Can strong second half delivery numbers drive the XPeng share price up?

The XPeng [XPEV] share price has struggled to get out of first gear in 2021 so far. Although the stock is up 84.7% since its US IPO last August to $39.19 at the close on 13 July, the XPeng share price is down 8.5% year to date and has gone into reverse since reaching a year-high of $60.04 back in late January.

Increasing US-China tensions and Beijing’s anti-monopoly crackdown has put the brakes on many US-listed Chinese stocks, including the XPeng share price. Its share price dropped by 9.4% between 6 and 9 July in the wake of Chinese regulators accusing ride-sharing service Didi Chuxing [DIDI] of illegally collecting personal data through its smartphone apps.

XPeng isn’t the only Chinese electric vehicle (EV) maker that hit a bump in the road due to the Didi fallout. Both Li Auto [LI] and Nio [NIO] saw their share prices fall last week as well.  

  

Unsurprisingly, the broader Chinese sector has also been impacted, especially the funds weighted in favour of the big tech companies Alibaba [BABA] and JD.com [JD].

 

Beijing scrutiny

The situation with Didi couldn’t have come at a worse time for XPeng. Just days after the ride-hailing company’s IPO, the EV maker started trading on the Hong Kong Stock Exchange under the ticker 9868 on 7 July. The debut was a weak one. The XPeng share price in Hong Kong is down a little over 5% from its IPO price of HK$165.

“Given the relatively volatile market environment we are facing in recent days, we feel very gratified that XPeng could still complete today’s listing in Hong Kong,” said XPeng’s vice-chairman Brian Gu after the listing ceremony, according to South China Morning Post.

Gu added: “What’s more important to us is that through a dual-primary listing, our ability in dealing with various risks or volatility that occur in the capital markets has improved.”

“What’s more important to us is that through a dual-primary listing, our ability in dealing with various risks or volatility that occur in the capital markets has improved” - XPeng’s vice-chairman Brian Gu

 

As a result of the Didi drama, Beijing regulators are considering overhauling overseas listing rules that could prohibit Chinese company from listing in the US, even if the unit offering the shares is incorporated outside of China. This, along with the ongoing threat of existing US listings being pulled, could mean that Hong Kong listings become a more popular way to avoid scrutiny from Beijing.

A Hong Kong dual listing “provides US-listed Chinese issuers with an option to mitigate geopolitical tensions,” according to Gu. And this could mean less volatility for the XPeng share price.

 

Production figures drive ahead

China’s crackdown and tensions aside, Gu told Yahoo Finance that he’s expecting strong sales figures in the second half of the year. XPeng delivered 6,565 vehicles in June, up 617% year over year, taking the total number of cars sold in the second quarter sales to 17,398, up 439% from Q2 2020. Second half sales will be driven by the release of the G3i model in Q3 and the P5 in Q4.

Gu was also asked whether the scrutiny Tesla [TSLA] has faced in China has allowed XPeng and its peers to gain domestic market share. Gu argued “Chinese players are catching up very quickly” in terms of product development and XPeng’s growth over the last few months “has outpaced the industry as well as Tesla in China”.

The delivery numbers look good, and they should boost the XPeng share price in the long term, but buying its American depository receipts (ADRs) is obviously risky given the current climate.

“US investors will have to weigh the risks of owning ADRs at a time when tensions between Beijing and Washington remain elevated while all global investors will have to balance the allure of China’s vast addressable market with the possibility that officials may reshape company prospects at the stroke of a pen via the imposition of regulatory strictures” - Peter Berezin, chief global strategist at BCA Research

 

The stock is a key holding in the Invesco Golden Dragon China [PGJ], which currently has XPeng in its top 10 holdings with a 3.59% weighting (as of 13 July). The fund has a year to date daily total return of 14.23%.

Whether you consider this to be a good entry point depends on what you think is next for the XPeng share price and US-listed Chinese companies.

In a note to clients seen by CNBC, Peter Berezin, chief global strategist at BCA Research, wrote: “US investors will have to weigh the risks of owning ADRs at a time when tensions between Beijing and Washington remain elevated while all global investors will have to balance the allure of China’s vast addressable market with the possibility that officials may reshape company prospects at the stroke of a pen via the imposition of regulatory strictures.”