How The Mona Brand Is Helping Xpeng Stock

Chinese luxury EV maker Xpeng (NYSE:XPEV) delivered a record 21,352 vehicles in September, up 39.5% year-on-year and up 52% from August. Xpeng’s total year-to-date sales stand at about 98,561 vehicles, up 21% versus last year. In comparison, Li Auto (NASDAQ:LI), the largest of the emerging EV players in China, delivered 53,709 vehicles for September 2024 – an increase of 49% percent year-over-year, with its year-to-date sales growing by 40%. A bulk of the Xpeng’s growth appears to have been driven by the company’s new sub-brand, Mona, with the brand’s first model, the Mona M03, selling over 10,000 units in its first full month of deliveries since its launch in late August. The vehicle has a starting price of about RMB 119,800 (about $17,000), which is well below Xpeng’s other models and roughly half the price of Tesla’s Model 3 and Model Y.

Now, China’s economic growth has been weak due to a downturn in the real estate market and a slow rebound from stringent Covid-19 lockdowns that ended over a year ago. Consumer spending and domestic consumption also remain weak in China.  Despite concerns about the economy and weakness in the global EV market, the Chinese EV market has held up with the mix of new energy vehicle sales rising to about 50% of overall automotive sales in the country. Moreover, there has also been a premiumization trend in the Chinese EV market, with cars costing upward of $30,000 accounting for a growing mix of sales. This could play in Xpeng’s favor, as it competes primarily in the premium end of the electric vehicle market. Moreover, Xpeng’s new lower-end models could benefit from the Chinese government’s incentives of RMB 10,000 (approximately $1,410) offered to consumers who switch from gasoline to electric or low-emission vehicles. Separately, the Chinese government recently announced a stimulus plan aimed at stabilizing the economy, which includes lowering interest rates and fiscal support. This could help consumer spending to an extent, further driving the EV market.

The decrease in XPEV stock over the last 3-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 18% in 2021, -80% in 2022, and 47% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it 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 around rate cuts and multiple wars, 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 stock trades at just about 1.9x forward revenues. Although this is not an unreasonable valuation, it is higher than its peers Nio and Li Auto. That said, 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 RMB 6.82 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 premium X9 multi-purpose vehicle and a patent licensing deal with Volkswagen.  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.

[1] Returns as of 10/1/2024
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates