XPeng Q2 preview: Where next for XPEV stock?

When will XPeng release Q2 earnings?

XPeng is scheduled to release second quarter earnings before US markets open on Tuesday August 23. Management will hold a conference call on the same say at 0800 ET, or 2000 in Hong Kong.

XPeng Q2 earnings consensus

XPeng is forecast to report revenue of RMB7,204 million and a net loss of RMB1,671 million. The loss per American Depository Share is expected to come in at RMB1.99.

XPeng Q2 earnings preview

The electric vehicle market in China continues to heat up as a crowded market races to stand out. Sales have continued to increase in the world’s largest market for electric vehicles as a swathe of startups and more-established auto manufacturers ramp-up to meet growing demand.

Among those competing is XPeng, which produces the premium P7 sports sedan, the P5 family sedan, and the G3 and G3i compact SUVs. We already know that XPeng delivered 34,422 vehicles in the second quarter, double what it produced the year before.

XPeng has a number of competitors, but is often compared to two other Chinese electric carmakers that are listed in the US – NIO and Li Auto. All three are at roughly the same stage of their journey and producing similar numbers of vehicles at present. Notably, XPeng was the smallest of the three this time last year, but has overtaken both its rivals in 2022:

Notably, all three are among the pack that lags behind the early market leaders. BYD, a Chinese firm backed by Berkshire Hathaway, is the current market leader by some distance while Tesla remains the only company from outside of China making a real impact.

We can see that XPeng, as well as NIO and Li Auto, have struggled to grow production in 2022. This is due to widespread supply chain problems, a shortage of key components and Covid-19 disruption as China persists with its zero-tolerant approach toward the virus.

Investors will hope that these problems will ease in the second half. XPeng will reveal how many deliveries it expects to make in the third quarter when it updates shareholders this week and this will prove highly influential on how markets receive the results as it will show whether the company believes things are improving or becoming more challenging. Wall Street forecasts XPeng can deliver 45,864 cars in the third quarter and increase that to 59,875 in the fourth which, if achieved, puts it on course to grow deliveries by 78% in 2022 to 174,722 cars.

The fact production started to improve in July has provided hope that things are already on the up. XPeng accelerated output when it resumed double shifts at its factory in Zhaoqing in the middle of May and that saw it produce its 200,000^th car since inception during June.

While XPeng is managing to scale up at a quicker rate than some of its rivals, it remains far behind in terms of profitability. XPeng earned a margin of just 10.4% on each car it made in the first quarter compared to NIO at 18.1% and Li Auto at 21.2%. That is a significant gap and will lead to a longer journey to profitability if it continues.

XPeng’s margin has recently come under pressure because of rising costs and a lower proportion of sales of its premium P7 sedan. However, this should improve in the second half as XPeng ramps up production and launches its next car – the luxury G9 SUV – in September, which should help raise average selling prices and profitability.

Where next for XPEV stock?

XPeng ADRs have more than halved in value since the start of 2022 and have hit levels not seen since back in 2020. The stock managed to bounce back and climb to a four-month high in June but has lost steam since then.

The stock is currently testing the $22.50 level of support that first appeared in April, then June and has since resurfaced this month. The stock has slipped below here four times in August alone but has always recovered to close above it, suggesting it is a firm floor. A close below here could open the door to $20. The RSI is in bearish territory and a rise in trading volumes over the past 20 sessions suggests the current downtrend could gain momentum.

The first major upside target is the 50-day moving average at $27, in-line with the level of resistance seen during April to June. This would bring the 200-day moving average at $33 back into view after the latest uptrend failed to recapture it in June. Notably, the 23 brokers that cover XPeng see further upside potential with an average target price of $40.

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