Xpeng Motors Stock Price Falls 8% – Time to Buy XPEV Stock?

Xpeng Motors (XPEV) stock is down 8% so far in 2021 amid the weakness in EV (electric vehicle) stocks. What’s the forecast for XPEV stock and should you buy the dip in this Chinese EV stock?

EV stocks have been weak this year after the steep rise in 2020. Looking at Chinese EV stocks, LI Auto is also in the red while NIO, which had risen a whopping 1,100% last year is down over 28% this year.

XPEV stock reported second-quarter earnings

Xpeng reported its second-quarter earnings yesterday. The company’s revenues rose 536% year-over-year to $582.5 million. EV companies have been reporting strong sales growth amid the soaring demand for electric cars. The industry is capacity-constrained and companies can sell only as many cars as they can produce. To make things worse, the chip shortage situation is also taking a toll on production.

Meanwhile, while EV companies like Xpeng have been reporting strong topline growth, the industry is also marred by perennial losses. Barring Tesla, which has posted a profit in every quarter since the third quarter of 2019, all other pure-play EV companies are posting losses.

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XPEV stock margins improve

However, they have been witnessing an improvement in finances. Xpeng, for instance, posted a gross profit margin of 11.9% in the second quarter of 2021 as compared to a negative margin of 2.7% in the second quarter of 2020. The gross margin also improved sequentially as the Chinese EV maker had posted a gross profit margin of 11.2% in the first quarter. Notably, while XPEV managed to improve its gross margins sequentially, NIO reported a fall in margins. However, NIO’s margins are higher than that of Xpeng Motors in absolute terms.

Norway deliveries begin

Xpeng recently began deliveries of its electric cars outside of China by making the first shipments to Norway. NIO had also previously announced international expansion beginning with Norway, but the deliveries haven’t yet begun. Xpeng Motors ended the quarter with total cash and cash equivalents of over $5 billion.

The company has raised capital in multiple tranches over the last year. After the US IPO, it did the second round of stock issuance last year in the US markets. Earlier this year, it raised cash from its listing in Hong Kong. That said, more than the capital raise, the Hong Kong listing is more of a risk-mitigation strategy for the company amid the growing US-China tensions. Calls to delist Chinese companies have been gaining traction in the US. China’s recent tech crackdown, which has led to billions of dollars of losses for US investors hasn’t found Chinese companies any friends in the White House either.

Xpeng does not expect to be targeted by China

Meanwhile, it looks highly unlikely that China would target its EV companies as it sees the industry as strategic. The EV industry is also part of China’s “Make in China 2025” plan where it is trying to pivot its economy from low-end manufacturing to high-end industries.

Brian Gu, president of Xpeng echoed similar views and said that the company is “on the right side of regulations.” He added, “I think our industry actually is actually stated as industry that will be supported by the government. They see this as a critical infrastructure, as well as a critical component of growth for manufacturing, smart technology, and also carbon neutral agenda, which the government is pushing very hard.”

XPEV stock forecast

Wall Street analysts are bullish on XPEV stock even as their opinion is quite divided on Tesla. Of the 15 analysts covering Xpeng stock,13 rate the stock as a buy while the remaining two rate them as a hold. None of the analysts have a sell rating on the Chinese EV maker.

The stock has a median target price of $51.30 which is a premium of 26.2% over current prices. Its lowest target price of $26.88 implies a downside of 24% while the highest target price of $72.09 is a premium of over 77%.

XPEV stock valuation

Looking at the valuations, XPEV stock trades at an NTM (next-12 months) enterprise value-to-sales multiple of 8.6x. The multiples have averaged almost 13x since Xpeng listed last year. The current valuation multiples are less than a third of what they had peaked last year.

That said, the EV industry has seen a deterioration of their valuation multiples amid the sell-off in growth names. NIO’s valuation multiples have also come down and it now trades at an NTM enterprise value-to-sales multiple of 8.1x which is similar to that of Xpeng Motors.

Xpeng has crossed above the 200-day SMA (simple moving average) which is a bullish indicator. However, the stock is facing resistance at the 50-day SMA which is currently at $41.08. The MACD (moving average convergence divergence) gives a buy signal while the 14-day RSI (relative strength index) of 51.4 is a neutral indicator.

Overall, the outlook for the EV industry is positive looking at the global pivot from ICE (internal combustion engine) cars towards electric cars. However, the competition is also heating up with legacy automakers competing with pure-play EV companies to grab a share of the EV industry’s growing pile.

Xpeng looks like a good EV stock to buy and looks attractive after having crashed sharply from the peaks. The stock was trading 2% higher in US premarket trading today and has a 52-week trading range of $17.11-$74.49.

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