Xpeng Stock (XPEV): Should I Buy It Now?

By Amit Chowdhry ● August 30, 2020
  • Should you buy the Xpeng stock (NYSE: XPEV) now? Here is some information to help you decide.

Guangzhou, China-based electric vehicle company Xpeng Inc. (NYSE: XPEV) recently went public on the NYSE and its IPO went rather well despite the tensions between the U.S. and China. When the company went public, it sold 99.7 million American Depositary Shares ADS) at $15 each, which raised about $1.5 billion. Originally, the company was planning to sell 85 million shares at price guidance of between $11 and $13.

By going public, it enables Xpeng to have more access to higher amounts of capital, which will be needed to effectively compete against companies like Nio, WM Motor, Li Auto, and Tesla.

Currently, Xpeng sells two electric vehicles, including the G3 SUV and the P7 sedan. The production of the G3 SUV started in November 2018 and as of July 31, Xpeng delivered 18,741 of them to customers. And deliveries of the P7 started in May 2020, which saw over 1,966 deliveries since then.

In 2019, Xpeng’s revenue was $328.54 million, of which $307.32 million was from vehicle sales. And the 2019 total cost of sales was $407.55 million. The operating loss for the company was $535.11 million and net income loss was $522.53 million. Even though the company is operating at a significant loss, it is worth considering how long it took Tesla to turn a profit. Tesla had turned its first annual profit in the final 3 months of 2019 after being public for 10 years and the company was originally founded in 2003. Next year, Xpeng is also planning to launch a new sedan followed by a larger SUV in 2022.

Some of Xpeng’s investors prior to the company going public include Jack Ma, Xiaomi, and the Qatari sovereign fund. And Xpeng is partnering with BlackBerry for the operating system to be used in the vehicle’s onboard computer.

Xpeng (XPEV): Should I Buy It Now?

In my opinion, Xpeng went public at the right time. The demand for electric vehicles has been surging and it is estimated that China accounts for over 45% of global EV sales volumes and is already at 3.5 times larger than the U.S. market, according to capital.com. And data from IHS Markit is pointing to an expected compounded annual growth rate of China EV sales at 29.4% through 2025.

Xpeng is also going to reap the benefits from the improving economies of scale in relation to the battery cost. For example, the average price of a lithium battery cell was $131 per kWh in 2019. And it is projected to fall by a compounded annual rate of 10% for the next 3 years, thus generating incremental profit per unit sold.

When the company went public on Thursday, August 27, the stock price jumped 40% from $15 to $21.22. And then the stock price went up again 7.4% from $21.22 to $22.79 on Friday.

Analysts are waiting for more data such as quarterly earnings to make recommendations on whether to buy the stock or not. Based on what I’m seeing, I plan to start buying shares of Xpeng this week using a buy-and-hold method for fractional shares in the company and a dollar-cost averaging strategy. I used a similar approach for Nio and my total gain for that stock has been over 24%. I strongly believe Xpeng has long-term potential based on the metrics I am seeing.

Disclosure: I wrote this article myself and I do not have any business relationship with any company whose stock I write about. I am not a financial advisor and all articles are my opinion. You should do your own due diligence and consider talking to a financial professional before investing.