To say 2020 has been full to the brim with interesting developments would be underselling the year’s events. Covid-19 has obviously taken center stage and the year is drawing to a close with a new President-elect after a dramatic Joe Biden win in the U.S presidential election.
But 2020 has also provided a number of interesting sub-stories. One of which has been the rise of electric vehicles (EVs). Investors have warmed to the theme by sending several companies’ valuations sky high.
Chinese new energy vehicle (NEV) maker XPeng (XPEV) joined the fray toward the end of the summer and is already making waves. The stock began a parabolic move at the end of October and shares are up by 80% since the end of last month.
But Xpeng is riding a duel trend. In the near-term, the focus has been on new energy vehicles, but deeper into the decade, autonomous vehicles are expected to play a much larger role. And XPeng excels in this department, according to J.P. Morgan analyst Nick Lai.
The analyst calls XPeng an “EV start-up with a strategic focus on in-house ADAS/autonomous driving solutions and differentiated platform strategy vs. peers.” Lai sees XPeng as a major beneficiary of “China’s multi-year smart-EV trend,” and expects penetration to increase threefold “from less than 5% in 2019 toward 13% or higher by 2025.”
“We see the global auto industry structurally trending toward greener (NEVs) and smarter (autonomous/connectivity) vehicles,” Lai further said. “Companies like XPeng that can deliver Smart EV offerings should benefit most, in our view.”
To this end, Lai reiterates a Buy rating on XPEV shares, while raising the price target from $27 to $43. The new figure implies a 26% upside from current levels. (To watch Lai’s track record, click here)
Another analyst singing XPeng’s praises is Credit Suisse’s Bin Wang. Wang calls the company a “clear leader in autonomous driving in China.”
Like Lai, Wang expects XPeng to be a major player in the rising Chinese NEV industry. However, the analyst expects it will be a few years before XPeng turns a profit.
“Due to relatively smaller volume initially, we assume XPeng will stay loss-making in 2020-22E with negative free cash flow—Rmb8.3 bn total negative FCF in these three years,” Wang said. “Starting at a volume of 22k units in 2020, we forecast XPeng will deliver 60k/135k units in 2021/2022. We estimate XPeng’s total per unit cost (COGS+SG&A+R&D) to reduce from Rmb372k in 2020 to Rmb209k in 2023, when the company achieves 210k unit volume and first year positive bottom line and free cash flow.”
Wang also rates the NEV start-up a Buy but his $21 price target suggests shares will see 40% downside in the year ahead. This is most likely a result of November’s quick surge and the analyst’s inability to turnaround a new price target so quickly. (To watch Wang’s track record, click here)
Overall, besides J.P. Morgan, all other Street analysts who have posted a recent XPeng review share the same problem. While XPeng has a Strong Buy consensus rating based on a full house of 7 Buys, the $30 average price target implies a 12% drop from current levels. (See XPEV stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
