To most investors, the name Xpeng Inc (NYSE:XPEV) probably doesn’t ring a bell. But if you believe in the future of the electric vehicle (EV) industry, then XPEV is a ticker that should not be ignored.
Allow me to explain…
Founded in 2015, Xpeng Inc designs, develops, manufactures, and markets electric cars in China. The company’s current lineup includes the “G3,” an electric SUV, and the “P7,” a four-door sports sedan.
Xpeng Inc targets the mid- to high-end segment in China’s passenger vehicle market, which includes cars at price points from RMB150,000 (USD$22,000) to RMB300,000 (USD$44,000).
Looking at its current models, the G3 SUV has a starting price (post government subsidy) of RMB146,800 (USD$21,000), while the P7 sports sedan starts at RMB229,900 (USD$33,000). (Source: “Prospectus [Rule 424(b)(4)],” United States Securities and Exchange Commission, September 8, 2020.)
The company completed its initial public offering (IPO) on the New York Stock Exchange (NYSE) on August 27, 2020, with the IPO price set at $15.00 per American Depositary Share (ADS).
While Xpeng is a very new company—and certainly a very new EV stock—it did manage to break into the Chinese electric car market, a place where competition is intense, to say the least.
The company first started producing the G3 in November 2018, and had delivered 18,741 units of the electric SUV to customers by July 31, 2020. Notably, the G3 was one of the top-three best-selling electric SUVs in China in 2019.
Xpeng’s P7 was launched quite a bit later, with delivery beginning in May 2020. Still, reception has been great, as the company has already delivered 1,966 units of the sports sedan by the end of July.
One of the selling points of the P7 is its range: with the ability to travel up to 706 439 miles on a single charge, the P7 has the longest range among EVs available in the Chinese market. (Source: Ibid.)
If you’ve been following the EV industry, you know that autonomous driving is something every company is working on. On that front, Xpeng Inc does not disappoint, as it has developed a full-stack of autonomous driving technology.
The current version—”XPILOT 2.5″—offers adaptive cruise control, adaptive turning control, lane centering control, automated lane changing, and automated parking. As of June 30, 2020, Xpeng’s adaptive cruise control function had been used for 15.6 million miles of driving cumulatively.
One common challenge for young EV companies is having enough production capacity to meet the increasing demand. For instance, it took Tesla Inc (NASDAQ:TSLA) quite a few years to ramp up its own production.
Looking at Xpeng Inc, its first model—the G3—is being produced at a contract manufacturing plant with 150,000 units of annual capacity. The company has also built its own plant in Zhaoqing, where production of the P7 started in May 2020. The Zhaoqing plant has an annual production capacity of up to 100,000 units. So, in the short term, production capacity shouldn’t actually be an issue.
Now, any discussion of automotive companies in this day and age would not be complete without looking at the impact from COVID-19. China had some major lockdowns earlier this year, and auto sales plummeted.
Xpeng’s business was impacted, too. In the first six months of 2020, the company generated RMB1.0 billion (USD$146.7 million) of revenue, which represented an 18.6% decline year-over-year.
The neat thing is, while the top-line number took a hit due to the pandemic, Xpeng managed to improve its other performance metrics.
For instance, in the first six months of 2019, the company had a gross loss of RMB470.8 million and a net loss of RMB1.9 billion. One year later, Xpeng’s gross loss was reduced to RMB36.1 million and its net loss had narrowed to RMB795.8 million.
Looking at XPEV stock chart, we see that the company opened well above its IPO price of $15.00 on its first day of trading. Since then, though, Xpeng stock has pared some of those gains, trading around $18.00 per ADS at the time of this writing. Keep in mind that during this period, the broader market also slipped quite a bit.
Xpeng Inc (NYSE:XPEV) Stock Chart
Chart courtesy of StockCharts.com
Because the impact from the COVID-19 pandemic was temporary, sales growth will likely return for Xpeng Inc. And, given the direction in which the company is going, a positive gross profit should be within reach in the coming years.
However, competition is intense in the Chinese EV market. And because of the increasing tension between the U.S. and China, it’s hard to say how investor sentiment would evolve towards Chinese companies listed on U.S. stock exchanges. Given the uncertainty ahead, it’s better to approach XPEV stock with caution and proper risk management.