Electric vehicle (EV) manufacturer XPeng, Inc. (XPEV), in Guangzhou, China, delivered a record number of vehicles last month, making it one of the fastest-growing EV companies. The company delivered 8,040 smart vehicles in July, up 288% year-over-year and 22% month-over-month. Shares of XPEV have gained 8% since the delivery report was released on August 2.

Despite EV production being hamstrung by a global semiconductor shortage, XPEV’s state-of-the-art technology and rapidly growing portfolio have contributed to the company’s ability to achieve this milestone. In addition, its Navigation Guided Pilot highway solutions that are integrated into P7 vehicles have been attracting tech-savvy customers in China.

Furthermore, XPEV is expected to launch its P5 sedan commercially in the third quarter of 2021. It will be the company’s first mass-produced smart EV equipped with LiDAR technology.

Click here to checkout our Electric Vehicle Industry Report for 2021

Here’s what could shape XPEV’s performance in the near term:

Chinese Crackdown

The ongoing Chinese crackdown on domestic companies listed on U.S. exchanges is a key downside for XPEV American Depository Receipts (ADRs). The threat of potential delisting within the next three years might cause investors to lose out on capital locked in XPEV shares.

To cushion its balance sheet against such delisting threats, the company recently listed its shares on the Hong Kong Stock Exchange (HKEX) and has been added to Hang Seng Composite Index. Though the shares listed on HKEX are fully fungible with XPEV ADRs, investors are likely to bet on safer stocks that are not subject to such scrutiny or a potential  crackdown.

Bleak Financials and Balance Sheet Strength

Despite impressive vehicle delivery reports and revenues, XPEV has yet to generate a profit from its operations. XPEV’s trailing-12-month operating and net losses stood at $684.49 million and $437.82 million, respectively. In addition, its ROE, ROA, and ROTC came in at negative 35.11%, 6.08%, and 12.96%, respectively.

And despite having a $5.12 billion cash balance, XPEV has $599.91 million in debt. This imposes a heavy interest rate burden on the company, thereby lowering its bottom line and EPS. Furthermore,  the XPEV’s net trailing-12-month operating cash outflow came in at only $2.54 million, even though the company has been delivering impressive vehicle volumes over the past few months.

Stretched Valuation

In terms of forward EV/Sales, XPEV is currently trading at 12.62x, which is 727.7% higher than the 1.52x industry average. The stock’s 6.43 and 14.75 respective forward Price/Book and Price/Sales ratios are significantly higher than the 3.69 and 1.25 industry averages.

POWR Ratings Reflect Bleak Prospects

XPEV has an overall F rating, which equates to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

The stock has a D grade for Value and Quality. XPEV’s stretched valuation and negative profit margins justify its Value and Quality grades.

Of the 57 stocks in the C-rated Auto & Vehicle Manufacturers industry, XPEV is ranked #46.

In addition to the grades highlighted, we have rated XPEV for Sentiment, Stability, Growth, and Momentum. Get all XPEV ratings here.

View the top-rated stocks in the Auto & Vehicle Manufacturers industry here.

Click here to check out our Automotive Industry Report for 2021

Bottom Line

Despite being a leading smart EV maker, XPEV’s negative profitability and poor cash flows raise concerns regarding its financial management and resource utilization. Also, , because the company’s ADRs remain under the threat of potential delisting, we think XPEV is best avoided now.

Click here to checkout our Electric Vehicle Industry Report for 2021

XPEV shares were trading at $43.44 per share on Thursday afternoon, down $0.34 (-0.78%). Year-to-date, XPEV has gained 1.42%, versus a 18.60% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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