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XPeng: Earnings Beat Fails to Distract From Weak Guidance

The Chinese EV company's growth rate has been weighed down by ongoing government lockdowns

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May 23, 2022
Summary
  • XPeng reported first-quarter earnings on Monday, narrowly beating the analyst consensus.
  • Shares of the Chinese EV maker fell in session following the earnings print due largely to soft management guidance.
  • China's automotive sector continues to face uncertainty as a result of ongoing government lockdowns.
  • XPeng management has indicated that it will be back on track before the end of the second quarter; its May delivery report may be telling.
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XPeng Inc. (

XPEV, Financial) reported earnings for the first quarter of 2022 before the market opened on May 23. Despite managing a narrow earnings beat, shares in the Chinese electric vehicle maker sank in the session following its latest earnings print as investors reacted negatively to management forecasts.

Earnings beat fails to impress

XPeng reported 34,561 vehicle deliveries during the first quarter, up 159% compared to the same period in 2021 and slightly more than the Wall Street analysts had anticipated. However, this was not news to investors since XPeng had already announced this delivery total back in April. Consequently, most analysts already expected an earnings beat in the first quarter and, thus, had already priced in this expectation for the most part ahead of the announcement.

As it transpired, XPeng managed to beat on both top and bottom lines. The company reported revenue of $1.2 billion, narrowly topping the $1.1 billion predicted by analysts. In terms of net income, XPeng reported a loss of 28 cents per American depositary receipt, which was slightly better than the consensus estimate of 30 cents per ADR.

XPeng’s stock dropped in response to the earnings report. While there was arguably little about the first-quarter results with which investors could take issue, their anxiety about the future appears to have intensified.

Soft guidance leads to stock weakness

Much of XPeng’s post-earnings slide can be attributed to soft guidance from management. XPeng now expects deliveries in the second quarter to be in the range of 31,000 and 34,000 vehicles, a visible dip from the more than 34,000 it managed to deliver last quarter. As is so often the case with growth companies, even the faintest signs of sputtering growth can send investors running.

While XPeng’s forward guidance may have left much to be desired, the company was hardly gloomy in its outlook for the rest of the year. After a dismal April that saw the EV maker deliver just 9,002 cars, things may be on the upswing again. According to XPeng management, a rebound is already underway.

Investors and analysts will be able to see whether a rebound is in the offing soon enough. XPeng, like all Chinese automakers, reports delivery numbers monthly. XPeng’s May delivery print could reveal much about the putative rebound.

Dealing with lockdown disruption

The Chinese government’s sustained commitment to its radical zero-Covid policy has resulted in widespread lockdowns and business disruptions in recent months. Lockdowns are still in force across much of the country in response to the continuing spread of Covid-19. These strict policies have jammed up transportation channels of all kinds, from domestic highways to international ports. Many factories have been forced to idle production capacity, or even shut down or severely crimped production.

XPeng has managed to weather these disruptions better than some of its fellow automakers thus far, but it is far from immune to the effects of lockdown. Last month, CEO He Xiaopeng warned the company might be forced to slow or stop production due to government order, supply chain breakdowns or both.

My take

Overall, I would call XPeng’s first quarter a qualified success. The results were far from terrible, especially in light of the difficulties currently facing the Chinese auto market and economy. Yet, with so much uncertainty still hanging over the Chinese auto sector, I would approach XPeng with caution.

Investors might be wise to wait until XPeng announces its May delivery numbers, which are expected to be released June 1, before taking further action. That report may offer vital clues about the reality of XPeng's putative rebound.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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