Introduction

In the highly competitive automobile sector, XPeng Inc stands out with its innovative approach to smart electric vehicles (EVs) in China. However, the path forward isn’t without hurdles. In this detailed analysis, we delve into the company’s recent performance, financial health, and strategic outlook.

Company Overview

XPeng Inc, a prominent player in the electric vehicle landscape, develops, manufactures, and sells smart EVs under the XPeng brand. The company’s stock, listed under the ticker 9868 HK, is part of the automobile sector and has shown significant volatility in its share price over the past year.

The major shareholder, Mr. He Xiaopeng, holds a substantial 20.4% stake in the company. Despite a turbulent market, XPeng’s stock has seen a 22.4% increase in the past month, although it has faced a 20.3% decline over the past year.

Financial Performance

XPeng’s 3Q24 results revealed a net loss of Rmb1,808 million, which was a 53% year-on-year decrease but a 41% quarter-on-quarter increase. This figure was better than the company’s own estimates but fell short of consensus expectations. The company’s revenue, particularly from services and gross margin, showed positive surprises.

For the fiscal year 2024, the company has revised its net loss estimates to Rmb6,679 million, a reduction of 14% from prior projections. The forecast for 2025 and 2026 also sees trimmed losses of Rmb5,487 million and Rmb4,229 million, respectively. Despite these reductions, the outlook remains challenging due to flattened sales and increasing competition in the EV market.

Strategic Insights

XPeng has adjusted its strategies to cope with market dynamics. The company has raised its Average Selling Price (ASP) assumptions for 2024 to 2026 based on higher-than-expected ASP in the third quarter of 2024. The gross margin assumptions have also been lifted, reflecting a more optimistic view of future performance.

Management guided for 4Q24 deliveries between 87,000 and 91,000 units, highlighting optimism about new models like the M03 and P7+. However, these models face tough competition from established players like BYD and Geely.

Valuation and Recommendation

Despite the strategic adjustments and revised forecasts, the recommendation remains to maintain a SELL position on XPeng. The target price has been adjusted upwards from HK\$25.00 to HK\$35.00. This valuation is based on a 10-year Discounted Cash Flow (DCF) model, with a Weighted Average Cost of Capital (WACC) of 14% and a terminal growth rate of 4%.

The revised target price aligns with a 2.5x 2025 forecast Price to Book (P/B) ratio and a 1.5x 2025 forecast Price to Sales (P/S) ratio. The persistent challenges in sales momentum and competitive pressures underpin this cautious outlook.

Key Financial Metrics

The financial metrics paint a picture of a company grappling with profitability and growth challenges. A deeper dive into the financials reveals:

• Net turnover projections for 2024 stand at Rmb40,974 million, growing to Rmb56,628 million by 2026.
• EBITDA is forecasted to improve from a loss of Rmb8,782 million in 2023 to a loss of Rmb1,689 million by 2026.
• The net margin is expected to improve, albeit remaining negative, from -33.8% in 2023 to -7.5% in 2026.

Conclusion

XPeng Inc continues to navigate a complex landscape marked by competitive pressures and evolving market dynamics. While strategic adjustments have been made, the company’s path to profitability remains fraught with challenges. Investors are advised to maintain a cautious stance, as XPeng strives to solidify its position in the rapidly evolving electric vehicle market.