You can almost feel the love when it comes to Chinese electric vehicle maker XPeng (NASDAQ:XPEV). Investors poured it on yesterday, pushing XPEV stock up 7.34%.
There is a lot to love. Sales for the third quarter, reported in November, were up 52% from the previous quarter, 187% higher than a year earlier. Gross margins tripled and net losses fell 21%.
XPeng sells sedans and small electric SUVs that are heavy on technology and, with government subsidies, reasonably priced.
The company sold nearly 100,000 vehicles in 2021, 16,000 of them just in December. Revenue could double again next year.
But do you really want to pay 12 times revenue for a Chinese company? I mean, aren’t they communists?
The Bull Case for XPEV Stock
XPeng stock was volatile in 2021, falling to as low as $25 a share and rising to as high as $55. Its Jan. 11 closing price of $45.76 share was within pennies of where it was a year ago, when it was a much smaller outfit.
XPeng has proven it can mass produce a high-quality EV and sell it in a highly competitive market. Its growth in 2021 was the best in the sector, although it remains sixth in sales, with Tesla (NASDAQ:TSLA) and Warren Buffett-backed BYD (OTCMKTS:BYDDF) leading the way.
A quick review of my fellow InvestorPlace contributors shows a pretty bullish bunch.
Our Vandita Jadeja thinks 2022 should be even better for the Guangzhou company. In addition to rolling out new models, XPeng cars are also selling well in Europe, especially Scandinavia, Europe’s most competitive electric vehicle market.
Faisal Humayun also believes XPeng stock is ready to take off. Growth remains ahead of analyst estimates and it’s even raising money for “flying vehicles.” (The fictional George Jetson is due to be “born” this August.)
David Moadel also thinks XPeng is undervalued. “Delivery data doesn’t lie,” he writes. The Chinese market for electric vehicles is exploding. Nearly one in every five vehicles sold in the country is now electric. XPeng is also competitive outside China.
The XPeng Bear Case
XPeng is a Chinese company. It’s also a tech company. Both are out of fashion today.
What China’s government gives, it can quickly take away. Subsidies for electric cars there will expire at the end of this year.
Then there’s the risk of delisting. Chinese companies aren’t allowed to let western auditors touch the books. The risk is that U.S. exchanges won’t be allowed to trade them after 2024. XPeng president Brian Gu pretends not to be worried. The issue has been around for a decade, and stocks can always be traded in Hong Kong, he says.
XPeng stock only seems not to have been hit as hard by growing tensions as have Alibaba Group (NASDAQ:BABA) and JD.com (NASDAQ:JD). If a U.S. company saw sales rise like XPeng’s, with higher gross margins, its stock wouldn’t be flat. Despite great news on the sales front, XPeng stock is down 9% since the start of 2022.
The Bottom Line
Despite holding up well in 2021, XPeng is as risky as any other Chinese stock.
In addition to foreign policy risks, you’re also looking at domestic risks. China’s property development implosion is continuing. Billionaires, and ostentation, are distinctly out of fashion. The country is turning inward just as economic growth threatens to reverse.
Then there are U.S. risks. Rising inflation and interest rates mean tech stocks aren’t worth what they were. Despite its growth, XPeng continues to lose money. I may be wrong here, but I suspect XPeng stock will continue to tread water until economic and diplomatic skies clear. There are better risks out there.
On the date of publication, Dana Blankenhorn held a long position in BABA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack newsletter.
