CITIC Securities initiated coverage of Xpeng Motors in a report on Monday, giving it a Buy rating and a $55 price target for its US-traded ADR and a HK$215 price target for its Hong Kong-listed shares, corresponding to 10x PS in 2022.
Xpeng closed down 6.58 percent to $37.51 in the US on Monday, and the target price implies a 47 percent upside.
Tesla's annual sales five years ago were 70,000 to 100,000 units, with an average PS of 5x. Car companies, including Xpeng, now face a more optimistic market environment with greater certainty than Tesla did five years ago, the analysts said.
The report forecasts Xpeng sales to reach 70,000 and 140,000 units in 2021 and 2022, respectively, and to reach 600,000 units in 2025, with a 6 percent share of the new energy vehicle market.
The team says it is bullish on Xpeng's rapid sales growth as new energy passenger vehicle sales are expected to reach 3.05 million units in 2021 and 9 million units in 2025, a compound annual growth rate of about 30 percent.
The analysts say they are bullish on Xpeng's continued self-driving technology leadership, with "a jump in demand due to a quality experience" as self-driving capabilities grow in garages, cities, and highways over 3-5 years and sales and replenishment networks are rolled out.
Xpeng is winning on volume in the RMB 150,000 ($23,169) to 400,000 market segment, the report said, and has been working to build a "smart+young" brand image since the compact SUV G3, and to move up the brand with the higher ASP midsize sedan P7.
The P5, which will go on sale this October, will be priced more affordably than the P7, with a pre-sale price of RMB 160,000 to 230,000, but its self-driving capabilities will continue to improve.
The premium version of the P5 is equipped with 2 LiDARs and will enable urban NGP (Navigation Guided Pilot) via OTA in the first half of 2022, significantly enhancing the urban driving experience.
The report says the P5 is the only LiDAR-equipped smart car in the current RMB 200,000 market, and its price will help expand young users and accumulate training data for autonomous driving.
Xpeng reported total operating revenue of RMB 2.95 billion in the first quarter of the year, up 3.5 percent from the previous quarter, with a net loss of RMB 790 million.
The ASP per vehicle for the first quarter was RMB 211,000, and the gross margin of the car-making business was 10.1 percent. The analysts expect Xpeng's hardware gross margin to exceed 20 percent in 2025 as high ASP models are launched and scale effects are realized.
Xpeng pioneered paid software on the P7, with software revenue of RMB 80 million in Q1 last year, accounting for 2.7 percent of Q1 revenue, making it the first EV company in China to have standalone software revenue.
The P7 has a cumulative software take rate of 20 percent since its launch in 2020, a figure that continues to improve with the NGP push, reaching 25 percent for new cars in March 2021.
The analysts believe the software payment rate will continue to increase as Xpeng's autonomous driving capabilities gradually cover more scenarios, with subscription-based software revenue expected to become a significant source of profit for the company.
Autonomous driving SaaS is a sticky product with high gross margins and more stable margins than automotive hardware, making valuations more favored by capital markets.
The biggest difference between Xpeng and other new car companies is the firm commitment to autonomous driving, the report says. The company has always insisted on full-stack self-research, and its goal from its establishment has been autonomous driving, with the vision of using technology to change the way people travel.
As of June 30, Xpeng had 2,442 R&D staff, accounting for 39.8 percent of total employees. The self-driving R&D staff of 398 and the smart operating system R&D staff of 525 are valuable assets for the company, the report said.
The report cites Chinese media comments that Xpeng has surpassed Tesla in China with its automated parking and closed road NGP, providing the best smart driving experience.
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