Electric vehicle maker XPeng's [XPEV] share price is attracting a fair amount of debate as to whether or not it is overvalued. On the one hand, the Guangzhou-based manufacturer has a $27.101bn market cap, a number far ahead of the $2.13bn worth of revenue the firm is forecasted to bring in this year. On the other hand, last quarter was a record-breaker in terms of deliveries, with its P7 sedan seeing brisk sales and suggesting XPeng is still in growth mode.
Is sales growth enough to keep XPeng's share price humming along? Some analysts predict it could be about to come off the road.
Estimated revenue XPeng is forecasted to generate this year
What's happening with XPeng's share price?
XPeng's share price is down just over 11% this year, trading at circa $38 a share. This is a turnaround from the gains seen at the start of the year, when XPeng's share price touched $57 a share at one point in mid-January.
Since then, the brakes have been applied to not only XPeng's share price performance, but other EV manufacturers’ too. Since 9 February, XPeng’s share price has dropped circa 14%, while rival Nio's [NIO] share price has fallen over 9%, as investors fear a potential hike in US interest rates.
Why delivery numbers are key
Fuelling XPeng's share price performance had been blockbuster EV deliveries. In the fourth quarter, XPeng delivered 12,964 electric vehicles, a 303% increase on the same period last year, including a monster monthly delivery of 5,700 vehicles in December. That strong performance continued into the new year, with XPeng delivering a record 6,015 EV deliveries in January, up 470% on the same period last year.
Ben Mahaney at smarteranalyst.com, writes that what makes the fourth-quarter numbers interesting is that XPeng shipped another 200 vehicles to Europe.
"The market knows a Chinese manufacturer will face restricted competition in China, but the big opportunity could be sales outside of China while using manufacturing assets in the home country to produce a cheaper EV."
“The market knows a Chinese manufacturer will face restricted competition in China, but the big opportunity could be sales outside of China while using manufacturing assets in the home country to produce a cheaper EV” - Ben Mahaney
Mahaney notes that Germany, France, UK and Norway all topped 100,000 EV sales in 2020, and that XPeng is “just scratching the surface” in terms of demand from Europe. If XPeng can break Europe, then the delivery numbers could continue their upward trajectory.
Are we in the middle of an EV bubble?
Bears of Wall Street, writing on Seeking Alpha, says it's safe to say we are in the middle of an “EV bubble”. Along with XPeng's toppy valuation, rival Nio has a $79bn market cap and Li Auto [LI] is valued at circa $24.99bn.
However, Bears of Wall Street thinks that XPeng is in the middle of a growth phase. If deliveries can keep growing, then it could become another Tesla [TSLA] — even if XPeng's share price is technically overvalued on a fundamental basis.
"The reality is that XPeng is in its growth phase, so the market doesn't really care that the company is not going to be profitable anytime soon or that it trades at a significant premium. As long as XPeng continues to increase its deliveries and expand capacity, then it has all the chances to appreciate in the same way that Tesla appreciated in recent years," writes Bears of Wall Street.
The growth phase is backed up by total deliveries of 27,041 units in 2020, a 112% increase on the previous year.
“The reality is that XPeng is in its growth phase, so the market doesn't really care that the company is not going to be profitable anytime soon or that it trades at a significant premium. As long as XPeng continues to increase its deliveries and expand capacity, then it has all the chances to appreciate in the same way that Tesla appreciated in recent years” - Bears of Wall Street
Where next for XPeng's share price?
January's record-breaking deliveries are a good sign XPeng is able to keep momentum up. A fuller picture will emerge in March, when the EV manufacturer next updates the market.
In its last set of quarterly results, the EV manufacturer delivered a $0.33 loss per share, well wide of the expected $0.17 loss per share. For the fourth quarter, expectations are for a $0.15 loss.
For now, then, the frenzy around EV stocks doesn't show much sign of abating.