Cathie Wood-Backed Tesla Rival Xpeng Gets A 7% Lower Price Target But Why Analyst Is Still Bullish

Tesla Inc. TSLA rival Xpeng Inc XPEV is expected to overcome near-term COVID-19 lockdown challenges in China on resilient demand, US Tiger Securities Inc said, after the Guangzhou-based electric vehicle maker posted a disappointing delivery forecast for the current quarter.

The Xpeng Analyst: Analyst Bo Pei has maintained a ‘buy’ rating on the stock but lowered his price target to $40 from $43 — the second such cut since March.

The Xpeng Thesis: The New York-based analyst said he expects the operating environment to improve meaningfully in the third quarter for the EV maker as China is on track to fully reopen in June.

Xpeng, which has a backer in Tesla bull Cathie Wood, on Monday said it expects to deliver between 31,000 and 34,000 electric vehicles in the second quarter. 

Pei said the delivery forecast is 23% below consensus primarily due to supply chain constraints caused by lockdowns, adding that vehicle margins in the current quarter will also likely be negatively impacted. Xpeng, he said, continues to deliver price-protected orders until late June bearing the higher raw material costs. 

See Also: Why This Analyst Is Bullish On Tesla, Nio Rival Xpeng

“Due to lockdowns, the deliveries of price-protected orders will likely finish in late June, thus hurting second-quarter vehicle gross margin. But management believes gross margin should start to improve sequentially in the third and fourth quarter,” Pei wrote in a note. 

“Longer term, XPEV still targets 25% or higher vehicle gross margin.”

Xpeng said it plans to start delivering its first SUV model G9 in the third quarter and plans to launch two new models next year.

Rival Nio Inc NIO is scheduled to report first-quarter numbers on June 9.

Price Action: Xpeng closed 5.5% lower at $21.9 on Monday and was trading 1.8% lower in after-hours. The stock is down 56.3% year to date.