XPENG Motors, $XPeng Inc.(XPEV)$ is reporting Q1 2022 earnings before market open on Mon 23 May. Consensus EPS estimates is $ -0.30 (-121.92% year on year, y.o.y) while revenue estimate is for strong growth to $1.11B (+141.75% y.o.y).
Fundamentals
There are three main reasons to be bullish about XPEV.
- Explosive revenue growth and room to grow gross margin. Revenue for Q4 2021 was about $1.35B (+209%), compared to $437M in Q4 2020, the year before. Gross margin is just at 11.2% and 14.4%, and presents a huge opportunity to grow further, as the leader in EV, $Tesla Motors(TSLA)$ has gross margin nearing 30%.
- Strong innovation. XPEV has a track record of executing innovative features in its EVs successfully. Besides its semi-autonomous driving feature that could rival Tesla’s offering called Xpilot, another recent innovation is self-parking, allowing its P7 models to self-park without the driver. It has also been one of the first movers in the eVTOL (electric vertical take-off and landing) flying vehicle space with its Xpeng X2 project, which unlike others by Joby or Archer for example, will fly autonomously. Test-flights are expected to start in Europe in 2022 with production planned for 2 years later.
- Below fair value. With its share price dropped 68.75% from all time high of $74.49 (reached end Nov 2020) after IPO in Aug of 2020, XPEV is now undervalued by up to 58.6% from its fair value of $56.23, based on DCF estimations by simply wall st.
XPeng P7 EV self-parking with Valet Parking Assist. Source: XPeng
XPEV valuation using DCF estimations Source: Simply Wall St
On the flip side, there are three major risks to be aware of for XPEV.
- Rising rates and high inflation environment. Current risk-off market conditions due to Fed rate hikes to combat inflation have investors selling their investments in high growth but yet to be profitable stocks such as XPEV, most other EVs such as $Li Auto(LI)$ and $NIO Inc.(NIO)$ and tech names, rotating to value stocks with positive free cash flow or paying dividends. However, once the rates hike cycle has stabilised in the next 0.5 to up to 2 years, investment would flow back to growth stock and propel XPEV and its peers stock price upwards again.
- Supply chain disruptions. The double whammy of Ukraine-Russia war and COVID-19 lockdown in China that affected the major manufacturing hubs have disrupted supply chain and ability of EV makers to have sufficient parts to assemble vehicles or meet forecasted deliveries numbers. However, XPEV has proved to be more resilient with just 41.6% drop in April vs March 2022 deliveries compared to its peers, which saw drastic deliveries setbacks, Nio (-49.2%) and Li Auto (-62.3%) drop in deliveries.
- Delisting Risks in US. With Xpeng being added to the "Holding Foreign Companies Accountable Act (HFCAA)" list by SEC on 4 May, the company needs to satisfy the financial reporting and control transparency requirements and not being in the list for three years running, to avoid being delisted. While XPEV has said it is actively exploring ways to meet the requirements, XPEV also has a contingency already in place, being dual listed in NYSE and HKSE, under the ticker $XPENG-W(09868)$, so it could continue to attract investment capital for its operations and expansion.
On balance, XPeng looks well placed to leverage on its strength and seems capable of mitigating the risks to still continue to innovate, grow and achieve profitability in the next few years.
XPeng Technicals
From longer term Weekly chart, XPEV price is now on a downtrend after reaching a recent high in end Nov 2021. What is of interest is the double bottom pattern in Mar to May 2021 that caused a 101% or doubling of stock price. The stock price seems to be forming another double bottom from Mar to May 2022. Would the same symmetrical pattern and explosive move up reoccur this year? Time will tell.
Weekly Chart XPEV
For long and short target prices post earnings, we will examine Daily chart of XPEV
Daily Chart XPEV
Bullish or long scenario could see price reach 50 MA $25.37 (+9.02%) from close of $23.27 on 20 May as first target. In medium time frame, price could retrace back up to 0.236 Fib level of $27.08 (+16.37%).
Bearish or short scenario could see price drop to previous recent low of $18.01 (-22.60%). Larger drop especially if stock price is caught in broader Market sell-off or big earnings miss would see price reaching $17.00 (-26.94%) in short time.
As Market is coming off weeks of weakness and uncertainty, I would be more conservative, and initiate positions post earnings, where there will be more clarity that $XPeng Inc.(XPEV)$ earnings is beyond or below expectations, and trade in the direction of price action.
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