XPeng Stock Had a Wild Run, but It Looks Ready to Top Out Here

XPeng (NYSE:XPEV) did not attract many buyers when the company started trading publicly. XPEV stock held the $20 level for only a few weeks and by mid-October, buying volume intensified.

Image of Xpeng's (XPEV) G3 electric SUV outside a mall in China

Source: Johnnie Rik / Shutterstock.com

The frenzy continued through the end of November when the S&P 500 said it would include Tesla (NASDAQ:TSLA) on the index. XPEV is knocking on $50 today.

Analyst gushed over Tesla’s prospects, leading investors to bet on the next big electric vehicle stock. After posting strong deliveries, markets bid XPEV stock to all-time highs. Bulls have many things to like about XPeng.

XPEV Stock Shines in November

XPeng returned double for investors in the last month. Early profit-taking for Chinese EV firms weeks before that did not last.

Trading volume intensified after the company updated its fans about its next-generation autonomous driving architecture. XPeng will equip its EVs with light detection and ranging systems in 2021. This improves its autonomous driving (“ADAS”) technology and differentiates its superiority to Tesla’s self-driving technology.

Tesla’s self-driving relies on cameras and radar, while XPeng will use Lidar, or light detection and ranging. So, instead of using radio waves, the ADAS will use light, increasing precision.

Elon Musk called lidar “a fool’s errand.” Despite creating higher image detail, the technology costs more. Xpeng said its adoption will increase the accuracy of vehicles sensing things around it. This will help it avoid collisions.

Strong Third-Quarter Results

XPeng listed its company public at the perfect time. While Chinese competitor Nio (NYSE:NIO) struggled during the Covid-19 lockdown in China earlier this year, XPeng did not face the same stock volatility. It posted Q3 revenue more than tripling to $293.1 million, up 342.5% year-on-year.

XPeng delivered 8,578 vehicles, up 265.8% from last year and

 

up 165.7% sequentially. Savvy investors will look beyond the impressive revenue and notice that the company lost 75 cents on a GAAP basis. It missed analyst estimates by 57 cents.

Furthermore, the company’s gross margin was only 4.6%.

Still, this is better than the negative 10.1% last year. Plus, vehicle margin, or gross profit of vehicle sales as a percentage of revenues from vehicle sales, was 3.2%.

Investors are betting that the days of negative vehicle margin and negative gross margin are over. As sales continue growing at a faster pace, XPeng will eventually post profits.

Positive Catalysts

XPeng announced in its Q3 press release that it is developing a Smart EV manufacturing base with Guangzhou GET Investment Holdings. EV production will start by Dec. 2022.

This will give XPeng the facilities needed for research and development, manufacturing, vehicle testing, and sales. And because it also owns a plant in Zhaoqing, Guangdong province, it will have an annual production capacity of 100,000 units.

Investors may infer that if 8,578 deliveries generated $293.1 million in revenue, then 100,000 deliveries would bring $3.42 billion in revenue annually. XPeng is a long way from reaching its maximum capacity.

Risks to XPEV Stock

Investors are extrapolating annual sales in the multi-billion-dollar range too soon. XPeng must compete with Nio in China and Tesla worldwide. For example, it began exporting EV SUVs to Europe, loading them at Xinsha Port in Guangzhou on Sept. 24.

The U.S. gave XPeng a test permit for U.S. roads earlier this year. If its initial public offering on the U.S. exchange is a preliminary indication, it may start exporting EVs to the region.

XPeng is not big enough yet to expand globally. It needs to dominate the domestic market first. And as in invests the cash proceeds raised from the IPO, it may build brand awareness globally. From there, it will have pent up customer demand, growing its revenue as it sells more EVs worldwide.

Your Takeaway

The month-long rise in EV stocks is nothing new. Speculators bid the sector higher in the summer. Buying interest should continue, thanks to XPeng’s strong results and Tesla’s inclusion in the S&P 500.

Investors still need to watch out for heavy profit-taking. If that happens, get ready to lock in profits or keep holding, betting on new highs into 2021.

Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.


Article printed from InvestorPlace Media, https://investorplace.com/2020/12/xpev-stock-wild-run-it-looks-ready-to-top-out/.

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