Why This Analyst Is Bullish On Tesla, Nio Rival Xpeng

Chinese electric vehicle maker Xpeng Inc XPEV is an attractive entry point at current levels as factors such as competition and supply chain constraints have been priced in, according to brokerage firm US Tiger Securities Inc.

The Xpeng Analyst: US Tiger Securities analyst Bo Pei has upgraded the stock to ‘buy’ from ‘hold’ but lowered the price target to $43 from $50, primarily on lower valuation comparisons.

The Xpeng Thesis: Xpeng, which competes with Tesla Inc TSLA, Nio Inc NIO and Li Auto Inc LI, on Monday reported a fourth-quarter loss of $202 million, or 22 cents on an adjusted per-share basis, and revenue of $1.34 billion. 

“XPEV stock is down almost 50% (year-to-date), underperforming Chinese EV peers Nio, down about 35%, and Li which is down about 20%,” Pei wrote in a note.

“And XPEV shares are currently trading at 1.6x '23E sales, vs. Nio's 1.9x and Li's 1.4x.”

The analyst said investors primarily focused on the fourth quarter margin and guidance for the first quarter and the full year. 

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Q1 Guidance: Pei said Xpeng’s first-quarter delivery guidance of about 33,500 to 34,000 units is slightly below the brokerage’s expectation.

“The first quarter guidance implies March deliveries of 14,603 at the midpoint, implying normalized deliveries after the technology upgrade,” Pei said.

Xpeng reported deliveries of 19,147 for the first two months of 2022. 

Gross Margin: Xpeng said it is targeting a gross margin of 25% and above in the medium and the long term. 

The EV maker expects its first-half vehicle gross margin to be similar to or slightly better than the fourth quarter and improve further as the $1,600-$3,200 price adjustments kick in and the company starts to deliver the higher-margin G9 SUV in the third quarter. 

Xpeng reported a gross margin of 12.5% for the fiscal year of 2021, compared with 4.6% for the prior year.

Price Action: Xpeng stock closed 0.3% higher at $27 a share on Monday.