XPeng Earnings: Results Beat on Vehicle Margin and Technical Service Income; Growth Bottomed Out

XPeng’s first-quarter revenue was 6% above the high end of its guidance. Thanks to a better product mix and lower battery cost, the vehicle margin recovered to 5.5% from negative 2.5% in the first quarter of last year. The margin improvement was stronger than we expected, considering pressure from price promotions amid competition. Management is confident the company will continue to record margin recovery for the rest of the year. We trim our 2024-26 vehicle delivery forecast by 33%-36% to factor in year-to-date sales run-rate and expect XPeng to sell 160,000 vehicles in 2024. With lower volume, better margin, and higher operating expense assumptions, as the company accelerates overseas development, we reduced our net loss forecast for 2024-25. Still, we cut net profit estimates for outer years. As a result, we reduced our fair value estimate to USD 14.00 per ADS (HKD 54.90 per share) from USD 15.90 (HKD 61.70), which implies a forward 2024 price/sales ratio of 2.5 times.