Chinese electric vehicle manufacture Xpeng (NASDAQ:XPEV), which is due to report its earnings later this month, just posted another solid month of deliveries. In April, the company’s 5,147 deliveries were up 285% from the prior year and about even with March when Xpeng delivered 5,102 EVs. Nonetheless, XPEV stock, which closed yesterday at $29.02, is well of its 52-week high of $74.49.
Nio (NYSE:NIO) also reported strong April delivery numbers. The companies’ delivery data suggests that, at least for now, Chinese EV companies are weathering the global chip shortage. However, the shortage may mean that this is as good as it gets for their deliveries in the short-term.
Xpeng is planning to build a 733,000 square meter factory with an annual capacity of 100,000 vehicles in Wuhan, China. However it seems unlikely that the company will be able to utilize all of that capacity anytime soon.
But that is a relatively good problem for Xpeng. The global chip shortage is an issue that the entire industry faces. However, the problem is not related to the demand for its EVs, but involves its inability to fulfill demand based on an issue that the company has little control over.
The Company Must Deliver on Its Ambitious Goals
Analysts, on the whole, are bullish on Xpeng. The 11 analysts who cover XPEV stock have an average rating of “buy” on the name and a mean 12-month price target of $53.40.
In its last earnings report, the company announced that it was on track to start delivering a lithium iron phosphate (LFP) battery-powered EV, the P7, in May. More importantly, Xpeng was still on schedule to begin deliveries of its P5 sedan for the fourth quarter. Lidar technology will be pre-installed on the P5
As InvestorPlace columnist Matt McCall points out, the lidar was created in-house, giving Xpeng both a competitive advantage and valuable intellectual property.
Its share price won’t surge much if the chip shortage puts a ceiling on its delivery capacity.
But Xpeng needs to control what it can control and let the rest take care of itself. Investors can look past a supply chain issue that, while serious, should, in the big picture, be temporary . They will be less forgiving of a company that delivers self-inflicted wounds.
XPEV Stock Offers a Lesson in Timing
XPEV stock has had a couple of large rallies since its initial public offering in August. The first time, in November, the U.S. election and the introduction of vaccines sent the stock soaring above $70 per share. After giving up nearly half of those gains, the shares rallied above $56 in late January.
It’s human nature for investors to think the third time may be the charm. The chip shortage, however, may require those buying XPEV stock to build positions in a measured fashion to ensure they don’t get ahead of things.
When I wrote this article, the investors who bought shares of Xpeng immediately after its initial public offering (IPO) in August were sitting on an attractive gain of 40%. Even investors who bought XPeng’s shares on March 6 had gained over 5% as of yesterday’s close.
But of course, if you were one of those who chased the stock when it was trading at $40 or $50 per share or higher, you may be wondering how long you’ll have to wait to recoup your loss. That answer is less clear, but the shares may have better days ahead.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.