XPeng Stock Should Get A Boost From ADAS Advances, Increased Exports, New EVs
Contributor since 2014 / 515 Followers
Summary:
- XPeng reported impressive Q2 results, with its deliveries up 30% versus Q2 of 2023 and its revenue climbing 60% year-over-year.
- XPeng’s ADAS improvements make it a leader in the industry. The automaker has plans to deploy high-level ADAS in affordable vehicles.
- XPeng’s export growth and new EV models, along with its low valuation, position it well for future success despite its tough competition and significant risks.
Wengen Ling
Chinese electric vehicle maker XPeng (NYSE:XPEV) (OTCPK:XPNGF) has multiple, strong, positive catalysts. Among these drivers are the continuing enhancements of its advanced driver-assistance system (ADAS) and its growth in overseas markets.
Given the tremendous potency that these drivers will likely have in the coming years and the low valuation of XPEV stock, I recommend that long-term investors buy the shares at this point.
Impressive Q2 Results and Guidance
XPeng reported very strong second-quarter results on Aug. 20 as its deliveries jumped 30% in Q2 versus the same period a year earlier to 30,207, while its revenue soared 60% year-over-year to $1.12 billion. Moreover, primarily due to cost-cutting and the revenue that XPeng received from Volkswagen (OTCPK:VWAGY), the Chinese automaker’s gross margin jumped 17.9 percentage points YOY to 14%. XPeng and Volkswagen have a “strategic technical partnership.”
On the guidance front, XPeng expects to hand over 41,000 to 45,000 EVs in Q3, representing a big improvement versus the 30,207 deliveries that it reported for Q2. Moreover, the automaker expects to reach an all-time delivery record in Q4.
The Street appeared to be somewhat disappointed that the midpoint of the guidance range was below analysts’ average estimate of 44,727 units, as the shares fell in the wake of the automaker’s report. In Q3 of 2023, the company delivered 40,008 EVs.
So XPeng is clearly growing significantly, despite the meaningful problems facing the Chinese economy and the Chinese auto sector, along with the tough competition in the space. Further, its revenue and margins are increasing very rapidly.
Even with the macro hurdles that the company is facing, the ADAS upgrades and the momentum of its export business, along with its launch of a new, very affordable EV this month, should enable it to easily meet its Q3 guidance.
ADAS Improvements
As of July 30, the automaker’s XNGP ADAS system works “on all public roads for all users” in China, CEO Xiaopeng reported during the company’s earnings call held on Aug. 20. According to Xiaopeng, XPeng is the first automaker to reach the latter milestone in China.
The system enables drivers to take their hands off of the steering wheel for significant periods of time, changes lanes automatically, avoids obstacles, and largely drives on its own for long periods of time, similar to Tesla’s (TSLA) Full Self-Driving system. Since XNGP does not utilize maps in China, it works anywhere in the country by “relying on sensors like lidars and radars that detect real-time road conditions.” Earlier this year, Xiaopeng reported that the technology was “nearly road-ready for Europe.” The system would have to be approved by EU regulators before being deployed within the bloc.
On the company’s Q2 earnings call, the CEO asserted that “in the near future” XPeng would become “the world’s first auto company to deploy high-level ADAS” in a car that sells for about $20,000. What’s more, by the second half of 2025, drivers will only have to take over for XPeng’s ADAS system once in several hundred kilometers in urban areas, Xiaopeng stated, calling such a development “groundbreaking.”
Finally, utilization of XPeng’s ADAS system has risen at least 20% since it began providing nationwide coverage on July 30 and, unlike in the past, all prospective buyers in the country can try out XNGP during test drives, the CEO noted.
Last month, DigiTimes Asia stated that XPeng, along with Baidu (BIDU), is a leader in China’s autonomous driving technology. Baidu is not an automaker, but a robotaxi operator. What’s more, the publication reported that XPeng’s offering was “comparable to Tesla’s Full Self-Driving (FSD).” DigiTimes did not make a similar statement about any other Chinese automaker that it mentioned. This suggests that XPeng is meaningfully ahead of its Chinese competitors when it comes to ADAS, since Tesla is considered to be a very advanced player in the space. Further, XPeng is the only Chinese automaker whose ADAS system provides nationwide coverage, according to South China Morning Post.
In March, tech news outlet Wired reported, after testing XPeng’s ADAS in its G6, that the system didn’t require “any interventions” by the driver when traveling between two cities. The author did not make similar assertions about the ADAS offerings of two of XPeng’s China-based competitors, NIO (NIO) and Li Auto (LI).
All of the advances in the company’s ADAS system, the fact that it’s clearly one of the leaders in ADAS in China, and the firm’s ability to include the technology in low-cost vehicles in the future should tremendously increase the demand for the firm’s EVs. That’s because driving can be very difficult and stressful, so consumers will be eager to purchase low-cost vehicles that will enable them to spend less time and effort on the activity.
Export Growth and New EVs
Very impressively, last quarter XPeng was the leader among all Chinese EV makers when it came to exporting “mid to high-end all-electric vehicles” or EVs with a price above $30,000, Xiaopeng reported. Moreover, for the first time, XPeng in Q2 generated over 10% of its total revenue from overseas deliveries, and its G9 was the top-selling EV in the mid to large-size SUV category in Norway, Denmark, and Israel. The EV was also in the top three in its category in Sweden and the Netherlands.
Meanwhile, starting in August, XPeng intends to launch deliveries of its G6, a coupe SUV which can be charged from 10% to 80% range in under 20 minutes, in many countries and regions. Xiaopeng stated that the demand for the EV overseas has had “very strong momentum.”
In the second half of the year, the firm is looking to enter the UK, Australia, and “several nations in Southeast Asia,” and it will seek “to double the number of XPeng branded international sales stores in the second half of 2024.”
In light of the considerable success that the company has already had in overseas markets and the fact that it is poised to enter additional foreign countries, I expect exports to help meaningfully boost its top and bottom lines going forward.
Valuation and Risks
XPEV stock is changing hands at a forward Enterprise Value to Sales ratio of 0.85. That’s well below the Sector Media forward EV/Sales ratio of 1.22.
Since XPeng is not yet profitable on the bottom line, I believe that using its revenue to value the shares is a logical approach at this point. Enterprise value provides a fuller picture of companies’ true worth because, unlike market capitalization, it takes into account cash and debt.
As for risks, XPeng faces tough competition both in China and overseas from EV makers Tesla and BYD (OTCPK:BYDDY). Additionally, many veteran automakers, such as General Motors (GM) and BMW (OTCPK:BMWYY), have entered the Chinese EV market to a large extent. If these competitors’ ADAS offerings advance a great deal beyond XPeng’s, the latter company’s EVs would lose much of their appeal, and the company’s financial results would likely deteriorate meaningfully, causing the stock to follow suit.
Also, importantly, prices in the Chinese EV market have been dropping and the country’s economy has been slowing meaningfully. If the prices drop by large amounts versus their current levels and/or China enters a recession, XPeng’s revenue would probably fall sharply, causing its stock price to drop a great deal.
Finally, XPeng has been hit with tariffs of 30.8% by the EU. The company is considering attempting to avoid the surcharge by building “a manufacturing base in Europe.” If the latter strategy is not successful, the company’s overseas sales will probably not grow as quickly as I expect, and the stock may only perform in-line with the stock market.
Analyst’s Disclosure: I/we have a beneficial long position in the shares of XPEV, BYDDY either through stock ownership, options, or other derivatives. 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.
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