In recent years one of the hottest themes on Wall Street is ESG investing. The idea of saving the planet is not new, but companies’ openly public commitment to it is. At the heart of it is the onslaught of electric vehicles (EVs) that is threatening to become the new norm. The internal combustion engine (ICE) has a serious fight on its hands. Companies like XPeng (NYSE:XPEV) and Nio (NYSE:NIO) are in the trenches of this battle. XPeng stock already shows scars but no battle fatigue yet. And it is definitely a wild one to watch.
Both of these companies and hundreds more are trying to bust through the door that Tesla (NASDAQ:TSLA) kicked open. The action in XPEV stock is dizzying but the bulls are definitely winning. It’s up 174% in three months.
One thing is clear now, EVs are here to stay. How much inroad they will make eating away at the ICE lead is not set. But since the world is producing only three million EVs versus more than 80 million ICEs, I’d say there is room for profit.
XPeng will have access to a huge addressable market for years to come. China’s market alone is massive and XPeng has good allies like Alibaba (NYSE:BABA) in its corner. It would take a colossal collection of mistakes or bad luck to mess this up.
The easy thesis on XPeng stock is to own it for the long term. This is easier said than done because of how fast it trades. It will take extreme intestinal fortitude to ignore the bad stints. I got my initiation into this recently by actively trading it. The breakout from $126 per share drew me in so I pounced long via XPEV call options. I timed it right because that darn thing delivered 20% in a flash. True to my style of trading, I booked the profits about five points early and high-fived myself.
XPeng Stock Is Volatile So Plan the Position Well
The important bit about this is that investors needs to know their goals. If the aim is to invest in the future then it is futile to try and surgically time the entry. Take a small piece of the total order now and add to it over time. The only reason you would sell is if the opportunity strays from your current reason to own XPeng stock.
Actively trading it is OK because it is an exciting ticker which offers a lot of opportunities. But for that purpose I suggest acquiring a few tools to better the odds of winning. The trading field is very competitive and the average retail investor is likely a step behind.
Long term, there will be ups and downs and managing the position on bad days is important. I do caution against averaging down; it is a bad idea on newer stocks like XPEV.
Don’t confuse this notion with my earlier suggestion of several entries. I don’t increase the maximum trade size that I intend to own. If I want to only own 100 shares total and I buy them all today, I don’t add on dips. In essence I don’t “double down” on my full position. Earlier I suggested taking smaller bites to start. In that scenario it’s OK to build upon it to get to the 100 share goal. Doing so spreads the same risk over time.
Among a sea of new-comer EV companies at least XPeng has models it can sell now. Their newer introductions include driver assist technology. This concept fits well with the new themes in auto tech and they are right there with it.
Just since November, XPEV stock rallied up 240% then down more than 50%, followed by +50%. Clearly you need a neck brace and a high tolerance for risk to own it.
Investors can make that easier by simply labeling it as a speculative trade. Every portfolio can benefit from having a small portion of risk. By definition those should remain small so that if they fail they don’t break the piggy bank, just hearts. In spite of its fandom, XPeng stock’s success is still iffy in the long run. Not all good ideas survive, history is full of sad stories of good things gone extinct.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.