Daily Brief: Xpeng’s Smooth Ride Might Be About To Come To An End

Daily Brief: Xpeng’s Smooth Ride Might Be About To Come To An End

almost 2 years ago3 mins

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Xpeng reported better-than-expected quarterly results on Monday, but there might be a malfunction under the Chinese EV maker’s hood…

What does this mean?

Xpeng made a loss last quarter, sure, but that’s not exactly the whole story. The EV maker actually delivered over 40,000 vehicles last quarter – more than three times as many as the same time the year before. Its cars were so popular, in fact, that it was able to hike its prices without turning customers off, which helped the company offset some of the extra supply chain-related costs. Xpeng even managed to top $1 billion in revenue for the first time – triple what it made at the same time in 2020. Still, it’s not resting on its laurels: the EV maker said it’s planning to deliver more than twice as many cars this quarter, and it’ll be ramping up production this year too.

Xpeng revenue

Why should I care?

The bigger picture: Goodwill runs out.

Xpeng still has one major problem to contend with: the price of lithium carbonate – a key ingredient in EV batteries – has jumped fivefold in the last year, and the war in Ukraine is bound to send its price higher still. EV makers like Xpeng, then, have just hiked their prices again to protect their profits – a move Morgan Stanley warns will hit demand sooner or later.

Lithium carbonate price
Source: Seeking Alpha

Zooming out: Tesla gets in on the stock split action.

Morgan Stanley’s less skeptical about Tesla, partly because the original EV maker has the heft to get the right suppliers on side. That might be why the investment bank is estimating that Tesla’s stock price will end up 30% higher than where it is now. It’s off to a good start: Tesla said on Monday that it’s planning to split its stock this year, and investors sent its shares up 5%.

Tesla stock

Keep reading for our next story...

US Companies Announced A Record Amount Of Buybacks

Buyback image

Data out over the weekend showed US companies have announced a record amount of share buybacks this year, and they didn’t exactly have to break the bank…

What does this mean?

From supply bottlenecks to inflation, American companies are facing more than a few risks to their bottom lines. So they’re resorting to a well-worn trick to keep investors sweet: they’re buying back their own shares, limiting the supply available and pushing up the price of those left over. In fact, Goldman Sachs has shown that US companies have approved a record $319 billion worth of share buybacks this year – a far cry from the $267 billion of this time last year. And now’s the perfect time for them to do just that: the average stock’s price in the US Russell 3000 index is down over 30% this year, which suggests companies can nab their shares for a bargain.

Buybacks

Why should I care?

The bigger picture: Bad luck, big banks.

America’s investment banks earn fees on facilitating major share buybacks, so this record-breaker might’ve come as a relief. Not least because they’ve seen a serious drop-off in one of their biggest money-spinners: advising companies on how to sell shares, usually through initial public offerings (IPO). Case in point: five of the biggest US investment banks have made nearly 90% less from that segment of their business this year than they had done this time in 2021.

Zooming out: The Middle East is thriving.

IPOs might be out of favor in the US, but they’re very much in vogue elsewhere: data out last week showed that Middle Eastern companies have raised more cash from IPOs than those in Europe this year. That’s probably because the region’s energy-heavy stock markets are having a particularly strong year, as the surging price of oil and natural gas sends local producers’ shares sky high.

IPOs
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