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In 2023, “pure play” electric vehicle (EV) company BYD stated1 that it has achieved a milestone: it sold a little over 3.02 million cars. China’s automobile association estimated that 89.5% of BYD’s sales were in the People’s Republic of China – easily making it the biggest EV maker in China’s crowded marketplace.
Source: China Passenger Car Association
There was another very significant point of consideration: BYD was the largest overall car seller in China for the year of 2023 as well, with its nearest competitor – the FAW-Volkswagen combine – trailing a full 32% behind.
Source: China Passenger Car Association
There are two points to consider here. Firstly: EVs, even with subsidies (which are considerable in China), aren’t generally cheaper than Internal Combustion Engine (ICE)-propelled cars. This outsized preponderance of EVs in the total sales mix might be indicating that income segments below the upper/upper-middle income levels aren’t longer consuming automobiles at quite as comparable a rate as before. This might be another “proxy data” point indicating slowing overall growth for China’s economy (note: the applicability of “proxy data” towards prognosticating the Chinese economy’s “health” was discussed in an earlier article2 published near the end of the year).
Secondly: independent of the Chinese economy’s “health”, the sales figures indicates that China’s EV consumer base might be rapidly arriving at a consensus about a resilient list of choices out of China’s tangled mess of EV carmakers. This means that China’s EV stocks (be they public or private) will likely be undergoing a significant shake-up in terms of investor attractiveness.
One such stock that might be affected would be a company that didn’t make China’s Top 9 list after selling 141,601 vehicles worldwide3 in the past year: Guangzhou Xiaopeng Motors Technology Co., Ltd., more commonly known as XPeng.
Forward-Looking Conviction
Over the past four reported quarters, it can be observed4 that the Earnings Per Share (EPS) for the company’s stock have been worsening:
Source: Nasdaq
While the latest reported EPS has been a positive surprise (indicating some increasing efficiency not accounted for by forward consensus), the fiscal year EPS isn’t expected to turn positive until 2026 – most likely in Q2 or Q3.
There is some argument to the notion that traded volumes tend to boost stock prices (as exemplified in the last article5). An examination of day-over day changes (or “deltas”) in XPeng’s stock price versus traded volumes, however, indicates that volumes cannot be considered a significant driver to stock prices (or even a factor that imparts a sustained bullish trajectory) since circa Q3 2021.
Source: Leverage Shares
The stock is currently quite far from the highs of price and volume witnessed in 2020 and 2022 respectively. Through much of Q4 2023 till the present, the stock is trending downwards – with both price and daily volume a long way away from the highs witnessed in 2020 and 2022 respectively.
This isn’t just a feature for the likes of XPeng. As of last week, China’s stock markets lost nearly $6.3 trillion in market value6 since the peaks reached in 2021, with managers of benchmark-tracking funds selling a net $300 million Chinese shares in January alone.
Source: Leverage Shares
Over the past four full years, China’s market capitalization trend is near-perfect parabolic with levels in the present nearly matching that on the first traded day of 2020. Despite a nearly $278-billion market rescue plan announced by the Chinese government on the 23rd of January, neither foreign institutional investors nor China’s retail investors (who, at 220 million, account for around 60% of China’s stock market turnover) are particularly enthused by it providing a sustainable boost, given a long history of botched market rescue efforts.
In effect, XPeng is in the midst of two headwinds: one in its industry and the other in its dominant economy of operation. The company, however, does some “sky-high” ambitions that might be of interest.
The Future: A Flying Car?
In October 2022, the Xpeng’s urban air mobility division – AeroHT – reported through a video presentation during the company’s “1024 Tech Day” event in China that a flying car prototype successfully completed its maiden flight that year7.
Source: XPeng/Agencies
Weighing a little under 600 kilograms with a flight time of 35 minutes and a maximum flight speed of 130 kilometers per hour, the “flying car” (or Electric Vertical Take-Off and Landing Vehicle, “eVTOL”) can be user-driven or operated autonomously. The company started accepting pre-orders earlier this month and announced that the orders will be accepted later on in the year for delivery in 2025.
While strategy consulting firm Roland Berger expects that up to 160,000 flying vehicles will be operating around the world as air taxis by 2050, there are numerous challenges that prevent widespread adoption in the present. First, most cities around the world aren’t replete with infrastructure to make eVTOLs widely accessible. Second, the prospect of large numbers of half-ton flying machines which may or may not be robotic zipping around the skies will likely be regarded with extreme caution by administrators around the world.
For the company, there is a third factor: it isn’t alone in this space. Giants such as General Motors and Hyundai, startups such as Aeromobil as well as numerous other players in stealth mode are working on developing viable eVTOLs for a wide variety of purposes around the world. Giants such as General Motors and Hyundai, startups such as Aeromobil as well as numerous other players in stealth mode are working on developing viable eVTOLs for a wide variety of purposes around the world. As such, the announcement of pre-orders and orders generated only marginally increased attention for the company’s stock and didn’t serve to reverse bearish trends in stock valuation. A bullish trend might be imputed if there were any indications of significant cost savings becoming a sustainable trend.
In this regard, XPeng is in a significantly weaker position than current China auto champion BYD. Among the most expensive parts of an EV are its batteries. BYD started out in 1995 as a manufacturer of rechargeable batteries which it consistently built on after purchasing ailing state-owned car manufacturer Qinchuan Automobile Company to become the Berkshire Hathaway-backed monster it is today. Its in-house battery business enables it to be nimble with cutting prices and saving costs. Meanwhile, XPeng (like many others) continue to be dependent on numerous suppliers such as Contemporary Amperex Technology Co. Limited (CATL).
An argument could be made that this is a long-term growth stock due to the relative rapidity in which the company has committed to producing eVTOLs. However, the turnaround horizon for the AeroHT division becoming the company’s mainstay would likely be measurable in decades.
Exploring the unknown is a bold and visionary decision for which the company’s leadership must be commended. However, at this moment, it’s a buyer’s market both in equities as well as EVs. Expect rough weather and turbulence.
Footnotes:
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
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If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
Risk Warnings
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
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Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Investment
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