The shares of Xpeng (XPEV) traded in the green on Friday morning despite the Chinese electric vehicle producer recalling 47,490 units of its P7+ electric sedans over a possible steering assist failure. As of 10:55 a.m. EDT, the stock rose marginally by 0.53% to reach $20.69.
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According to China’s market regulator, which disclosed the recall on Friday, loose wiring in the model’s assisted steering system could cause its steering sensor signal to fluctuate. This fluctuation could trigger the steering failure warning light, increasing the chances of a steering assist failure.
The electric vehicles affected were produced between August last year and late April, the regulator noted. Xpeng plans to fix the faulty system at no extra cost, it added. An analysis by Reuters shows that the vehicles to be recalled accounted for over 65% of Xpeng’s sales of the model at the end of August.
Xpeng Takes on Tesla
The P7+ model, which entered the market last November, has quickly become a strong contender against Tesla’s (TSLA) Model 3 electric vehicle. Moreover, Xpeng’s G6 SUV has also been positioned as a direct competitor to Tesla’s Model Y, matching it closely in size, price, and performance.
Xpeng, along with fellow Chinese automaker BYD (BYDDY), has become one of the leading challengers to Tesla in the global EV market. In August, Xpeng sold over 37,000 smart EVs, with sales exploding 169% year-over-year even as Tesla faces troubles with its sales.
As part of its global expansion drive, Xpeng is also working towards launching its affordable Mona EV brand in Europe next year. Xiaopeng He, Chairman and CEO of Xpeng, also recently boosted his stake in the company, signaling greater confidence in the EV producer’s future.
Is XPEV a Good Stock to Buy?
Reacting to the recall, banking giant Morgan Stanley (MS) noted that it expects the development to have “a manageable impact” on Xpeng’s gross profit margin in the third quarter of the year. The banker also anticipates a limited impact on Xpeng’s drive to break even at the end of the year.
Morgan Stanley pegged its assessment on the steering systems used on other Xpeng models being supplied by a different supplier. The financial services firm also thinks that a timely response and recall “can make them more of a hiccup than a disruption.”
Meanwhile, across Wall Street, Xpeng’s shares have a Moderate Buy consensus rating based on nine Buy, three Hold, and one Sell recommendations by 13 Wall Street analysts over the past three months. The average XPEV price target is $25.35, which suggests a possible 22.52% upswing.
