Short-term negatives have been priced in

1Dec2022 CMBInternationalGlobalMarkets|EquityResearch|CompanyUpdate XpengInc.(XPEVUS) Short-termnegativeshavebeenpricedin MarketreactspositivelyafterXpeng’sin-line3Q22earnings,assomeinvestorsmaybelievetheworstisoverforthecompany.WeareoftheviewthatXpengstillhasachancetoturnaround,asitsRMB35bnnetcashpositioncouldsupportXpengfor2-3yearsuntilXpengfindsoutawinningmodel.Therefore,itsthreenewmodelsnextyearcouldbekeycatalysts.Itisstilldifficulttoquantifytheimprovementaftertheorganizationalstructureandpersonnelchanges,butthehardlessonlearntcouldmakemanagementmorefocusedandcostcautious. 3Q22earningsinline.Xpeng’s3Q22earnings,includingrevenue,grossprofitandnetloss,werealllargelyinlinewithourpriorforecasts.Its4Q22sales-volumeguidanceof20,000-21,000unitsslightlymissedourexpectation. Sufficientcashreservestosupportitspossibleturnaround.WebelieveXpeng’scurrentsharepricehasfactoredinthegloomyG9salesoutlook,althoughmanagementisstillconfidentaboutthemodel.ThekeynowiswhetherXpengcansurviveamidthemoreintensifiedcompetition,inourview.WebelieveXpengstillhasachancetoturnaroundasitsRMB35bnnetcashpositioncouldatleastsupportXpengfor2-3years,whichmeansXpengcanstillaffordafewunsuccessfulnewmodelsbeforeitfindsoutawinningmodel.Itsrecentorganizationalstructureandpersonnelchangescouldmaketheautomakermorefocusedonproductdevelopment. 4Q22EandFY23Eoutlook.Weproject4Q22netlosstonarrowtoRMB1.7bn,asitmayenjoyforexgains.Infact,Xpeng’snetlossinthefirstninemonthsof2022wouldbeaboutRMB5.3bn,ifweexcludeforexlosses.WecutourFY23Esalesvolumeforecastfrom250,000unitsto180,000unitsamidtheG9miss.WeprojectnetlossinFY23EtobeRMB5.8bn,aidedbyitscostreductionefforts. Valuation/Keyrisks.WemaintainourBUYratingbutlowerourtargetpricefromUS$40.00toUS$20.00,basedon2.5x(prior3.2x)ourrevisedFY23Erevenueestimates,alowertargetvaluationthanLiAuto(LIUS,BUY)andNIO(NIOUS,BUY),givenitsworsesalesmomentumnow.WegiveXpenghighervaluationthansometraditionalautomakersbecauseitsleadingautonomousdriving(AD)technologyinChinacouldstillprovidethecompanyanedgetochangetheindustrylandscape,shoulditsall-scenarioNGPbereadyby2024.KeyriskstoourratingandtargetpriceincludeslowerADtechnologyadvancementandafastercatchupfromotherautomakers,lowersalesvolumeand/orgrossmarginthanweexpect,aswellasasectorde-rating. EarningsSummary (YE31Dec) FY20A FY21A FY22E FY23E FY24E Revenue(RMBmn) 5,844 20,988 26,999 47,469 65,162 YoYgrowth(%) 151.8 259.1 28.6 75.8 37.3 Netincome(RMBmn) (4,890) (4,863) (8,527) (5,822) (3,148) EPS(RMB) (6.48) (2.96) (5.00) (3.39) (1.83) YoYgrowth(%) N/A N/A N/A N/A N/A P/S(x) 3.5 2.1 1.9 1.1 0.8 P/B(x) 0.6 1.0 1.5 1.8 2.0 Yield(%) N/A N/A N/A N/A N/A ROE(%) (35.4) (12.7) (22.5) (18.9) (11.9) Netgearing(%) Netcash Netcash Netcash Netcash Netcash Source:Companydata,Bloomberg,CMBIGMestimates BUY(Maintain) TargetPriceUS$20.00 (PreviousTPUS$40.00) Up/Downside+172.5% ChinaAutoSector SHIJi,CFA (852)37618728 shiji@cmbi.com.hk DouWenjing,CFA (852)69394751 douwenjing@cmbi.com.hk StockData MktCap(US$mn)6,326 Avg3mthst/o(US$mn)284 52wHigh/Low(US$)56.45/6.18TotalIssuedShares(mn)1,724Source:Bloomberg ShareholdingStructure HeXiaopeng21.2% TaobaoChina11.2% Others67.6% Source:Bloomberg SharePerformance AbsoluteRelative 1-mth10.9%-15.3% 3-mth-57.6%-48.6% 6-mth-69.4%-55.7% Source:Bloomberg 12-mthPricePerformance (US$) 60 50 40 XPEVUS MSCIChina(rebased) 30 20 10 0 2021-112022-022022-052022-082022-11 Source:Bloomberg Auditor:PricewaterhouseCoopersZhongTian RelatedReports: “XpengInc.–NewXpenginthemaking?”–24Aug2022 CurrentPriceUS$7.34 PLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE1 Figure1:Quarterlyresults RMBmn 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 YoY QoQ Salesvolume(units) 13,340 17,398 25,666 41,751 34,561 34,422 29,386 14.5% -14.6% ASP(RMB) 221,209 216,190 222,860 204,929 215,704 216,035 232,202 4.2% 7.5% Revenue 2,951 3,761 5,720 8,556 7,455 7,436 6,823 19.3% -8.2% Grossprofit 330 449 821 1,023 911 809 923 12.5% 14.1% R&Dexpenses (535) (864) (1,264) (1,451) (1,221) (1,265) (1,499) 18.5% 18.5% SG&Aexpenses (721) (1,031) (1,538) (2,015) (1,642) (1,665) (1,626) 5.7% -2.3% Operatingprofit (904) (1,443) (1,803) (2,430) (1,920) (2,091) (2,177) N/A N/A Netprofit (787) (1,195) (1,595) (1,287) (1,701) (2,701) (2,376) N/A N/A Grossmargin 11.2% 11.9% 14.4% 12.0% 12.2% 10.9% 13.5% -0.8ppt 2.6ppt Operatingmargin -30.6% -38.4% -31.5% -28.4% -25.8% -28.1% -31.9% -0.4ppt -3.8ppt Netmargin -26.7% -31.8% -27.9% -15.0% -22.8% -36.3% -34.8% -6.9ppt 1.5ppt Source:Companydata,CMBIGM Figure2:Earningsrevision RMBmn FY22E NewFY23E FY24E FY22E Old FY23E FY24E FY22E Diff(%) FY23E FY24E Revenue 26,999 47,469 65,162 34,176 67,953 85,775 -21.0% -30.1% -24.0% Grossprofit 3,270 7,057 11,133 4,178 11,113 16,469 -21.7% -36.5% -32.4% Operatingprofit (8,530) (6,823) (4,008) (7,709) (5,187) (1,632) N/A N/A N/A Netprofit (8,527) (5,822) (3,148) (7,507) (4,189) (714) N/A N/A N/A Grossmargin 12.1% 14.9% 17.1% 12.2% 16.4% 19.2% -0.1ppt -1.5ppt -2.1ppt Operatingmargin -31.6% -14.4% -6.2% -22.6% -7.6%