Every time I think I’ve got this stock-picking gig down pat, the investing gods come along and smack me upside the head. No. You. Don’t. The latest example of this is Chinese electric vehicle (EV) maker XPeng (NYSE:XPEV). XPEV stock is down 25% year-to-date through May.
That wouldn’t be such a big deal if I hadn’t said that XPeng stock was a buy at $42 or below in December. Wrong again. If you took my advice and still hold, you’re down more than 23%. For that, I truly apologize.
I’ve been busy writing about other stocks and haven’t spent a lot of time examining why its stock’s fallen in 2021. Of course, XPEV isn’t the only EV manufacturer to have taken it on the chin YTD. Tesla’s (NASDAQ:TSLA) down 11.4% and Nio’s (NYSE:NIO) off by 21%.
Suddenly, EV stocks are persona non grata.
I think it’s fair to say that the entire EV cohort was overvalued as we entered 2021. I, too, was guilty of excessive optimism. However, now that XPEV has moved into the $20s, the evidence suggests that the company’s business model is working.
Does that make XPEV a buy? I consider the possibilities.
XPEV Stock Will Be Back to $40 Before You Know It
In the first four months of 2021, XPeng increased its deliveries by 413% over last year to 18,487. In April, the company added a third vehicle, the P5, to its existing P7 and G3 models. That should help keep the momentum going as we enter the summer.
2021 YTD Deliveries – January – April
|Month||Deliveries||YoY % Increase|
I know there’s plenty of commentary out there suggesting that XPeng’s numbers seem to be weakening. From where I sit, however, they seem just fine. What does irritate me is the company’s BS attempt to distract investors by stating that January and February combined deliveries grew by 577% over last year.
Am I to assume that February’s numbers increased by 107% YoY?
I’m being facetious. I don’t know why it can’t produce a YoY number for February’s deliveries. To do otherwise is plain silly. I understand February included the Chinese New Year, but that’s an annual thing, and post-pandemic, it will affect deliveries every year.
Just be honest. Investors understand hiccups happen.
Recently, InvestorPlace contributor Vandita Jadeja discussed its Q1 2021 results and why that made it an attractive buy. While revenue jumped by 616% to $450.4 million during the quarter, it was the positive 11.2% gross margin that caught my eye. That’s a 1,600-basis-point improvement from last year. And even though it lost 13 cents per share, that still beat analyst estimates.
In addition, Vandita points out that XPeng’s own charging network continues to grow. It now has more than 1,140 charging stations in 64 cities across China. And the charging is free.
I don’t know how many people will buy a vehicle because of free charging, but it certainly should be part of its features and benefits statement.
If you believe in EVs, XPEV is an excellent stock to own.
Shares Could Spend the Remainder of Year in the $20s
It doesn’t matter what stocks or exchange-traded funds you look at; if they’re related to EVs, their performance in 2021 is not good.
For example, the KraneShares Electric Vehicles & Future Mobility ETF (NYSEARCA:KARS) is up 5.9% YTD compared to 12.6% for the S&P 500 index. It invests 1.27% of its total assets in XPEV. Another exchange-traded fund — First Trust NASDAQ Clean Edge Green Energy Index Fund (NASDAQ:QCLN) — invests 1.85% of its total assets in XPEV. Its top two holdings are Tesla and Nio at 8.64% and 7.55%, respectively. QCLN is down 15.4% YTD.
Clean energy growth stocks have been pushed to the sidelines as investors seek out more value-oriented plays, such as traditional oil and gas. For example, the Energy Select Sector SPDR Fund (NYSEARCA:XLE) is up 39% YTD. However, in 2020, QCLN had a total return of 184%, considerably better than the -33% total return for XLE.
It’s unlikely that the investment world has soured on clean energy or EVs. It’s merely taking a breather while business plans catch up to valuations. Institutional money may remain on the sidelines until later this year.
In the meantime, that could mean sideways prices for stocks like XPEV into the summer and fall, which means you don’t have to buy XPEV immediately, fearing you’ll miss out on its next leg up.
The Bottom Line
If you bought XPEV in mid-May in the low $20s, I think you got an excellent price. If you’re thinking about buying XPEV, I would wait out the share price. I believe you’ll be able to buy it for less than $29 at some point in the next couple of months, but I doubt you’ll be able to get it for much less than $25.
Then again, I’m the same dolt who told you $42 was a good buy, so govern yourself accordingly.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.