XPeng’s Q4 Margin Missed but Investors Should Focus on Growth Recovery in 2023

XPeng XPEV reported fourth-quarter revenue near the high end of company’s guidance. As it already announced vehicle delivery for the quarter in January, we consider the result in line with market expectation. The main focus of investors this year is whether the company can resume delivery growth with new launches, in our view. With enlarged losses on softer vehicle margin and rising operating expense levels, we increase our net loss forecasts for 2023-24. As a result, we reduce our fair value estimate to USD 15 per ADS (HKD 59 per share) from USD 18 per ADS (HKD 71 per share), which implies a forward 2023 price/sales ratio of 2.2 times. Despite a 6% gain in the share price last Friday, we think XPeng is still undervalued.

For the first quarter, the company guided vehicle delivery to decline 45%-48% year over year to 18,000-19,000 units and total revenue to drop 44%-46% year over year to CNY 4.0 billion-CNY 4.2 billion. The midpoint of guidance implies March delivery to be around 7,200 units. While management’s cautious outlook for first-quarter vehicle delivery is disappointing, we believe the near-term outlook is attributable to soft order intakes ahead of the release of the new P7i, and investors are likely to start looking beyond the first quarter.

The improved volume and margin outlook for 2023 on a strong new model pipeline makes us remain positive on the name. We believe growth momentum bottomed out last year and should resume in the second quarter with the delivery of the new generation P7i sedan. The new P7i started delivery in March and management commented that orders remain robust. The company will release the G6 compact sport utility vehicle in April, with delivery commencing in June, and a seven-seat multipurpose vehicle model in the second half.