This year has been a rollercoaster for electric vehicle (EV) companies, especially the players from China. The unfortunate tale of Xpeng (XPEV) stock losing 46% in 2024 so far paints a bleak picture. This downward spiral is not a phenomenon unique to Xpeng, with fellow Chinese entities Li Auto (LI) and NIO (NIO) taking a similar plunge amidst the chaos surrounding Chinese EV stocks.
The Downfall of Xpeng: Unraveling the Mystery
EV stocks have been under immense pressure, with Tesla (TSLA) kicking off the second quarter as the worst performer in the S&P 500 Index for 2024. The overarching sell-off of Chinese stocks, coupled with geopolitical tensions, has further exacerbated the situation for Chinese EV players, presenting a sizable challenge.
Furthermore, the disappointing Q1 delivery volumes of Chinese EV companies, including Xpeng’s meager 4,545 deliveries in February, have added to the grim narrative. Though a slight uptick was witnessed in March, the company has struggled to breach the 10,000 mark for three consecutive months. Alibaba’s gradual sell-off of Xpeng shares has only served to dampen market sentiment.
Despite the rough start in Q1, Xpeng is positioned as a compelling EV stock to consider in April, standing tall amidst the storm the industry faces.
Upsides Amidst the Downturn
While recent delivery reports may look gloomy, some silver linings gleam in Xpeng’s financial performance. The company achieved a gross profit in Q4 of 2023 after two quarters of negative margins. Moreover, 2023 marked the first year Xpeng recorded positive operating cash flows, along with venturing into positive free cash flows in the latter half of the year.
Breaking into positive free cash flow territory is commendable for Xpeng, considering the notorious cash burn reputation of EV companies that has led many startups to bankruptcy. As Xpeng gears up to unveil new models and strengthens its ties with Volkswagen, the expansion into international markets coupled with revamped dealership networks set a promising tone for the latter half of 2024.
Assessing XPEV’s Potential
Amidst the industry’s turmoil, Xpeng emerges as an intriguing option post the recent market turbulence. Several factors advocate for XPEV as a favorable investment:
- Anticipated rebound in delivery figures with new model launches and strategic partnerships.
- Potential margin improvements with a shift towards generating revenue from platform and software services, aiming for profitability in 2025.
- Robust financial position with $6.44 billion in cash reserves against a long-term debt of approximately $800 million, providing a sturdy financial footing amidst the industry slowdown.
- Attractive valuation metrics with a NTM enterprise value-to-earnings before interest, tax, depreciation, and amortization multiple of only 0.53x, showcasing a favorable comparison to peers like Rivian and Tesla.
In essence, displaying lucrative valuations, strong partnerships, compelling product offerings, and a promising growth trajectory, Xpeng stands as a beacon amidst the storm in the EV industry, presenting itself as a compelling stock to consider in current times.
