Shares of XPeng Inc. (XPEV) fell on Friday following a recommendation by J.P. Morgan to sell ahead of the company’s earnings report. Analyst Nick Lai expressed concerns about the intense competition in China’s auto market, which makes it difficult for XPeng to deliver positive margin surprises.
Lai downgraded XPeng’s rating to underweight from neutral but increased the price target to $10.00 from $7.50. However, even with the adjusted target, this still implies a 33.5% downside from Thursday’s closing price of $15.04.
According to Lai, the current competition in the auto market is focused on the balance sheet and cash reserves. As a result, XPeng’s second-quarter gross profit margin (GPM) is expected to remain weak due to operation deleveraging and a weak product mix. Lai also predicts that the second-half GPM will be below Wall Street’s expectations.
Although the introduction of the G6 Coupe SUV may boost volume in the second half of the year, Lai’s full-year volume estimate falls short of management’s target. He foresees XPeng delivering 133,000 vehicles, while the company aims for 150,000 EVs.
Considering these factors, Lai believes there may be a pullback in XPeng’s share price during the upcoming result season and does not anticipate satisfactory margins in the second half of 2023. Therefore, he issued an underweight rating and advised taking profits, especially given the stock’s recent strong performance.
XPeng is scheduled to release its second-quarter results in late August, with last year’s report being issued on August 23.
On a separate note, Lai maintained a neutral rating on Nio’s stock while increasing the price target to $9.00 from $8.50.
