With China pushing the EV market into higher growth, can XPeng Motors stand out from the crowd, and is it a good investment right now?
Xiaopeng Motors (NYSE: XPEV) is another EV maker based in China. It serves as a competitor to both Tesla and NIO. XPeng went public in the U.S. last August and earlier this month it just went public in Hong Kong.
XPeng, NIO, Li Auto, and a host of other companies currently make up the growing group of Chinese EV businesses. As China pushes for a total reduction of carbon emissions by 2060, new policies are making it easy for electric cars to outpace the problematic combustible engine versions, with subsidies to encourage EV adoption throughout the population.
But can XPeng Motors stand out from the crowd and is the company a good investment?
The bull case for XPeng
Since 2018, XPeng has produced two electric vehicles, the G3 SUV and the P7 Sedan. These two cars are strikingly similar to Tesla’s Model Y and Model 3 Sedan respectively. More recently, however, the company announced the price of its newest, soon-to-be produced sedan, the P5, which will undercut Tesla’s sedan price. With a starting price of $24,700, the car will make use of XPeng’s advanced self-driving tech. Bringing out another sedan to compete with Tesla’s range as well as NIO’s shows that the company means business.
XPeng posted record delivery figures in June coming in at 6,565 deliveries, an increase of 15% from May, beating its guidance. Indeed, globally, EV sales are expected to grow 70% in 2021 alone, whilst in China that growth is expected at 30%. With almost half the electric cars in the world being produced by a Chinese company, there is plenty of room for XPeng to grow.
XPeng is no stranger to automotive technology. In the past, the company operated in the U.S., having previously held a permit to carry out self-driving tests on its cars. Its expertise in this area will allow the company to compete with some of the bigger self-driving EV players in the market.
XPeng Motors previously owned a subsidiary in the U.S. With this link, there is every possibility that this southern Chinese car company will expand beyond Europe and China, selling cars state-side. Particularly when its IPO last year brought in $1.5 billion.
The bear case for XPeng
XPeng is currently overvalued on a revenue basis, it is currently trading at around 20x predicted revenues. Even if it reaches analysts’ goals by the end of the year, you will still be paying an inflated price for it.
Outside of any unpredictable disaster in the electric car world, XPeng, NIO, and other start-up EV makers are certainly going to be around for a while. Unfortunately, Tesla’s overhyped valuation is a hindrance to other EV stocks, inflating them past their current worth. Yet, this could also be an opportunity as the Chinese government has put the accelerators on its industrial EV policy, creating new and interesting companies such as XPeng and NIO.
On a different note, 2021 has seen the stock market move away from growth stocks and focus instead on cyclical stocks. With electric vehicles firmly residing in the growth category of the stock market, this could present a challenge for investors as the companies stock price might not grow as quickly as other more traditional areas of business.
So, should I buy XPeng stock?
XPeng is a very interesting company with plenty of potential. Whilst NIO seems to be taking the stock market by storm, XPeng provides the same service in the same markets, at a much more discounted price. The electric, self-driving trend is only going to grow over the next 5-10 years, so this company is definitely a stock to add to your portfolio.
He Xiaopeng is the founder and CEO of Xiaopeng Motors. The company takes his name.
- Is XPeng backed by the Chinese government?
In September, XPeng received $76 million in financing from an arm of the government in the southern Chinese province, Guangzhou.
No, but Tesla did settle a lawsuit against a former engineer who quit Tesla to join XPeng. Tesla claims that the engineer stole its autopilot source code.
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