XPeng (XPEV), a number one Chinese smart EV manufacturer, released its Q3 2022 earnings Wednesday, missing top and bottom line estimates while offering a less-than-ideal delivery outlook for the remaining of the 12 months. Despite this, XPeng stock is racing higher. Let’s see why investors are jumping back in.
Since its foundation in 2015, XPeng has trailblazed its method to becoming a number one electric vehicle maker in the most important EV market globally.
XPeng focuses on delivering “smart EVs,” loaded with leading software and hardware, connectivity features, advanced driver assistance systems, and core vehicle systems. In September 2021, the corporate began deliveries of its XPeng P5, one in all the primary mass-produced smart EVS equipped with LIDAR.
The EV maker is constructing a various portfolio of vehicles to suit a big selection of consumer needs, including the next:
- G3i – Compact SUV
- P7 – Sports sedan
- P5 – Family sedan
As well as, XPeng launched its flagship G9 SUV, which began mass deliveries at the top of October. The corporate believes the G9 will help drive future sales volume with an 800V platform and charging speeds that can “outperform any of its competitors out there.”
Meanwhile, like many young EV makers, XPeng is absorbing higher costs while attempting to manage widening losses. To make matters worse, increasing competition and renewed COVID-19 lockdowns in China are presenting an additional challenge.
Within the second quarter, XPeng’s loss widened to $403 million as EV deliveries fell and better material costs caused gross margins to slide to 10.9%.
XPeng warned EV deliveries would fall further in Q3, indicating between 29,000 and 30,000. With 29,570 total deliveries, the EV maker hit its mark, but not by much. Either way, XPeng stock is soaring today.
XPeng Q3 financial and delivery results
Total deliveries within the third quarter hit 29,570, up 15% from Q3 2021, yet Xpeng’s EV sales have continued trending lower since hitting a peak of 41,751 within the fourth quarter of 2021. The deliveries included:
- P7 – 16,776
- P5 – 8,703
Revenue from vehicle sales reached $880 million, up 14% from Q3 2021 but decreasing 10% from the second quarter. Despite this, the price of sales increased 20.4% from last 12 months as material prices proceed cutting into margins.
XPeng’s gross margins bounced back from 10.9% last quarter to 13.5% in Q3 because the automaker has implemented several measures to spice up efficiency. Throughout the company’s third-quarter earnings call, the president of XPeng, Dr. Hongdi Brian Gu, spoke about an internal organization restructuring to chop costs and drive long-term results.
We’ll implement prudent cost control initiatives and improve operational efficiency. As we plan various upcoming product and technology rollouts, we’re confident that we are able to achieve significant improvement in each sales volumes and average selling price.
XPeng compared the present EV race in China to a marathon competition, claiming only the strongest players with “well-rounded capabilities, core technology,” and maybe most significantly, the power to “monetize from each hardware and software” will win in the long term.
The aim is to be “more concentrated and efficient” to drive future profitability and competitiveness. (Rivian’s CEO also spoke on this.)
Despite the corporate’s best efforts, XPeng’s loss widened to $330 million (RMB2.38 billion) from around $224 million (RMB1.59 billion) last 12 months as the corporate scales production. Xpeng issued the next guidance for Q4:
- EV deliveries: Between 20,000 and 21,000
- Revenue: Between RMB4.8 and RMB5.1 billion
The downbeat outlook is resulting from renewed lockdowns in China causing ongoing supply chain disruptions while ramping production of its flagship G9 SUV.
Why is XPeng stock trending
Even with the cautious guidance, XPeng stock is up over 40% today. For one thing, XPeng’s cost-cutting measures are excellent news. Maintaining efficiency through the production ramp shall be critical to the corporate’s success.
Gu says the consequences of XPeng’s internal restructuring will likely turn into visible within the second half of 2023 when he also expects the EV market to speed up further. The stock market is forward-looking and could possibly be looking past short-term hurdles.
Management also noted that, although a slowdown is anticipated this month, December should see sales rebound “sharply” as we roll into the brand new 12 months.
Lastly, protests have erupted in China over the fresh “zero-Covid” mandates which may be sparking hope for an eased policy, with several Chinese EV stocks trending higher today.