Why this is our favorite Chinese stock of 2022Mar 16, 2022
This stock has gotten crushed over the last year due to the intervention by the Chinese government!
The Chinese government has not only been interfering with their operations but also were not complying with American regulations of foreign listed stocks.
Due to these fears, investors across the globe have been selling off many Chinese stocks as the risks were just too high.
But today something massively changed and that is what China has came out and said. As of today (March 16, 2022), the Chinese government said that they will no longer interfere with their domestic companies and that they will help them stay listed on American exchanges.
This one move has the potential to launch this stock into the stratosphere.
So who is it? That stock is: XPeng
If XPeng sounds familiar that is because we've written them up before (most recently here). For those of you unfamiliar, XPeng is a Chinese electric vehicle manufacturer. Their biggest competition is with Chinese EV stocks like Nio. And the Chinese EV market is huge!
China is the largest market in the world for automotive sales - accounting for 30% of the world's vehicle sales last year.
And within their borders, 56% of the electric SUV market is split between domestic players like Nio & XPeng stock. But when looking at XPeng, their sales are still in the early innings as they only sold 630 cars in January of 2020 and 6,015 in January of 2021, showing promising sales growth in the Chinese EV market. So, if you're wondering why we love the company so much, here's the real details:
XPeng has come a long way since January as they're on target to deliver 15,000 cars per month going forward. Talk about growth! Going from 6k sales to over 15k sales in less than a year is no small feat. And not only have they been able to scale their operations but they're doing it really efficiently*. This is because there is a huge shortage on one of their primary inputs: radar sensor chips. Once this headwind dissipates, XPeng should finally be able to catch up with the pent up demand for their cars. They are better positioned than other car companies to weather other aspects of the semiconductor shortage because of their access to partners in the Chinese market.
Remember back in the day, when we talked about their efficiency? (see 3 sentences ago - sorry for this terrible attempt at humor*) Well because of this efficiency, XPeng not only grew on the heels of supply chain issues, but did so while also expanding margins. While this was mostly improved due to their increased product mix across their line of cars, this fully shows the scalability of their product line and business model. Factor in the low margin instillation of their charging stations (To date they've built 550 XPeng charging stations & 1,734 free charging stations) and once these two things smooth out, XPeng should be in a position to continue improving margins year over year. If you are unfamiliar, margins are a way investors track a companies efficiency and profit when delivering their product. While high margins are important, growing margins is beyond important as well. It shows that a company can start retaining more money per car sold. And with the case of XPeng, increasing margins, in a time where they shouldn't be able to, is a major bull signal to investors like us!
And while their business today does look exciting, what's coming next truly marks down the Moby stamp of approval.
The first thing we're excited about is their international expansion.
- While we mentioned before that China is the largest EV market in the world, it doesn't mean that there isn't opportunity elsewhere. And with so many EV stocks fighting over this coveted area, geographic expansion is an absolute must. Looking more closely, their management team has stated that they expect half of the company's vehicle sales to be owned by non-Chinese markets in the long run. While they are a far ways from that today, early signs indicate that these expectations are not overstated.
The next thing that has us excited about their future is the launch of their Robotaxi service next year. It may seem like a fantasy to some but XPeng inc is set to deliver the early stages of this within the next 12 months!
- While this will need to be massively scaled, the future of autonomous driving is a dream for most investors. This is because looking across companies like Uber and others, the highest cost they run into is their drivers. By displacing their core cost center, companies like XPeng can completely reinvent ride sharing for the better. They can boost margins higher while also grabbing market share quickly, by being able to lower prices. Again, this is years in the making, but XPeng is making faster moves in autonomous driving than most! Wall Street loves innovations like this.
The last thing that gets us excited is their production. While all this growth is good to see, none of it matters unless they can actually make the cars.
- Looking at their facilities we see that their new production center in Guangzhou is set to help them produce another 200,000 cars per year in addition to their 200,000 cars being produced in Zhaoqing. With a combined production capability of over 400,000 cars per year, XPeng should be set up to be able to build these cars for the next several years before needing to make additional investments!
Long story short, is that XPeng Inc. has some serious upside over the next decade. And we're excited to see where the stock can go!
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