XPeng, the Chinese electric vehicle (EV) manufacturer, has been downgraded once again due to the toll of ongoing price wars. J.P. Morgan analyst Nick Lai recently downgraded shares of XPeng from Hold to Sell, while keeping the price target for the EV company’s U.S.-listed American depositary receipts (ADRs) unchanged at $7.50. Although XPeng’s ADRs have experienced a significant rally over the past three months, with a gain of over 60%, they were down 1.5% to $14.82 in early trading on Friday.
Lai noted that XPeng is expected to experience an increase in volume in the third and fourth quarters of this year, thanks to attractive pricing for its crossover EV, the G6. However, volume alone is not sufficient. Lai anticipates that the company’s stock will decline during the results season due to unsatisfactory profit margins.
Notably, the G6’s prices start at approximately $30,000, while Tesla’s Model Y starts at around $40,000 in China. Price reductions for EVs have been witnessed worldwide, largely due to Tesla’s aggressive pricing cuts since the beginning of 2023. This downward pricing trend has put pressure on profit margins across the industry.
Despite the recent rally, XPeng’s stock remains down by roughly 40% over the past year, primarily due to slowing sales growth. In the first half of 2023, XPeng sold approximately 41,000 vehicles, representing a decline of about 44% compared to the same period in 2022. In contrast, NIO’s sales volume grew by about 7% and Li Auto’s by a substantial 130% during the first half of this year.
The deceleration in sales growth has dampened sentiment on Wall Street, resulting in a series of downgrades over the past three months. While a downgrade from Hold does not impact the number of analysts who rate the shares as Buy, the proportion of analysts with a Buy rating has dropped from over 80% at the start of the year to approximately 55%, according to FactSet. The average Buy-rating ratio for S&P 500 stocks stands at around 55%, whereas the average Sell-rating ratio is less than 10%. Currently, 20% of analysts covering XPeng rate its shares as Sell. Furthermore, the average analyst price target stands at approximately $9.60 per share, reflecting a decline of over 35% from recent levels.