XPeng (XPEV)

As an illustration of how hard XPeng (XPEV) shares have fallen this year, even after the stock gained 62% this week, the shares are still down by 77% year-to-date.

The surge came on the back of the Chinese EV maker’s latest quarterly report and happened to coincide nicely with the easing of China’s zero-Covid policies.

The interesting part is that the Q3 report wasn’t really all that positive. The company delivered revenue of $959 million, falling just shy of the $1 billion expected on Wall Street. Likewise, the analysts were looking for a loss of roughly $293 million but that figure came in at -$334 million.

For Q4, the company expects between 20,000 and 21,000 deliveries, a year-over-year drop in the range of 49.7% to 52.1%.

Investors evidently felt the stock has suffered enough for now and gave a thumbs up, a reaction J.P. Morgan’s Nick Lai puts down to the fact the outlook might have assuaged fears, with some bears expecting those figures to come in below 20,000 units due to “weak demand and competition.”

Additionally, with Lai expecting gross profit margins to come in at 12.2%, they hit 13.5%, a “pleasant surprise,” says the analyst.

“The key question from here is whether XPeng can turnaround its sales performance in 2023 through new models and recent organization restructuring,” Lai went on to add.

While he expects a “lower volume and weaker mix” to push GPM down sequentially, things should stat start to improve in 2023, as new models (a “refreshed” P7 sedan in 1Q23, new SUV in mid-23 and new MPV in 4Q23) should help “revive pricing and volume momentum.”

The company also guided for a significant drop in capex next year (from Rmb4-4.5 billion to Rmb3 billion), which taking into account the company’s “rich cash position” (Rmb40 billion by 3Q22), is greeted enthusiastically by Lai.

“We welcome mgmt’s comments on the results call on capex/ opex discipline in a challenging environment and believe 2023 sales volume should improve meaningfully from 2022, in part through better product portfolio and adaptive marketing strategy, and in part from a recovering auto market,” the analyst summed up.

XPEV has decent support from the J.P. Morgan analyst, but his $11 price target for the stock suggests the shares are currently fairly valued. Nonetheless, Lai keeps his rating on XPEV at Overweight (i.e., Buy)

Turning now to the rest of the Street, where the analyst consensus rates the stock a Moderate Buy, based on 6 Buys, 1 Hold and 2 Sells. The average target is more bullish than Lai will permit; At $17.71, the figure is expected to generate returns of 64% over the one-year timeframe.