. The company attributed the massive decline to the weeklong Chinese Lunar New Year and expects to get back on track in March.

The good news is total January and February 2021 deliveries increased 577% YoY with no signs of slowing down as China prepares for a multi-decade march towards zero carbon emissions.

XPeng deploys its own branded super charging station networks just like Tesla. The company has expanded to 135 super charging stations covering 50 cities as of September 20th, 2020.

The Bullish Case for XPeng

XPeng is 1/3 of Nio's market cap yet provides a ton of upside if deliveries continue to rise.

XPeng only produces 2 EVs at the moment yet both electric cars are built with attractive features like super long ranges abilities, self-parking technology, and fast charging benefits. The G3 SUV is the longest range compact SUV in China while the P7, XPeng's best selling vehicle, is a strong competitor to the Tesla model 3.

XPeng's smaller product lineup allows them to become more focused on improving battery technology and software updates while competitors like Nio become less focused with several EV launches.

XPeng stole the playbook from Tesla by launching its own super charging network to serve its customers. This will help build more loyal customers who use XPeng's charging network as deliveries increase in the long run. By owning its own super charging network, XPeng can generate additional charging revenue unlike legacy OEM's who only profit from upfront car sales.

The EV industry possesses an amazing flywheel effect where every EV sold increases the demand and awareness for companies like XPeng without needing tons of advertising.

XPeng understands that the EV race is really a technology race in hiding. All XPeng EVs are equipped with state of the art technology and can be referred to as "smart cars" because EVs get smarter and more intelligent over time.

When more consumers realize the EV experience is far better than the traditional ICE vehicle, XPeng will generate more deliveries and shareholder value for its investors.

Why XPeng Can Gain Market Share from Tesla

Right now, Tesla is the current market leader in China by a long shot. The Tesla Model 3 is the best-selling EV in China, but there have been several issues concerning Tesla recently. Tesla owners in China have complained about several quality issues including unusual acceleration, battery fires, and software update issues. These issues with Tesla provide an opportunity for a Chines brand like XPeng to gain market share.

With Tesla's aggressive expansion targets, it's easy to understand why the company is struggling with quality issues. XPeng is smaller and more focused on its core market so Tesla's problems could provide an opportunity for XPeng to gain market share.

Risk Factors: Too Much Competition from Tesla, Nio, Li Auto, and BYD

The EV market is an exciting new industry that's full of competitors in China. XPeng must compete with Tesla, Nio, Li Auto, and BYD for revenue. This is not an easy task considering Tesla is the current market leader and Nio is already way ahead of XPeng in terms of annual deliveries.

XPeng's February delivery update definitely worried investors, and it's possible that increased competition was also a factor in the decline. The Chinese EV stock market hype peaked in early February and stocks like XPEV are down substantially as it looks like we have entered a slightly bearish market. XPEV stock could decline further in the future and add more downward risk to any portfolio.

In the short run, things are uncertain, but I think XPeng has excellent long-term fundamentals that will help improve margins and revenue as the world's largest EV market moves into the future.

Conclusion

After the recent EV selloff, XPeng stock currently trades around 20 times revenue. That's a fair value for one of the better Chinese EV companies right now.

The P7 sedan should continue selling like hotcakes, and we'll see if XPeng rebounds during its March 2021 delivery update.

It's important to take a long term view on the EV sector. We are just in the beginning of a major transformation that's similar to the smartphone trend over a decade ago. In the future, electric vehicles will be king and gas powered vehicles will be a thing of the past.

XPeng stock offers 2x to 5x upside over the next 2 to 3 years and is one of my favorite growth stocks at the moment.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.