Electric vehicles are rolling off the assembly lines at hyperdrive speed, at least in the fantasies of bullish investors. But these same folks can be highly fickle and impatient, especially those who’ve test-driven XPeng Inc. (NYSE:XPEV). Since it debuted in late August, XPEV stock has enjoyed a massive spike and endured a nauseating drop – all since Nov. 1. Granted, those who got in on the ground floor are still 280% better off. But just hours before Thanksgiving, it was more like 622%.
Wow. If XPeng’s sporty P7 sedan can handle those kind of peaks and valleys, they’re onto something. And yet, factoring this company into the EV picture isn’t easy. That’s because making sense of the sector requires enough pretzel logic to fill a suitcase with Rold Gold Tiny Twists.
First: It doesn’t matter whether the company turns a profit. Almost none of them do, including XPeng. Second: You don’t even have to build any actual cars. Just ask the folks at Nikola Corp. (NASDAQ:NKLA) and Fisker (NYSE:FSR). At least XPeng has produced thousands of those. And third: EV investment is megawatt hot despite all this. What took Ford (NYSE:F) a century to build in market valuation (now $35.3 billion) has been doubled in just six years by another Chinese EV maker, Nio (NYSE:NIO). It’s currently worth $71.4 billion, according to the Wall Street Journal.
Clocking in at a mere $30 billion, XPeng isn’t exactly a slacker. But given the recent steep downturn of XPEV stock, it’s time to see just what kind of mileage the EV company can expect to get in 2021.
The XPEV Stock Slide Explained
So why did XPEV stock slice off almost half its value in a month? Those holding tight with their investment have reason for concern. The plummet has been straight down. Uninterrupted. And without little things to look at like, oh, company profits, it’s job one to determine the causes. Investor jitters? Jitters about investor jitters? A rotten rating from a pompous pundit?
Nope, nope and nope. As if we didn’t have enough mayhem coming from Washington D.C. these days, the U.S. House of Representatives passed a bill in mid-November that could force Chinese companies to delist from American exchanges unless regulators can review their financial audits. It’s taken some time for the aftershock to be felt. But as the investment data analysis firm Trefis contends, “The increased regulatory burden likely hurt Chinese stocks such as XPeng.”
Yet some of the skidding has a silver lining behind it. Some 48 million new shares of XPEV stock hit the Street this month, slightly discounted from the normal market price. Short term, this applies downward pressure; longer term, it gives the company more than $2 billion to play with. It could be used as a cash cushion, funding for future initiatives or both.
All Eyes on the P7
While you can’t buy one here – XPeng has no formal plans to sell cars in America – the P7 has been turning many heads since it hit the Chinese market on June 29. Sleek and luxurious, this four-door fastback sedan was brought to life by French designer Rafik Ferrag. And it’s been a hit, with more than 11,300 vehicles sold to date.
While those kinds of numbers alone won’t thrust XPEV stock into the stratosphere, the P7 gives the company some valuable PR and street credibility. Given how crowded the EV field is getting, those positives can’t be underestimated. That noted, the one positive that would really sweeten the deal here would be positive earnings. Profits. How close is XPeng to rolling some of that off the assembly line?
Right now, earnings per share for XPEV stock stand in the red by 72 cents. Analysts expect that to drop to a $1.24 loss per share in the first quarter of 2021. But given those pretzel logic rules we reviewed earlier, seven of 11 analysts call XPEV a buy. I know, I know: I should be confused, but I just keep repeating “pretzel logic, pretzel logic” to myself. There, now I feel better. For taking a closer look, I see at least two analysts have in the last month labeled it a sell, where none existed before.
Norway and the World Eyes the G3
While 100 may not sound like a huge number, the folks at XPeng certainly treat it that way. It’s the number of G3 SUVs that the company shipped to Norway this month. It marks the automaker’s first foray into the European market and if all goes as planned, it will pave the way for larger and more frequent European shipments. France might be a logical next step, given the P7’s connections to Ferrag and the press buzz a delivery there could create.
This suggests to me that XPEV stock is a longer play than many EV investor acolytes would like it to be. If you think about it, 100 cars isn’t 100,000. Duh. But you’d be surprised how quickly the EV groupies forget this as they sniff around for the next 1,000% share price jump. The company is building up to something in Europe and those vehicles delivered to 28 Norwegian cities plant a stake in the ground.
Seeing this and betting on it requires patience. The irony here is that speculators and lemmings have bid up XPEV stock to breathless levels. But the real value will come in watching the stock grow over months and years as the company matures, enters new markets and pulls on to the High-Profit Expressway. Whether the bulk of current XPeng investors sees this, or wants to, is a different matter. At any rate, it’s what I see. And as long as I’m piloting my investment vehicles long distance, I’ve got to keep my eyes on the road.
On the date of publication, Lou Carlozo held a long position in NIO.
