This year has been a turbulent ride for electric vehicle (EV) companies, particularly the Chinese players. Xpeng (XPEV) stock, along with Li Auto (LI) and NIO (NIO), has taken a beating in 2024, with XPEV plunging by 46% and hovering near record lows.
Xpeng’s Fall in the EV Stock Market
The decline in Xpeng stock can be attributed to a widespread sell-off in the EV sector. Even Tesla (TSLA), a shining star in the industry, has seen a downturn, marking it as the worst-performing S&P 500 stock for the year. Factors such as the devaluation of Chinese stocks amidst the country’s economic slowdown and strained international relations have intensified the pressure on Chinese EV stocks.
Despite Xpeng’s disappointing Q1 delivery volumes, the company managed to double its deliveries in March, albeit staying below the 10,000 mark for three consecutive months. The shadow of market pessimism looms larger as Alibaba (BABA) steadily unloads its Xpeng shares.
The narrative around Xpeng in 2024 was initially optimistic, projecting a pivotal year for the company. However, a rough first quarter mirrored in the stock price has rattled investor confidence. Nonetheless, XPEV emerges as a compelling EV stock pick for April despite the industry’s short-term challenges.
XPEV’s Financial Resilience
While Xpeng’s recent delivery performance raises concerns, glimmers of hope shine through its financial reports. The company turned a corner by achieving a gross profit in Q4 2023 after grappling with negative gross margins for two consecutive quarters. Moreover, 2023 marked Xpeng’s maiden year of positive operating cash flows and subsequent positive free cash flows in the latter half of the year.
Xpeng’s pursuit of new models, including partnerships with Volkswagen (VWAGY) and Didi, coupled with an expanded collaboration with Volkswagen, signals a cost-efficient approach. A revamped dealership network and international expansion initiatives reflect the company’s resilience despite regulatory hurdles in Europe.
Why XPEV Emerges as a Compelling Investment
Amidst the ongoing upheaval in the EV landscape, XPEV stands out as an attractive opportunity post the recent market downturn. Here’s why:
- Xpeng’s upcoming model launches and partnership leverage are expected to drive a delivery rebound in the latter part of the year.
- The company anticipates revenue from platform and software services becoming a significant contributor to financial results by 2024, potentially leading to improved margins. Xpeng’s profitability target for 2025 aligns with its ambitious outlook, although analysts remain skeptical about meeting this goal.
- With $6.44 billion in cash, cash equivalents, and investments by the end of 2023, Xpeng boasts a robust financial position compared to its struggling counterparts. The company’s long-term debt of around $800 million underscores its ability to weather the EV industry slowdown effectively.
- At a next 12-month enterprise value-to-EBITDA multiple of 0.53x, XPEV trades at a considerably discounted valuation compared to Rivian and Tesla. This value proposition, coupled with strategic partnerships and a promising growth trajectory, positions Xpeng as a compelling investment choice amid the industry’s challenges.
In conclusion, Xpeng’s alluring valuations, strategic collaborations, strong product lineup, and robust growth prospects paint a promising picture, making it a standout investment option amidst the prevailing storm in the EV sector.