It’s been a challenging start to the year for electric vehicle (EV) companies, particularly those in China. Xpeng (NYSE:XPEV) has seen its stock plummet by 46% in 2024, hovering close to its lowest levels. Similarly, Li Auto (NASDAQ:LI) and NIO (NYSE:NIO) have also experienced significant declines amidst the broader meltdown in Chinese EV stocks.
Reasons Behind Xpeng’s Stock Decline
The downturn in EV stocks has been widespread, with Tesla (NASDAQ:TSLA) entering the second quarter as the worst-performing S&P 500 Index ($SPX) stock of the year. The devaluation of Chinese stocks amid the country’s economic slowdown, coupled with strained relations between China and Western nations, has exacerbated the pressures across the industry. This double blow has hit Chinese EV stocks particularly hard.
Additionally, the first-quarter delivery volumes for Chinese EV companies fell short of expectations, with Xpeng only managing to deliver 4,545 vehicles in February. While March saw an improvement with deliveries nearly doubling to 9,026, the figure has remained below 10,000 for three consecutive months. Moreover, Alibaba (BABA) has been gradually offloading Xpeng shares, further dampening market sentiment.
Despite the rough start to the year, Xpeng presents an enticing opportunity as an EV stock to consider investing in this April, despite the industry’s short-term challenges.
Positive Financial Indicators for Xpeng
Despite recent delivery setbacks, there are positive signs in Xpeng’s financial performance. The company achieved a gross profit in Q4 2023 after two-quarters of negative margins. Furthermore, 2023 marked the first time Xpeng reported positive operating cash flows annually, and it also generated positive free cash flows in the latter half of the year, a noteworthy achievement considering the cash burn typically associated with EV startups.
Xpeng’s Future Outlook
Xpeng is poised to launch several new models, including those developed in collaboration with Volkswagen (VWAGY) and Didi. The company has expanded its partnership with Volkswagen to explore joint sourcing, potentially reducing costs. Moreover, Xpeng has revamped its dealership network to support sales in the latter part of 2024 and is aggressively pursuing international expansion, despite regulatory scrutiny in Europe.
Why Xpeng Stands Out as a Compelling Investment
Despite ongoing challenges in the EV industry, Xpeng offers compelling reasons for investment. Anticipated rebound in deliveries, improved margins, and the potential for revenue from platform and software services are all factors supporting its growth trajectory. With a robust balance sheet boasting significant cash reserves and minimal long-term debt, Xpeng is well-positioned to weather the current industry slowdown.
Furthermore, XPEV’s valuation metrics are attractive, trading at a significantly lower NTM enterprise value-to-earnings before interest, tax, depreciation, and amortization multiple compared to Rivian (NASDAQ:RIVN), Tesla (NASDAQ:TSLA), NIO (NYSE:NIO), and Li Auto (NASDAQ:LI).
With its promising valuation, strategic partnerships, strong product lineup, and growth prospects, Xpeng emerges as a compelling stock to consider adding to your portfolio this month, despite the challenges facing the broader EV industry.
Featured Image: Megapixl
