I have a Sell investment rating for XPeng Inc.'s (NYSE:XPEV) [9868:HK] stock.
XPEV's shares have fallen by -32.6% in the past four months, after I downgraded my rating for XPeng from a Hold to a Sell with my earlier article published on May 26, 2022. During this same period, the S&P 500 only pulled back by a much milder -5.7%. In my late-May update for XPEV, I highlighted that "the company's near-term outlook is poor" and noted that its "peers have adopted more appropriate strategies to navigate the Chinese EV or Electric Vehicle market."
In the last one month, XPeng's stock price dropped by -34.6% as compared to a -9.2% decline for the S&P 500. This latest article touches on the factors which have contributed to XPEV's recent share price weakness.
After considering XPEV's G9 launch, recent developments related to COVID-19 restrictions and semiconductor chip access, and monthly sales data, I have a negative view of XPeng's near-term prospects. Therefore, I have left my Sell rating for XPEV unchanged.
XPeng announced "its 4th production model G9 Flagship SUV for the Chinese market" on September 21, 2022 before the market opened. In the announcement, XPEV stressed that the G9 SUV is "the world's fastest-charging mass-production SUV and boasts the industry's first full-scenario Advanced Driver Assistance System." But the launch of the G9 SUV didn't turn out to be the positive stock price catalyst that investors had hoped for; XPEV's shares decreased by -12% from $15.93 as of September 20, 2022 to $14.09 as of September 21, 2022.
According to a September 21, 2022 CNBC news article, XPEV's president was quoted in an interview saying that "we think the volume of G9 next year will exceed what we have achieved for P7 (sedan launched previously by XPEV), which makes it one of our top-selling vehicles." Specifically, the company expects the monthly sales for the new G9 SUV to be above 10,000 units in 2023, as indicated by its CEO's comment at the launch event for G9. The 10,000 units sales expectations for the G9 SUV are significant, considering that XPeng boasted an average monthly deliveries of 11,261 units in the first eight months of 2022 for the company as a whole.
Nevertheless, the market's negative reaction to XPeng's new G9 SUV launch suggests that investors don't necessarily share the company's optimism with regards to the future sales performance of the G9 SUV.
One factor could be pricing. The selling price for XPeng's G9 SUV falls in the RMB309,900-RMB469,900 range, which is equivalent to a mid-point of RMB389,900. A September 21, 2022 Seeking Alpha News article cited a Morgan Stanley (MS) sell-side research report noting that the G9's "price came in above his (the analyst's) estimate of 300K RMB." It is natural to be concerned that actual sales of the G9 SUV might disappoint the market and fall short of the company's target, assuming that consumers are put off by the higher than expected pricing.
Another factor is that the new G9 SUV has "six configurations in total" as revealed in XPeng's September 21, 2022 announcement. This might be too much of an overkill for consumers, as they could be overwhelmed by the number of configurations available for selection. A 2006 Harvard Business Review article titled "More Isn't Always Better" noted that there are multiple studies suggesting that "excessive choice can produce 'choice paralysis'" and "reduce people's satisfaction with their decisions."
Separately, it is worthy of note that XPEV didn't provide an update on the preorders for the G9 SUV following the official launch announcement on September 21, 2022. Earlier, XPeng had disclosed in early-August 2022 that it achieved a decent 22,819 pre-orders for the G9 SUV in the first 24 hours. There were expectations that XPEV might offer an updated pre-order figure for the G9 in tandem with the official launch on September 21, 2022, but this didn't materialize. As such, it is difficult for investors to assess the initial consumer demand for the G9 SUV without such updated pre-order numbers. In other words, this uncertainty could also have been a factor which drove XPEV's stock price down on September 21, 2022.
Apart from the new G9 SUV official launch, there are other key events which caught the attention of investors with respect to XPeng.
At the end of last month, Reuters reported that "parts of China's southern city of Guangzhou imposed COVID-19 curbs." It is uncertain whether the restrictions in Guangzhou have eased, and whether the earlier restrictions had any impact on XPeng's production activities. On its investor relations website, XPEV mentioned that it is "headquartered in Guangzhou (which is part of Guangdong province), China" and noted that its "Smart EVs are mainly manufactured at its (first) plant in Zhaoqing, Guangdong province." Also, the company's second EV production facility is located in Guangzhou.
As China continues with the country's COVID-zero policy, there is always the risk that XPEV's EV manufacturing operations get disrupted by future lockdowns in certain parts of China such as Guangzhou. This is obviously an issue which has been a drag on XPeng's share price.
Separately, geopolitical tensions between the US and China could affect the future growth plans and strategies of Chinese EV makers like XPEV in relation to autonomous driving. I cautioned in a September 13, 2022 article on NIO (NIO) (one of XPEV's key peers) that "new restrictions (on semiconductor chip supply to Chinese companies) introduced by the US government could potentially affect NIO's long-term plans in the area of autonomous driving technology."
As indicated earlier in this article, one of the new G9 SUV's selling points is its "full-scenario Advanced Driver Assistance System", and it is reasonable to expect that autonomous driving-related features will be a critical component of XPeng's future EV models as well. Therefore, the restriction on chip sales to China is a key negative for XPEV.
XPEV's August 2022 deliveries and Q3 2022 management guidance weren't encouraging.
Monthly deliveries for XPeng contracted by -17% MoM (Month-on-Month) to 9,578 units in August 2022. In contrast, NEV or New Energy Vehicle sales for China as a whole grew by +12% MoM in the prior month.
An earlier Seeking Alpha News article published on August 24, 2022 cited a report from Barclays (BCS) highlighting that "the competitive environment has worsened for XPEV as more auto makers have introduced competing models in the similar price range." This could explain why XPEV didn't perform as well as the industry in the previous month in terms of deliveries.
It didn't help that XPEV's Q3 2022 deliveries guidance announced in tandem with its Q2 2022 financial results in late-August 2022 was below the market's expectations. XPeng expects to achieve 30,000 units in deliveries for the third quarter of 2022 based on the mid-point of its guidance, and this was -35% lower than the consensus Q3 deliveries of 45,865 units.
I continue to rate XPeng as a Sell. The outlook for XPEV is still poor based on various indicators highlighted in this article, which suggests that there could be further pressure on its shares. As such, I stick with my Sell rating for XPEV.
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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.