Xpeng/EVs: JPMorgan defies army of short sellers

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Electric-car sales are hitting fresh records around the world. Tesla and BYD are leading the charge, achieving record numbers in the second quarter. Rival Xpeng has a less enviable distinction: as the most divisive Chinese EV maker among investors.

Short interest in Xpeng’s outstanding shares neared a new high this week. Bear positions have almost tripled since the start of the year, according to S&P Global Market Intelligence. The surge of short interest in Xpeng’s US-listed American depositary receipts started last December. It is now one of the most shorted Chinese companies by US investors.

This goes to show that not all Americans agree with Jamie Dimon. JPMorgan, the US bank he runs, is a cheerleader for the middle-of-the-road carmaker. It increased its long position from 5.6 to 6.4 per cent last month. The shares are up 84 per cent from the start of June. 

There is some basis for optimism. Beijing has launched a fresh drive to boost EV sales. Xpeng’s new G6 electric SUV, which is priced about a fifth lower than Tesla’s Model Y in China, garnered 25,000 pre-orders in the first three days of its release. Xpeng shares trade at an enterprise value of 2 times forward sales, double that of its biggest local rival BYD.

But a 40 per cent drop in Xpeng’s first-half sales show competition is fierce. Tesla is set to achieve another record quarter in China. Warren Buffett-backed BYD has the largest chunk of the Chinese market and sold 700,000 fully electric and plug-in hybrid vehicles globally in the second quarter.

The flipside of Xpeng’s competitive pricing when compared to Tesla is weaker profitability. It has generated negative operating margins since starting car production in 2018.

The second problem is that Xpeng’s pricing advantage has grown weaker as Tesla slashes prices and hands out cash subsidies in China.

Hefty short positions leave Xpeng shares poised in a precarious position. Both good and bad news may trigger disproportionate swings in the stock. Conservative investors should limit their exposure until the longer-term outlook for sales is clearer.