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Chinese stocks, including electric vehicle (EV) companies like NIO (NIO), Li Auto (LI), and Xpeng Motors (XPEV) have rallied sharply over the last month, as markets gave a thumbs-up to the country’s stimulus plans. However, the stimulus-driven rally seems to have run its course for now. While the mainland continues to announce fresh measures, and has hinted at more fiscal support to revive the economy, Chinese stocks have lost steam.
As for XPEV specifically, the Chinese EV company gained over 29% in the last month, but is still in the red for the year. In this article, we’ll see whether the best is over for Xpeng stock, or if the shares can rise higher from these levels.
XPEV Stock Forecast
Xpeng (XPEV) has a consensus rating of “Moderate Buy” from the 11 analysts actively covering the stock. It has a “Strong Buy” or “Moderate Buy” rating from 70% of analysts, while the corresponding percentage 2 months ago was 50%.
XPEV’s mean target price is $13.13, which is just about 12.8% higher than last week’s closing prices.
There are differing opinions about Xpeng's outlook after the recent rally. UBS, for instance, believes that Xpeng Motors has run ahead of its fundamentals, and finds the stock’s price-to-sales multiple of 1.5x to be expensive. The brokerage believes that the valuations of Xpeng Motors and NIO imply that they will gain significant market share and achieve high single-digit market share in the coming years – and do so without issuing more shares.
UBS added, “While such a scenario is possible, we think it will be difficult to achieve, especially considering fierce competition from larger and more cost-efficient companies” like BYD (BYDDY) and Li Auto. Notably, both Li Auto and BYD are profitable, and BYD is the biggest seller of new energy vehicles (NEVs) globally.
Citi and JPMorgan Are Bullish on XPEV Stock
Not everyone shares UBS’s pessimism toward Xpeng, though, and Citi expects its annual volumes to almost double to 400,000 units by 2026. Notably, while Xpeng Motors disappointed with its deliveries in the first half of the year, its shipments rose to a record high in September, driven by strong sales of its new Mona M03 model.
JPMorgan also upgraded XPEV stock to a “buy,” as the brokerage expects Xpeng’s deliveries to rise sharply with the launch of new models. It predicts that the company will ship 300,000 cars next year – 72% higher than the expected deliveries this year.
Xpeng Motors Stock Could Rally Further
I believe that while Xpeng – or, for that matter, Chinese stocks in general – should take a breather following the sharp rally over the last month, the long-term outlook for Xpeng Motors looks positive.
Notably, despite all of the noise over China’s slowdown and massive overcapacity in its industrial sector, including the EV industry, the country’s NEV penetration – which includes both battery electric vehicles (BEVs) and plug-in hybrids (PHEVs) – has been rising, and surpassed 50% in July for the first time.
Specifically, Xpeng Motors has several growth drivers, including its partnership with Volkswagen (VWAGY). The two are working to develop two cars for the Chinese market by 2026, and could also explore an international collaboration.
The launch of multiple new models should help propel Xpeng's deliveries in 2025 and beyond. The Mona models in particular will increase Xpeng's addressable market, and it will compete with market leader BYD for a piece of the budget EV market. It is also reportedly looking at launching extended-range electric vehicles (EREV). These cars have a fossil-fuel-backed generator, which can extend the range of the battery.
While Xpeng is believed to have among the best – if not the best – autonomous driving capabilities among Chinese EV companies, markets haven’t given it the same kind of “valuation respect” as Tesla (TSLA), whose CEO Elon Musk believes that the bulk of its valuation comes from its autonomous driving business.
Rising volumes and higher contribution from software sales should help Xpeng Motors improve its margins, and the company expects to reach breakeven in 2025. Analysts don't share that optimism, though, and expect the company to post a net loss in 2025 as well.
Key Risks That XPEV Investors Should Watch Out
There are several risks that Xpeng investors should be mindful of. First, while the company tends to generate a good amount of euphoria with its announcements – like the launch of the G6 SUV and low-cost Smart Electric Platform Architecture (SEPA 2.0) platform in 2023 – it hasn’t been able to build on the initial euphoria. It therefore remains to be seen whether Mona M03 can build on the initial momentum, either.
Second, China’s EV overcapacity woes might only worsen as more countries clamp down on imports from the mainland. Most recently, the European Union imposed tariffs on EV imports from China in a split vote. Finally, the Chinese economy is still not out of the woods yet, and the jury is divided on whether the stimulus measures will be enough to revive the world's second-largest economy.
All off that said, I find the risk-reward for Xpeng Motors stock to be favorable at these prices, and while investors should brace for volatility after the breathtaking rally over the last month, XPEV should reward patient investors in the long term.
On the date of publication, Mohit Oberoi had a position in: XPEV , NIO , LI , TSLA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
