According to South China Morning Post, green vehicles will comprise 20% of the cars on the roads in China by the end of 2025. As a China-based electric vehicle creator, Xpeng (NYSE:XPEV) is one of the few companies that’s best positioned to take advantage of this growing trend in the country. It has proven itself as a strong competitor to better-known names in the market like Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO). And with the backing of Alibaba (NYSE:BABA), there’s plenty more reason to have continued faith in Xpeng stock in 2021 and beyond.
In fact, the stock has seen a 16% rise since the start of the new year.
Xpeng has a positive outlook based on strong delivery numbers and capacity expansion plans, which can provide it with a competitive edge in the EV industry. 2021 will be a strong year for the stock’s growth as the deliveries continue to grow and the company expands into new markets in Europe. Production capacity expansion will drive the growth rate higher in the coming year.
But, as great as all of this is, there’s another important catalyst that investors should consider. Let’s take a closer look at the increasingly bullish case for Xpeng stock.
The Research & Development Looks Promising
Xpeng takes R&D seriously and that will pay off in the long-term. The company incurred R&D expenses of $93.6 million in Q3 of 2020, which is a 46.1% increase from the same period in 2019. Much of the expense is attributed to the development of its P7 Smart EV. On the other hand, its rival NIO invested $87 million in Q3 2020 towards R&D — a 42.4% decrease from the same period in 2019. It clearly shows that the company has poured a huge amount of money into innovation. While there is not a large difference between the R&D costs of the two companies, Xpeng’s focus here should give room for further innovation as the company continues to raise cash and invest in the right technology.
The R&D investment will make way for Xpeng to grab a larger market share and it is already showing results in the form of upgraded technology and features in its vehicles. The company recently announced that it has upgraded the hardware and software systems for the 2021 models with the introduction of Lidar systems. Lidar is a technology that is used with autonomous driving. This will give the company a competitive edge in the industry and help differentiate it from Tesla.
Further, XPEV unveiled the beta version of the Navigation Guided Pilot, which is a hands-free highway driving system. This will also help it compete with Tesla. Specifically, the new system requires minimal driver interaction compared to its rivals’ systems and it can cover different driving scenarios. It is a driving function of XPILOT 3.0 and will be rolled out in coming few months. Interestingly, Xpeng recently also announced that it is the world’s first automaker to use Amap’s 3rd generation in car navigation system. Its P7 smart EV sedan will have a Surrounding Reality display that no other EV maker has offered yet.
Innovation is clearly paying off for Xpeng stock investors and the company more broadly.
Furthermore, the cash that it holds will further enable it to be a key innovator in the EV space. Specifically, the company holds $2.9 billion in cash and it raised another $2.2 billion through a share offering. Further, the company recently signed an agreement with five Chinese banks to secure $2 billion credit facility for its expansion plans. It has adequate cash and the intention to take research and development higher.
This is a wining combination that should ensure its path toward long-term success.
The Bottom Line on Xpeng Stock
The company enjoyed recognition and appreciation for its design and manufacturing of new vehicles with Lidar. Despite the heavy competition in the industry, Xpeng is dedicated to R&D, which will allow it to expand the market share in the coming years.
Xpeng is clearly a strong player in the EV industry and will continue to remain strong in 2021 as the demand for EVs continues to grow. The company is already competing significantly with NIO and its technological advances will continue to strengthen its position in the market.
You do not need to worry much about the prospects of XPEV in the long term. It is a perfect EV stock that will be a solid long-term addition to your portfolio.
On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article.
