Hardly more than a week into 2024 and XPeng (NYSE:XPEV) shares are down by 14% already. So, is something up with the Chinese EV maker that has warranted the drop?
Nope, appears to be the answer provided by Morgan Stanley’s Tim Hsiao, who thinks the weakness is down to “position unwinding from onshore investors who had been aggressive buyers of XPeng during 2H23 for the company’s solid progress on autonomous driving.”
In addition, there’s also been some “market noise” around the delayed timing of the company’s expected GpM (gross profit margin) turnaround. However, in Hsiao’s opinion that is undeserved, given XPeng stated at Morgan Stanley’s Beijing conference last week that vehicle GpM “would have turned positive in 4Q23.”
Against this backdrop, Hsiao suggests that “The sharp sell-off in the stock would create another good opportunity to build positions.” However, Hsiao also advises that some investors might want to wait for more concrete data points after Chinese New Year, such as X9 delivery and order intake, to confirm whether XPeng can effectively leverage its autonomous driving capabilities to increase store traffic and secure more orders.
According to Hsiao’s latest round of checks, in key cities, overall store traffic in XPeng’s flagship stores fell by low single digits month-over-month in December as consumers waited for the official launch of the X9, which happened on January 1. Positively, absolute foot traffic remained at healthy levels like those witnessed in late October, as the broader rollout of XNGP, the FSD-like assisted driving feature, probably “stimulated demand” for test drives.
So, what’s next? After the recent X9 launch and the past week’s update on “aggressive XNGP deployment,” Hsiao anticipates investors will shift attention towards the short-term sales and order trends. Investors should monitor the momentum of “other sales mainstays,” such as G6, G9, and P7i, particularly in light of the company’s expanding distribution channels. “In addition,” says Hsiao, “impact from escalating competition from tech giants, as well as potential price cuts by peers, like Tesla China, should remain in sharp focus too.”
All told, Hsiao rates XPEV shares an Overweight (i.e., Buy) along with a $23.10 price target. Should the figure be met, investors stand to pocket returns of a robust 83% in a year’s time. (To watch Hsiao’s track record, click here)
All in all, XPEV currently has a Moderate Buy consensus rating based on 4 Buys and 1 Hold and Sell, each. The average price target stands at $18.27 and suggests upside potential of 45% in the year ahead. (See XPeng stock forecast)
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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.
