XPeng Motors, Buy Rating?

XPeng is a leading Chinese smart electric vehicle (EV) company that designs, develops, manufactures, and markets Smart EVs to consumers in China. Its mission is to drive Smart EV transformation with technology and data, shaping the mobility experience of the future. XPeng develops autonomous driving technology and their in-car intelligent operating system, as well as core vehicle systems including powertrain and the electronic architecture.

As stated on their website, “Headquartered in Guangzhou, Xpeng Motors is one of China’s leading smart electric vehicle company. We design, develop, manufactures and market smart EVs that are seamlessly integrated with advanced Internet, AI and autonomous driving technologies. We are committed to in-house R&D and intelligent manufacturing to create a better mobility experience for our customers.”

XPeng currently has 3,676 employees and a whopping 43% work in their R&D department. This demonstrates the type of innovative company they are. They were founded in 2014 and have gone through some rapid growth and are extremely ambitious in their mission to shape the future of EV. They are backed by large investors including Alibaba, Qatar Investment Authority, FoxConn and IDG Capital. In August 2020, they listed on the NYSE via an IPO to raise $1.5bn and at the time of writing their market cap is $13.5Bn.

Xpeng currently has two cars on the market, the G3 SUV and the P7 Sedan, which competes with the Tesla Model 3, one of their main competitors. They currently sell their vehicles exclusively to the Chinese market but plan to export their vehicles to Europe and the US. They have recently sent 100 vehicles to be sold in Norway.

Xpeng is arguably at the forefront of EV technology advances as demonstrated when they recently revealed their concept human-carrying flying vehicle. This vehicle (or drone) can reportedly hold up to two passengers (looks like only one will fit to me) and flies at an altitude ranging between 5–25metres.

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Vehicle Drone From XPeng

In an interview their President and Vice Chairman, Brain Gu said the following, “This is a long-range R&D exploration for us to really think about mobility in a greater context. We think in the future not only electric vehicles will have the smart mobility autonomous driving features, but with other technology, enable other devices that can create a multi-dimensional ecosystem, that will be very exciting. That’s why we are investing in that area and doing some exploration.”

Xpeng also stated that they will review the demand for such vehicles before committing to any substantial investment. Regulation continues to be a major hurdle for the development of human-carrying drones and self-driving cars, however, such concepts demonstrate XPeng’s willingness to think outside of the box and look for answers that could pave the future of the industry.

XPeng is also without their controversies, Tesla recently accused one of their former employees of stealing their Autopilot source code before joining XPeng’s autonomous driving division. Although the ex-employee admits to downloading some of the code they have denied selling or transferring the code to XPeng.

Fundamentals

From a fundamental standpoint, XPeng is certainly more attractive when viewed on its future potential rather than how well it is performing now. Traditional metrics don’t make great reading, for example, share price v fair value shows that XPeng is 63% overvalued, it is forecasted to remain unprofitable for the next 3 years and it currently has a 75% debt to equity ratio. However, its revenues are forecast to grow 52% year on year and they just announced record sales for the month of September with a 145% increase on last year and 266% increase in Q3 from last year’s Q3. This shows the company is moving forward with its ability to deliver EVs in China and it is also expanding its manufacturing capacity with a new plant due to open in 2022. They also announced they have shipped 100 G3 vehicles to be sold in Norway, their first venture into Europe, with deliveries due to take place from November.

Technicals

As forementioned XPeng only recently listed on the NYSE so there is little in the way of technical analysis for their share price. It did have a great start to life as a publicly listed company rallying 40% in the first day after listing at $15 per share and closing at $21 on the 27th August 2020. Since then, it has cooled off after reaching a high of $24 and is currently trading at $20 per share. Current broker ratings we’ve found are 4 buy ratings with 12 month target price ranges from $25 (UBS) to $27 (JPM).

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XPeng Share price

Evaluation

XPeng is an exciting innovative company who are on a mission to shape the future EV market by developing smart AI-driven vehicles. They are looking to expand outside of China and it will be interesting to see if they can make a successful move into the US market and Europe. The competition for EV in China is certainly hotting up with the likes of Tesla, Nio and Li Auto whom are Xpeng’s main competitors so being able to compete outside of China will certainly make them more attractive in the long term. However, a lot may depend on the potential tariffs slapped on China exports to the US unless a trade deal is made.

They invest heavily into R&D which can be a double-edged sword as it can be capital intensive and costly if the R&D never amounts to any sales, however, if successful it may keep them above the increasing competition as required in this ever-growing industry.

It is certainly one we are keeping our eyes on and could be a big auto EV name in years to come.

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