XPeng: Better Growth Than Rivals

May 26, 2022 9:04 AM ETXPeng Inc. (XPEV)9 Comments
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The Asian Investor
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Summary

  • XPeng continued to deliver the strongest EV delivery growth in April.
  • XPeng’s outlook for Q2’22 indicates limited production impact from COVID-19 lockdowns.
  • XPeng’s valuation is too low given its potential.

Green Energy Vehicle At 2021 Wuhan International Auto Show

Getty Images/Getty Images News

Shares of Chinese electric vehicle start-up XPeng (NYSE:XPEV) revalued lower in 2022, mirroring the EV sector as well as the broader market. However, given supply chain dislocations and COVID-19 lockdowns in key Chinese manufacturing centers this year, XPeng delivered strong delivery growth in the first quarter and in April. Last month, XPeng really pulled ahead of its rivals, which saw delivery volumes crash. I believe XPeng will continue to be the company that delivers the fastest delivery ramp in its industry group going forward, and the stock has become too cheap!

Strongest Delivery Growth In April

XPeng saw 75% delivery growth year-over-year in April, and did once again much better than its rivals. XPeng delivered 9,002 electric vehicles last month, including 3,714 P7s, 3,564 P5s and 1,724 G3i/G3s. In March, XPeng’s delivery growth surged 202% year over year, but production and delivery growth slowed markedly in April because of new COVID-19 outbreaks that shut down vital manufacturing hubs in China’s Yangtze region. The rise of new COVID-19 infections in China as well as Beijing’s zero-COVID policy explain the decline in delivery growth in the first month of the second-quarter as well. From January to April, XPeng delivered 43,563 electric vehicles, of which more than half (23,141) were attributable to XPeng’s flagship P7 sedan product. Total deliveries in Q1’22 and April increased 136% year over year in total, so XPeng, despite production and sourcing challenges, is doing relatively well.

Despite a slowdown in production and deliveries in April, XPeng did much, much better than its rivals NIO (NIO) and Li Auto (LI), both of which saw large year-over-year decreases in delivery volume. NIO saw the largest decrease of 28.6% due to massively curtailed production of the ES6, the company’s flagship SUV product. Li Auto saw the lowest decline of 24.8% which, however, was still significant. That XPeng could squeeze out 75% delivery growth in this environment is impressive, and it positions the electric vehicle start-up as the most promising EV company regarding delivery growth going forward.

Deliveries

February

Feb Y/Y Growth

March

March Y/Y Growth

April

April Y/Y Growth

XPEV

6,225

180.0%

15,414

202.0%

9,002

75.0%

NIO

6,131

9.9%

9,985

37.6%

5,074

-28.6%

LI

8,414

265.8%

11,034

125.2%

4,167

-24.8%

(Source: Author)

Outlook For Q2’22

Risks to near-term delivery prospects in the EV industry have risen sharply in Q1’22 and April, but the second-quarter outlook for XPeng indicates that the risks are mostly contained. For Q2’22, XPeng expects to deliver between 31,000 and 34,000 electric vehicles, which represents 78.2% to 95.4% year-over-year delivery growth. However, Q2’22 deliveries are expected to drop off by as much as 10% quarter over quarter. In the first quarter, XPeng delivered a total of 34,561 electric vehicles.

Given the outlook for Q2’22 and assuming that XPeng will not suffer from additional factory shutdowns, I estimate that the EV company can deliver between 140-150 thousand electric vehicles in FY 2022, mostly P7s and P5s, which calculates to 42.6-52.8% year-over-year growth.

XPeng Squeezed Out A Margin Gain In Q1'22

XPeng competes in the lower-margin sedan segment with other electric vehicle producers. This means that XPeng’s margins are not as high as NIO’s, for example, which is more focused on the higher-margin premium SUV market. NIO generated vehicle margins of 20.9% in Q4’21 which are more than twice as high as XPeng’s margins.

XPeng’s vehicle margins increased, despite production challenges and Chinese holidays in the first quarter, 0.3% year over year to 10.4%. I expect XPeng to continue to grow its vehicle margins longer term as the firm ramps up P5 production.

Q1'22 Earnings Sheet

XPeng

The company opened its reservation books for the P5 in Denmark, the Netherlands, Norway and Sweden in the first quarter, which are all markets that have strong EV adoption rates. XPeng’s P5 production ramped up in Q3’21 and the company already produced about as many P5s (3,564) in April as it did P7s (3,714). The P5 production share in the first quarter was already 30%, and I estimate that XPeng’s P5 production volume will exceed P7 production totals in the second half of the year due to strong customer demand.

Undervalued Potential

XPeng’s potential in the EV industry appears grossly undervalued, in part because of the large losses electric vehicle stocks have suffered in 2022.

Chart
Data by YCharts

XPeng’s delivery prospects in the long term are not affected by China’s latest round of COVID-19 lockdowns, and the Q2’22 outlook indicates that the downside in delivery projections is rather limited. For those reasons, I believe XPeng will be one of the most attractive EV stocks to own going forward.

XPeng is expected to grow revenues at an average annual rate of 37% between FY 2022 and FY 2026 while the company is expected to be profitable in FY 2024. By FY 2026, XPeng could have revenues approaching $22B. Considering that XPeng’s commercial growth can be bought at large discount compared to 2021 and that XPeng has the fastest delivery growth, the company's P-S ratio of 1.66 X is very low indeed. At least, XPeng's delivery prospects should result in a higher premium relative to its rivals, which are growing at a much slower rate than XPeng.

Chart
Data by YCharts

Risks With XPeng

XPeng faces headwinds regarding its production and delivery ramp. The company has seen a slowdown in delivery and production growth in 2022, but the slowdown was not as severe as it was with XPeng’s rivals NIO and Li Auto. However, like any other car brand, XPeng is battling with higher raw material costs as well as supply chain disruptions which could impact the firm’s prospects for delivery growth in FY 2022, especially if COVID-19 makes a comeback and results in new factory closures. Weaker delivery growth is likely to translate to moderating revenue growth and, possibly, delayed profitability for XPeng.

Final Thoughts

XPeng has emerged as the best executing Chinese EV company, which once again delivered the fastest delivery growth when compared against NIO and Li Auto. Because of the significant drop in valuations in the electric vehicle sector in 2022, XPeng’s revenue growth now has a very low valuation factor that strongly improves the risk/reward setup!

This article was written by

The Asian Investor profile picture
15.52K Followers
I look for high-risk, high-reward situations. Five largest portfolio holdings: AMD, Micron, Alibaba, Ethereum, PayPal. Early buyer of cryptocurrencies. I live in Thailand :)

Disclosure: I/we have a beneficial long position in the shares of XPEV, LI, NIO either through stock ownership, options, or other derivatives. 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.

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