On Thursday, Citi reiterated a Sell rating on XPeng Inc. (NYSE:XPEV), with a price target set at $7.30. The firm's analysis of the recent technical collaboration agreement between XPeng and Volkswagen (ETR:VOWG_p) on Electrical/Electronic architecture suggests potential royalty fees to XPeng could range from Rmb4.0-10.1 million in the year 2027. These fees, in a best-case scenario, could help XPeng achieve a net profit break-even, assuming a 100% gross profit margin (GPM) for the royalty fee.
The collaboration with Volkswagen is seen as a strategic move for XPeng, but Citi's report indicates that even with the potential royalties, XPeng's valuation should not exceed that of its competitor, Leapmotor (HK:9863). As of the end of 2023, XPeng's net cash per American Depositary Receipt (ADR) was reported at $5.1.
Citi's assessment also points out that XPeng's ability to negotiate favorable terms with Volkswagen may be influenced by its sales performance in the second and third quarters of 2024. If XPeng's sales do not show a significant improvement during this period, and Volkswagen's sales remain stable, XPeng's bargaining power could be negatively affected.
The firm's stance on XPeng remains unchanged, with a continued recommendation to sell. This decision is based on the comparison with Leapmotor's earlier breakeven potential and the current valuation metrics, where XPeng trades at 1.1 times its projected 2024 sales, compared to Leapmotor's 0.8 times.
InvestingPro Insights
As XPeng Inc. (NYSE:XPEV) navigates its strategic partnership with Volkswagen, it's essential to consider the company's financial health and market performance. According to InvestingPro data, XPeng holds a market capitalization of approximately $6.82 billion USD, indicating its substantial presence in the market. Despite the challenges outlined by Citi, the company exhibits a notable revenue growth of 14.23% over the last twelve months as of Q4 2023, possibly reflecting the company's resilience and potential for future growth.
InvestingPro Tips reveal that XPeng is recognized as a prominent player in the Automobiles industry, with analysts expecting sales growth in the current year. This aligns with Citi's analysis, suggesting that XPeng's performance in the upcoming quarters could be pivotal. However, the stock's recent volatility and the lack of profitability over the last twelve months underscore the risks involved. XPeng's stock price has indeed suffered recently, trading near its 52-week low, which may present a cautious note for investors.
For readers interested in a deeper dive into XPeng's financials and market prospects, InvestingPro offers further detailed insights. With an additional 14 InvestingPro Tips available, investors can make more informed decisions. To access these tips and utilize the comprehensive tools provided by InvestingPro, use the exclusive coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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