Chinese electric vehicle (EV) maker Xpeng (NYSE:XPEV) just reported disappointing quarterly results and a bleak outlook. Some investors weren’t rattled by the numbers, however.
XPEV stock rose by 23 cents yesterday to $8.33 per share. It also rose further overnight even after reporting shrinking margins and a widened loss. Looking forward, the company said it will undertake cost-cutting measures. Shares opened today at about $8.50 per share.
For the fourth quarter, Xpeng said it lost $388 million, or 20 cents per share, on revenue of $745 million. Since each American Depositary share of the company is worth two shares, the loss came to 40 cents per ADS.
XPEV Stock: In Search of Affordability
Xpeng and its rivals Nio (NYSE:NIO) and Li Auto (NASDAQ:LI) often trade in unison, making luxury EVs in competition with players like Tesla (NASDAQ:TSLA). They often trade in reaction to it.
The companies are not the same, however. Based in Shanghai, Nio is heavily focused on exporting its battery swap technology, leasing cars in Europe. Meanwhile, Beijing-based Li Auto is focused heavily on the domestic market in China. Finally, Xpeng — based in Guangzhou — is close to Alibaba (NYSE:BABA), which has a stake in the company.
Of course, Xpeng expects to deliver 18,000 to 19,000 cars this quarter, down from over 22,000 last quarter as well a roughly 45% decline year-over-year (YOY). In January, however, the company named Wang Fengying as President. Fengying will help refocus Xpeng on the mid-market where sales have been rising, led by names like BYD (OTCMKTS:BYDDY).
I have been writing for years about a turn toward affordability in EVs, first in the Chinese market and then globally. Luxury vehicles are a small part of the total car market. More people own Chevys than Cadillacs.
A “mid-market” electric would have a smaller battery, a shorter range and fewer chips than a typical Tesla. It would look more like General Motors’ (NYSE:GM) Chevy Bolt, which is priced around the $27,000 mark. GM is also a joint venture partner in the company making the $5,000 Hong Guang Mini EV, one of China’s best-selling electrics.
What Happens Next?
So, where is Xpeng headed? Hope for the company’s strategic change has kept XPEV stock strong. If the EV maker can execute on its plan, it will be nothing like Tesla in a few years.
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.
