On Wednesday, CMB International Securities adjusted its stance on XPeng (NYSE: NYSE:XPEV), elevating the stock from Hold to Buy and significantly increasing the price target to $16.00, a substantial rise from the previous $8.00 target. The upgrade was influenced by early indicators of the company approaching a profit breakeven point.
Despite XPeng's third-quarter net loss for 2024 widening compared to the first and second quarters, the analyst foresees a potential reduction in net losses for the fiscal year 2025 and a move towards breakeven in fiscal year 2026.
The analyst's outlook is based on expectations that gross profit margins (GPM) for the P7+ and forthcoming new models will exceed 10%, supported by cost reduction initiatives. These efforts are anticipated to increase the company's GPM to 15.1% for fiscal year 2025.
Additionally, the combined ratio of selling, general, and administrative expenses (SG&A) and research and development (R&D) is projected to fall to 21% in fiscal year 2025 from 32.6% in fiscal year 2024, in the context of a 78% year-over-year revenue growth and strict cost management in recent quarters.
The projection also includes a narrowing of the net loss to RMB 2.3 billion in fiscal year 2025, down from RMB 6.0 billion in fiscal year 2024. The analyst's assumption for breakeven in fiscal year 2026 hinges on the growth in sales volume, although they acknowledge that visibility for fiscal year 2026 remains low. Sales volume for fiscal year 2026 is estimated to reach 490,000 units, with an expected net profit of RMB 103 million and a GPM of 15.3%.
In other recent news, Chinese electric vehicle manufacturer XPeng has seen significant financial developments. The company's Q3 2024 financial results revealed an 18% year-over-year increase in sales, reaching RMB 10.1 billion. Despite posting a net loss of RMB 1.8 billion for the quarter, XPeng still managed to exceed BofA Securities' projections, which resulted in the firm raising XPeng's target to $16.20 and maintaining a buy rating.
Simultaneously, XPeng has been making strides in technology and international expansion. The company unveiled its "Kunpeng Super Electric System," an extended-range hybrid technology, and secured spots on both the "Fortune Tech 50" and "Fortune China 500" lists. Furthermore, XPeng has entered a strategic partnership with Motor Distributors Limited to expand its European presence, starting with Ireland.
Analysts have provided mixed reviews on XPeng's stock. Morgan Stanley (NYSE:MS) maintains an Overweight rating on XPeng, citing new model launches and overseas push, while CFRA downgraded XPeng's stock from Hold to Strong Sell due to concerns over the company's market position and financial health. These are some of the recent developments shaping XPeng's journey in the electric vehicle market.
InvestingPro Insights
Recent InvestingPro data adds context to CMB International Securities' upgrade of XPeng. The company's revenue growth remains strong, with a 66.09% increase over the last twelve months as of Q3 2024. This aligns with the analyst's expectations of continued sales volume growth. However, XPeng's current gross profit margin of 11.67% underscores the challenges mentioned in the article, with InvestingPro Tips noting that the company "suffers from weak gross profit margins."
The stock's recent performance has been notably strong, with InvestingPro data showing a 84.93% price return over the last three months. This surge may reflect growing investor optimism about XPeng's future prospects, in line with the analyst's upgraded outlook.
It's worth noting that InvestingPro Tips indicate XPeng "holds more cash than debt on its balance sheet," which could provide financial flexibility as the company works towards profitability. However, the tip that "analysts do not anticipate the company will be profitable this year" aligns with the article's discussion of future breakeven projections.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for XPeng, providing a deeper understanding of the company's financial health and market position.
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