Goldman Sachs Says Xpeng Motors Can Rise Further after G6 Launch

Goldman Sachs initiated coverage of Xpeng Motors (NYSE: XPEV) stock with a buy rating and assigned a target price of $18.10 as the brokerage expects its sales to improve with the new model.

XPEV unveiled the model last month and priced it between 209,900 yuan to 276,900 yuan which is 20% cheaper than Tesla Model Y.

The car is based on Xpeng Motors’ new production platform called SEPA2.0 (Smart Electric Platform Architecture) which the company unveiled in April.

In his prepared remarks, XPEV CEO He Xiaopeng said, “XPENG G6 embodies our unwavering commitment to technology innovation and reaffirms our mission to lead the mobility transformation.”

He added, “We believe that our forward-looking technology roadmap and vision for making innovative technology accessible to the mass market firmly position XPENG as an industry trendsetter and leader in customer satisfaction.”

The G6 SUV would be equipped with Xpeng Motors’ Advanced Driver Assistance System.

Goldman Sachs expects Xpeng Motors stock to rise further

Xpeng Motors stock has risen sharply over the last month and Goldman Sachs expects it to rally even further. In its note, it said, “In the near-term, we expect the company’s vehicle delivery volume to regain momentum with the latest G6 model launch, and margin to improve on larger vehicle delivery scale together with battery pricing decline.”

It added, “We believe the market hasn’t fully reflected G6′s potential, as it ranks No.1 among comparable models, and in our view is the most competitive product released by XPeng to date.”

Analysts turn bullish on Xpeng Motors after G6 launch

Other analysts are also bullish on Xpeng Motors G6 SUV and Hanyang Wang, an analyst at 86Research Ltd said, “We believe that the G6 will become the best-selling model in Xpeng’s history.”

Wang added, “As a comparable model for the G6, we anticipate Tesla’s Model Y will soon experience another round of price reduction in China, which will slightly impact on Tesla’s vehicle margin in the second half of this year.”

G6 is priced quite competitively

Citigroup analysts also believe that G6 is attractively priced and said, “We do admit the G6 pricing strategy created a unique product segment of BEV (battery electric vehicle) SUV at the 200,000-230,000 yuan range, which attracts customers wanting an entry level mid-sized BEV SUV but cannot afford a Tesla model-Y or Xpeng P7i.”

Deutsche Bank has meanwhile a more nuanced view and ahead of the G6 launch, analyst Edison Yu said “With margins and cash burn looking materially worse following Q1 earnings, we believe (XPeng) management may be making its last stand with the G6.”

To be sure, the G6 is crucial for Xpeng Motors as the company’s deliveries have disappointed for the last many months and came below 10,000 in all six months this year. It expects them to average 15,000 and 20,000 per month respectively in Q3 and Q4 but a lot would depend on how G6 deliveries shape up.

XPEV’s losses have swelled

Xpeng Motors reported revenues of $571.6 million in the March quarter, which were 50% lower YoY. Its losses also swelled to 2.34 billion yuan as compared to 1.7 billion yuan in the corresponding quarter last year. Analysts were expecting its first quarter losses to come in at 1.9 billion yuan.

The company’s gross margin plummeted to a mere 1.7% in the quarter as compared to 12.2% in the corresponding quarter last year.

Also, its vehicle margin came in at -2.5% as compared to 10.4% in the corresponding quarter last year.

The company expects to post positive operating cash flows in the fourth quarter. It ended March with total cash and cash equivalents of $4.97 billion.

Startup EV companies are burning a lot of cash as they scale up production. The EV price war is not helping matters and like Tesla, Xpeng Motors is also prioritizing scale over profitability even as it expects to have “long-term stable pricing.”

China EV price war truce failed

The Chinese EV  market which is among the most competitive globally has been witnessing a brutal price war. Last week, Tesla along with over a dozen Chinese automakers pledged to avoid “abnormal pricing” and promote “core socialist values.” However, the move seems to have failed and The China Association of Auto Manufacturers (CAAM) has retracted the pledge.

The pledge was signed by 16 automakers in total of which only Tesla was a foreign automaker. The automakers signed the pledge at an industry conference in Shanghai which stated they “take on the heavy responsibility of maintaining steady growth, strengthening confidence and preventing risks.”

The EV war in China began last year when Tesla lowered car prices. The EV giant’s price cuts were followed by similar announcements from other carmakers including Xpeng Motors, Ford, Toyota, and Nissan.

Last month, even NIO lowered car prices. Previously the company had categorically said that it won’t join the price war.

The price war was taking a toll on the earnings of startup Chinese EV companies most of which are anyways posting losses. Tesla’s operating margins also fell to 11.4% in the first quarter as compared to 19.2% in the corresponding quarter last year. That said, the company’s margins are still among the highest in the industry.

Xpeng Motors has expanded to Europe

Like NIO, Xpeng Motors has also started selling its cars in Europe. Goldman Sachs is bullish on the company’s international expansion and said, “As a pure EV maker at its volume ramp-up stage, XPeng currently prefers to sell into overseas markets through exports only per its latest strategy.”

It added, “In the longer term, we believe the pure-EV setup makes the company well positioned to seize the overseas markets’ EV demand.”

Meanwhile, after the stellar rally over the last month, Xpeng Motors stock seems to be taking a breather today and is down around 1% in US premarket price action. The next key update from the company would be its July delivery report which would offer insights into the demand for its G6 SUV.