Why a dual listing could benefit XPeng’s share price

XPeng’s [XPEV] share price could see a boost ahead of its plans to list in Hong Kong. The IPO is expected to raise around $2bn for the Chinese electric vehicle (EV) maker, but what impact will the dual primary listing have on XPeng’s share price?

XPeng’s share price is up just 3.5% in the year-to-date at $44.32 on 29 June. However, XPeng’s share price has gained 108.9% since it started trading on the NYSE on 27 August 2020 and is up 159% from its all-time low of $17.11, which it recorded during trading on 24 September. 

XPeng’s share price reached an all-time high of $74.49 during trading on 24 November 2020, driven in part by strong delivery numbers. In the months since, Chinese EV makers across the board have seen their share prices drop away. This is partly due to some sales weakness in China and partly because cautious investors have been looking to rebalance their portfolios amid inflation worries. 

 

Following news that the automaker had filed for a dual listing on the Hong Kong Stock Exchange, XPeng’s share price jumped more than 5% within the first few hours of NYSE trading on 23 June..

 

Double win?

The proposed listing will see XPeng issue some 4.25 million shares priced no higher than HK$180 ($23.18). The issuance will be part of a global offering of 85 million shares. The stock will trade on the Hong Kong Stock Connect with the ticker 9868. 

Under Hong Kong secondary listing rules, a company would typically need two financial years of regulatory compliance on another exchange. Having only gone public on the NYSE last August, XPeng doesn’t qualify, and therefore its listing will be treated as a dual primary one. 

This moment in time could be the best opportunity for XPeng to seek a dual listing. The Guangzhou-based company has been posting strong delivery numbers in recent months. 

  

The number of vehicles delivered in May was up 483% to 5,686 units, bringing the total deliveries for the first five months of 2021 to 24,173 units, a 427% increase year-over-year. 

With 13,340 units shifted in the first quarter of 2021, XPeng had forecast second-quarter sales to be between 15,500 and 16,000 vehicles. This means the company would need to have sold between 4,667 and 5,167 vehicles in June to meet its second-quarter target. 

Brian Gu, president and vice-chairman of XPeng, told Bloomberg in a recent TV interview that the company looked on track to exceed second-quarter delivery numbers. 

“After a short pause during Chinese New Year, the industry has rebounded very strongly and I think the whole year's outlook is very, very strong as well,” Gu added.

“After a short pause during Chinese New Year, the industry has rebounded very strongly and I think the whole year's outlook is very, very strong as well” - Brian Gu, president and vice-chairman of XPeng

 

Although XPeng’s share price hasn’t moved much in the first half of 2021, Edison Yu, an analyst at Deutsche Bank, has urged investors to “hold the line” on the stock. He anticipates an “inflection” in the second half of the year, which could help XPeng’s share price move higher.

According to a note to clients seen by TipRanks, the reason for Yu’s confidence is the growing demand for XPeng’s lower-priced lithium iron phosphate (LFP)-powered G3 and P7 models, which were announced in March. LFP batteries are cheaper and have a shorter recharge time, though some have criticised their performance. 

 

Widening market

XPeng is not alone in seeking a secondary listing in Hong Kong. Fellow Chinese EV makers Li Auto [LI] and Nio [NIO] hope to follow suit.

According to Daniel Ives, a long-time Tesla [TSLA] bull and Wedbush analyst, Chinese EV makers are only “just scratching the surface” of the domestic market opportunity, as reported by MarketWatch in March.

Unlike many automakers, XPeng hasn’t been affected by the chip crunch that has squeezed the industry and its supply chain, Gu told Bloomberg in a separate interview at the start of the year.

 

There have also been reports that XPeng is exploring the option of moving chip production in-house. This would enable the automaker to take full control of its manufacturing and delivery schedules, and it would mean that there would be fewer supply chain constraints that could squeeze XPeng’s share price in the future.

So, how is XPeng’s share price and the Chinese EV market fairing in comparison to the broader EV industry?

The Global X China Electric Vehicle ETF [2845.HK] was up 14.3% in the year-to-date (through 28 June) and a further 105.53% in the last 52 weeks. On the other hand, the Global X Autonomous & Electric Vehicles ETF [DRIV] was up 18.2% and 98%, respectively, over the same periods (through 29 June).