On Tuesday, Morgan Stanley (NYSE:MS) reiterated its Overweight rating on XPeng Inc. (NYSE:XPEV) with a steady price target of $11.70. The firm's analysis followed XPeng's recent financial results, which showed a narrowed net loss in the second quarter of 2024. XPeng's net loss for the quarter was Rmb1.28 billion, a slight improvement from the Rmb1.37 billion loss in the first quarter, aligning with Morgan Stanley's projections.
XPeng's total revenue for the quarter surged by 60% year-over-year and 24% quarter-over-quarter to reach Rmb8.1 billion, which was near the upper end of the company's guidance range of Rmb7.5 to Rmb8.3 billion. The increase in revenue was attributed to a boost from service-related income, including technical service fees from Volkswagen (ETR:VOWG_p), which helped counteract an 11% quarter-over-quarter decline in average selling price (ASP).
The vehicle manufacturer also saw an improvement in vehicle gross margin, which rose by 0.9 percentage points quarter-over-quarter to 6.4%, surpassing Morgan Stanley's forecast of 5.4-5.6%. This margin enhancement was attributed to scale benefits, which helped mitigate the impact of a less favorable product mix. Additionally, the company's non-vehicle gross margin was robust at 54.3%, contributing to a group gross profit margin (GpM) of 14%, a 1.1 percentage point increase from the previous quarter.
Operational expenses were reported to be consistent with previous figures, reflecting improved operating leverage within the company. Looking ahead, XPeng provided guidance for third-quarter vehicle deliveries, estimating a range of 41,000 to 45,000 units.
This represents a significant quarterly increase of 36% to 49% and exceeds Morgan Stanley's expectations of 32,000 to 34,000 units. The anticipated sales boost is linked to the launch of the new model M03.
Despite the projected increase in sales volume, total revenue growth for the third quarter is expected to be more modest, ranging between 12% to 21% quarter-over-quarter, with projected figures between Rmb9.1 billion and Rmb9.8 billion. This tempered revenue outlook is partly due to anticipated ASP erosion, particularly as the mix shifts towards the newly introduced Mona M03, which is expected to have an ASP in the range of Rmb116,000 to Rmb136,000.
In other recent news, XPeng Inc. has projected its third-quarter revenue to fall below market expectations due to intense competition and reduced demand for its older, more expensive electric vehicle (EV) models. Despite this, the company anticipates delivering between 41,000 and 45,000 vehicles in the third quarter. Additionally, XPeng has announced a collaboration with Volkswagen AG (OTC:VWAGY) to speed up the development of a new architecture for electric vehicles.
Recently, BofA Securities reduced its price target on XPeng shares, while retaining a Buy rating, following the company's announcement to exclude LiDAR technology in favor of a vision solution in its upcoming P7+ model. This shift is expected to result in lower production costs and a higher gross profit margin. On the other hand, Citi upgraded XPeng's stock rating from 'Sell' to 'Neutral' and raised the price target, citing a stronger upcoming model cycle and the introduction of a new smaller car model as key reasons for the upgrade.
In the first quarter, XPeng reported a significant year-over-year revenue increase of 62.3%, reaching approximately 6.5 billion RMB, largely due to increased vehicle deliveries and a rise in average selling price. The company's gross margin for the quarter also improved notably to 12.9%.
InvestingPro Insights
The latest data from InvestingPro shows that XPeng Inc. (NYSE:XPEV) holds a market capitalization of $6.82 billion. Despite the challenges faced by XPeng, including weak gross profit margins, as evidenced by the last twelve months ending Q1 2024 with a gross profit margin of just 3.95%, the company is recognized as a prominent player in the Automobiles industry. This is reflected in the substantial year-over-year revenue growth of 41.64%, signaling strong demand for its electric vehicle offerings. However, it's important to note that analysts are not expecting XPeng to be profitable this year, and the stock price has experienced significant volatility, with a decrease of over 50% year-to-date as of Q1 2024.
InvestingPro Tips highlight that XPeng holds more cash than debt, which may provide the company with a cushion against financial headwinds. Additionally, the company's liquid assets are reported to exceed short-term obligations, indicating a degree of financial stability in the near term. For investors seeking more in-depth analysis, there are 9 additional InvestingPro Tips available, offering a comprehensive look at XPeng's financial health and market position.
Investors may also be interested to know that XPeng's stock has a current price to book ratio of 1.39 as of the last twelve months ending Q1 2024, which could suggest that the stock is potentially undervalued relative to its assets. Furthermore, the company's fair value, as estimated by analysts, stands at $11.69, while InvestingPro's own fair value assessment is slightly lower at $9.39, offering different perspectives on the stock's intrinsic value.
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