XPeng (NYSE:XPEV) stock slid nearly 7% in early Tuesday trading to $6.72 even though the China-based automaker’s second-quarter 2024 revenue grew 60.2% year over year to 8.11 billion RMB.
The dip also came as XPeng prepares to launch its MONA M03 electric hatchback coupe next week.
Since the automaker’s sales grew so rapidly, it makes sense that its Q2-2024 vehicle deliveries jumped 30.2% year over year to 30,207 units. Furthermore, XPeng improved its gross margin dramatically from -3.9% in the year-earlier quarter to 14% (positive, not negative) in 2024’s second quarter.
XPeng Co-President Hongdi Brian Gu partly attributed the company’s vastly improved gross margin to revenues from its strategic partnership with Volkswagen (OTCMKTS:VWAGY), which plans to co-develop vehicles with XPeng for the Chinese market in 2026.
Gu also cited cost reduction initiatives as a key factor in the firm’s recent success, and struck an optimistic tone overall, stating his expectation that XPeng’s “economy of scale, operating efficiency and cash flow will significantly improve”.
Why did XPeng stock fall despite climbing revenue?
Between the company’s vast revenue growth and its margin improvement, one might assume that XPeng stock ought to have accelerated higher on Tuesday. However, there’s more to the story than first meets the eye.
For one thing, analysts fully anticipated XPeng’s sales growth. The automaker’s Q2-2024 revenue of 8.11 billion RMB is nothing to sneeze at, but it falls short of Wall Street’s consensus call for 8.17 billion RMB.
Investors might also be nervous about XPeng’s upcoming rollout of the MONA M03 vehicle model. This model, which will probably carry a fairly low price tag, will have to compete with BYD‘s (OTCMKTS:BYDDY) Seagull and Tesla‘s (NASDAQ:TSLA) Model 3, among others.
Besides, according to The Wall Street Journal, Citigroup analysts “said in a recent note that low sales of” the MONA M03 “could drag the company’s bottom line in 2024.” Thus, it sounds like the new vehicle’s rollout could be make-or-break, or at least highly impactful, for XPeng.
Probably the biggest pain point, however, was XPeng’s sales guidance. The automaker’s current-quarter outlook calls for revenue of 9.1 billion RMB to 9.8 billion RMB. This would represent a year-over-year increase of around 6.7% to 14.9%, which wouldn’t be terrible. However, analysts estimated third-quarter revenue of 10.4 billion RMB for XPeng.
Also, XPeng modeled 41,000 and 45,000 vehicle deliveries for the current quarter. This would signify year-over-year growth of around 2.5% to 12.5%, and those figures might not be impressive enough for stock traders expecting more from XPeng.
A feeling of uncertainty
For pessimistic traders, all of this casts a shadow of doubt over Gu’s confident declaration that XPeng’s “economy of scale” and “cash flow will significantly improve.” Gu envisions “the big product cycle” driving XPeng’s “sales growth in the global market,” but exactly what this “big product cycle” will entail isn’t clear from Gu’s statement.
So, the XPeng stock sell-off was likely prompted by a feeling of uncertainty, driven by the automaker’s downward-revised sales guidance. It just goes to show that even 60% revenue growth and notable margin improvement aren’t necessarily enough to quell the market’s fears during a time of stiff competition in China’s automotive market.
Furthermore, Gu’s confidence certainly doesn’t guarantee XPeng’s future success. In any case, the next stop on XPeng’s path will be the MONA M03 rollout, which could be as consequential as the company’s quarterly earnings report, or even more so.
