XPeng Inc. (XPEV) and Li Auto Inc. (LI) are two popular Chinese smart electric vehicle (EV) manufacturers. XPEV sells smart SUVs under the G3 name, and four-door sports sedans under the P7 name. Formerly known as Leading Ideal, LI offers Li ONE, a six-seat electric SUV, equipped with a range of extension systems and smart vehicle solutions. The company also offers vehicle leasing, bank loans, and auto insurance services.
The Chinese EV space is booming, with China-based manufacturers accounting for the majority of global EV deliveries. While demand continues to be robust for leading smart EV manufacturers like XPEV and LI, the growing popularity of rival Tesla’s (TSLA) newly built Model Y SUV could impact their growth prospects. Despite significantly increasing their vehicle deliveries, these companies are still far from catching up with the world’s best-selling EV manufacturer.
While XPEV returned 11% year-to-date, LI gained 6.6%. In terms of their past three-month’s performance, XPEV is the clear winner with 114% gains versus LI’s 27.8% returns. But which of these stocks is a better pick now? Let’s find out.
Last month , XPEV launched a major over-the-air (OTA) upgrade for its P7 sedan customers in China. Since the P7’s launch in April 2020, 31 new functions have been added through upgrades so far. Although this new feature should boost its sales in the long run, the company still has a lot to prove given that NIO and Tesla (TSLA) have already ramped up their upgrade and production processes to meet increased demand.
Also in January, XPEV unveiled the beta version of its NGP (Navigation Guided Pilot) highway autonomous driving solution in a series of media road tests in Guangzhou. It plans to launch this NGP function, which is a key part of its XPILOT 3.0 autonomous driving package, to customers in China this month.
Last December, LI priced a follow-on offering of 47 million American depositary shares at $29.00 per ADS. It expects to use the offering’s proceeds to develop next-generation EV technologies and autonomous driving technologies.
Recent Financial Results
In the third quarter ended September 30, 2020, XPEV’s total revenue increased 342.5% year-over-year to RMB 1990.1 million. The company reported a net loss of RMB 2025.8 million, and cash and cash equivalents of RMB 19,998.4 million over this period. XPEV’s gross margin was 4.6% for the third quarter of 2020, compared to negative 10.1% for the third quarter of 2019. Deliveries of its vehicles reached 8,578, representing an increase of 265.8% year-over-year.
LI’s total revenue has increased 28.9% year-over-year to RMB 2.51 billion in the third quarter ended September 30, 2020. Its loss from operations was RMB180.0 million, representing an increase of 2.1% from RMB176.3 million in the second quarter of 2020. The company reported a net loss of RMB 106.9 million and free cash flow of RMB 749.9 million over this period. LI delivered 8,660 Li ONEs in the third quarter of 2020, representing a 31.1% sequential increase.
Expected Financial Performance
Analysts expect XPEV’s revenue to increase 145.1% in the current year. The company’s EPS is expected to grow 43% in 2021. However, its EPS is expected to decline at a rate of 5.2% per annum over the next five years.
In comparison, analysts expect LI’s revenue to increase 111.2% in the current year. The company’s EPS is expected to grow 85.7% in 2021.
LI’s trailing-12-month revenue is 1.5 times XPEV’s. Moreover, LI is more profitable with a gross profit margin of 14.7% versus XPEV’s 0.4%.
In terms of trailing-12-month price/sales, XPEV is currently trading at 20.63x, 125% more expensive than LI, which is currently trading at 9.17x. Also, its trailing-12-month Price-to-Book of 11.54x is 34.5% higher than LI’s 8.58x.
XPEV has an overall rating of F, which equates to a Strong Sell in our proprietary POWR Ratings system. However, LI has an overall rating of D, which represents a Sell.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Both XPEV and LI have a grade of C for Growth, which is consistent with the decline in earnings.
In terms of Momentum Grade, both XPEV and LI have a C rating, which is consistent with their limited price returns year-to-date.
Also, both XPEV and LI have a grade of D for Value, because both are trading higher than the industry average in terms of trailing-12-month EV/sales and price/sales ratios.
Of 50 stocks in the Auto & Vehicle Manufacturers industry, XPEV is ranked #43 and LI is ranked #42.
Beyond what I stated above, our POWR Ratings system also rates both XPEV and LI for Quality, Stability, and Sentiment. Get all XPEV’s ratings here. Also, click here to see the additional POWR Ratings for LI.
While both XPEV and LI can be considered good long-term investments considering their continued EV innovations and the industry’s strong growth potential, we think now is perhaps not the right time to buy either of these two stocks given their bleak near-term prospects. Our research shows that the odds of success increase if you bet on stocks with an Overall POWR Rating of Buy or Strong Buy.
Click here to learn about the top-rated stocks in the Auto & Vehicle Manufacturers industry.
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LI shares were trading at $30.74 per share on Thursday afternoon, up $0.01 (+0.03%). Year-to-date, LI has gained 6.63%, versus a 3.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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