NIO and XPeng: Long-Term Survivors?

Chinese “pure play” electric vehicle carmakers NIO Inc. (ticker: NIO) and XPeng Inc (ticker: XPEV) — both touted as “Tesla Killers” for a while now — have had some strong upticks over the past month. Across August till the 13th of September this year, NIO and XPEV have risen by 36.7% and 17.6% respectively. The reasons for this trend in these companies are quite nuanced.

Trend Analysis

As of the first half (H1) of FY 2024, NIO’s total deliveries are trending to close the year with a 10% growth.

Source: Company Information; Leverage Shares analysis

Cost of sales, which had trended in line with delivery growth, became more efficient in FY 2023 with current trends indicating that it will close out the current FY lower than in the past FY. A similar trend is evident within operating expenses.

In the trend estimates, net income can be considered closing out the year about 4% to 5% lower than the previous year, which is actually a plus: the company has never drawn a positive net income for any FY since it listed. As far as key line items go, post-sales services (charging, battery swaps, spare parts, et al.) have made a substantial improvement in revenue contribution, but vehicle sales remains as important as it was in the previous FY.

Source: Company Information; Leverage Shares analysis

Cost of sales shows signs of improvement, while net income (loss) pass-through is trending to remain steady with last year. Despite an encouraging growth in deliveries, revenues are trending lower than the past FY.

Meanwhile XPeng’s deliveries are trending at a net deficit in deliveries relative to the past FY.

Source: Company Information; Leverage Shares analysis

If trends continue, deliveries will close the current FY a full 26% lower than that in the previous year. However, on balance, revenues seem relatively healthy and trending to close flat or down 4% relative to past FY. While Net Income might seem as closing a full 48% down from the previous FY, this is actually a plus: the company has never shown a positive income since it went public. Therefore, losses are narrowing.

Overall, key line item trends relative to net revenue aren’t particularly interesting either:

Source: Company Information; Leverage Shares analysis

For the first time, after-sales services (spare parts, charging, et al.) are a strengthening double-digit percentage contributor to revenues while lower delivery volumes helped lower the cost of sales and lessen net losses in the year so far.

So, outside a slight improvement in net losses, there is virtually no reason at first blush to buy into the either company’s growth. However, market players with an eye on China are looking at the broader picture a little differently.

Market Considerations

China’s auto market is massively fragmented, with hundreds of companies with levels of state involvement (either through debt ownership, stock ownership or outright management) ranging from none to very high. For nearly two years now, China’s carmakers have been waging a damaging price war that seems to be underway with a goal to consolidate the market, regardless of the economic headwinds blowing through China. Given the large number of players (currently), product build quality and engineering complexity are highly variable. The likes of XPeng and NIO are curious outliers in that overall build quality and engineering are generally considered to be running parallel to (or catching up with) that seen in the rest of the world among major globe-spanning carmakers.

NIO’s products are by no means cheap: the recently launched ET9 retails for around $112,000 while the ET7 retails for a little under $60,000. In China, this is a mid- to high-end brand (with an inclination towards the latter) and the company has traditionally stayed well away from the budget- to mid-price range where the bulk of the price war has been raging. However, even in its niche, the price war is prevalent.

The company is ostensibly decoupling its brand from the mid-price range by introducing a new marque — Onvo — to access the mid-priced “family car” market. The first model in this range is the Onvo L60.

Source: NIO Inc

Starting at a little over $30,000, this model directly competes with Tesla’s Model Y by being 10% cheaper, has a more spacious interior, and eligible to access most of the parent brand’s established battery swap and charging stations. While there may or may not be some issues with battery swapping, this mode of operation does tend to optimize the downtime necessary to recharge an EV. Making this accessible to the mid-range market might be transformative in buyer preferences, and this is likely another point of interest for institutions.

The company is also preparing to enter the stiffly competitive budget/small car market via a second marque named “Firefly.” Chairman and CEO William Li described Firefly as being to Nio what Mini is to BMW in a short video on Douyin (a short-form video app similar to TikTok). Mr. Li further stated that these cars will be built on European “five-star” safety standards and will have battery swapping made available for a monthly fee through upcoming company-operated stations not used by Nio or Onvo brand vehicles. The first model under the “Firefly” brand is expected to debut by the end of the year, with Europe being a tentative market.

Meanwhile, XPeng’s products run the entire gamut of buyer segments: its P5 sedan starts at around $22,000, the top-selling G6 crossover SUV starts at around $30,000 while the X9 van/MPV starts at around $50,000. Despite the ostensible downturn in budget segment sales, the company has done what NIO has done and announced a new marque – “Mona” – for the budget buyer. The first model for “Mona” is the M03, a compact coupe priced at around $16,000 with an upgrade to Tesla-styled autonomous driving being made available at around $21,000.

Source: XPeng Inc

Thus, regardless of conditions, both companies are pressing on with a clear intention to broaden their market at all costs.

From the beginning of the year till August 8, i.e., one month before the earnings release, net retail investor activity in NIO’s shares had declined from over 28% to around 9%.

Source: TrendSpider

In the week of the earnings release — starting from the 5th — retail activity spiked to 21% and even further to 26% as of the day of the earnings release. Since then, retail activity has dropped with a corresponding decline in price in early trends today. However, institutional interest, i.e., the likes of long-term growth funds, hedge funds, et al., continued to be the key drivers of volumes and price trajectories in the ADS.

With regard to XPeng, on the other hand, retail investor activity in the stock has never exceeded 3% of total activity through most of the Year Till Date (YTD):

Source: TrendSpider

The only period wherein retail investor activity spiked was following its Q1 earnings release, following which interest petered. In the immediate wake, a mild doubling to all of 5% of net activity is attributable to retail investors, which persisted for a short while before petering out. Here too, institutional interest has remained steady, with even a boost imparted at various points after the release of XPeng’s Q2 earnings release.  

In Conclusion

The bulk of the investor base interested in these two companies likely consider them to be capable of garnering buyer attention and ultimately altering buyer preference to push automotive quality standards higher, which will inevitably force consolidation in China’s carmaker market. This outlook seems to be arrived at, despite the fiscal trends: while NIO’s net income can tentatively be expected to trend towards zero or a weak positive by the end of FY 2025, XPeng’s lack of profitability – given current delivery trends – can be expected to last a while longer.

These two stocks’ trajectories imply that there are likely to be substantial periods of directional shifts in trajectory over the next few quarters. Professional investors in Europe can consider ETPs such as NIO3 and SNIO (for NIO) or XPE3 and XP3S (for XPeng), which offer leveraged exposure to the movements of these stocks for the upside and the downside, respectively.

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The opinions expressed in this publication are those of the authors and are subject to change. They do not purport to reflect the opinions or views of Trackinsight or its members. Trackinsight does not guarantee the accuracy, completeness, or reliability of the information provided.