Why Is Xpeng Stock Down 50% This Year?

Chinese luxury EV maker Xpeng (NYSE:XPEV) delivered a total of 14,036 vehicles in August, up 2.5% compared to last year and up 26% versus last month. This puts the company’s year-over-year growth behind Li Auto (NASDAQ:LI) which saw sales grow 38% to 48,122 vehicles and Nio stock (NYSE:NIO) which saw its deliveries expand 4.4% versus last year.  However, Xpeng’s year-to-date growth has been a bit better, with the company delivering 77,209 vehicles for the January to August period, up 16.75% year-on-year. Xpeng’s stock has been a weak performer, declining by 46% year-over-year. So what are some of the trends driving Xpeng’s performance of late?

China’s economic growth has been weak with GDP rising by just about 4.7% in the second calendar quarter of 2024, down from 5.3% in the first quarter, as the country faces a downturn in the real estate market and a slow rebound from stringent Covid-19 lockdowns that ended over a year ago. Moreover, consumer spending and domestic consumption also remain weak in China. Retail sales recently fell to an 18-month low due to deflation, as businesses have been cutting prices while employers have been reducing salaries with unemployment among the youth remaining high. The broader high interest rate environment also hurts automotive companies by making financing costs higher.

Xpeng is looking to turn around its fortunes by doubling down on the lower end of the EV market. The company’s introduced the first vehicle under its new sub-brand called the M03, on August 27. The vehicle will be offered at a starting price of about RMB 119,800 ($17,000), which is well below Xpeng’s other models and roughly half the price of Tesla’s Model 3 and Model Y. Xpeng says that it has received over 30,000 firm orders for the car in the first two days. The evolving regulatory environment in China could also benefit Xpeng’s lower-end push. China recently introduced new incentives of RMB 10,000 (approximately $1,410) for consumers who switch from gasoline to electric or low-emission vehicles, with reports suggesting this subsidy could be doubled to RMB 20,000 ($2,800) per vehicle.

However, the decrease in XPEV stock has been far from consistent. Returns for the stock were 18% in 2021, -80% in 2022, and 47% in 2023 – indicating that XPEV underperformed the S&P in 2021 and 2022. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could XPEV face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a recovery?

Xpeng’s financial metrics have been looking up of late. For Q2 2024, the most recently reported quarter, the company saw revenues grow by 54.1% year-over-year to RMB6.82 billion ($0.94 billion), while gross margins stood at 14% compared to negative 3.9% for the same period of 2023. This is partly due to a higher mix of sales of the more expensive X9 vehicle and a patent licensing deal with Volkswagen. Xpeng stock trades at just about 1.8x forward revenues, which is a reasonable valuation.

That being said, there are risks as well, given the mixed Chinese economy. The trade wars between the U.S. and China and rising trade barriers in Europe also pose a risk for companies such as Xpeng. See our analysis of Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? for a detailed look at how Xpeng stock compares with its rivals Nio and Li Auto.

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