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Solid Platform for Sustained Growth By TipRanks


© Reuters. XPeng: Solid Platform for Sustained Growth

The Chinese EV industry is still at an early growth stage. New EVs accounted to just 10% of the total vehicle sales for Q2 2021. Therefore, it would be reasonable to expect that EV-related companies will not see their best growth.

XPeng, XPEV seems to be a long-term potential winner. XPEV shares are a strong investment, as secular industry tailwinds can be a growth catalyst. The company is well-positioned to expand its reach in the future, thanks to the solid foundation it has built.

The company’s stock has been subdued for most of 2021. Stock prices have been impacted by macro factors such as the lack of chips and regulatory headwinds. (See XPEV stock charts on TipRanks)

Investment in Technology

The EV industry already has intense competition. XPeng has a unique technological advantage that will allow it to grow and survive.

Recent announcements by XPeng included the launch of the XPeng P5, its third model. Customers will begin receiving the sedan in October 2021. The new model will likely ensure strong vehicle delivery through 2022, from a growth standpoint.

It’s worth noting that for Q2 2021, XPeng reported research and development expenses of $133.7 million. On a year-over-year basis, R&D expenses increased by 170%. This trend is not surprising considering the company’s focus on software technology.

XPeng presented a second prototype for a flying passenger vehicle in September. More recently, the company released its first robotic unicorn. It is clear that the company has great visions for the next years. It also plans to enter robotics, and fly cars.

Sustained Vehicle Delivery Growth

For Q2 2021, XPeng reported vehicle deliveries of 17,398. Year-over-year, vehicle deliveries rose by 439%. There are several company-specific catalysts available that will help ensure sustainable healthy growth over the next few years.

First, delivery growth will be boosted by the newly launched P5 model. The increase in research and development costs is for the new models. XPeng has reported cash and equivalents in excess of $5.1 million for Q2 2021. This gives investors ample flexibility to spend on expanding their product line.

Xpeng, NYSE: has also begun vehicle deliveries in Norway. Recenty, P7 was exported by the company for the first-time. Vehicle deliveries will continue to grow as the company expands its European reach.

Brian Gu, the company president, stated that XPeng will likely acquire less-respected competitors in order to increase production. The company has already built two factories in China. The company’s plan to ramp up production gives a good indication of what the future demand will be.

XPeng reports a vehicle margin of 11% in Q2 2021. Vehicle margin in the previous year was negative 5.6%. Key margins will likely expand with strong deliveries.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, XPEV stock comes in as a Strong Buy, with six Buys assigned in the past three months.

The average price target for XPEV stock is $56 per shares, which implies that there’s a potential upside of 61.5% from the current level.

Concluding Views

XPeng is positioning itself for a growth inflection point in the global EV industry. The company plans on diversifying into robots and flying vehicles. These potential value-creators can last a long time.

Vehicle deliveries will likely remain strong for the time being. International expansion and demand in China are key factors.

XPeng is able to achieve aggressive acquisition- and organic growth thanks to its cash reserves and credit facilities.

These are the key factors that make XPEV stock appealing. Once temporary headwinds recede, a breakout on the upside is possible.

Disclosure: Faisal Humayun didn’t hold any positions in the securities discussed in this article at the time it was published.

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