Why Citi remains bearish on XPeng (XPEV) stock despite VW partnership

Citi analysts still have a bearish view of XPeng Inc. (NYSE: XPEV) shares following the Chinese electric vehicle company's first-quarter earnings release, which saw it top profit and revenue expectations.

XPeng reported Q1 EPS of (RMB0.75), RMB1.31 better than the analyst estimate of (RMB2.06). Revenue for the quarter came in at RMB6.55 billion versus the consensus estimate of RMB6.19 billion.

However, Citi maintained a Sell rating on the stock, raising the price target to $7.70 from $7.30 per share in a note Wednesday. The bank said that Xpeng's 1Q overall gross profit margin beat was due to Volkswagen technology fee payment, which they estimate at around Rmb254mn with 90% to 100% gross profit margin and the fact that vehicle margin stabilized at 5.5%, up 1.4 percentage points QoQ due to higher margined X9 contribution.

However, Citi believes the Volkswagen technology fee should not be a long-term recurring fee but should result in one-off revenue that lasts for two to three years.

"We believe it would be problematic to assign an aggressive P/S multiple on Xpeng’s technology fee income, which should end up as one-off revenue," the bank added.

By Sam Boughedda

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