This article first appeared on Trend Investing on October 20, 2020, when XPeng was priced at $19.84, and has been updated for this article.
Electric car manufacturer XPeng Inc. (XPEV), is starting to do very well in China and has the potential to rise very quickly and be a strong competitor to BYD Co. (OTCPK:BYDDF) (OTCPK:BYDDY) and NIO Limited (NIO) in China. XPeng has already started selling abroad with recent sales into Norway.
Recently Clean Technica reported that XPeng’s September deliveries hit a record 3,478 units and 8,578 for the quarter (Q3, 2020). The September result would put XPeng on a run rate of 41,736 electric vehicle [EV] sales pa, suggesting that XPeng could exceed 50,000 deliveries in 2021. The September 2020 result was a 145% YoY increase, and the quarterly result was a 266% YoY increase. These are impressive growth rates, albeit from a low base and after a weak H1 2020 due to COVID-19.
To compare XPeng’s 3,478 sales for September 2020 to what we know from China August 2020 sales, we see only 4 companies’ models sold more than XPeng; and XPeng even outsold NIO.
Source: Yellow highlights by me. Note XPeng is not yet included on the sales list as its 2020 year total sales are not yet high enough. I expect this to change soon.
On October 14, Seeking Alpha quoted JPMorgan’s (NYSE:JPM) view stating (in regards to the China EV market):
“We expect Nio to be a long term winner in the premium space among Chinese brands vs. Xpeng leading the mass market, while BYD should likely see strong EV demand with rising external battery sales from 2022,” write analyst Nick Lai and team. The firm believes the NEV market in China is not a “winner takes all” but sees a “rising tide lifts all boats” scenario.”
XPeng states on its website:
Our Smart EVs appeal to the large and growing base of technology-savvy middle-class consumers in China. We primarily target the mid- to high-end segment in China’s passenger vehicle market.
China wants about 20% of all car sales in China to be EVs by 2025; this should equate to a China addressable market for XPeng of about 4.4m EVs by 2025 (20% of ~22m pa car sales in China). If XPeng was able to get a 10% market share that would be 440,000 EV sales pa in 2025, plus any overseas sales.
XPeng stock price chart since IPO at $15 – Price = USD 42.18
Xpeng was co-founded in 2014 (Xpeng website says 2015) by Henry Xia (Xia Heng) and He Tao, former senior executives at GAC Group with expertise in automotive technology and R&D. Initial backers included He Xiaopeng (now Chairman of Xpeng), founder of UCWeb and former Alibaba executive, and Lei Jun, the founder of Xiaomi. Prominent Chinese and international investors included Alibaba, Foxconn and IDG Capital. A further funding round in 2018 saw Alibaba’s vice president Joseph Tsai join the corporate board of Xpeng.
He Xiaopeng leads XPeng. He also founded UCWeb Inc., the Chinese mobile internet software and service provider
XPeng’s two BEV models (G3 SUV and P7 sedan)
XPeng currently sells two battery electric vehicle [BEV] models, the G3 SUV and the P7 sedan. Both are very well designed good looking cars with modern comfortable interiors. They both have good range (especially the P7) and sell at affordable prices. The G3 is contract manufactured and the P7 is manufactured at XPeng’s factory in Zhaoqing, Guangdong Province, China; which has a 100,000 EVs pa capacity.
The G3 is an older model but it has been updated, whereas the P7 is newly released (April 2020) and appears to be very popular (Q3 2020 sales were 6,210 P7s and 2,368 G3s).
CleanTechnica gives a good write-up on the two models:
Note: The P7 is more expensive but offers bigger battery sizes (range) and better performance (acceleration).
Comparing the G3 (SUV) to the P7 (sedan)
XPeng G3 SUV
XPeng’s two models come with very nice and comfortable interiors and a large range of high tech software
XPeng P7 sedan
In addition XPeng also provides a range of other services to clients, including auto-financing, supercharging service, maintenance service, ride-hailing service and vehicle leasing service.
XPeng’s existing factory in Zhaoqing with 100,000 pa capacity
XPeng’s point of difference and strategy
XPeng’s key point of difference in China is its focus on being a smart EV tech company. XPeng’s smart EVs offer attractive design, long range and high performance, coupled with safety and reliability. XPeng’s EVs are loaded with high tech features. In many ways XPeng resembles a young Tesla (TSLA).
Its mission is to drive Smart EV transformation with technology and data, shaping the mobility experience of the future. In order to optimize its customers’ mobility experience, XPeng develops in-house its full-stack autonomous driving technology and in-car intelligent operating system, as well as core vehicle systems including powertrain and the electrification/electronic architecture.
XPeng’s expansion strategy
Assisted by Guangzhou GET Investment, XPeng is currently having a new smart EV factory built in Guangzhou, China. Completion is planned for December 2022. Guangzhou GET Investment will fund the factory and equipment. The factory will then be leased back to XPeng for seven years. After that XPeng will repay Guangzhou GET Investment the costs incurred by Guangzhou GET Investment and effectively then own the factory and equipment. I have not yet read anywhere what the capacity will be for the new Guangzhou factory. I am estimating it would be similar to its existing factory capacity of 100,000 EVs pa. I have since read that once completed the total combined XPeng capacity will be about 250,000 EVs pa.
XPeng sells predominantly in China but has recently expanded sales into Europe (Norway).
Management and top ten shareholders
XPeng’s financials summarized
XPeng’s financials and forecast financials
Looking at the chart below for 2020 to 2022, investors can expect XPeng to have rapidly rising revenues and narrowing losses. Perhaps by 2023 some profits may arrive. 4-traders is forecasting cash flow positive of CNY 0.69 per share (~$0.10 per share) by 2022.
