XPEV - XPeng: Headed The Wrong Way

2023-06-08 21:39:55 ET

Summary

• XPeng has seen declining deliveries for five consecutive quarters, while competitors like BYD, Tesla China, and GAC Aion have experienced significant growth.
• XPeng's G6 model, set to launch in June 2023, is expected to help turn things around, but the author is taking a wait-and-see approach.
• The company's current market cap of $7.2 billion seems overvalued if the G6 doesn't perform well.

Introduction

My thesis is that XPeng ( XPEV ) continues to go the wrong way as it sells fewer battery electric vehicles (“BEVs”) while competitors sell more.

At the time of this writing, RMB 100 is about $14.03.

The Numbers

The top of the 1Q23 results shows declining deliveries for 5 quarters in a row:

CnEVPost shows XPeng’s deliveries dropping dramatically from the first 5 months of 2022 to the first 5 months of 2023:

Competitors Are Growing As XPeng Shrinks

The April 2023 CPCA Retail Sales Ranking Express report doesn’t show competitors declining with respect to new energy vehicles (“NEVs”). BYD ( OTCPK:BYDDY ) increased sales 81.3% from 387,456 for the first 4 months of 2022 up to 702,608 for the first 4 months of 2023. Tesla China ( TSLA ) saw sales jump 61.5% from 109,812 for the first 4 months of 2022 to 177,385 for the first 4 months of 2023. The year-over-year (“YoY”) increase for GAC Aion was a substantial 110.3% as they went from 57,687 units for the first 4 months of 2022 all the way up to 121,320 units for the first 4 months of 2023.

Zhejiang Geely Holding Group shared details about a partnership agreement with Changan on May 10th. The companies plan to leverage their strengths and share resources as they explore opportunities in new energy technologies. Geely Auto ( OTCPK:GELYY ) and Changan had YoY increases of 52.3% and 98.6%, respectively, as their sales for the first 4 months of 2023 came in at 87,967 and 79,168, respectively. The April 2023 CPCA report also shows Li Auto Ideal ( LI ) doing well but most of these are not BEVs. It also shows high numbers for the SAIC GM Wuling ( GM ) but most of these vehicles cost less than $10,000 each. Here are the numbers from the report and XPeng is not shown as they are outside the top 10:

In the coming years, I think Chinese interests like BYD, GAC Aion and the Geely/Changan partnership will continue to put heavy pressure on XPeng.

A WSJ article by @greg_ip allows readers to visualize the gap for global sales between companies like BYD and companies like XPeng which they show as Xiaopeng. Again, it would be nice if the graphic had a footnote explaining that most of the GM units are under $10 thousand each:

Valuation

Given the fast-charging capabilities of XPeng’s G9 discussed in my January article , I expected to see higher sales numbers than what have transpired. Now we’re being told by Chairman and CEO He Xiaopeng in the 1Q23 results that the G6 is the model that will help turn things around:

G6, the first production model built on XPENG’s next-generation technology architecture SEPA2.0, will be officially launched in June 2023. I believe the G6 will emerge as one of the most popular, best selling models in China’s NEV SUV market segment with a price range between RMB 200,000 to RMB 300,000.

I’m taking a wait and see approach with the G6. Total revenues, revenues from vehicle sales, gross margin, vehicle margin and net loss have all gotten worse per the 1Q23 results:

XPeng is still operating at a loss and their trailing twelve month (“TTM”) revenue from the 1Q23 results and the 2022 annual report was $3.3 billion or RMB 23,434 million or RMB ??4,033 million + RMB 26,855 million - RMB 7,454 million.

It’s hard to say what XPeng is worth given their operating losses and their declining deliveries.

The 1Q23 results show that each ADS represents two Class A ordinary shares. The 1Q23 results show 1,722,080,453 as the weighted average number of ordinary shares. We get a market cap of $7.2 billion when dividing the share count by 2 and multiplying by the June 7th XPEV price of $8.38. This seems a bit rich if the G6 doesn’t do well so I think of XPEV stock as being somewhere between a hold and a sell at this time.

Forward-looking investors should keep an eye on G6 sales over the next few months.

For further details see: