Citi launches a 90-day downside Catalyst Watch on Xpeng stock

Investing.com -- Citi analysts initiated a 90-day downside Catalyst Watch on Xpeng (NYSE:XPEV), anticipating a multi-stage de-rating process for the electric vehicle (EV) maker.

The first stage suggests that while fourth-quarter 2024 volume growth is already factored into the current stock price, there is a potential downside risk to gross profit margins (GPM) due to a sharp decline in vehicle average selling price (ASP) and an unfavorable sales mix as the company ramps up its MONA model.

“If adopting the high end of 4Q24E revenue and volume guidance, we estimate Xpeng’s 4Q24E vehicle ASP to see 15% QoQ decline and GPM to see 1.5ppt QoQ decline to 13.8%,” Citi analysts led by Jeff Chung said in a note.

The second stage highlights a week-over-week decline in new orders starting from the second week of November.

According to Citi, they could sequentially fall every week further into the end of December, “as with low visibility on old-for-new subsidy extension, orders placed then would not receive the subsidy as corresponding deliveries would take place in 2025E.”

For the third stage, analysts project that January 2025 sales volumes may see a significant month-over-month drop due to the early Chinese New Year holiday and the issues mentioned earlier, with further declines anticipated in February, traditionally a low season for car sales.

By March 2025, Xpeng's products, including MONA and P7+, may face increased competition from new launches by rivals such as Tesla (NASDAQ:TSLA), BYD Co Ltd Class A (SZ:002594), and others, potentially impacting Xpeng's market share and shortening its product cycle. This marks stage four, Citi notes.

Reflecting these concerns, Citi has reduced its sales forecast for Xpeng from 227,000 to 190,000 units for 2024, with subsequent years also seeing lowered expectations from 352,000/430,000 to 260,000/330,000 units for 2025 and 2026 respectively.

Revenue forecasts for 2024-2026 have been cut by 12-26% to RMB 40.8 billion, RMB 49.1 billion, and RMB 59.0 billion.

On the other hand, due to better-than-expected vehicle and non-vehicle GPM, Citi has increased its GPM forecast for 2024-2026 by 0.4-0.5 percentage points to 8.0%, 9.5%, and 10.4%.

Consequently, the net loss forecasts for the same period have been adjusted from RMB 5.7 billion, RMB 4.1 billion, and RMB 2.9 billion to RMB 5.5 billion, RMB 4.9 billion, and RMB 3.9 billion.