Deutsche Bank analyst Edison Yu's team lowered their price target on by $2 to $55, maintaining a Buy rating.

Xpeng Motors (NYSE: XPEV, HKG: 9868) will report fourth-quarter and full-year results for last year on Monday, March 28 before the US stock market opens. For investors, what do they need to watch for? Deutsche Bank analyst Edison Yu's team offers their take.

"We expect a mostly solid quarter, supported by upside from vehicle deliveries," Yu's team said in a research note sent to investors on Wednesday.

Previously released data showed Xpeng delivered 41,751 vehicles in the fourth quarter, above the upper end of its previous guidance range of 34,500-36,500 vehicles.

Xpeng's guidance for fourth-quarter revenue was RMB 7.1-7.5 billion, implying a 149 percent-163 percent year-on-year increase.

Yu's team expects Xpeng's revenue to be RMB 8.59 billion in the fourth quarter, above the median analyst estimate of RMB 8.05 billion in a Bloomberg survey.

The team expects Xpeng's gross margin to be 13.4 percent in the fourth quarter, down 2 percentage points from the third quarter, due to an unfavorable vehicle mix. They also expect Xpeng to report adjusted EPS of RMB -2.26 for the quarter.

As a comparison, Wall Street's gross margin estimate for Xpeng for the fourth quarter is 12.8 percent and adjusted EPS estimate is RMB -2.35.

Yu's team expects Xpeng's management guidance for first-quarter deliveries to likely be about 34,500 units, implying March deliveries of about 15,500 units.

"For the order book, we suspect there was a big boost before the price increase took effect on 3/21," the team said.

Outlook for 2022

Since going public, Xpeng has not provided full-year sales guidance, and Yu's team would not expect an official outlook this time either.

Xpeng's plant in Zhaoqing, Guangdong, has reached capacity of at least 20,000 units per month after an upgrade for the Chinese New Year holiday, but it won't necessarily reach that peak level in the coming months due to supply chain constraints, Yu's team noted, adding that perhaps by the end of the second quarter this is achievable.

Xpeng announced the new SUV G9 last year, and deliveries are expected to begin in the second half of the year. Yu's team expects the G9's contribution to deliveries this year will be minimal, probably less than 5,000 units.

Overall, Yu's team raised their expectations for Xpeng deliveries in 2022 to 205,000 units from 200,000 units and raised their expectations for 2023 deliveries to 335,000 units from 310,000 units.

Sharp increases in raw material prices over the past year have become a new concern for the electric vehicle industry, and Yu's team expects Xpeng to see a negative impact from this, particularly lithium carbonate which could lead to a 10-15 percent increase in battery costs.

The team expects Xpeng's gross margin to be 13.5 percent in 2022, a downward revision from the previous 15.1 percent. They also expect Xpeng to see significant growth in R&D expenses and selling, general and administrative expenses (SG&A) as it further develops its smart driving technology and rapidly expands its charging and service infrastructure.

Lowered price target by $2

The team lowered their price target on Xpeng by $2 to $55. The team writes:

We lower our price target by just $2 to $55, pivoting to 3.5x 2023E EV/Sales (vs. prior 6.5x 2022E), to account for the de-rating in Chinese ADRs following concerns about delisting/geopolitical risks, representing a large discount to US EV peers.

We reiterate our Buy rating, seeing long-term upside once the shareholder base stabilizes.

Xpeng closed up 0.24 percent to $29.08 in the US on Wednesday, and the price target implies an 89 percent upside.

Notably, the team also lowered their price target on Xpeng's local peer from $70 to $50, maintaining a Buy rating, in a research note on Sunday.