XPeng (XPEV) misses Q3 estimates, stock rises despite lower EV delivery outlook

XPeng (XPEV), a leading Chinese smart EV manufacturer, released its Q3 2022 earnings Wednesday, missing top and bottom line estimates while offering a less-than-ideal delivery outlook for the rest of the year. Despite this, XPeng stock is racing higher. Let’s see why investors are jumping back in.

Since its foundation in 2015, XPeng has trailblazed its way to becoming a leading electric vehicle maker in the largest EV market globally.

XPeng focuses on delivering “smart EVs,” loaded with leading software and hardware, connectivity features, advanced driver assistance systems, and core vehicle systems. In September 2021, the company began deliveries of its XPeng P5, one of the first mass-produced smart EVS equipped with LIDAR.

The EV maker is building a diverse portfolio of vehicles to fit a wide range of consumer needs, including the following:

• G3i – Compact SUV
• P7 – Sports sedan
• P5 – Family sedan

In addition, XPeng launched its flagship G9 SUV, which began mass deliveries at the end of October. The company believes the G9 will help drive future sales volume with an 800V platform and charging speeds that will “outperform any of its competitors in the market.”

Meanwhile, like many young EV makers, XPeng is absorbing higher costs while trying to manage widening losses. To make matters worse, increasing competition and renewed COVID-19 lockdowns in China are presenting an extra challenge.

In the second quarter, XPeng’s loss widened to $403 million as EV deliveries fell and higher material costs caused gross margins to slip to 10.9%.

XPeng warned EV deliveries would fall further in Q3, indicating between 29,000 and 30,000. With 29,570 total deliveries, the EV maker hit its mark, but not by much. Either way, XPeng stock is soaring today.

XPeng Q3 financial and delivery results

Total deliveries in the third quarter hit 29,570, up 15% from Q3 2021, yet Xpeng’s EV sales have continued trending lower since hitting a peak of 41,751 in the fourth quarter of 2021. The deliveries included:

• P7 – 16,776
• P5 – 8,703

Revenue from vehicle sales reached $880 million, up 14% from Q3 2021 but decreasing 10% from the second quarter. Despite this, the cost of sales increased 20.4% from last year as material prices continue cutting into margins.

XPeng’s gross margins bounced back from 10.9% last quarter to 13.5% in Q3 as the automaker has implemented several measures to boost efficiency. During the company’s third-quarter earnings call, the president of XPeng, Dr. Hongdi Brian Gu, spoke about an internal organization restructuring to cut costs and drive long-term results.

We will implement prudent cost control initiatives and improve operational efficiency. As we plan a number of upcoming product and technology rollouts, we are confident that we can achieve significant improvement in both sales volumes and average selling price.

XPeng compared the current EV race in China to a marathon competition, claiming only the strongest players with “well-rounded capabilities, core technology,” and perhaps most importantly, the ability to “monetize from both hardware and software” will win in the long run.

The aim is to be “more concentrated and efficient” to drive future profitability and competitiveness. (Rivian’s CEO also spoke on this.)

Despite the company’s best efforts, XPeng’s loss widened to $330 million (RMB2.38 billion) from around $224 million (RMB1.59 billion) last year as the company scales production. Xpeng issued the following guidance for Q4:

• EV deliveries: Between 20,000 and 21,000
• Revenue: Between RMB4.8 and RMB5.1 billion

The downbeat outlook is due to renewed lockdowns in China causing ongoing supply chain disruptions while ramping production of its flagship G9 SUV.

Why is XPeng stock trending

Even with the cautious guidance, XPeng stock is up over 40% today. For one thing, XPeng’s cost-cutting measures are good news. Maintaining efficiency through the production ramp will be critical to the company’s success.

Gu says the effects of XPeng’s internal restructuring will likely become visible in the second half of 2023 when he also expects the EV market to accelerate further. The stock market is forward-looking and could be looking past short-term hurdles.

Management also noted that, although a slowdown is expected this month, December should see sales rebound “sharply” as we roll into the new year.

Lastly, protests have erupted in China over the fresh “zero-Covid” mandates that may be sparking hope for an eased policy, with several Chinese EV stocks trending higher today.