Update XPeng(XPEV) 2021-07-15

China is quickly emerging as an EV hotspot, possessing a highly fragmented market with many manufacturers all fighting for sales. But XPeng has a good position and I believe XPeng is a solid growth play and it's a good opportunity for long-term investors. NIO is the biggest competitor and has a more reasonable valuation for growth ahead.

Monthly deliveries for XPeng have come in strong even amid the chip shortage - 6,565 in June, 5,686 in May, and 5,147 in April - as the company witnessed m/m growth all through the quarter, unlike NIO. This is a new monthly record not just for total deliveries but for the P7, with it recording its best month since launch at 4,730 units. Quarterly deliveries rose to 17,398 units. While growth rates were impressive, at +459% y/y for 1H, +617% y/y for the month, and +439% y/y for Q2, XPeng had only just begun its production of the P7 in mid-May 2020 and did not complete its 10,000 unit goal until October 2020, so it isn't necessarily comparable. Yet the q/q growth of about 4,000 units is very impressive given the chip shortage.

What's impressive for XPeng is the pace at which it is growing deliveries - even with the later start to production compared to NIO, it's quickly catching up in terms of overall delivery numbers for the monthly and quarterly tallies. June and Q2's figures are just 19% and 21% lower than NIO's, meaning XPeng needs about 25% growth from current levels to match NIO. As XPeng continues to push its technological edge and broaden its vehicle lineup, with the limited edition P7 Wing and the upcoming G3i this week, it has the necessary catalysts to catch up to NIO relatively soon, as long as its production capacity enables it moving through 2022 and 2023.

Compare with Nio, In terms of the price, NIO's vehicles are priced at and above RMB350,000, while XPeng's are below RMB250,000. For technology, both companies have built highly advanced cars. XPILOT 3.0 (and 3.5 and 4.0), NGP (Navigation Guided Pilot) and Xmart OS are increasing the autonomous capabilities and cockpit intelligence, challenging the capabilities NIO brings to the table with Aquila and Adam. Both are working on level 4 autonomy, and XPeng's >40% employee focus in R&D does increase costs, but gives them the ability to offer advanced technology in a lower-priced vehicle

Risks

As for the risks, we see a couple of them. First of all, XPeng trades at a price-to-sales ratio of ~16x and could be considered richly valued at its current market cap of around $37 billion. For that reason, it's not a good investment for long-term value shareholders, and for those who don't want to expose their portfolios to Chinese assets.

In addition, there's a risk that the start of the potential China-US trade war could prevent XPeng from accessing the US capital markets, as its current shares could be delisted. To tackle this issue, the company just recently raised nearly $2 billion by executing another IPO on the Hong Kong stock exchange with a double main listing structure. This will help the company not only to have an access to the major capital market, but it will also give the Chinese mainland investors the ability to buy the stock through the Hong Kong Stock Connect, which should boost XPeng's valuation in the near future. On top of that, since XPeng's business doesn't have major exposure to outside markets, the blowback from the potential trade war will be minimal.

as has just been seen with Didi (DIDI), Beijing is stepping up with cybersecurity crackdowns related to collection, storage and usage of personal data. XPeng was one of the hundreds of apps that the Guangdong Communications Authority ordered to amend for those purposes back in January. It's also important to note that XPeng does exhibit a VIE, with the main entity incorporated in the Cayman Islands, with six other entities held by that entity located outside the PRC.

Overall, I believe that XPeng will be the biggest car manufacture in China, despite those risks. They are expanding the business outside of China. The company is tapping into Norway as the first market. It's low-priced car, so it's reflected in the revenue as not great than Nio. but It will be the right decision to make the company the positioning for the future.

 

https://seekingalpha.com/article/4438413-xpeng-leader-of-chinese-vehicle-electrification-efforts

https://seekingalpha.com/article/4438217-xpeng-stock-xpev-nios-biggest-challenger