XPeng, a Chinese electric vehicle (EV) start-up, has experienced a significant decline in its delivery growth rates in the Chinese EV market this year. In June alone, the company delivered only 8,620 electric vehicles, showing a decline of 43% year over year. This can be attributed to rising pricing pressure and waning demand for EVs.
Despite launching a new EV product, the G6, in June, XPeng’s delivery prospects are expected to remain weak in an increasingly competitive market. The Chinese EV industry has become more crowded, with Tesla leading a price war by lowering prices six times to stimulate demand. While this tactic has allowed Tesla to increase its deliveries, it has led to increased pricing pressure in the market, negatively impacting XPeng’s delivery prospects.
Compared to its competitors in the industry, such as Li Auto and NIO, XPeng has performed poorly. Li Auto broke through the 30,000-electric vehicle delivery barrier in June, experiencing a 150.1% year over year delivery growth. NIO delivered over 10,000 vehicles but reported a delivery decline of 17.4% year over year. In contrast, XPeng’s revenues from vehicle sales declined by 50% in the second quarter, further highlighting the company’s underperformance.
The ongoing slowdown in delivery growth rates for XPeng and other EV manufacturers can be attributed, in part, to the impact of the pandemic. The company’s outlook for the second quarter indicates that operating conditions will continue to be challenging in the second half of the year. While the introduction of the G6, a competitively priced SUV, could potentially boost delivery prospects, it is launching into an overall weak market.
Investors should note that XPeng’s delivery potential is currently valued at a higher price-to-revenue ratio compared to its competitors. Li Auto, with its strong delivery growth and projected profitability in 2023, presents a more attractive option for investors. Meanwhile, NIO recently gained a strategic investor in Abu Dhabi, signaling positive developments for the company.
While XPeng’s G6 holds promise, particularly when mass production begins later this year, the company’s overall delivery picture is expected to remain challenging. The aggressive pricing of the G6 may contribute to margin headwinds not only for XPeng but for the entire sector.
Considering the significant slowdown in XPeng’s delivery growth rates, it is no longer advisable to maintain a buy rating for the company. Although the G6 has the potential to make a positive impact, its financial effects will not be fully realized until the fourth quarter. For now, XPeng’s weak delivery outlook for Q2’23 justifies a downgraded rating.
In conclusion, while XPeng’s G6 and the competitive Chinese EV market present opportunities, the company’s delivery prospects face headwinds. Investors should carefully consider the evolving landscape and weigh their options based on each company’s performance and potential for growth.
