IIt’s no secret that the transition from internal combustion to electric vehicles is underway, and the opportunity for investors to take advantage of this revolutionary change is enormous.
But should the hype of a much-anticipated IPO be Rivien Automobile (NASDAQ: RIVN) – with just over 1,000 cars sold – a better investment than a company like Xpeng Engines (NYSE: XPEV), which already produces tens of thousands of vehicles each quarter for its customers?
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On track to become a failed IPO
In early November, Rivian completed its long-awaited IPO, priced at $ 78 per share. Within a week, the stock had more than doubled, hitting a high of $ 179. But the good news for early adopters ended there.
If Rivian’s stock was a real car, that tenderness you feel on the descent is wear on the brakes to keep it from spiraling out of control, highlighted by an 11% drop on Wednesday. For those waiting on the sidelines, entry points are improving day by day as the Rivian share price approaches its IPO price, but at what level this stock will turn into a bargain? is still hard to say.
The company has a few strengths. First, the electric vehicle market in North America is expected to grow at a compound annual rate of 27% through 2027 to reach $ 194 billion. Second, Rivian has started delivering vehicles to customers, and as of December 15, its vehicle pre-orders were up 28% from their November level to 71,000. And third, it is supported by Amazon, which owns 20% and has a contract to purchase 100,000 Rivian vans, available by 2025.
What Rivian objects to this is that he fails to meet his timelines, goals, and revenue targets. In the third quarter, the company’s net loss was $ 1.2 billion, or $ 12.21 per share, on revenue of $ 1 million. Wall Street analysts were looking for a loss of $ 5.29 per share on that same turnover. The company also missed its target of producing 1,200 vehicles by the end of the year by 13%, up from 1,038.
To make matters a bit worse for Rivian shareholders, Amazon on Wednesday announced an agreement to purchase a significant number (albeit unspecified) of electric delivery vans from Stellantis, the company resulting from the merger of Fiat Chrysler Automobiles and Peugeot.
The news sent Rivian’s shares tumbling as traders worried about the impact the deal could have on Amazon’s long-term relationship with Rivian. By mid-afternoon Thursday, Rivian’s stock was changing hands at around $ 86 a share, still above its IPO price, but less than half of its peak.
Amazon’s move could simply be seen as the tech giant flaunting its purchases of electric vehicles to minimize the risks that could arise from negotiating with a single electric vehicle maker. Amazon could have other financial or location reasons in mind as well. Regardless, Amazon is looking elsewhere to meet some of its EV needs.
This year, Rivian intends to begin construction of a new $ 5 billion plant in Georgia that will help increase production. Ultimately, this plant should be able to produce 400,000 vehicles per year. But it is not expected to start production until 2024.
If Rivian can meet this deadline, it will certainly help him deliver more vehicles to customers, including delivery vans to Amazon. But if it falls behind schedule, it could hamper the company’s efforts to reach another goal – producing 1 million vehicles per year by 2030.
Month-over-month sales growth propels Xpeng Motors forward
Unlike Rivian, which is headquartered in the United States, Xpeng Motors is based in China, the most populous country in the world. But being a tech company in China also means facing increased scrutiny from government regulators.
Xpeng, for example, was recently fined $ 15,700 for unauthorized data capture after discovering that he had used facial recognition systems to analyze the demographics of those who visited his theaters. exposure.
In these showrooms, Xpeng promotes its P7 and P5 sedans, as well as a long-range SUV. The company delivered over 25,000 vehicles in the third quarter and ended the fourth quarter with nearly 42,000 units sold. It continues to set new sales records every month; the 16,000 units sold in December brought total sales to over 120,000 units.
The sequential growth gave Xpeng year-over-year revenue growth of 187% in the third quarter. Gross margins increased to 14%, from 4.6% the previous year, and also improved sequentially.
The company already sells vehicles in Norway and plans to expand its European operations to countries such as Sweden, the Netherlands and Denmark during 2022. XPeng chairman Brian Gu said if demand justified, Xpeng would consider locating a manufacturing plant in Europe, which would also likely allow it to generate higher margins on its sales there.
Like Rivian, Xpeng’s stock quickly climbed right after its IPO, from around $ 20 in August 2020 to over $ 70 in November 2020, before falling back into a range typically between $ 30 and $ 45. Since October 4, it has gradually climbed from $ 34 to a peak around $ 55, and is now trading around $ 46.
But if analysts’ forecasts are correct, this title has more room for improvement. After the company announced its third quarter results, Bank of America analyst Ming Hsun Lee and Citi Analyst Jeff Chung reiterated his buy quotes and raised his stock price targets to $ 66 and $ 92, respectively. The higher of these targets represents a potential gain of 100% over the current price.
When the time is right
For investors taking a long-term approach, the EV market offers plenty of opportunities – and the time may be right to add Xpeng to your portfolio. Meanwhile, Rivian’s relationship with Amazon should justify investors keeping her on their radar as well. But given recent developments in stock prices, the company’s struggles to meet production targets, and Amazon’s wandering eye, I would prefer Xpeng more.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool. Jeff Little owns Amazon and XPeng Inc. The Motley Fool owns and recommends Amazon. The Motley Fool recommends the following options: January 2022 long calls at $ 1,920 on Amazon and January 2022 short calls at $ 1,940 on Amazon. The Motley Fool has a disclosure policy.
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