Xpeng’s bet on EREVs might not pay off – analyst

Shares of Xpeng (NYSE:XPEV) have dropped by more than 2% in late trade on Thursday after the stock was dealt a downgrade at UBS on questions whether the newly launched MONA M03 and P7 monthly delivery goals are sustainable.

UBS analyst Paul Gong lowered his rating on the Chinese automaker to Sell from Neutral as a warning to investors of Xpeng’s (XPEV) downside risks that are not yet priced in.

“There’s no easy money in the [extended range electric vehicle market],” Gong writes, questioning the consensus that extended range electric vehicles (“EREV”) vehicles will outsell battery-electric vehicles (“BEV”).

EREVs is a hybrid vehicle that combines an electric motor with a small ICE to extend the vehicle’s driving range.

Besides the potential for subdued demand, the visibility on Xpeng’s (XPEV) EREV pipeline remains unclear. The view that EREVs will outsell BEVs with the same remaining specs is not a general rule, Gong says, adding that whether EREVs can help Xpeng (XPEV) scale and narrow operating losses still hinges on target consumer understanding of EREVs, company strategy execution, and EREV brand recognition.

“While we share the market’s excitement for XPeng’s new EV momentum and fast cost optimization, we believe the upside is more than priced in,” Gong says in his research note.

Xpeng (XPEV) is heading into the close in the red for the first time in six days.