The market hasn’t had much time for startup EV makers that don’t produce free cash flow. It’s another story for ones that do which is why it’s important for Chinese EV maker
XPeng
to hit that milestone.
BofA Securities analyst Ming Hsun Lee upgraded
XPeng
(ticker: XPEV) stock to Buy from Hold Monday, his price target goes to $22 from $16.30 a share. The surprise $700 investment by
Volkswagen
(VOW3.Germany), announced in July, improves the company’s finances and is an endorsement of XPeng’s self-driving technology, Lee writes. With more cash from
Volkswagen
and more products developed jointly with VW, he expects XPeng to produce profits and positive free cash flow in 2025.
XPeng’s U.S.-listed American Depository Receipts, or ADRs, are up 5.3% in premarket trading.
S&P 500
and
Nasdaq Composite
futures are 0.5% and 0.6% up, respectively.
The 2025 free cash flow prediction is about a year earlier than the consensus call on Wall Street. Positive free cash flow, which most often allows a company to fund its own growth, is an important metric for any company, especially EV makers.
Tesla
(TSLA),
BYD
(1211.Hong Kong), and
Li Auto
(LI) are the only pure-play EV makers that consistently generate free cash flow. They are worth more than $800 billion combined and their shares are up about 45% year to date on average.
A group of seven EV startups that don’t generate free cash flow yet, including XPeng,
Rivian Automotive
(RIVN),
Fisker
(FSR),
Lucid
(LCID),
Lordstown Motors
(RIDEQ),
Nikola
(NKLA),
NIO
(
NIO
) are worth less than $100 billion combined and shares are down about 4% year to date on average. One of those startups, Lordstown , was forced to declare Chapter 11 bankruptcy earlier in 2023.
XPeng ended the second quarter with almost $5 billion in cash on the books. Along with the VW investment, it has no near-term cash worries.
Overall, the Street has been warming to the stock since the VW investment. About 61% of analysts covering the company rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. About 55% of analysts rated shares Buy before the VW investment.
The average analyst price target is about $15 a share, up from less than $9 a share before the VW investment.
The $15 target is right about where shares closed this past week. The stock has been on a wild run since the VW investment, going from roughly $8 a share to $23 and then to $15 over the course of a few weeks.
Write to Al Root at [email protected]
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