Since peaking in November 2020, XPeng (NYSE:XPEV) continues to drift lower. XPEV stock is faring worse than its peer, Nio (NYSE:NIO). The stock is performing as poorly as Li Auto (NASDAQ:LI).
What happened?
XPeng posted strong delivery figures last month. The triple-digit year-on-year increases used to lift the stock. But that is no longer the case. Investors are now scrutinizing XPeng’s path to profitability. They are also watchful of the semiconductor chip shortage which is hurting output.
XPEV Stock Dive Likely To Continue
XPeng posted 5,147 vehicles delivered in April, up 285% Y/Y. Year-to-date, it delivered 18,487, up by over four-fold year over year. Instead of the stock rallying, markets yawned over the results. Investors are ignoring the expanded portfolio. This includes XPeng starting to deliver the P7 Wing edition. While the automotive enthusiast will love the Wing doors, shown here, investors are dumping the stock.
Short-sellers are firmly in control. The stock’s fade will benefit bears, who have a short float of 39%.
XPeng also added the lithium iron phosphate (LFP) battery-powered G3 last month. Despite the chip shortage, it will start selling the LFP model this month. The LiDAR-equipped P5 sedan is XPeng’s third production vehicle. The company cited “robust feedback” for the vehicle’s user-centric features.
When the software experience in electric vehicles matters, XPeng is on the right track. Customer satisfaction will continue growing, driving unit sales. It will launch the P5 in the third quarter. Deliveries begin in fourth quarter 2021.
Fading Opportunity
XPeng’s records for longest autonomous drive, posted on March 31, is but a distant memory. The XPeng P7 fleet drove over 3,600 kilometers from Guangzhou to Beijing. Its 0.71 human driver interventions per 100 km is a notable achievement. Still, a driver needed to overtake the automation driving system to make corrections. XPeng did not detail when those happened.
XPeng shares rallied from around $30 to peak at $40 after the autonomous drive story. XPeng’s impressive achievements will do little to shake out the bears. Furthermore, Reddit’s infamous WallStreetBets short squeeze in late January is unlikely to repeat. The site’s moderators are banning and deleting any posts that try to ignite a squeeze.
XPEV Stock: Positive Developments
On April 15, XPeng announced a partnership with Zhongsheng Group. It will establish a long-term strategic partnership “to provide both XPeng’s industry-leading Smart EV products and Zhongsheng’s high quality services to consumers, in order to further accelerate the Smart EV adoption in China.”
XPeng needs the dealer network to grow its sales opportunities. Zhongsheng’s network will lower XPeng’s operating costs in two ways.
First, it may drive electric vehicle (EV) sales from the network. Second, it may provide vehicle services. If XPeng drastically lowers its costs in the near term, it may give up some operating profits. This is a worthwhile trade-off.
XPeng needs to find a path to profitability soon.
XPeng’s new smart EV manufacturing base in Wuhan is a good strategic move. It will build a Smart EV manufacturing base with an annual capacity increase of 100,000 units. The area will take over 733,000 square meters. XPeng will build powertrains, as well as support research and development efforts at this location.
Chairman and CEO of XPeng He Xiaopeng said, “Wuhan’s strategic location as an auto manufacturing and distribution hub will further enhance our supply chain management, sales, and distribution network in the future.”
Patient investors who failed to avoid the negative momentum on XPEV shares should remain optimistic. XPeng continues to position itself strategically at the manufacturing and customer sales levels in China. Its stock valuation of over 20 times sales remains a near-term headwind.
XPEV Stock: Your Takeaway
XPeng is at risk of re-testing lows in the weeks ahead. The short-sellers have control of the bearish narrative. It will take a strong earnings report and a strong outlook to reverse that. The chip shortage limits XPeng’s short-term prospects. That supply problem will ease by next month. And when it does, XPeng will start to trend higher.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.
