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XPEV stock may take a breather soon
By Tezcan Gecgil, InvestorPlace Contributor Dec 18, 2020, 8:40 am EST
Electric vehicle (EV) companies like China-based Xpeng (NYSE:XPEV) have been getting significant investor attention lately. In late August, XPEV stock listed on the Big Board (NYSE) as an American depositary receipt (ADR).
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On Aug. 27, Xpeng shares were trading at $23.10. By Nov. 24, they hit a record high of $74.49. Now XPEV stock is shy of $50. Despite the recent decline in price, XPEV stock has more than doubled in less than four months.
In a recent report, Stefan Schwarzer of United Nations Environment Programme (UNEP) said that by 2040, “68% of all electricity production will stem from renewable sources.” The report said transportation would be 10% of that as EVs come into more common use.
Now investors in Xpeng stock wonder if the run-up in price can continue in 2021, too. I believe the EV sector has become overbought for the short-run. Therefore short-term traders should possibly expect volatility with a downward bias.
On the other hand, investors who believe that the growth in EVs, especially in China, is going to continue, could buy into XPEV stock, ideally below $40 and expect to hold for several years for significant gains. Here’s why…
China, EV Sales and XPeng Stock
A recent article by Dr. M. Robinson and P. Rajavignes points out that there were more than 500 million EVs in 2019, up 46% over 2018. The article credits a combination of technological advancements and environmental concerns.
China is currently the world’s largest EV market, with 2.3 million electric vehicles in active use — about 45% of EVs’ global stock. Europe and the U.S. track China with 1.2 and 1.1 million EVs respectively. Some of the top best sellers in China the local EV brands.
Where does Xpeng fit in the growing world EVs in China? The company was founded in 2015, by He Xiaopeng, a former Alibaba (NYSE:BABA) executive. He was joined by Xia Heng, an industry veteran. The company currently has two models, namely an SUV (the G3) and a four-door sports sedan (the P7).
In early November, Xpeng announced Q3 results. Revenues were $293.1 million, an increase of 342.5% YoY. However, non-GAAP net loss was $127.4 million, or 15% higher compared with Q3 2019. Non-GAAP diluted net loss per ADS was 32 cents.
Analysts noted, “XPeng outsold most other Chinese companies in September 2020 with sales of 3,478 EV deliveries. XPeng’s Q3 2020 deliveries rose 266% YoY.”
As a result, JPMorgan Chase (NYSE:JPM) is bullish on XPEV stock.
CEO He Xiaopeng commented, “Looking ahead, XPeng will continue to capitalize on its core strengths in technology, while heightening sales and marketing efforts, further enhancing manufacturing capability, and developing our global strategy.”
Investors have been pleased with the results. Prior to the release of Q3 metrics, XPEV stock was trading around $30. In a matter of two weeks, it hit a record-high at about $75. Since then, profit-taking has kicked in and the shares are flirting with $50.
So Should Investors Buy XPEV Stock Now?
Given the growth of EVs in China, XPEVs bull run could be only the beginning. China expects EV penetration to quadruple by 2025.”
But the road for companies like XPeng will likely be choppy and long. A drop to $40 in XPEV stock is possible in the coming weeks. Such a decline would offer a better entry point for long-term shareholders.
If you do not want to commit full capital to XPENG stock, you may also consider investing in EV exchange-traded funds (ETFs). Examples include the Global X Autonomous & Electric Vehicles ETF (NASDAQ:DRIV), the SPDR S&P Kensho Smart Mobility ETF (NYSEARCA:HAIL), and the iShares Self-Driving EV and Tech ETF (NYSEARCA:IDRV).
Finally, if you are interested in buying into stocks that recently went public, then your ETF choices would extend to the First Trust U.S. Equity Opportunities ETF ((NYSEARCA:FPX), the Defiance Next Gen SPAC Derived ETF (NYSEARCA:SPAK), the Renaissance IPO ETF (NYSEARCA:IPO), the Invesco S&P Spin-Off ETF (NYSEARCA:CSD), or the First Trust IPOX Europe Equity Opportunities ETF (NASDAQ:FPXE).