Morgan Stanley reiterated their Overweight rating on Chinese electric automaker, XPeng (NYSE:XPEV) and maintained their 12-month price target of $25.40 on the stock after a 12-14% ADR/H-shr correction over the past 2 days stirred investor attention.
XPeng recently released a redesigned G9 SUV with more aggressive pricing and a streamlined model/spec portfolio that has generated feedback from the channels.
Analyst conversations with supply indicate that the G9 has garnered 4,000 to 5,000 confirmed orders since its official launch on September 19, with the potential for a significant increase in orders expected during the upcoming weekend. The attractive value proposition of the G9 Max has been a factor in enticing some customers to upgrade from the G6, which can be viewed as a positive development. The risk associated with G9 sales is tilted towards the positive side, considering the low expectations stemming from its unsuccessful launch a year ago.
Investors view the aggressive pricing strategy of the G9 as a double-edged sword that could potentially impact the group's profit margin. However, Morgan Stanley does not anticipate a significant decline in margin, as the planned vehicle gross margins for the existing G6, the redesigned G9, and the upcoming LFPP7i are expected to be in the mid to high single digits.
While it is expected that substantial margin improvement may not materialize this year, it is clear that building volume is the primary priority for XPeng to establish confidence in the capital markets, among consumers, and within the supply chain.
Shares of XPEV are up 4.53% in early trading on Friday.