Goldman Sachs believes the market has yet to fully reflect the potential of the G6, with the model ranking No.1 among comparable models, and which is the most competitive product released by Xpeng to date.
Goldman Sachs initiated coverage on Xpeng (NYSE: XPEV), bullish on the Chinese electric vehicle (EV) maker's recently launched new SUV, the G6, its technological capabilities, and gains from lower battery costs.
Goldman Sachs analyst Tina Hou's team gave Xpeng a Buy rating in a July 11 research note, with a price target of $18.1 for the company's US-traded ADRs and HK$70 for its Hong Kong-listed shares.
Xpeng closed up 5.8 percent to $14.97 on July 11 on the US stock market, and Goldman Sachs' price target implies about 21 percent upside.
"In the near-term, we expect the company's vehicle delivery volume to regain momentum with the latest G6 model launch, and margin to improve on larger vehicle delivery scale together with battery pricing decline," the team wrote.
Goldman Sachs forecasts Xpeng to reach 151,000 vehicle sales in 2023, beating the Visible Alpha consensus by 5 percent.
The forecast implies that the Wall Street bank expects Xpeng to deliver an average of 18,260 vehicles per month in the second half of the year, considering the EV maker delivered 41,435 vehicles in the first half of the year.
Xpeng officially launched the G6, a model that competes directly with Tesla's (NASDAQ: TSLA) Model Y, in China on June 29, with first deliveries starting on July 10. The company's management expects the model to deliver at least 10,000 units per month.
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"We believe the market hasn't fully reflected G6's potential, with the model ranking No.1 among comparable models (Exhibit 57), and which is the most competitive product released by Xpeng to date, in our view," Hou's team said.
Compared to other mid-size SUVs on the market, including the Model Y and BYD Tang DM-i, the G6 excels in most key metrics, especially in performance, the team said.
The G6 boasts a larger battery size and longer range than the Model Y, with 800 V fast charging and superior smart features such as continuous voice commands and China City NGP capability, the team noted.
In addition, the G6's pre-sale price was 15 percent lower than the Model Y and 20 percent lower than the Tang DM-i, as of July 2023, the team said.
Xpeng began pre-sales of the G6 on June 9 at a pre-sale price of RMB 225,000 yuan ($31,280). The model's starting price at the official launch on June 29 is RMB 209,900, a further RMB 15,100 lower than the pre-sale price.
"We believe Xpeng's G6 presents compelling value proposition in its segment," Goldman Sachs wrote.
As one of the key catalysts, demand and delivery of the G6 is critical to drive Xpeng's business expansion, margin improvement and cash flow improvement, Goldman Sachs said.
Goldman Sachs expects the G6, along with the P7/P7i, to be a major contributor to Xpeng's future sales, driving vehicle sales at a CAGR of 62 percent, market share growth from 2.1 percent to 3.7 percent between 2023 and 2025, and leading to 4 percent-22 percent higher than Bloomberg's consensus revenue estimates.
Goldman Sachs is also bullish on Xpeng's technology capabilities, particularly autonomous driving technology.
Xpeng currently leads China's auto industry in assisted driving technology development, Hou's team said.
Xpeng's lead comes in part from its first-in-segment features -- its driver assistance system, Xpilot, offers unique features, such as valet parking assistance and the upcoming City NGP, that other manufacturers do not yet offer, the team said.
Xpeng launched Highway NGP in January 2021, six to 12 months ahead of OTA updates for similar features from other manufacturers, the team noted.
"Overall, we believe Xpeng's assisted driving features differentiate the brand amidst the domestic competition, and would help the company position among customers looking for latest digital innovations in EVs," the team said.
Xpeng's full-stack R&D in autonomous integration allows its vehicles to collect more and faster data, Goldman Sachs noted.
As the technology iterates, autonomous driving capabilities will be a medium- to long-term differentiator for Xpeng, Goldman said.
In addition, Goldman Sachs is bullish on the benefits of declining battery costs, which is said are expected to contract by more than 40 percent from 2022-2025.
"We believe Xpeng is one of the largest beneficiaries of battery price decline -- with average battery installation of 68 kWh, we estimate battery cost accounts for 40% of COGS for the company," the team said.
As of April 2023, Xpeng has been sourcing battery cells from external suppliers, mainly CATL, CALB, Eve Energy and Sunwoda.
Xpeng has taken a prudent approach to its battery supply chain, producing its own battery packs and gradually diversifying its battery suppliers from over 80 percent reliance on CATL in 2021 to 24 percent from CATL, 30 percent from CALB, 28 percent from Eve Energy and 16 percent from Sunwoda in April 2023, Goldman Sachs said.
Goldman Sachs expects Xpeng to sell 151,000, 257,000 and 393,000 units in 2023-2025, representing a compound annual growth rate of 62 percent.
The Wall Street bank expects Xpeng's revenue to reach RMB 34 billion, RMB 57 billion, and RMB 85 billion in 2023-2025, respectively.
($1 = RMB 7.1932)
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