Is This Chinese EV Stock a Buy for Autonomous Driving Upside?

As autonomous vehicle (AV) technology accelerates, artificial intelligence (AI)-powered cars are sparking a wave of consumer interest, especially when it comes to safety and convenience. While Tesla (TSLA)dominates the U.S. conversation, a rising challenger from China, XPeng Inc. (XPEV), is pushing AV tech to the next level.

Recently, XPeng became the first Chinese automaker to roll out a semi-autonomous driving system nationwide. The company’s latest leap is the P7+ model, a tech-laden sedan unveiled at its annual AI Day. Packed with an upgraded vision system, fast-charging options, and strong early demand, the P7+ is positioning itself as a legitimate competitor to Tesla’s Full Self-Driving tech. This fueled excitement and drove investor confidence, with the stock rallying over 15% the next day.

However, the broader economic environment in China introduces notable risks for this EV maker. China’s slowing economy, mounting debt concerns, and trade uncertainties weigh on the company’s future. On top of that, tariffs on Chinese EVs in markets like the U.S. and Europe could complicate XPeng’s global ambitions. Still, with government backing for green tech and EVs, XPeng is positioning itself for the future.

So, with a promising outlook, could XPEV be a solid pick for investors seeking autonomous driving growth? Let’s dive in.

About XPeng Stock

Guangzhou-based XPeng Inc. (XPEV), founded in 2015, is a leading Chinese EV maker known for its smart, tech-forward vehicles like the G3 SUV and P7 sports sedan. Alongside sleek design, XPeng provides a range of services, from supercharging and maintenance to financing and leasing. With in-house driver-assistance tech and an intelligent in-car system, XPeng is redefining the EV experience in China’s booming market.

Valued at a market cap of $12.5 billion, XPeng is leading with its X NGP system, an advanced AI-powered driving assistance platform now active across mainland China. This semi-autonomous tech enables XPeng’s EVs to navigate complex tasks, like recognizing traffic lights, turning, and overtaking, marking a major step in AV technology in China.

Although shares of this EV maker are down 25% over the past 52 weeks, XPEV has returned 89% over the past three months, lifted in part by optimism over Chinese stimulus measures.

Xpeng’s Q2 Bottom-Line Beat

The EV manufacturer’s Q2 results, unveiled on Aug. 20, were a mixed bag with a bright upside. Its revenue surged to RMB 8.1 billion ($1.12 billion), showing a robust 60% year-over-year growth and a 23.9% rise sequentially. While the non-GAAP net loss per ADS hit RMB 1.29 ($0.18), it was down 59% annually, thanks to cost cuts and efficiencies.

XPeng’s gross profit margin climbed to 14%, propelled by cost management and a key partnership with Volkswagen (VWAGY). Vehicle deliveries hit 30,207, up 30.2% year over year, and vehicle margin rose to 6.4% - a 15-percentage point increase annually and a 0.9 percentage point increase from Q1.

Additionally, with operating expenses streamlined, XPeng’s expense-to-sales ratio dropped to 37.5% - a 20-percentage point year-over-year decline - underscoring its competitive edge in China’s EV market.

XPeng is entering a strong product cycle, marked by August’s launch of the MONA M03 and a slew of upcoming models and upgrades over the next three years. XPeng’s management is confident that the brand’s AI and technology expertise, along with enhanced marketing, will translate into robust sales growth in China and globally, positioning it as a key player in the race for smart EV dominance.

The EV maker is expected to unveil its fiscal Q3 earnings next Tuesday, Nov. 19, before the market opens. Vehicle deliveries are expected to range between 41,000 and 45,000, marking a 2.5% to 12.5% increase year-over-year. Revenue expectations are set between RMB 9.1 billion and RMB 9.8 billion, representing annual growth of 6.7% to 14.9%, signaling a promising end to the year.

Analysts tracking XPeng see a brighter road ahead. For Q3, estimates call for a significant narrowing in losses, which are projected to narrow further by 40.5% annually to $1.00 per share in fiscal 2024. By 2025, XPeng could trim its losses by another 57% to $0.43 per share.

XPeng Drives Towards Autonomous Dominance

XPeng’s annual AI Day event in Guangzhou fueled excitement last week. This leading hi-tech car company has launched the P7+, an AI-defined vehicle that’s turning heads with its blend of smart technology and premium design. This model is XPeng’s vision of intelligent mobility powered by an AI architecture that delivers advanced driving and smart cockpit experiences. XPeng’s launch underscores its global ambition to lead in AI-driven mobility.

The P7+ abandons LiDAR for XPeng’s Eagle-Eye Vision, boosting perception distance by 125% and recognition speed by 40%. It boasts impressive specs, including a 15.6-inch screen with an AI Tianji system, a Qualcomm (QCOM) 8295P chip, and a choice of two battery options offering up to 710km of range.

Early demand for the P7+ is strong, and with features like vision-only autonomous driving and an advanced sound system, the P7+ is positioning itself as a game-changer in the EV market. Volume deliveries of the P7+ have already kicked off in China, and the company expects its margins for the model to hit double digits in Q4.

What Do Analysts Expect for Xpeng Stock?

After XPeng’s Q2 earnings release, several brokerage firms adjusted their outlook on XPEV. For instance, Bank of America Securities reduced its price target to $10 from $11 while keeping a “Buy” rating.

JPMorgan’s Nick Lai upgraded XPEV to “Overweight” with a raised price target of $11.50, signaling confidence in XPeng’s growth trajectory. With new sedans - the Mona M03 and P7+ - hitting the market, Lai expects deliveries to surge from around 45,000 units in Q3 2024 to 80,000 in Q4 and potentially beyond 300,000 units by 2025.

Following a test drive of the M03, Lai noted strong customer interest and an extended wait time, suggesting robust demand. The analyst says that XPeng’s promising sales outlook into 2025, alongside attractive pricing, sets it up for substantial upside in the near term.

XPEV has a consensus “Moderate Buy” rating overall. Of the 11 analysts covering the stock, six advise a “Strong Buy,” one recommends a “Moderate Buy,” three suggest a “Hold,” and one has a “Strong Sell” rating.

Although the EV stock trades nearly flat with the average analyst price target of $12.93, the Street-high price target of $18.70 indicates a potential upside of 48% from the current price levels.