XPeng Still A Strong Contender In China’s EV Race

Summary

Структура статьи

  • XPeng reached a record amount of deliveries for July, at over 8,000 units, as the P7 hit over 40,000 deliveries in its first year.
  • Strong revenue growth at ~180% y/y is possible for the current fiscal year as deliveries are projected to rise to nearly 70,000 units.
  • XPeng has multiple catalysts that can drive its growth in the upcoming years and solidify its spot as one of China’s top EV manufacturers.

XPeng continues to advance in the Chinese EV race, posting a new monthly record for deliveries and building out infrastructure and international plans ahead of a new model launch. Electric vehicle stocks have been rallying amidst a more favorable backdrop stemming from the progress within the infrastructure deal; XPeng has rallied about 80% since mid-May as optimism has returned to the sector. The company remains well-positioned to contend for a leading title in Chinese EV.

Record Deliveries

Just like Li Auto, XPeng posted a new monthly delivery record for the month of July, reaching 8,040 units; this put it just shy of Li, but ahead of NIO by just over 100 vehicles. 6,054 of the deliveries were of the P7, the company’s main vehicle, with the G3 reaching nearly 2,000 units. Growth metrics remain blazing hot, the y/y comparisons seen below for both the month and YTD period, as sales jumped +22% m/m.

Graphic from XPeng

These numbers mark the first full-month of deliveries following XPeng’s one-year anniversary for the first P7 delivery on July 30, 2020. So in the first year of its production in its lifetime, XPeng has already delivered 40,612 units; compared to NIO’s ES8, which did not even hit 20,000 units in its first year (and not even 1,000 in July 2019, the one-year mark), it’s a much stronger starting level for XPeng with a more favorable EV-adoption environment.

40,000 units of one vehicle in its first year of production and over 75,000 units in 2.5 years are no small feat, and attest to the XPeng’s ability to rapidly mass produce vehicles – it took just 188 days to manufacture the first 10,000 units of the G3, and the first 10,000 of the P7 within 160 days. Lucid Group, trading at a mid-$30 billion valuation, almost the same as XPeng’s, is projecting just 20,000 units in its first year and about 70,000 by the 2.5-year mark, so it’s expecting a quicker ramp up in the second year relative to the first. But for XPeng to reach these figures so quickly, and to put the P7 on a platform to reach 75,000 units itself in the next twelve months (assuming 6,000 units per month with some slight growth), the delivery forecast is very positive, especially as new models are added.

Future Catalysts

XPeng has multiple catalysts ahead that support strong growth within revenues and deliveries. For 2021, XPeng can reach 65,000 to 70,000 deliveries assuming a strong demand environment allows deliveries to grow up to 9,000/mo by Q4, which can drive vehicle revenues to RMB14.8-15.5 billion (US$2.3-2.4 billion). With service revenues near RMB700 million (US$110 million), total revenues are poised for ~180% y/y growth.

Multiple factors can cement this growth:

  • rising popularity within tech-savvy consumers: with NGP’s (Navigation Guided Pilot) advanced highway solutions, level 3 autonomous driving capabilities, XPILOT 2.5 and 3.0’s hundreds of optimized features with dozens more being added, AI assistant featuring 14 emotional modes, and Xmart OS 3.0 transforming the smart cockpit into a cinematic/gaming lounge, XPeng continues to innovate and push the boundaries of its smart vehicles. An attractive selling price (below RMB230,000) combined with the level of tech inside the car has spurred strong demand, even against competition from NIO and Tesla, evident within the recent months’ deliveries.

Graphic from XPeng

  • advancing technology: XPeng still has over 40% of its employees focused in R&D, and while this has pressured margins from high expenditures, it has allowed XPeng to bring top-of-the-line technology in a lower priced vehicle. More technological innovation within XPILOT 3.5 and 4.0 and autonomous capabilities are some of what is to come.
  • top-of-the-line specs and ratings: aside from in-vehicle tech, XPeng’s models are recipients of high ratings and awards. The P7 received a 5-star rating from i-VISTA under China’s new smart vehicle guidelines, a 5-star active safety rating with a score of 98.51%, and highest in midsize BEV by J.D. Power. The G3 ranks highest in compact BEV, and both are ranked top in residual value.
  • new vehicle models/editions: aside from the P7 and its limited edition, the Wing, the G3 is seeing a new facelift being launched, the G3i. Deliveries of the new edition are expected to commence next month. In addition, XPeng is launching its new family-oriented sedan, the P5, during Q3. Pricing is expected to range from RMB160,000 to RMB230,000, putting it in between both existing models on a price basis. XPeng has said that the P5 is being met with high levels of enthusiasm from customers during this pre-order phase.
  • international expansion continuing: XPeng is no longer alone in international markets, with NIO joining in Norway and Li planning an expansion soon. NIO is quickly establishing sales and service centers, raising the competition, while expansion to other European countries between the two could be a neck-and-neck battle. XPeng’s rapid manufacturing ability could be a key advantage it can lever in international sales.
  • capacity expansion: XPeng is quickly catching up to NIO, which has had it beat since the beginning. However, XPeng has the capacity to exceed NIO by 2025, although projecting that far brings some uncertainty. 100,000 units of annual capacity at Zhaoqing is boosted by factories in Guangzhou and Wuhan, bringing total capacity to ~450,000 units, which should be achievable by 2025. On the other hand, NIO’s JAC capacity was doubled to 240,000 units, and while expansion in Hefei at NeoPark could easily double that capacity, there’s no timeline nor stated cost.

With multiple catalysts for growth, XPeng has what’s shaping up to be a bright future, and is valued accordingly so – it trades at about 6.8x FY22 EV/revenues and 4.4x FY23, a slight discount to NIO’s 7.4x for FY22 and 5.2x for FY23, but a premium to both Li and leading ICE manufacturers shifting into EV. For XPeng, the main risks to this valuation are industry-wide, although it does have a couple company-specific risks. As EV adoption advances, it’s going to face more competition in its segments and will need to keep its vehicle tech at the forefront of the group, which can increase costs; it also is very likely to face more competition in both domestic in international markets in the next few years. Industry-wide risks like those stemming from the chip shortage are still something to be aware of, especially as XPeng is pushing towards higher growth – any impacts to forward growth can hit hard on valuation. For XPeng itself, its focus on R&D to keep advancing tech has led to lower margins than peers, and could face a longer road to profitability. Cybersecurity risks like those that had surfaced with DiDi are on watch, as XPeng was one of hundreds of apps that the Guangdong Communications Authority ordered to amend for those purposes back in January.

Overall

XPeng’s growth trajectory remains strong, with the manufacturer expected to grow revenues about 180% y/y for the current fiscal year as deliveries near 70,000 units. A strong August will help to cement that forecast as XPeng comes off of a record month in July. The P7 has reached over 40,000 deliveries in just one-year, attesting to both the high demand for XPeng’s vehicles from a price and technology standpoint as well as its rapid mass-production ability. New models and facelifts are expected within the next quarter, and can boost deliveries. Other catalysts for growth include advancing vehicle technologies, capacity expansion, international expansion, and boasting top-of-the-line ratings. Increasing infrastructure to hundreds of supercharging stations and thousands of free charging stations in its network ease range anxiety. Industry-wide risks stemming mainly from competitive pressures and company-specific risks from weaker margins and government probes could play a hand moving forward; even so, the outlook for XPeng is positive.

Author: Damien Robbins, Seeking Alpha

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