Amid a tumultuous ride last year, the Chinese electric vehicle (EV) manufacturer Xpeng Motors (XPEV) managed to eke out gains. However, that resilience has since given way to sheer adversity, with the stock plummeting dramatically from its 2023 peaks. As of the current juncture, XPEV’s shares have witnessed a dismal performance, nose-diving by over 14% since the start of the year and tumbling more than 23% in the last three months.
The annus horribilis of 2023 marked a pivotal period for Xpeng Motors, seeing the announcement of its new low-cost SEPA 2.0 platform and a strategic alliance with Volkswagen (VWAGY). The latter not only acquired a stake in the company but also inked a deal to co-create vehicles tailored for the Chinese market. Equally noteworthy was its collaborative pact with the ride-hailing app Didi, under which Xpeng is set to birth a new EV brand christened ‘MONA,’ focused on producing electric vehicles in the affordable $20,000 range.
2023: The Year of Milestones for Xpeng Motors
Bolstering its breakthroughs, the company commenced deliveries of its G6 SUV, which garnered acclaim and emerged as the best-selling vehicle in its category. Notably, its monthly deliveries scaled to a record pinnacle in December, culminating in a historic 60,000 deliveries milestone during Q4. Adding another feather to its cap, Xpeng Motors recently unveiled its X9 MPV (multi-purpose vehicle).
An additional testament to its strides, Xpeng expanded its Advanced Driver Assistance System (ADAS) to over 250 cities, outpacing its own ambitious targets. Nonetheless, despite this impressive show of might, the stock basks in the shadow of its achievements, trading at under 1.5 times its projected 2024 revenues – a notably conservative valuation.
Why Is Xpeng Motors Stock Tumbling?
The harsh downturn of XPEV’s stock can be attributed to the broader selloff in Chinese equities. The negativity has engulfed other Chinese juggernauts like Alibaba (BABA) and JD.com (JD) amidst a pervasive aura of doubt hovering over Chinese stocks. The economic downturn in mainland China, coupled with a harsh tech clampdown, has further compounded the woes of Chinese enterprises, exacerbating XPEV’s travails. The specter of Alibaba divesting its stake in Xpeng Motors has only added fuel to the fire.
2024: A Pivotal Juncture for Xpeng Motors
The pivotal year of 2024 looms large for Xpeng Motors, demanding a transition from lofty proclamations to tangible execution. Although the company has made commendable headway in bolstering its deliveries, the figures mirror a stagnation at around 20,000 per month for the past three months. While the year-on-year climb is remarkable, the lackluster sequential growth presents cause for concern. By contrast, its counterpart Li Auto (LI) has surged impressively, with monthly deliveries surpassing 50,000 in December – surpassing the combined deliveries of NIO (NIO) and XPEV.
Looking ahead, 2024 is poised to witness the much-anticipated launch of the ‘MONA’ brand by Xpeng Motors, a development that is closely poised for observation. Crucially, the company is set to navigate the bottom line conundrum, having posted negative gross margins in the second and third quarters of 2023. The management remains sanguine about propagating a landed reformation, pledging a significant 25% cost reduction to elevate margins in 2024.
In a previous exposé, I contended that XPEV ranked among the cohort of growth stocks tethered to a potential doubling in 2024. However, to surmount this mountaintop, Xpeng Motors must deliver robust enhancements in both its deliveries and margins, coupled with a conducive macro environment.
As the Chinese economy grapples with structural deceleration in conjunction with escalating tremors in its real estate sector, the landscape remains riddled with uncertainties. Yet, amidst the amplified risks surfacing from investing in Chinese stocks, Xpeng Motors offers a compelling risk-reward dynamic, standing tall as a prudent investment option.