Like other electric vehicle (EV) manufacturers in China and elsewhere, XPeng (NYSE:XPEV), is mired in a price war that’s taking a financial toll. As we’ll discover, XPeng’s recent quarterly results aren’t perfect since the company isn’t currently profitable. Nevertheless, I am bullish on XPEV stock and am glad to see it bouncing off of a low price level.
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As a China-based EV maker, XPeng has to deal with competition from local rivals like Li Auto (NASDAQ:LI) as well as Tesla (NASDAQ:TSLA). Tesla effectively kicked off a price war by reducing the automaker’s vehicle prices, and investors might expect this to weigh on XPeng’s profit margins.
However, a deep dive into XPeng’s quarterly financials will reveal that the company’s margins are actually improving. Plus, XPeng’s forward guidance suggests that the EV price war might not derail the automaker’s progress this year. Along with all of that, XPeng is making a name for itself as a technologically advanced automaker. It’s a surprising story, so let’s delve into the details right now.
Could XPeng be an AI Pioneer?
Financial traders might not usually think of XPeng as a pioneer in the artificial intelligence (AI) space. Yet, a fresh news story suggests that XPeng is actually on the cutting edge of automotive AI technology.
Here are the need-to-know details. According to a press release, XPeng recently held an AI-focused event with the specific theme of “Pioneering a new era of smart AI driving.” At that event, the company announced the full rollout of the AI Tianji System XOS 5.1.0 in-car operating system to all eligible XPeng vehicle models.
This, XPeng claims, is the industry’s first in-car operating system to “comprehensively apply AI technology to both smart cockpits and smart driving.” Moreover, XPeng stated that the AI-enhanced automotive operating system improved touch-response speeds by over 30% and increased application-launch speeds by 50%.
What really caught my attention, though, was the announcement of XPeng’s AI Driver Valet automotive feature. This feature generates “customized driving routes after just one learning session.” However, each user can only store up to 10 memory routes, with each route being limited to a maximum length of 100 kilometers. So, there may be room for further progress in this area for XPeng.
Still, the movement in AI-enhanced smart-car experiences has to start somewhere, and XPeng is evidently willing to take a leading role in this revolution. I have a funny feeling that, in the coming months, another automaker like Tesla might take XPeng’s advancements to the next level. However, XPeng deserves credit for pioneering a next-level driving experience that will probably become standard for all new vehicle operating systems at some point.
XPeng Stock Rises from a Very Low Level
The U.S. stock market was mostly flat yesterday, but XPeng stock rose 5.9% due to the market’s positive impression of XPeng’s first-quarter 2024 results. This could be the start of a much bigger rally, as the stock is still nowhere near its 52-week high of $23.62.
As I alluded to earlier, the EV price war undoubtedly has some investors concerned about the margins of automakers like XPeng. On the other hand, you may be surprised to learn that XPeng’s margins are actually on the rise.
In fact, during the first quarter of 2024, XPeng’s gross margin grew to 12.9%, versus just 1.7% in the year-earlier quarter and 6.2% in 2023’s fourth quarter. Furthermore, XPeng’s vehicle margin increased from -2.5% (yes, that’s negative 2.5%) in Q1 2023 and 4.1% in Q4 2023 to 5.5% in the first quarter of 2024.
Now, the market’s positive reaction to XPeng’s quarterly results is starting to make a lot of sense. It looks like the firm is holding up fairly well despite the EV price war. As further evidence of this, XPeng recorded Q1-2024 revenue of 6.55 billion RMB, or the equivalent of $907 million. This result indicates a year-over-year increase of 62.3%, and it beat the consensus estimate of $859 million in quarterly revenue.
Turning to the bottom-line results, XPeng reported a first-quarter 2024 net loss of the equivalent of $0.20 per share. That might not sound ideal, but it’s better than Wall Street’s consensus estimate of a loss of $0.34 per share. Also, XPeng did a lot better in Q1 of 2024 than it did in the year-earlier quarter, when it recorded a loss of $0.38 per share.
Is XPeng Stock a Buy, According to Analysts?
On TipRanks, XPEV comes in as a Moderate Buy based on eight Buys, four Holds, and two Sell ratings assigned by analysts in the past three months. The average XPeng price target is $12.24, implying 39.6% upside potential.
Conclusion: Should You Consider XPeng Stock?
You may not have considered XPeng an automotive AI pioneer. However, its new AI features could set the standard for other automakers to follow.
Additionally, although XPeng isn’t profitable right now, the company’s margins are actually improving despite the ongoing EV price war. Because of this, I’m quite impressed with XPeng’s progress. Therefore, it’s great to see XPEV stock rebounding off of a very low price level, and I would certainly consider taking a small XPeng share position.
