Key takeaways:
- The company grew revenue 153% y/y and is expected to keep growing at a 35% annual rate.
- Like other Chinese ADRs, XPeng is at risk of being delisted if the US and Chinese governments do not agree on audit access.
- The company is positioned in a large market with relatively few EV competitors.
XPeng Inc.(NYSE:XPEV) $XPeng Inc.(XPEV)$ seems to be executing on growth. The company released its latest quarterly results this week and seems to be progressing on their business vision. In this article, we will review that progress and examine the possible risk factors for investors wanting a stake in the company.
After filing the quarterly results, the stock remained mostly flat, around -1.2%.
Here are the highlights from this quarter's earnings:
- Revenues of US$1,176b in line with expectations and a 153% increase y/y, 12.9% decrease q/q.
- Quarterly deliveries 34,561, a 159% increase y/y, but less than previous quarter deliveries of 41.751
- Gross margin increased by 1% to 12.2%
- Net loss increased to US$268.3m
- With a cash balance of US$6,58b, the company can keep making losses for about 6 more years before it needs to break into profit.
In the chart below, we can see how the company progressed on a trailing twelve-month basis.
NYSE:XPEV Earnings and Revenue Growth
XPeng is still in the early stages of growth, and what makes the company even more attractive is that it is positioned in a very large and unsaturated market - China.
There are competitors in the Chinese EV space, like NIO(NYSE:NIO) $NIO Inc.(NIO)$ and Li Auto(NASDAQ:LI $Li Auto(LI)$ ), but as they develop and differentiate, the companies will find their fit in the market.
Analysts expect revenue to grow 63% in 2022, and about 35% annually after that. This shows that the company is growing at a high rate, and will likely attract more investors as it keeps operating.
Investors can view the full profile of future forecasts, as well as what that means for the value of the stock in our report.
After the earnings, analysts have cut their price target 11% to US$43 per share, suggesting that the declining revenue was a more crucial indicator than the forecast reduction in losses. If we look at the spread of price targets, we see that the most optimistic analysts give ita price target of US$64 per share, while the most pessimistic values it at US$27.
Major Risk Factors
It is important to note that the deliveries aren't slowing down because of demand or operations, but because a large part of China is still under hard quarantine, which makes conducting business significantly slower. This is likely a temporary, although possibly an extended situation.
There are two ways business goes back to full force, one, if the government changes its approach, and two, if COVID-19 is no longer a risk. For investors, it would be best if the situation is resolved sooner, but while the authorities are concerned about the economic situation, it is hard to estimate if they will change their approach.
The Securities and Exchange Commission (SEC) has published alist of companiesthat need to be audited or risk delisting from US exchanges.
XPeng Inc., is on that list, which gives investors a whole new dimension of risk to consider.
Conclusion
XPeng is expanding in the Chinese EV space - the company has limited competition and is positioned in a large market. Latest results were pinned down by the difficulty of doing business amid the hard lockdowns, but the company is set to recover once the situation subsides.
Investors are dealing with a lot more risk factors than with western companies, since the US and China have to come to an agreement regarding company audits, otherwise many Chinese companies risk being delisted from US exchanges.
source: simplywall
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