Robert Means
XPeng (NYSE:XPEV) submitted a blended earnings sheet for its third-quarter on November 15, 2023, however guided for important supply and high line development within the closing quarter of the yr. Whereas XPeng noticed a considerable improve in third-quarter deliveries attributable to a return of client demand, the Chinese language electrical automobile was not in a position to translate rising gross sales into stronger earnings. With competitors within the electrical automobile market ramping up, XPeng’s margins remained underneath stress as properly. Since Li Auto (LI) is extensively outperforming XPeng when it comes to supply development and automobile margins, I consider XPeng is just not probably the most engaging, nor least expensive, Chinese language electrical automobile start-up that traders should purchase proper now!
Earlier score
In August, I rated XPeng a maintain after the EV firm acquired DiDi International (OTCPK:DIDIY)’s good automobile unit and mentioned that it might use its acquired tech to start out a brand new electrical automobile model subsequent yr. I consider the margin development, though it barely improved within the third-quarter, continues to be not engaging… particularly in mild of a lot better choices within the Chinese language electrical automobile start-up market.
XPeng’s third-quarter earnings beat expectations
XPeng beat earnings and income expectations for the third-quarter: adjusted EPS got here in at $(0.45) which was $0.01 per-share higher than the typical prediction. The highest line beat was marginal with XPeng out-performing the consensus estimate by $0.5M.
Supply: In search of Alpha
Robust supply development fails to translate into earnings development
XPeng delivered 40,008 electrical automobile within the third-quarter, displaying 35% yr over yr development. In October, XPeng delivered 20,002 electrical autos which was a brand new month-to-month supply file for the EV maker. Nevertheless, EV rival Li Auto is crushing XPeng when it comes to supply development: it delivered greater than twice as many autos, 40,422, in October and Li Auto’s third-quarter supply quantity totaled 105,108 EVs, representing 296% yr over yr development.
Li Auto, attributable to its stronger supply development, increased month-to-month output quantity and a lot better margin image stays my high wager on the Chinese language EV market. One other firm that’s crushing it proper now when it comes to deliveries and which is about to overhaul Tesla (TSLA) in world supply quantity, is BYD Firm (OTCPK:BYDDF).
XPeng generated whole revenues of 8.53B Chinese language Yuan ($1.17B) in Q3’23, displaying 25% yr over yr development. Regardless of increased revenues, XPeng’s losses expanded to three.89B Chinese language Yuan ($0.53B) in comparison with 2.38B Chinese language Yuan ($0.33B) within the year-earlier interval. Though XPeng generated increased deliveries and revenues in comparison with final yr, the EV pricing surroundings remained weak… and it has been mirrored in XPeng’s margins.
XPeng’s automobile margins for Q3’23 improved quarter over quarter from (8.6)% to (6.1)%, however margins remained deeply unfavourable which stands in stark distinction to Li Auto which reported a third-quarter automobile margin of 21.2%. Li Auto grew its margins 0.2 PP quarter over quarter whereas XPeng improved its automobile margins 2.5 PP Q/Q, however the truth that margins remained unfavourable is why I can’t see a practical case for a score improve for shares of XPeng for the time being.
Supply: XPeng
Outlook for This autumn’23
XPeng submitted a powerful forecast for This autumn’23 which was probably the most effective take-away from the third-quarter earnings launch. The EV maker expects to ship between 59,500 and 63,500 electrical autos in This autumn’23 which within the high-case would indicate a yr over yr development fee of 186% (and 168% within the low-case). When it comes to revenues, XPeng guided for B12.7-13.6B Chinese language Yuan, implying yr over yr high line development of 147.1-164.6%.
XPeng’s valuation, falling and regarding estimate development
XPeng stays the highest-valued Chinese language EV start-up within the trade group, regardless of an unfavorable margin image. Li Auto, NIO and XPeng are anticipated to develop their high strains 57%, 55% and 75% subsequent yr, however as I’ve indicated in my work on Li Auto, XPeng’s estimates have persistently fallen (as did NIO’s)… whereas estimates for Li Auto have elevated steadily within the final yr.
Primarily based off of income expectations, XPeng is presently the EV maker within the trade group with the best income multiplier issue of two.1X. Contemplating that Li Auto is rising deliveries a lot sooner, I consider Li Auto must also be the highest-valued EV firm… nevertheless, Li Auto is promoting at simply 1.6X and is due to this fact the a lot better EV deal for traders, in my view.
NIO is seeing a rebound in supply development as properly and the corporate launched new EV merchandise in 2023 which is why I see an bettering setup for NIO for the time being. NIO additionally presently gives the bottom price-to-revenue ratio of 1.1X which interprets into a horny threat profile. I’ve presently robust purchase rankings on Li Auto and NIO, and a maintain score on XPeng.
Dangers with XPeng
XPeng is seeing robust supply development, however Li Auto continues to be means forward of its EV rival when it comes to whole supply quantity. Li Auto’s margin image additionally seems a lot better than XPeng’s. With unfavourable automobile margins nonetheless prevailing within the third-quarter I consider XPeng faces a probably lengthy highway in direction of profitability whereas Li Auto is already anticipated to show its first full-year revenue this yr. XPeng is predicted to generate its first full-year revenue in FY 2027… and that is if the margin scenario received’t worsen. A delayed revenue timeline and persistently unfavourable automobile margins may threaten my maintain score going ahead.
Ultimate ideas
XPeng grew its revenues 25% yr over yr within the third-quarter, which was a stable accomplishment, however the EV firm continued to report unfavourable automobile margins and increasing losses relative to the third-quarter of final yr. Whereas automobile margins improved 2.5 PP Q/Q, the EV pricing surroundings continues to be difficult and the margin scenario is unlikely to get materially higher within the close to time period. Contemplating that shares of XPeng are costly relative to Li Auto and NIO, I consider the chance profile is just not skewed to the upside for the EV maker proper now. If I had to decide on between both Li Auto or XPeng, I’d go for Li Auto attributable to its stronger supply development, a fast-track to profitability this yr and constructive automobile margins!
