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This hasn’t been a pleasant year for electric vehicle (EV) companies so far, especially for Chinese players. Xpeng (XPEV) stock has lost 46% so far in 2024, and is not far from its record lows. Things have been no better for Li Auto (LI) and NIO (NIO), which have plunged amid the meltdown in Chinese EV stocks.
Why Is Xpeng Stock Falling?
There has been a broad-based sell-off in EV stocks, and Tesla (TSLA) enters the second quarter as the worst-performing S&P 500 Index ($SPX) stock of 2024. The de-rating of Chinese stocks amid the country’s economic slowdown, coupled with souring relations between China and the Western world, have only added to industry-wide pressures, creating a double whammy of sorts for Chinese EV stocks.
The Q1 delivery volumes of Chinese EV companies were also disappointing, and Xpeng could only deliver 4,545 vehicles in February. While deliveries nearly doubled to 9,026 in March, the metric has been stuck below 10,000 for three consecutive months now. Alibaba (BABA) has also been gradually selling Xpeng shares, which isn't doing any favors for market sentiment.
This year was expected to be pivotal for Xpeng, but the company had a rough first quarter - which is reflected in its stock price, as well. That said, XPEV now looks like a no-brainer EV stock to buy in April, despite the short-term challenges that the industry is facing.
XPEV Generated Positive Operating Cash Flows in 2023
While Xpeng’s delivery reports have been dismal for the last couple of months, I see some green shoots in the company’s financial performance. First, it finally churned out a gross profit in Q4 2023, after two quarters of negative gross margins.
Second, 2023 was the first time that Xpeng posted positive operating cash flows on an annual basis. It reached another milestone when it generated positive free cash flows in the second half of the year.
Turning free cash flow positive was no easy feat for Xpeng, as EV companies are infamous for their massive cash burn - which has pushed many startup names into bankruptcy.
Xpeng is looking to launch several new models including those planned in partnership with Volkswagen (VWAGY) and Didi. The company has further expanded its partnership with Volkswagen, and the two companies will explore joint sourcing, which could help Xpeng lower its costs.
XPEV has also revamped its dealership network, which should help support sales in the back half of 2024. It is also going aggressive with international expansion, despite the regulatory scrutiny that Chinese EV companies are facing in Europe.
Why XPEV Looks like a No-Brainer EV Stock to Buy Now
While the EV industry bloodbath might not go away anytime soon, I believe XPEV stock is an attractive bet, especially after the recent crash. Here’s why.
- Xpeng's deliveries should rebound in the back half of the year and thereafter as it launches new models and leverages the partnerships.
- Its margins should also improve; during the Q4 earnings call, CEO Xiaopeng He said, “By 2024, we expect revenue generated from platform and software services to become a meaningful and ongoing contributor to our financial results, especially to gross margin.” Xpeng is also hopeful of becoming profitable in 2025. Analysts, meanwhile, don't buy the optimism, as the consensus estimates call for a loss in 2025.
- Xpeng had cash, cash equivalents, and investments worth $6.44 billion at the end of 2023, while the long-term debt was only around $800 million. This balance sheet strength will help Xpeng navigate the current EV industry slowdown much better than its financially strained peers.
- Finally, XPEV trades at a next 12-month (NTM) enterprise value-to-earnings before interest, tax, depreciation, and amortization multiple of a mere 0.53x. For context, that's less than half of Rivian (RIVN), and a tenth of Tesla. Those multiples are also a discount to rival EV companies like NIO and Li Auto.
To sum it up - with lucrative valuations, strategic partnerships, a strong product proposition, and a solid growth trajectory, Xpeng looks like a no-brainer stock to buy this month, despite the worsening troubles that the EV industry is facing.
On the date of publication, Mohit Oberoi had a position in: XPEV , NIO , LI , RIVN , BABA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
