Shares of XPeng Inc. turned lower Thursday after the China-based electric vehicle maker was downgraded at UBS, as analyst Paul Gong suggested they had run up too much to recommend investors buy at current levels.
What may also be weighing XPeng’s stock, and the shares of other China-based EV companies, the U.S. House of Representatives passed a bill Wednesday that could lead many Chinese companies to delist their shares from U.S. exchanges.
Gong cut his rating on XPeng to neutral, after starting coverage of the stock at buy on Sept. 25. The stock /zigman2/quotes/219982686/composite XPEV -3.28% went public on Aug. 27.
He’s still bullish on XPeng’s prospects, saying he believes the company continues to lead in China’s autonomous driving development race, ahead of competitors such as Nio Inc. /zigman2/quotes/204905836/composite NIO -3.69% , Geely Automobile Holdings Ltd. /zigman2/quotes/207616414/delayed GELYY -4.88% /zigman2/quotes/200716015/delayed HK:175 -3.00% and Great Wall Motor Co. Ltd. /zigman2/quotes/206189068/delayed CN:601633 -1.42% /zigman2/quotes/207702000/delayed HK:2333 -6.00%
“But after an over-200% rally, we believe investors more or less already recognize this,” Gong wrote in a note to clients. “Despite raising our volume forecasts on an increasingly positive long-term view (and reducing loss-per-share estimates), we view its potential upside/downside as largely balanced.”
Gong still more than doubled his stock price target to $59 from $25.
The stock swung to a loss of 5.5% in afternoon trading Thursday, erasing an earlier gain of as much as 2.8%. It had rallied 7.0% on Wednesday, to halt a two-day tumble of 18.5%.
Since Gong initiated XPeng at buy on Sept. 25, the stock had rocketed 212.3% through Wednesday. In comparison, Nio’s stock had soared 161.9%, Tesla Inc. shares /zigman2/quotes/203558040/lastsale TSLA -0.19% had climbed 39.6% and the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.03% had gained 11.2%.
Gong also rates Nio at neutral, since Aug. 25, and has rated Tesla at neutral since March 24.
Nio shares dropped 2.7% on Thursday, while Tesla’s stock shot up 5.1% into record territory after Goldman Sachs upgraded the U.S. EV leader to buy from neutral.
Gong expects the electric-vehicle share of China’s auto market to rise to 6% in 2021, from 5% this year, and to more than 20% in 2025 and to close to 50% in 2030.
Among the U.S.-listed shares of other China-based EV companies, Li Auto Inc. /zigman2/quotes/219811686/composite LI -3.00% lost 5.5%,Geely Automobile shed 1.1%, Kandi Technologies Group Inc. /zigman2/quotes/209023718/composite KNDI +3.77% slid 2.5%, BYD Co. declined 1.3% /zigman2/quotes/206767010/delayed BYDDY -3.44% /zigman2/quotes/206867707/delayed HK:1211 -2.82% and Dongfeng Motor Group Co. Ltd. /zigman2/quotes/201435136/delayed DNFGY +8.52% /zigman2/quotes/202033304/delayed HK:489 -1.21% gave up 4.2%.
The U.S. House passed the Holding Foreign Companies Accountable Act, which could quickly get signed into law since it was already approved by the Senate in May, as MarketWatch’s Victor Reklaitis reported . The measure would require the Public Company Accounting Oversight Board (PCAOB) to oversee audits of China-based companies’ financials, if the companies want to list on U.S. exchanges.
XPeng indicated when it filed to go public that enactment of this legislation “may result in prohibitions on the trading of our [American depositary shares] on the NYSE, if our auditors fail to meet the PCAOB inspection requirement in time.”
Nio said in its 2019 annual report : “Because our auditors are located in China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the [People’s Republic of China] authorities, our auditors are not currently inspected by the PCAOB.”