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Why Electric Vehicle Maker Xpeng Accelerated Higher Today | The Motley Fool

What happened

The American depositary receipts (ADRs) of Chinese electric vehicle (EV) manufacturer Xpeng (NYSE:XPEV) accelerated nearly 7% higher on Friday, following the company’s Hong Kong-listed stock gain of 12%. The charge that powered both securities upward was a new and bullish research note from a compatriot investment bank.

So what

China International Capital Corporation (CICC) has initiated coverage on Xpeng stock with an outperform (i.e., buy) recommendation. It has put a $46 price target on the ADRs, 13% higher than the latest closing price.

A rising tide lifts all boats, or in this case, EVs. CICC wrote in its analysis that the penetration of next-generation energy automobiles will hit 25% in China by 2025. The bank is estimating that unit sales in the country that year will top 7 million, which is approximately five times higher than the 2020 level. Since the ambitious Xpeng is currently one of the top 10 Chinese alt-fuel car makers, it stands to benefit handsomely by simply cruising along with the trend.

Now what

This is not to say that Xpeng is merely a tail rider in “The Great Chinese EV Race.” The company is very assertive in pushing its metal; in fact, for the month of June, it notched 600% year-over-year growth in deliveries. Zooming out on the second quarter of this year, that figure was a still-very-impressive 439%.

However, the hot growth of Chinese EV companies hasn’t escaped investor notice, so Xpeng and its peers trade at extremely high valuations. This could be one key reason for CICC’s rather cautious price target.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.



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