Scattered throughout the rather disorganized office of FBI Special Agent Fox William Mulder is a curious poster. Above the tree line hovers a flying saucer with the bolded text declaring, “I want to believe.” Well, I want to believe in Xpeng (NYSE:XPEV), China’s answer to the soaring popularity of Tesla (NASDAQ:TSLA). The problem is, XPEV stock strikes me as much as stories of alien abductions might strike many of you.
We’ll get into that. But first, let’s give credit where it’s due. As with most electric vehicle upstarts, Xpeng has brought to the showroom some very attractive cars. Granted, they’re shameless carbon copies of Tesla’s design motifs, both inside and out. But setting that aside, Xpeng has some elements that make it distinct. I’m not sure that alone is enough to buy into XPEV stock but at least you’ll look good wherever the shares take you.
Second and more importantly, Xpeng understands that to truly make EVs mainstream, you’ve got to do something about the darn price. I get that everybody’s excited about the Tesla Model 3. But I’m sorry folks – the federal tax credit for EV manufacturers was first depleted by Tesla. That means, at the cheapest, people are going to spend $35,000 or so for a car.
Now, I don’t know what kind of world that people live in but that’s extremely expensive for most households. On a five-year plan without considering tax, license and registration, you’re looking at close to $600 monthly payments. Given that the median household income in the U.S. is $68,703, that’s not enough to comfortably buy a $35,000 car.
Fortunately, Xpeng gets it. The company’s starter vehicle is priced around the low $20,000 range. Move on up to the luxury P7 and you’re talking around $35,000 – competing directly with Tesla’s economy model. If Xpeng can genuinely offer these prices and deliver reasonable reliability, XPEV stock can skyrocket.
But that, my friends, is a gargantuan if.
XPEV Stock and the China Problem
According to U.S. News & World Report, the 2020 Mini Cooper SE Electric Hardtop is the cheapest EV you could have bought this year. Starting at a price of just under $30,000, you can essentially get the car for under $23,000 because this qualifies for the federal tax credit. Of course, with such a low price, it comes with some drawbacks; namely, relatively poor range at 110 miles.
This got me thinking about XPEV stock. You see, Xpeng’s cars are not only low cost but they also lever massive range. It’s quite literally the perfect EV for the everyman. So, why isn’t it priced into the stratosphere?
Sure, you can say the market is being irrational and that this is a once-in-a-lifetime opportunity. However, I’m skeptical. When something’s too good to be true, it usually is. And in this case, I don’t trust Chinese manufacturing prowess.
I acknowledge the Chinese government has done a great job of disseminating propaganda throughout the blogosphere. But if Chinese manufacturing were really top-notch, their quality control issues in the fight against the novel coronavirus contradicted the nonsense.
Still, let’s assume that Chinese manufacturing quality is on par with its Korean and Japanese rivals. The other problem is that EVs appear to be highly dependent on government subsidies. After all, the prices that I quoted above for Xpeng’s vehicles are post-subsidy.
This is significant because I’m not sure how long China or any country can keep paying people to buy EVs. Further, the issue is even more pressing when you consider that since 2018, global EV sales have slowed substantially, almost demonstrating an S-curve maturation dynamic so early into the game. At the same time, battery costs have never been lower.
What’s causing the lack of enthusiasm? Even with the subsidies, Xpeng vehicles are expensive, considering that they’re an unknown commodity. But without the subsidies, they’re far too expensive for the average household.
Litigation Issues on the Horizon?
Finally, XPEV stock may be vulnerable to future litigation. As I mentioned above, Xpeng is a carbon copy of Tesla. Further, Tesla has already cried foul that Xpeng stole its Autopilot source code by hiring a former Tesla engineer that downloaded the code to his personal device.
As Electrek points out, Xpeng until recently was tied exclusively to the Chinese automotive market. Therefore, enforcing intellectual property rights was going to be extremely difficult. That said, Xpeng has started to deliver vehicles to Norway under plans for a broader European expansion.
Could Xpeng’s global ambitions cause a legal liability, where western countries do care about intellectual property rights? I’m no expert in the field but I imagine that Tesla doesn’t want what’s basically a Chinese copy of it to cannibalize sales. Therefore, I see headaches for XPEV stock down the road.
While I don’t want to sway anyone from a possible opportunity, I believe there are too many questions marks surrounding Xpeng. Besides, if you’re really into EVs, there are so many choices available. Thus, XPEV stock is a pass for me.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
