To The Moon

This week brought pivotal updates in the Chinese electric vehicle (EV) sector as $XPeng Inc.(XPEV)$ and $NIO Inc.(NIO)$ reported contrasting earnings results for Q3. While XPeng posted robust revenue growth and exceeded expectations, NIO reported a revenue decline coupled with a widening net loss, leading to divergent market reactions.

As a trader and an active market participant in the EV sector, I believe this earnings season offers opportunities to position strategically. Let’s analyse the two companies, compare their financials and growth prospects, and share how I would trade this shake-up.

XPeng Shines with Revenue Growth

XPeng’s Q3 2024 Revenue Highlights:

• Revenue: 10.1 billion yuan, up from 8.53 billion yuan (+18.4% YoY).

• Net Loss: 2.09 billion yuan, down 47.8% YoY.

XPeng’s ability to outpace revenue expectations amid a competitive EV landscape is notable. The growth reflects the success of its G6 SUV and improvements in delivery volumes, backed by better-than-expected demand in its key markets. Additionally, XPeng’s focus on autonomous driving technology and collaborations, such as with Volkswagen, provide a clear roadmap for innovation and scale.

NIO’s Struggles Worsen

NIO’s Q3 2024 Results:

• Revenue: 18.6735 billion yuan, down 2.1% YoY.

• Net Loss: 5.0597 billion yuan, up 11% YoY.

NIO faces challenges balancing innovation and profitability. Despite its premium product positioning, the company’s revenue decline and ballooning losses are concerning. NIO’s efforts to launch new models and expand its charging infrastructure have added pressure to its cash flow, and competition in the Chinese EV market remains fierce.

Which EV Stock Should You Bet On?

Why XPeng Looks More Attractive

XPeng has momentum in its favour. Its autonomous driving edge, improved vehicle offerings, and strong international expansion potential make it a compelling choice for growth investors. The partnership with Volkswagen further strengthens its position, providing access to key markets and enhancing its production capacity.

NIO’s Long-Term Story Needs a Reset

While NIO remains a player in the premium EV segment, its financials raise red flags. Unless the company can demonstrate a path to profitability and recapture delivery growth, it’s likely to face continued downward pressure. However, for value-oriented investors, NIO’s post-earnings dip could present a long-term buying opportunity if the company successfully executes its turnaround.

Target Prices

• XPeng: Based on its current momentum, I see XPEV climbing to $25-$27 in the next quarter, contingent on continued delivery growth and positive updates on partnerships.

• NIO: For NIO, the downside risk is prominent. My near-term target is $7-$8, as the market digests its financial struggles. That said, I would reassess if the company show improvements in its Q4 guidance.

Trading Plan

1. XPeng – Long Position with Growth Outlook

   I’m looking to build a long position in XPeng with a short-to-medium-term horizon. I’d enter around $18-$20, targeting a 20%-30% upside in the next 2-3 months.

2. NIO – Short-Term Hedge or Watch-and-Wait

   For NIO, I’m more cautious. I may consider a short position or buying put options to hedge against further downside. Alternatively, I’d wait for the stock to stabilize around the $7-$8 range before considering any long-term accumulation.

3. Options Strategy – Strangle on Sector Volatility

   Given the potential for volatility across the sector, I’d use a strangle option on an EV ETF like $KraneShares Electric Vehicles and Future Mobility Index ETF(KARS)$, capturing the upside in XPeng while hedging against broader risks.

Final Thoughts

The Chinese EV market is a fast-evolving space where fortunes can change quickly. At this juncture, XPeng offers a more compelling growth story, while NIO needs to address its financial challenges.

Whether you’re bullish on XPeng or see value in a battered NIO, timing is critical, and so is managing your risk. As always, please DYODD, base your trades on thorough research and align them with your overall strategy.