I have an investment rating of Sell on XPeng Inc. (NYSE:XPEV) [9868:HK] Warehouse.
XPEV shares are down -32.6% over the past four months after I downgraded my rating on XPeng to sell from hold in my previous article published on May 26, 2022. Over the same period, the S&P 500 was down a much more modest -5.7%. In my late-May update for XPEV, I highlighted that “the company’s near-term prospects are poor” and noted that its “competitors have adopted more appropriate strategies to navigate the Chinese EV or EV market.”
Over the last month, XPeng’s share price fell -34.6% compared to a -9.2% decline in the S&P 500. This latest article looks at the factors that contributed to XPEV’s recent price weakness.
Having considered XPEV’s G9 launch, recent developments regarding COVID-19 restrictions and semiconductor chip access, and monthly sales data, I am negative on XPeng’s near-term prospects. Therefore, I leave my sell recommendation for XPEV unchanged.
The launch of the new SUV G9 cannot boost the XPeng stock price
XPeng announced “its fourth production model of the G9 flagship SUV for the Chinese market” on September 21, 2022 ahead of the market opening. In the announcement, XPEV emphasized that the G9 SUV “is the fastest-charging production SUV in the world and features 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 been hoping for; XPEV shares fell -12% from $15.93 on September 20, 2022 to $14.09 on September 21, 2022.
According to a September 21, 2022 CNBC News article, the President of XPEV was quoted in an interview that “we believe that next year’s volume of G9 will exceed what we achieved for P7 (sedan previously launched by XPEV), which makes it one of our best-selling vehicles.” Specifically, the company expects monthly sales for the new G9 SUV to surpass 10,000 units in 2023, according to its CEO’s comment at the G9 launch event. Sales expectations of 10,000 units for the G9 SUV are respectable considering that XPeng recorded average monthly shipments of 11,261 units for the company as a whole in the first eight months of 2022.
However, the negative market reaction to the launch of XPeng’s new G9 SUV suggests that investors don’t necessarily share the company’s optimism about the future sales performance of the G9 SUV.
One factor could be pricing. The retail price of XPeng’s G9 SUV ranges from RMB 309,900 to RMB 469,900, which is an average price of RMB 389,900. On September 21, 2022 I’m looking for alpha news cited article a MorganStanley (MS) Sell-side research report noting that the G9’s “price exceeded its (analyst’s) estimate of RMB 300,000.” There’s a natural concern that actual sales of the G9 SUV could disappoint the market and fall short of the company’s targets, assuming consumers are put off by the higher-than-expected prices.
Another factor is that the new G9 SUV has “a total of six configurations,” as revealed in XPeng’s September 21, 2022 announcement. This could be overkill for consumers as they could become overwhelmed by the number of configurations to choose from. A 2006 Harvard Business Review The article, titled “More Isn’t Always Better,” noted that there are several studies that suggest “excessive choice can induce ‘choice paralysis'” and “reduce people’s satisfaction with their choices.”
Separately, it’s worth noting that XPEV hasn’t provided an update on pre-orders for the G9 SUV since officially announcing the launch on September 21, 2022. Previously, XPeng announced in early August 2022 that it had racked up 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 number for the G9 along with the official launch on September 21, 2022, but that hasn’t materialized. As such, it is difficult for investors to gauge initial consumer demand for the G9 SUV without such updated pre-order figures. In other words, this uncertainty may also have been a factor driving XPEV’s stock price down on September 21, 2022.
COVID-zero stance and semiconductor chip restrictions draw attention
Aside from the official launch of the new G9 SUV, there are other important events that have attracted investors’ attention regarding XPeng.
late last month, Reuters reported that “parts of China’s southern city of Guangzhou have imposed COVID-19 curbs.” It is uncertain whether restrictions have been eased in Guangzhou and whether the previous restrictions had an impact on XPeng’s manufacturing 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 electric vehicles are mainly manufactured at its (first) plant in Zhaoqing, Guangdong province , getting produced”. The company’s second production facility for electric vehicles is also located in Guangzhou.
As China continues the country’s COVID-zero policy, there is always a risk that future lockdowns in certain parts of China such as Guangzhou could disrupt XPEV EV production. This is obviously an issue that has weighed on XPeng’s stock price.
Separately, geopolitical tensions between the US and China could influence the future growth plans and strategies of Chinese electric vehicle manufacturers like XPEV regarding autonomous driving. I warned in a September 13, 2022 article on NIO (NIO) (one of XPEV’s key competitors) that “new restrictions (on semiconductor chip supplies to Chinese companies) introduced by the US government may could adversely affect NIO’s long-term plans in this area of autonomous driving technology.”
As mentioned earlier in this article, one of the selling points of the new G9 SUV is its “full scenario driver assistance system” and it is reasonable to expect that autonomous driving related features will be a crucial component of future EV XPeng models will be good. Therefore, restricting chip sales to China is a key disadvantage for XPEV.
All eyes on XPEV’s sales and Q3 guidance for August 2022
XPEV deliveries in August 2022 and management’s guidance for the third quarter of 2022 were not encouraging.
Monthly shipments for XPeng in August 2022 decreased -17% m/m to 9,578 units. In contrast, sales of NEV, or New Energy Vehicles for China as a whole, increased +12%m/m in the previous month.
an earlier one I’m looking for alpha news Article published August 24, 2022 cited a report by Barclays (BCS) and highlighted that “the competitive landscape for XPEVs has worsened as more automakers have introduced competing models in the similar price range.” This could explain why XPEV didn’t do as well as the industry in terms of deliveries over the previous month.
It didn’t help that XPEV’s third-quarter 2022 delivery guidance, which was announced along with its second-quarter 2022 financial results in late August 2022, fell short of market expectations. XPeng expects Q3 2022 shipments of 30,000 units based on its mid-point forecast, and this was -35% down from consensus Q3 shipments of 45,865 units.
I continue to rate XPeng as a sell. The outlook for XPEV remains bleak based on various indicators highlighted in this article, suggesting the shares could face further pressure. So I’m sticking to my selling rating for XPEV.