Shares of XPeng Inc. fell Wednesday, after J.P. Morgan backed away from its bullish call on the China-based electric vehicle maker, saying the COVID-related reopening trade has been overdone.
Analyst Nick Lai said with China’s recent relaxation of COVID-related restrictions, the reopening trade in auto stocks has been playing out rapidly. And as earnings expectations have yet to catch up, he fears the reopening rally could “run out of steam” in the near term.
“[W]e note the recent rally has priced in a rosy scenario while corporate earnings and underlying industry data are still lagging,” Lai wrote in a note to clients.
XPeng’s stock
XPEV,
shed 1.0% in morning trading Wednesday. Through Tuesday, the stock had rocketed 57.4% since closing at a record low of $6.41 on Nov. 1.
Lai said he believes the stock’s rally has largely priced in a recovery outlook from the second quarter of 2023, while he’s concerned about possible cuts to consensus estimates.
He downgraded XPeng to neutral from overweight, and cut his stock price target to $9 from $11.
Lai also cut his 2023 delivery estimate to 155,000 vehicles from 210,000, and said margins could be hit hard, especially in the first quarter as a result of new energy vehicle (NEV) subsidy shortfalls.
Overall, Lai said he remains “constructive” on the NEV market in 2023, although he expects the growth rate will decelerate to 20% from 80% in 2022. While he believes XPeng will benefit from the rising trend, he’s concerned about fierce pricing competition in the mass market in China, as evidenced by recent further price cuts by Tesla Inc.
TSLA,
which he expects will weigh on XPeng’s profitability.
For rival Nio Inc.
NIO,
Lai cut his 2023 delivery estimate to 200,000 vehicles from 240,000 vehicles, but kept his rating at overweight and his stock price target at $14.
Nio’s stock climbed 2.9% in morning trading, and has now run up 25.1% since closing at a two-year low of $9.25 on Nov. 9.
Over the past 12 months, XPeng shares have plunged 78.2%, Nio’s stock has tumbled 61.5% and Tesla’s stock has dropped 65.2%, while the S&P 500 index
SPX,
has lost 16.4%.
