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Does XPeng (XPEV) Hold a Competitive Edge in China’s EV Market?

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The electric vehicle space is getting more electrified and competitive with each passing day. China’s EV market is on a roll, thanks to favorable government policies and robust EV supply-chain network. Sales of new energy vehicles — comprising EVs and hybrids — were up 11% year on year in 2020 despite coronavirus woes. Importantly, China’s EV penetration is likely to register five-fold growth by 2025. 

Banking on green revolution and taking cues from Tesla’s TSLA success, XPeng Inc.XPEV is fast evolving as a noted name in the China EV industry. Backed by Alibaba Group BABA, XPeng seems well positioned to secure a strong foothold in the flourishing EV industry in the long term. This rising star of China’s EV market has managed to garner massive investors’ attention since its IPO on Aug 27, 2020, rallying more than 125% since then. XPeng aims to boost e-mobility prospects in the world’s biggest auto market on high-performance electric cars, innovative technology, expansion plans, mixed distribution model, and promising roadmap of EV production as well as sales.

What Makes XPEV a Promising Stock?

Poised for Speedy Sales Growth: The firm’s existing EV models include G3 SUV and P7 sedan, launched in 2018 and 2020, respectively. While G3 has a range of at least 520 km on a single recharge, P7 has a more streamlined design, with improved power efficiency and a driving range of 562-706 km, depending on the version of the model. In a bid to bolster its product portfolio and customer base, the EV maker aims to roll out a new model every year. XPeng’s third smart EV will be a sedan — equipped with LIDAR technology and XPILOT 3.0 — and is likely to hit the roads by year-end.

Amid the growing popularity of green cars, XPeng’s total delivery count for 2020 rose a whopping 112% year over year to 27,041 vehicles, with P7 accounting for 55.7% of the deliveries. The firm’s fourth-quarter deliveries came in at 12,964, which not just increased 303% year over year but also surpassed the company’s forecast of 10,000 units. Notably, projected revenues for the fourth quarter indicate a year-on-year increase of a whopping 243.7%. In addition to vehicle sales, XPeng also generates revenues from after-sales services, and ride-hailing and supercharging services.The company’s intention to monetize value-added services through the software subscription model also bodes well for long-term sales growth.

Diving Deep into Technology: We like XPeng’s commitment to innovation push and continuous R&D spending to bolster its standing in the market and fortify EV game. Xpeng’s full-stack proprietary autonomous driving technology coupled with advanced hardware configuration offer it a competitive edge. Its own in-car intelligent operating system, Xmart OS, provides extensive smart connectivity functions, including artificial intelligence, smart navigation, app store and voice controlled smart mobility experience. Its in-car app store provides a revolutionary experience to tech-savvy consumers, enabling them to effectively connect to third-party services and infotainment.

XPeng’s autonomous driving system, XPILOT 3.0, powered by NVIDIA NVDA chips, is slated to release in the first quarter of 2021. It will provide Navigation Guided Pilot for highways and memory auto parking for carparks, addressing some of the major challenges faced by drivers in China. The company also rolled out OTA (over-the-air) upgrade to the Xmart OS operating system, adding 82 new features to its vehicles. The firm’s smart EVs’ powertrain comprising battery system, electric drive system, high-voltage system and vehicle control unit enables improved digitization, drivability, as well as power efficiency. 

Expansion Efforts are Impressive: XPeng started its second manufacturing base in Guangzhou last November, making it the first China-based start-up EV maker with two self-owned factories. The manufacturing facility, estimated to commence production in December 2022, will provide a wide range of facilities for R&D, manufacturing, vehicle testing, sales and other smart mobility functions. It will significantly bolster the company’s production capability and put the leadership position at the forefront of the Smart EV market.

The firm not just sells cars directly to consumers via its own sales infrastructure but also leverages the franchise model to accelerate the expansion of its network. The differentiated distribution model is likely to further spur sales. The EV maker has widened its physical sales network to 58 cities, with 116 retail stores and 50 service centers in China.vThe company has also expanded XPeng-branded supercharging stations to 135 and provides free charging services at 670 stations across 100 cities in China. XPeng recently inked a deal with five banks in China to secure a credit line of 2 billion for expansion of its manufacturing, sales and service capabilities.

Don’t Let Minor Hiccups Diminish Your Faith in XPEV

Like its domestic peers NIO Inc. NIO and Li Auto LI, Xpeng has also not managed to turn a profit yet. But that has been the case with most EV stocks, especially the newer entrants. Rising operating costs and R&D expenses are surely weighing on the company’s margins. However, with mass production, XPeng will be able to reduce costs over time.

Well, XPeng — which presently carries a Zacks Rank #3 (Hold) — is going the extra mile to ramp up output and capture the burgeoning EV market. Indeed, the EV market is crowded and the company faces stiff competition from rivals such as NIO, BYD. Co Ltd BYDDY, Li Auto as well as the EV king Tesla, which claims the lion’s share of China’s flourishing EV market. However, XPeng is fast emerging as an ambitious competitor of the EV behemoth in the booming China EV market. While XPeng is definitely overvalued than the auto sector, as is the case with almost all EV stocks, it is better valued than Tesla, going by the P/S ratio.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company’s unfaltering commitment to technology innovation and customer services, by putting forth a fascinating EV experience specific to consumers’ requirements, is commendable. With the mission of bringing Smart EVs to the China auto market through continuous innovation in core vehicle systems, driverless technology and smart connectivity, XPeng is set to become a name to reckon with in the coming years. So, stay invested in XPeng if you already hold the stock and don’t miss the opportunity to buy any dips.  

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