Shares of Chinese electric vehicle (EV) maker XPeng Inc. (NYSE:XPEV) spent most of the year falling. Also, now that China’s President Xi Jinping has taken over the reins of the world’s second-largest economy for the third time, investors have been spooked away from the stock. However, Wall Street is not flustered by the stock’s downhill trek.
It will be easier to see the longer-term potential if we first understand what the noise is about.
XPeng’s Various Challenges
One of the most discussed topics these days is the challenges roiling the electric vehicle industry: rising costs, expensive batteries amid inflation, chip shortages, lithium crunch, and other technical issues. These challenges have driven away investors in flocks much before the Xi-re-election fears set in.
China’s health emergencies and tight COVID policies, combined with the rest of the aforementioned issues, are making it harder for XPeng to make sales. Now, Xi’s re-election would mean an extension of the zero-COVID policy, which will further hurt XPeng’s already-soft business.
On top of that, the tug-of-war between China and the U.S. for semiconductor supremacy is expected to intensify under Xi’s rule. This might mean more expensive chip imports from the U.S., lower volumes of chips, and harder-to-win global market share for XPeng.
Why the Noise Shouldn’t Bother Investors
However, the Chinese markets moved up again after the initial nervousness had calmed. Investors started taking note of Xi’s assurance of realizing the “Chinese dream of national rejuvenation,” which really means turning China into a global power with advanced technologies, including EVs.
Moreover, unfazed by the noise, XPeng recently showed off promising advancements in robotics and flying vehicles, which might be the norm many years from now. It flew its first public flying car in Dubai, involving zero carbon-dioxide emissions. This definitely gives the business strong growth prospects.
Importantly, one should keep in mind that investor capital in China’s stock market contains a lot of money from retail investors. This is the reason behind the China markets being more volatile than the U.S. market, which consists more of institutional investors’ money. Therefore, taking a cue from XPeng’s price movements in China should ideally not deter long-term investors of the company.
Is XPeng Stock a Buy, According to Analysts?
Wall Street seems to be moderately optimistic on the stock, with a Moderate Buy consensus rating based on eight Buys and two Holds. Analysts also expect XPEV stock to reach $40.92 over the next 12 months, implying 493.9% upside potential from current price levels.
Moreover, investors holding XPeng in their portfolios on TipRanks increased 1.2% in the past month, indicating positive sentiment.
Final Thoughts: XPeng May be a Long-Term Winner
The near term definitely looks challenging for XPeng. However, the challenges of rising costs, interest rates, trade restrictions, etc., mentioned earlier in this piece, are short-term challenges. A technologically-advanced company that can test the first flying cars successfully can also overcome near-term challenges.
Also, Xi’s re-election definitely led to a wave of panic, but looking closely, this was not a surprise. If XPeng could survive and thrive under Xi’s presidency since its inception in 2014 (Xi came into power for the first time in 2013), it can most likely survive another five year-term.
