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The global sales of electric cars are reaching new heights, with Tesla and BYD leading the way and achieving record numbers in the second quarter. However, Xpeng, a Chinese EV manufacturer, is facing a different situation. It has become the most divisive company among investors.
The short interest in Xpeng’s outstanding shares has reached a new high this week, with bear positions nearly tripling since the beginning of the year. This surge of short interest started last December, making Xpeng one of the most shorted Chinese companies by US investors.
This indicates the disagreement with Jamie Dimon, as JPMorgan, the bank he leads, supports Xpeng as a middle-of-the-road carmaker. Last month, JPMorgan increased its long position in Xpeng from 5.6% to 6.4%. The company’s shares have risen by 84% since the start of June.
There are grounds for optimism, as Beijing has initiated a new campaign to boost EV sales. Xpeng’s new G6 electric SUV, priced about 20% lower than Tesla’s Model Y in China, received 25,000 pre-orders within the first three days of its release. However, Xpeng shares trade at an enterprise value of 2 times forward sales, double that of its main local competitor BYD.
Nevertheless, Xpeng faced a 40% decline in first-half sales, indicating fierce competition. Tesla is on track to achieve another record quarter in China, while Warren Buffett-backed BYD holds the largest share of the Chinese market and sold 700,000 fully electric and plug-in hybrid vehicles globally in the second quarter.
Xpeng’s competitive pricing compared to Tesla comes with a downside of weaker profitability. The company has experienced negative operating margins since it started car production in 2018.
Furthermore, Xpeng’s pricing advantage has diminished as Tesla reduces prices and provides cash subsidies in China.
The significant short positions in Xpeng shares make them susceptible to volatility. Both positive and negative news could trigger disproportionate swings in the stock. Conservative investors are advised to limit their exposure until the long-term sales outlook becomes clearer.
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