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Education Series: Single-Stock ETPs

XPeng: Tesla Rival Rises But Bear Market Persists

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Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

XPeng – also known as Guangzhou Xiaopeng Motors Technology Co Ltd (广州小鹏汽车科技有限公司) in its motherland of China – had attracted an eclectic group of investors ranging from Xiaomi and Alibaba to Qatar Investment Authority and Abu Dhabi’s sovereign wealth fund Mubadala before raising $1.5 billion via an IPO at the New York Stock Exchange near the end of August 2020. The company currently has three cars in production:

  1. The G3, compact SUV, which was also the company’s pilot mass-produced model.

  2. The P7, a mid-sized sedan with XPILOT 3.0, an indigenously-designed autonomous driving assistance system.

  3. The P5, a subcompact executive sedan which is marketed as the cheaper and smaller alternative to the P7, and the first mass-produced car with laser-based sensors for driver assistance.

Today, the company is at a crossroads: the company’s agreement with state-owned Haima Automobile, which manufactured its G3 SUV, ended as of the 31st of December 2021. In the meantime, XPeng’s Zhaoqing facility rolled out its 100,000th P7 sedan in March this year. The P7 is frequently compared to the Tesla Model 3 (and for good reason, going by its specs):

Construction of XPeng’s second factory in Guangzhou was announced in September 2020 with production expected to start by the end of this year. Meanwhile, its third factory in the now-familiar city of Wuhan is expected to go online sometime around 2023 – to bring up around 400,000 vehicles in annual production capacity.

Now, the details of this expansion are rather interesting: the vast bulk of the financing for setting up facilities comes directly from the Government. In the case of its Guangzhou plant, the company has to repay the the State-owned investment agency after seven years and then take ownership. A similar agreement can be assumed in its other facilities, given the nature of its backers for its Zhaoqing facility as well as its upcoming Wuhan facility.

This is rather pertinent when it comes to existing trends in the company’s fiscals over the past two full years’ audited results vis-à-vis its most recent quarter’s unaudited results:

Note: The 2021 FY report didn’t report its yearly numbers in US$. Hence, all figures are laid out in RMB to maintain consistency.

The trends that are apparent indicate:

  • The current year’s fiscals seem to be more in line with the past year’s rather than 2020.

  • In the current year, revenue is trending to close out the year much higher than in the previous year. However, so are cost of sales as well as operating losses.

  • Net Loss Per Ordinary Share is trending to be nearly 25% higher than in the previous year.

So, simply on the face of fiscal trends, the company’s bottom line doesn’t make its ticker very attractive. Added to this is the fact that the company’s impending expenses during asset transfer to the State would be rather substantial – thus making net earnings potentially even more frayed. However, the company’s trends in market share add further depth to the matter.

Market Share Trends

In terms of total vehicles, 2021 was a stalwart year for the company: it registered a 263% increase in sales over the past year:

In sales over the first five months of the year alone, the company’s sales are nearly half this number. Furthermore, in June, the company sold 51% more vehicles than in the previous month. Sales trends indicate that current year will be the company’s brand-new stalwart year.

Long-time watchers of China’s Electric Vehicle market will recognize the fact that the EV share in total car sales has seen a consistent uptrend. Consolidated EV sales in China for the month of June aren’t available yet. However, total “Plugin Car” sales in the first five months of the year are already 45% of that sold over the entirety of 2021.

The company’s share of sales in this segment continues to trend seemingly-ever upward:

Ratios and Recent Price Trajectory

An analysis of the 3 ratios similar to that executed in recent articles indicates that, as would be deducible for a company that is still in its growth phase, aren’t particularly encouraging:

Seemingly spurred by its June sales data, the company’s ratios do seem to have arrested their fall as of July 4th. Now, the ticker’s Price to Earnings (PE) Ratio trajectory since its listing is particularly interesting:

Historically, the ticker has been highly highly prized leading to the PE Ratio being south of negative 60 for quite some time. As “ratio cool-offs” began to manifest themselves in the U.S. market (home to the most overvalued equities in the world), the ticker had a precipitous fall until the June delivery data came in to push this ratio southward again (remember: earnings are negative; therefore the ratio goes down and not up if the stock price increases).

It bears noting that, till date, the company’s earnings per share has shown no particularly strong cyclicality on a quarterly basis. On an annual basis, however, the earnings per share has shown very little improvement after adjusting for additional share issuances.

Since the company’s products do find frequent comparison with Tesla (TSLA), lets consider the Year Till Date (YTD) performance of the company’s ticker as well as Tesla’s versus the benchmark “tech-heavy” Nasdaq-100 (NDX):

What’s apparent in trends for both EV stocks are:

  1. Both stocks are particularly sensitive to broader “tech” market trends in both the upside as well as the downside. The company’s ticker has been a little more sensitive to the downside until recently.

  2. While neither stock nor the benchmark have drawn par to levels at the dawn of the new year, the company’s ticker has been gaining steadily higher bullish sentiment since mid-June that has edged it past Tesla’s performance.

In Conclusion

Given its growth status, this is a very interesting company to watch. In terms of product range (and even financials), XPeng shares a lot of characteristics with NIO (which was covered recently). Another interesting point of similarity between the two companies is the country of Norway. XPeng has been selling its products there since late 2020, with NIO following suit the following year.

Both these companies along with local rival Li Auto offer attractive products aimed at the mid- to high-end spectrum of the Chinese BEV market, which is increasingly being spoilt for choice.

Now, the company’s Q2 results are expected sometime in the latter half of August. Two items of particular interest to watch for would be:

  1. Whether the company announces a mass-market marque, just like NIO, in a bid to take its high-quality engineering expertise to the “budget” end of the BEV market in China. The company’s increased production capacity certainly has room for a foray in that.

  2. Whether there is an improvement in earnings attributable per ordinary share to bring the trend for the year below that of the past two years’ recorded metrics.

The company’s President Mr. Brian Gu had already stated that he hopes the company will break even by the end of 2023. While plans were announced by the company that it would go deeper into Europe (i.e. beyond its modest market share in Norway) by entering the German, Swedish and Dutch markets later this year, no timetable has been announced yet. This could be another facet of information to consider, if further light is shed on it in the upcoming earnings call.

Long-term investors intending with the wherewithal to hold the stock over a long period of time might see their investment bear decent gains after a period of 2-3 years. In the immediate term, however, the stock’s relation to the broader “tech” market’s weakness is a hurdle. However, another interesting facet to keep in mind is the recent boom in Emerging Markets stocks – which the likes of XPeng and NIO could be considered to gain from, since most of their business is in China.

The interplay between these two sources of momentum in opposite directions will be fascinating to watch over the next couple of quarters. Given that a massive turnaround in stock performance to surpass the price levels at the dawn of the year cannot be reliably expected, disciplined tactical investors in Europe can utilized leveraged and leverage inverse products based on the stock’s daily trajectory to make some quick gains with short-term strategies on the upside and downside respectively.

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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Sandeep Rao

Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Julian Manoilov

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Julian joined Leverage Shares in 2018 as part of the company’s premier expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Oktay Kavrak

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Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined LS from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

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