While JPMorgan is bullish on the Chinese automaker Xpeng, investors should still proceed with caution !
Electric vehicle sales around the world are hitting new records.
Tesla and BYD are leading the way, posting record numbers in the second quarter. Rival Xpeng has a less enviable trait: Investors view it as the most divisive Chinese electric car maker.
Short position ！
This week, the net short position in Xpeng’s outstanding shares is near a new high. Short positions have nearly tripled since the start of the year, according to S&P Global Market Intelligence.
The surge in net short positions in Xpeng’s U.S.-listed ADRs began in December. It is now one of the most shorted Chinese companies by U.S. investors.
Xpeng EV
It shows that not all Americans agree with Jamie Dimon. JPMorgan, the US bank he runs, is a cheerleader for the midsize automaker.
The agency increased its long position to 6.4% from 5.6% last month. The company’s shares are up 84% since the beginning of June.
Certain optimism
There is a certain basis for optimism.
The Chinese government has launched a new initiative to boost sales of electric vehicles. Xpeng’s new G6 electric SUV, which costs about a fifth less than Tesla’s Model Y in China, garnered 25,000 reservations in its first three days of release.
Xpeng’s enterprise value-to-sales ratio of 2 is double that of BYD, its biggest competitor in China.
Downsides
However, Xpeng’s sales in the first half of the year fell by 40%, indicating that the competition is very fierce.
Tesla is set for another record quarter in China. Warren Buffett-backed BYD has the largest market share in China, selling 700,000 BEVs (battery electric vehicles) and plug-in hybrid vehicles globally in the second quarter of this year.
The flip side of Xpeng’s competitive pricing compared to Tesla is weaker profitability. The company has had negative operating margins since it started producing cars in 2018.
The second problem is that Xpeng’s pricing advantage is getting weaker as Tesla slashes prices and hand out cash subsidies in China.
The large short position puts Xpeng shares in a precarious position. Both good and bad news can trigger excessive volatility in the stock. Conservative investors should limit their risk until the long-term outlook for sales is clearer.
