XPeng Earnings: Revenue In Line; Vehicle Margin Beat but Should Stay Pressured in the Near Term

XPeng reported fourth-quarter revenue at the midpoint of its guidance. Thanks to lower battery costs and larger volume, vehicle margin recovered to 4% from negative margins in the first three quarters last year. The improvement in margin was stronger than we expected, given the continued pressure from price promotions amid industry competition. Management guided that the company’s cost reduction initiatives will continue to yield a positive margin impact in 2024. With higher operating expense assumptions, we slightly increase our net loss forecasts for 2024-25. However, we maintain our fair value estimate at USD 15.90 per ADS (HKD 61.70 per share), which implies a forward 2024 price/sales ratio of 2 times. Shares are in Morningstar 4-star territory and undervalued, in our view.