XPeng Is Undervalued After A Volatile Run Since IPO

XPeng Inc. (XPEV), a fast-growing Chinese electric vehicle manufacturer, made its U.S. market debut last August after raising $1.5 billion at an IPO price of $15. The positive momentum behind EV stocks helped the stock hit a high of $74.49 in less than three months after its IPO, but the stock crashed as investor sentiment turned negative due to geopolitical tensions between the United States and China.

That said, the favorable macroeconomic outlook for XPeng coupled with the recent decline in the stock price presents investors with a good opportunity to invest in a young and fast-growing company at a fair price.

The Macroeconomic Outlook

China is the world’s largest market for electric vehicles, and this isn’t expected to change in the foreseeable future. In 2020, more than 1.2 million electric vehicles were sold in China, and Germany came in second on the list, with 394,000 electric vehicles sold in the country. There are many reasons to believe the EV industry in China will remain strong in the next decade.

First and foremost, the government is supporting the purchase of EVs by offering subsidies for consumers who opt for pure electric vehicles. For the tax year 2021, the Chinese government has announced a subsidy of 13,000 yuan for EVs with a driving range of 300-400 km. Regulatory support is key for the growth of this industry, and China remains on track to incentivize consumers.

Secondly, China has one of the most widely spread network of public charging stations, which alleviates some of the concerns of first-time EV buyers, and thus, the necessary infrastructure is already in place to support the continued adoption of EVs in China.

Thirdly, EVs accounted for just 6.3% of all passenger cars sold in China in 2020, which underscores the massive room for growth in the future as EVs grow in popularity. The decision by Tesla, Inc. (TSLA) to locally manufacture vehicles will give a boost to the industry as well, and many EV manufacturers stand to gain from this decision in the long run, even though competition will intensify in the short-term.

XPeng Is Growing In Leaps And Bounds

XPeng delivered 2,223 vehicles in February and 6,015 vehicles in January, reflecting a 577% year-over-year increase in the number of total deliveries for the first two months of the year. What’s more, from just $1.4 million in 2018, company revenue increased to $895.3 million in 2020, which is a testament to the strong momentum behind XPeng.

What sets XPeng apart from the competition is its focus on building smart vehicles. The company has spent upward of $200 million every year on research and development, and these investments are beginning to pay dividends in the form of increased sales. In 2021, the company is planning to upgrade the technology system in both XPeng G3 and XPeng P7 vehicle models, which should help these vehicles compete with Tesla’s EV models.

Wall Street’s Take

Many Wall Street analysts are bullish on XPeng’s future because of its strong presence in China, and some skeptics have recently flipped sides as well. For instance, Daiwa Securities upgraded its rating from Sell to Buy on March 9, arguing that the recent pullback has brought the stock back into undervalued territory.

Overall, XPEV has a Strong Buy consensus rating based on 6 Buys and 1 Hold. The average analyst price target of $52.93 for XPeng implies an upside potential of 42% from the current market price. (See XPeng stock analysis on TipRanks)

Takeaway

XPeng stock has declined sharply in the last few months after a strong run in the early days following its IPO. That being said, the macroeconomic outlook is favorable, and XPeng is well-positioned to grow in the future.

Therefore, the recent pullback presents growth investors with a good opportunity to double down on XPeng before the stock gains traction.

Disclosure: Dilantha De Silva did not have any positions in any of the stocks mentioned in this article at the time of publication.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.