Interest in Chinese electric vehicle maker Xpeng (XPEV) is high, and it is easy to see why.
Mr. Market paid $17.531 for Xpeng and $238.59 for Tesla (TSLA) on 25 August 2023. Consequently, many people view Xpeng Inc. ADR (NYSE: XPEV) as a bargain. Is it?
My answer is no because Xpeng reported a quarterly operating loss of -$376.45 million on 31 March 2023. Moreover, Xpeng’s quarterly revenues fell from $1.176 billion on 31 March 2022. Plus, the quarterly gross profit fell from $143.66 million on 31 March 2022 to $9.76 million on 31 March 2023.
Plus, Stokrow gave Xpeng a growth rate of -50.06% for the quarter ending on 31 March 2023. The growth rate fell from 161.10% for the quarter ending on 31 March 2023.
Xpeng (XPEV) is Shrinking and Losing Money
Consequently, XPEV’s total assets shrank from $10.567 billion on 31 March 2022 to $9.823 billion on 31 March 2023. Similarly, the cash and short-term investments fell from $2.374 billion on 31 March 2022 to $1.710 billion on 31 March 2023.
Hence, Xpeng (XPEV) is shrinking and losing money. Yet some American investors like it.
Why? I imagine it is because the Chinese electric vehicle (EV) market is growing. Chinese passenger electric vehicle sales grew by 29% between the first quarter of 2022 and the first quarter of 2023. Counterpoint Research estimates.*
However, Xpeng is not among the leaders in China’s EV market. Counterpoint estimates BYD (OTCMKTS: BYDDY) was China’s top battery electric vehicle maker with 22.41% of the market in the first quarter of 2023. Similarly, BYD was the leader in plug-in hybrid EV (PHEV) sales. BYD had 68.40% of the Chinese PHEV market in the first quarter of 2023.
Tellingly, BYD manufactured China’s five best-selling PHEV models in the first quarter of 2023. Hence, I conclude BYD owns the Chinese market.
Interestingly, the number two and three players in the Chinese battery electric vehicle (BEV) market were US companies. Telsa (TSLA) had 13.5% of the Chinese BEV market while General Motors (GM) had 9.4% in the first quarter of 2023. Notably, the Tesla Model Y was the best-selling BEV in China in the first quarter of 2023, Counterpoint estimates.
What is Xpeng (XPEV)?
Thus, Xpeng (XPEV) is a minor player in the Chinese EV market. So why do some US investors like it? American investors like Xpeng because it is a Chinese company that is imitating Tesla Motors (TSLA).
For example, the Xpeng G3i is a sport-utility vehicle (SUV) that resembles the Tesla Model Y. Plus, the Xpeng P7 is a blatant ripoff of the iconic Tesla Model S. The Xpeng P5 is the company’s answer to the Tesla Model 3. Finally, the G9 is Xpeng’s answer to Tesla’s Model X, without the gull wings. The G6 is an SUV Coupe that is only available in China.
How Xpeng imitates Tesla (TSLA)
Beyond the vehicles, Xpeng is imitating Tesla’s Auto Pilot with the Xmart OS. They call Xmart OS, an in-car intelligent operating system. Like Auto Pilot, they regularly update the Xmart OS. Xmart OS Intelligent Connected Vehicle (ICV) functions and entertainment solutions include an intelligent voice-activated assistant. I think the name Xmart is terrible cause it sounds like a discount store. Remember Kmart?
Plus, they call Xpeng’s Xpilot is an Advanced Driver Assistance System. There are three versions of Xpilot, 2.5, 3.0, and 3.5.
Hence Xpeng is stealing, but it is stealing from the best Tesla (TSLA). Like Tesla, Xpeng is experimenting with robots and robotaxis. The company’s website also features pictures of a flying car that looks suspiciously like something out of an American comic book. They claim Xpeng Aeroht is the largest “flying-car” company in Asia. Notably, the Xpeng X2 has flown at Skydive Dubai.
In reality, the flying car is a giant drone. However, I think there could be many uses for such big drones. For exampe, the military, air taxis, delivery, and emergency services. Hence, Xpeng is operating in a potentially lucrative market. Drones a playing a big part in the Ukraine War, for example.
Xpeng’s footprint outside China is tiny. It operates in operates in four small European countries: Norway, Denmark, Sweden, and the Netherlands. Plus, Xpeng just entered a partnership with Israeli auto retailer Freesbee (Carasso Motors). Hence, Xpeng’s cars are available in just six countries. However, one of those countries is the world’s second largest economy, the People’s Republic of China.
What value does Xpeng (XPEV) offer?
Xpeng (XPEV) is a sponsored American Depository Receipt (ADR) not a stock.
An ADR is an equity an investment bank issues on behalf of a foreign company. For example, Citi (C) issues the Xpeng ADR. Thus, the Xpeng the New York Stock Exchange offers is not a stock.
Instead, it is a synthetic investment. A synthetic investment, such as an ADR, represents an investment. Xpeng issued an ADR because it is a Chinese company that wants access to US stock and capital markets. They issue the Xpeng ADR in New York because the US is the world’s largest capital market.
One key difference between an ADR and a stock is that they denominate an ADR’s revenues and profits in its home currency. Hence, Xpeng will denominate revenues and profits in Yuan.
Ford (F) is better than Xpeng (XPEV)
Thus, Xpeng (XPEV) is a purely speculative investment that is betting on the success of a foreign company. I think there are better auto and EV stocks out there. For example, Ford (F) which manufactures America’s most successful vehicle, the F-150 pickup. Yet Mr. Market paid $11.91 for Ford on 25 August 2023.
Yet Ford reported $42.821 billion in cash and short-term investments, $265.991 billion in total assets, $7.483 billion in quarterly gross profits, and $44.954 billion in quarterly revenues on 23 August 2023.
Smart investors will examine Ford and ignore Xpeng until they show it can make money outside China.