4-traders shows analyst’s consensus ‘buy’ with a price target [PT] of CNY 297, (~$US 45.14) representing about 7% upside.
- 12 Nov. 2020 – XPeng reported Third Quarter 2020 unaudited financial results. XPeng EPS missed by $0.14, beat on revenue. XPeng reported a positive gross margin in Q3 helped by higher P7 sales, efficiency improvement, and lowered material costs.
- 2 Nov. 2020 – XPeng vehicle delivery results for October 2020. XPeng delivered 3,040 vehicles in October 2020, a 229% increase year over year. XPeng delivered 17,117 vehicles year-to-date 2020, a 64% increase year over year.
- 4 Oct. 2020 – XPeng announces vehicle delivery results in September and Third Quarter of 2020. XPeng delivered 3,478 vehicles in September 2020, a monthly record. XPeng delivered 8,578 vehicles in the third quarter of 2020, an increase of 266% year on year. In the third quarter of 2020, XPeng delivered a total of 8,578 Smart EVs, consisting of 6,210 P7s and 2,368 G3s, representing an increase of 266% year over year. The Company reached another important milestone in September by breaking ground for its new Smart EV manufacturing base in Guangzhou, which will significantly boost its future production capability upon estimated completion in December 2022.
- 27 Sept. 2020 – XPeng announces Cooperation Agreement for New Smart EV Manufacturing Base in Guangzhou….Guangzhou GET Investment agrees to provide RMB4 billion [~$586m] in financing to help fuel XPeng’s growth……In addition to its wholly owned plant in Zhaoqing, Guangdong province, which has an annual production capacity of 100,000 units, XPeng’s new Smart EV Manufacturing Base in Guangzhou will significantly expand the Company’s production capacity and accelerate XPeng’s momentum to achieve its goals in innovation, technological advancement and growth. Under the Cooperation Agreement, Guangzhou GET Investment will invest up to RMB1.3 billion to construct the Smart EV Manufacturing Base according to design requirements and specifications to be provided by Guangdong Xiaopeng. The Smart EV Manufacturing Base is expected to commence production by December 2022, upon which Guangzhou GET Investment will lease it to an operating subsidiary of Guangdong Xiaopeng (the “Operating Subsidiary”) for a tenure of seven years. Upon the expiry of the lease, the Operating Subsidiary will acquire the Smart EV Manufacturing Base from Guangzhou GET Investment at costs incurred by Guangzhou GET Investment. Guangzhou GET Investment also agreed to provide or facilitate RMB1.2 billion in financing to the Operating Subsidiary for its purchase of manufacturing equipment in the form of fixed-return redeemable investment (with an annualized return of 4%) or long-term bank loans that Guangzhou GET Investment will help the Operating Subsidiary to secure with effective annual interest rates of no more than 4%, after subsidies that are expected to be made available by the local government.
- 3 Sept. 2020 – XPeng announces inclusion into MSCI Indexes.
- 27 August 2020 – XPeng announces pricing of Initial Public Offering. XPeng raised ~$1.5 billion at an IPO price of $15.
- Technological change. For now it looks like EVs will rapidly gain market share; however, this could change.
- Competition risk. The Chinese EV space is highly competitive.
- Company risks – XPeng is burning cash (2019 operating loss was $535m with negative 24% gross margin). Increased sales volumes and scale in 2020-22 should hopefully start to see this improve. See forecast financials chart above. Other company risks include management risk, future debts, liquidity risk, currency risks etc.
- US listing risks for Chinese companies. Recently the White house has increased audit requirements and has threatened to de-list Chinese companies on US exchanges if they don’t comply.
- The usual stock market risks – Liquidity, dilution, sentiment.
XPeng Motors is a smart EV-tech focused company (P7 sedan shown below) based in China
XPeng makes beautiful cars and in many ways are similar to an early Tesla, except the focus for now is on China. XPeng’s two EVs (G3 SUV and P7 sedan) are priced very competitively and sit in the affordable to high end mass market category, mostly targeting the tech-savvy middle-class consumer in China. JPMorgan recently said it sees “XPeng leading the mass market,” which is a very big early call of confidence in XPeng.
Just recently, helped by the new XPeng P7 sedan, sales have been surging in China, albeit from a low base. XPeng has also recently begun exporting to Europe. XPeng already owns a factory in Zhaoqing and has another one on the way by late 2022 in Guangzhou. Combined that should give an estimated capacity by 2023 of about 250,000 EVs pa.
Valuation is not exactly cheap on a market cap of $30.99b; but it ultimately depends on the success of XPeng and if it can follow in the footsteps of Tesla and BYD Co.. Certainly the EV sector looks set to surge this decade giving XPeng every opportunity to significantly ramp sales, and in time profits.
Risks lie in the early stage with no profits and cash burn ($535m in 2019) and the intense competition in the Chinese EV space. Also it should be remembered that XPeng is a Chinese company listed on a US exchange which means it carries some additional risks.
Overall I think XPeng is a very worthwhile early-stage bet on what I view as ‘the most promising early-stage Chinese EV company.’ It is extremely well connected (Gov. support) and backed (Alibaba (NYSE:BABA), etc.), appears to have a good leader in He Xiaopeng, has a great product at an affordable price with rapidly improving recent sales, is well-funded and well-placed to rapidly expand production capacity (initially to 100,000 pa then higher as the Guangzhou factory completes in late 2022).
I rate XPeng as the best of the newly listed EV companies in China and a speculative buy and hold (money you can afford to lose) for long-term investors with a high risk tolerance.
As usual all comments are welcome.
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Disclosure: I am/we are long XPEV, TSLA, BYD CO [HK:1211]. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The information in this article is general in nature and should not be relied upon as personal financial advice.