- Concerns about China’s lockdown and supply chain headwinds have affected XPeng’s (XPEV) performance this year.
- That said, the market may be overestimating how much these issues will affect its long-term prospects.
- Ahead of the current troubles clearing up, you may want to consider XPEV after its drop in recent months.
As with other China-based electric vehicle (EV) stocks, XPeng (NYSE:XPEV) has been knocked significantly lower so far this year. And like growth stocks overall, changing market conditions have hit XPEV stock hard. Additionally, there are headwinds hitting the EV industry in China.
Specifically, China’s latest round of novel coronavirus pandemic lockdowns and continued supply chain headwinds have hurt this year. In turn, these issues could affect the company’s fiscal performance during this quarter. However, that’s not to say that the “story” has changed completely with this former “hot stock.”
Once the current issues clear up, the automaker will likely return to reporting strong revenue and delivery growth. In turn, Xpeng will begin to narrow its losses and get to the point of profitability.
So, ahead of this starting to play out, you may want to consider XPEV stock while it remains well below past highs.
| XPEV | Xpeng | $20.72 |
There’s Little Working in Favor of XPEV Stock Today
It would be one thing if XPeng’s pullback was entirely due to the market’s fading interest in growth names. But, unfortunately, that’s not the case. For instance, delisting worries have played a role in its poor performance in recent months.
Yet, more important to this issue — which I will discuss further below — is the issues affecting the Chinese EV industry at this time. Lockdowns in China’s major cities have severely affected EV production since spring.
This, of course, had some impact on its results in the first quarter of fiscal year 2022. Revenue for Q1 2022 was down 14.5% quarter-over-quarter, while up 149% year-over-year (YOY). However, looking at its latest monthly delivery numbers (for April), you can tell the shutdowns will have a severe impact. Month-over-month, deliveries were down around 41%.
In turn, this implies challenges when it comes to its Q2 results. While its numbers for the June quarter may show growth from the prior year, there may be a drop in sales, and wider-than-expected losses, versus the preceding quarter. Even so, don’t view this as a reason to take a pass on XPEV stock.
Long Term Remains Promising
There may be little working in XPeng’s favor right now, but on a longer timeframe? There’s still a lot on its side. While the aforementioned headwinds are affecting production, this doesn’t mean demand is taking a hit. Not to mention, the push for mass adoption of EVs by the Chinese government.
All of this points to continued growth of the space, and outsized growth for EV makers like XPeng once the bottlenecks holding up production get resolved.
That’s not all, though. You may recall that China was intending to sunset its EV subsidies this year.
However, due to the lockdowns, as well as the threat of dimming demand from an economic slowdown, the Chinese government is now looking into possibly extending subsidies until 2023. For now, though, this is something that is still in the works.
But if it becomes official? We may see a greater-than-expected acceleration in Chinese EV demand, once the current troubles enter the rearview mirror. In turn, thanks to pent-up demand from this disruption, plus subsidies increasing demand, results for the end of 2022, and for 2023, could exceed expectations. And a reversal like this may result in the trajectory of XPEV stock doing a 180.
The Verdict on XPEV Stock
Currently, XPeng earns a “B” rating in my Portfolio Grader. That said, a big improvement in its results — after it gets over current headwinds — could get it moving in the right direction. Nonetheless, I’ll admit two other hurdles might still hang over it.
It may take time for the market to become bullish again on growth stocks, extending how long this stock stays in neutral, before once again accelerating in price. The delisting concerns, which I touched on above, could also affect its performance. More clarity on this issue may be needed as well.
Nevertheless, as it holds steady in the low-$20s per share, if you’re bullish on EV stocks, you may want to consider it. It posted strong growth before the current troubles arrived, and is set to resume its prior pace once said issues clear up. XPEV stock will likely make a stunning comeback, once enthusiasm charges back up.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
