Xpeng stock price sits at a key support: Aug 20 will be key

2024 has not been a good year for Chinese electric vehicle (EV) stocks even as most of them continued to ramp up their production and deliveries. Xpeng (NASDAQ: XPEV) stock has retreated by over 52% this year while Nio (NIO), Li Auto (LI), Zeekr (ZK), and Lotus Technology (LOT) have slipped by over 45% this year. 

The same has happened in the past three years, with Nio and Xpeng falling by 89% and 81.50%, respectively. As a result, these companies have erased billions of dollars in value as risks about their future rise. Xpeng will be in the spotlight next week as the company is set to publish its financial results on August 20th.

Xpeng is a good company but faces risks

Chinese companies like Xpeng are facing several major challenges that threaten their future. First, competition in their home market has risen, with the country having hundreds of EV companies. As a result, these firms, including Tesla, have decided to slash prices to gain a competitive edge, which has hurt their margins.

Second, these firms are receiving a negative reception in the most popular foreign markets like Europe and the United States. The US has implemented tariffs worth about 100% for all Chinese EV imports while Europe has added a 25% tariff. Therefore, since Xpeng does not have plants in these countries, there are signs that its growth there will not be fast.

Third, and most importantly, while EV growth is accelerating, there are signs that the momentum is growing. A good example of this is Tesla, often seen as the gold standard of the EV industry, has reported two quarters of falling sales. Also, most buyers are now considering hybrid vehicles instead of battery electric ones. 

Still, the company has two key positives. First, the cost of building EVs has fallen, helped by the retreating lithium, cobalt, and nickel prices. Other metals like copper and aluminum that are important in the manufacturing sector are falling.

Second, the company is working to grow its market share in other countries, especially in Asia and in the Middle East. 

Xpeng earnings ahead

The next important Xpeng news will come out on Tuesday when the company will publish its quarterly results. 

In its most recent results, the company said that its vehicle deliveries in July rose by just 1% to 11,145, confirming that its growth was slowing. 

In June, it delivered 10,668 vehicles, a 24% YoY increase while in May and April, it sold 10,146 and 9,393 vehicles, respectively. Altogether, its deliveries in the first half of the year rose by 26% to 52,028.

Xpeng hopes that its deliveries will continue growing this year as it launches its Mona M03 vehicle in August. 

The most recent results showed that the company’s total revenues continued growing in Q1 even as challenges in the sector continued. Its revenue jumped by 62.3% to over $0.77 billion during the quarter. 

Xpeng also increased its gross margins to 12.9% from 1.7% in the same quarter in 2023. Based on its delivery numbers, analysts expect that Xpeng’s revenues rose by 64% in Q2 to over $1.14 billion. For the year, analysts expect that its revenues will hit $6 billion, a 39% increase from the same period in 2023. 

Xpeng’s earnings have beaten analysts’ estimates in the last two consecutive quarters, meaning that this trend may continue. 

Beware of key risks

Xpeng has done well in the past few years as it seeks to become a major player in the vehicle manufacturing industry. This explains why Volkswagen invested in the company earlier this year. 

It has boosted its manufacturing capacity and is narrowing its losses. In Q1, its net loss stood at about RMB1.37 billion, down from RMB 2.34 billion a year earlier. These numbers mean that the company is doing well to reduce its costs as sales are expected to slow. 

For EV companies, cash is king as conditions worsen, which explains why firms like Mullen Automotive and Faraday Future are struggling. While its cash hoard has fallen recently, Xpeng has adequate cash to continue running for at least two years. It ended the last quarter with over $2 billion in cash and equivalents, $423 million in restricted cash, and $1.6 billion in short-term deposits. 

Xpeng stock price forecast

On the daily chart above, we see that Xpeng’s stock has sold off ahead of its Tuesday earnings. It has found a strong support at $6.61, its lowest point in April last year. This means that bears are a bit afraid selling the stock below that level.

Xpeng’s stock has remained below the 50-day and 100-day Exponential Moving Averages (EMA), meaning that bears are still in control. It has also moved below the key support level at $7.16, its lowest point on July 14.

Therefore, the outlook for the stock is neutral ahead of its earnings. The most likely scenario is where it falls below the support at $6.6 and continues its downtrend. However, with so much negatives priced in, there is a likelihood that ir will bounce back to the resistance at $7.75, its 50-day moving average.