The narrative for XPeng (NYSE:XPEV) stock is largely the same as that for its more-famous competitor Nio (NYSE:NIO).
Essentially, XPEV stock has tumbled since late January on valuation concerns, a shift away from growth stocks in general and Chinese EV stocks in particular.
Of curse, the ongoing semiconductor shortage didn’t help.
However, that narrative looks to have hit an inflection point in mid-May. XPeng looks like it’s en vogue again on the strength of its sales and delivery growth.
XPEV’s mid-May price inflection point occurred on May 13. Although that is the same day that it released positive Q1 earnings, the increase in price was due to larger forces.
Nio released positive Q1 earnings on April 29 and also experienced the same upswing in prices on the exact same day as XPeng, May 13.
The point here being that the broader EV sector experienced an upswing on May 13, not only XPeng on its positive results.
In any case, XPeng is a company which is undergoing rapid growth. That makes it well worth paying attention to.
Growth Trajectory and XPEV Stock
In the first quarter of 2020 XPeng saw roughly $62.91 million in revenues from vehicle sales and services. A year later that figure had risen to $450.4 million in revenues on the delivery of 13,310 vehicles and other services.
Therefore, sales increased by a massive 616.1% between the first quarter of 2020 and 2021.
Like Nio, XPEV stock suffered from negative gross margins in the first quarter of 2020. At that time the company was spending 4.8% more to produce and deliver a vehicle than it received.
Again, like Nio, that didn’t persist for long. By Q4 XPeng’s margin was a positive 7.4% which then rose to 11.2% in Q1 of 2021.
The catch-22 here is that the company isn’t out in the clear yet. XPeng has proven that it can produce EVs that sell. That much is obvious. XPeng has proven that it can ramp up its revenues very quickly as well.
But there are issues which absolutely need to be sorted out. The one that investors and potential investors will be paying attention to is net losses.
Net Losses Are Concerning
As I mentioned, revenues increased rapidly for XPeng over the past year, but the concerning issue is that it is not nearer to breaking even. In fact, its losses have mounted in the same period that revenues increased by 616.1%.
The $62.91 million in revenues XPeng brought in Q1 2020 led to a $99.2 million net loss. Investors hoped that with increasing revenues those losses would move in the other direction, but they didn’t.
The company’s $50.4 million in revenues in Q1 2021 led to a $120 million loss.
It’s very likely close to an inflection point in any case but investors also don’t like to see that number rise.
Investors won’t know exactly what Q2 losses (or perhaps gains) look like for several months. That’s because the company won’t publish Q2 results until Nov. 18.
Right now we do know about how many vehicles XPeng delivered in the quarter, and it has piqued investors’ interest.
In June XPeng delivered 6,565 vehicles, a 617% YoY increase. It also delivered 17,398 vehicles throughout the second quarter, a 439% YoY increase. Importantly, those 17,398 vehicle deliveries eclipsed the 13,310 deliveries in Q1 by a significant margin.
The other positive news was that its P7 sports sedan deliveries hit their highest total ever, at 4,730 in Q2.
Verdict
All of the catalysts seem to be in place for XPeng right now. Negative sentiment looks to have dissipated and the company continues to set delivery records.
The next milestone to track is net losses turning positive. That’ll happen soon and it makes sense to get in now whether that happens next quarter or next year.
On the date of publication, Alex Sirois 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.
