XPeng (NYSE:XPEV) has struggled to break out to the upside in 2021 Even with a number of positive fundamental developments, XPEV stock is up less than 1% year to date. However, this has been the case with most Chinese electric vehicle stocks as regulatory concerns and chip shortages have negatively affected investor sentiment.
I strongly believe that XPEV stock is an attractive long-term play and worth considering at current levels. A rally in the coming year seems very likely with multiple catalysts on the horizon.
XPeng Vehicle Deliveries Rising as Company Looks to Future
XPeng began delivering its first commercially available vehicle to consumers in late 2018 has been growing deliveries at a face pace. In November 2021, vehicle deliveries surged 187% year over year to 15,613. So far this year, XPeng has delivered 82,155 vehicles, which is 285% higher than the same period in 2020.
As deliveres accelerate, vehicle margin and gross margin are expanding. The company reported third-quarter results on Nov. 23. Vehicle margin increased to 13.6% compared to 3.2% for Q3 2020. Gross margin expanded to 14.4% from 4.6% a year ago. As the number of vehicles delivered continues to rise, the company should see continued margin improvement.
It’s also worth noting that revenue of $888 million for the third quarter came in ahead of analyst estimates, while the company reported a smaller-than-expected loss of 15 cents a share.
The company saw its research and development costs nearly double on a year-over-year basis in Q3 to $196.2 million, due mainly to the development of XPeng’s G9 and P5 models. Given how competitive the electric vehicle industry is, I believe spending money to gain a technological edge is something that will separate the leaders like XPeng from the rest of the pack.
Speaking of innovation, XPeng is investing in the future of low-altitude flying vehicles. The company’s urban air mobility affiliate, HT Aero, recently raised $500 million in Series A funding. This focus is not likely to have an impact on XPEV stock in the medium-term, but it does signal the company is looking to stay ahead of the curve.
Growth Catalysts for 2022
XPeng announced the launch of its third production model, the P5 Smart Family EV Sedan, in September. In November, the company delivered 2,154 P5s and said it had a solid order backlog.
Last month, XPeng also revealed its G9 smart SUV with plans to begin deliveries in the third quarter of 2022. If it’s as well-received as the company’s other models, XPeng should continue to see strong demand well into 2023. It’s also important to note that the G9, which will feature Xpeng’s Xpilot semi-autonomous driving system, has been designed with international markets in mind.
Expansion into European markets is a big catalyst for XPEV stock. The company has already begun to export its P7 sedan to Norway. And XPeng Vice President and Chairman Brian Gu said the company aims to eventually have half its vehicle deliveries going to countries outside of China. This focus on overseas markets means a huge increase in XPeng’s addressable market and, thus, a massive growth opportunity.
Earlier this year, Gu also said opening a manufacturing plant in Europe is a possibility. If deliveries surge in Europe, local manufacturing would help boost EBITDA margin.
At the end of the third quarter, XPeng reported cash and equivalents of more than $7 billion. So, there is ample financial flexibility for aggressive investments in the next 12-24 months.
The Bottom Line on XPEV Stock
XPeng guided for vehicle delivery growth in the range of 166% to 182% for Q4. Even with chip shortage concerns, the company’s growth has remained robust.
It goes without saying industry tailwinds have supported the positive momentum. It’s expected that global EV sales will increase at a compound annual growth rate of 29% through 2030, according to Deloitte.
Even with intensifying competition, XPeng seems well-positioned for growth thanks to its focus on innovation. For instance, its P5 model is the world’s first car to be equipped with Light Detection and Ranging technology, or Lidar, which uses lasers to measure distance.
XPEV stock has been a laggard, but a breakout to the upside is imminent and current levels seem attractive for fresh capital.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
