Chinese EV player Xpeng (XPEV) has been a long-time EV player in China, but is a relatively recent addition to the NYSE. The company’s listing in 2020 ignited a ton of anticipation.
Indeed, this EV player has seen its stock price go on quite the ride since being publicly listed. Since the company’s $15 IPO as an ADR (American Depository Receipt) on the NASDAQ in August 2020, shares took off to nearly $75 per share late last year. (See Xpeng stock analysis on TipRanks)
However, since then, this 5-bagger has turned into a decliner of the slow-and-steady variety. Today, growth investors can pick up shares of this EV maker for around $37 per share, at the time of writing.
Let’s dive into why Xpeng could be a great growth-at-a-reasonable-price play for long-term investors at these levels.
An EV for the Middle Class
Xpeng’s business model is extremely intriguing. The company’s three models include its SUV (the G3 model), a sedan (the P7 model), and a newly-released SUV model (G3).
Xpeng’s target market centers on the Chinese middle class. The company’s goal is to grab market share in a fast-growing segment of the population that simply can’t afford, or don’t want to stretch their budgets, to buy a Nio (NIO) or Tesla (TSLA) vehicle.
Given the absolutely extraordinary rise of China’s middle class, and a boom in consumer spending as the pandemic ends, Xpeng is well positioned to take advantage of improved demand over the medium-term. Indeed, in comparison to its peers, Xpeng’s positioning seems superior right now.
Furthermore, the company’s lidar-equipped smart EVs are becoming a big hit among millennial buyers. These technologically-advanced vehicles, in combination with a strong online sales presence, have become noticed among investors. Indeed, Xpeng is doing its part to transform the EV buying experience in small, incremental ways.
These small innovations could pay big dividends for investors long-term.
Growth Is the Name of the Game for Investors in XPEV Stock
Xpeng’s growth trajectory is what entices most investors to consider this EV option.
Indeed, the Chinese market continues to be the growth market to which investors want more access. That's for good reason.
Recent data shows that China currently accounts for roughly half of the global EV market. As a high-growth market with some serious political backing, China has increasingly appealed to growth investors looking for outsized EV growth.
Indeed, Xpeng’s positioning as a company targeting China’s growing middle class adds to the growth expectations for this stock. The company delivered roughly 27,000 cars in 2020, so it’s still small relative to the more than 2.5 million EV sales in China in 2019. However, given this relatively low base, investors can expect sky-high CAGR on the horizon for Xpeng over the long run.
This is a company with an absolutely massive runway that investors would be remiss to ignore.
Risks Do Exist, So Trade Carefully
All that said, XPEV certainly isn’t without risk today. Like other large EV players, Xpeng is being hampered by a series of headwinds.
Among the most pertinent is a global semiconductor chip shortage that investors have been contending with since the beginning of the year. Recent reports indicate this shortage could rage on for a couple years. Such a situation is not friendly to growth-heavy stocks like XPEV.
Accordingly, Xpeng has factored in the global chip shortage into its recent production guidance. Whether this shortage further affects production estimates remains to be seen. However, investors are starting to price this risk in.
Additionally, concerns domestically around the deteriorating U.S.-China diplomatic relationship have soured U.S.-listed Chinese stocks. As an ADR on the NASDAQ, Xpeng stock has been hit by delisting threats. While likely a small probability, it’s an issue that has kept many investors out of China altogether of late.
What Analysts Are Saying About XPEV Stock
According to TipRanks’ analyst rating consensus, XPEV stock comes in as a Strong Buy. Out of 7 analyst ratings, there are 7 Buy recommendations.
As for price targets, the average analyst price target is $47.66. Analyst price targets range from a low of $34.00 per share to a high of $57.00 per share.
Xpeng’s growth potential provides a significant margin of safety for long-term growth investors at these levels. This stock certainly isn’t without risk. However, many investors believe the risk-reward with this stock is enticing at around $37 per share.
When growth stocks become fashionable once again, Chinese stocks could once again become the centerpiece of discussion. Growth in China, and particularly in China’s EV market, is likely to be world-class. Xpeng investors hope the market will see the value in this growth stock soon.
Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.