China EV Maker XPeng’s 92% Surge Has Short Sellers Piling In

2023-07-04 13:22

Bearish bets on Chinese electric vehicle maker XPeng Inc. have reached a record high as its share prices

Bearish bets on Chinese electric vehicle maker XPeng Inc. have reached a record high as its share prices almost doubled in recent weeks, suggesting investors are skeptical the rally can last.

Short interest accounted for about 12% of XPeng’s shares available to trade in Hong Kong, according to IHS Markit data as of June 29. The Guangzhou-based automaker’s stock has surged 92% since a low on June 1 to reach overbought territory, before sliding as much as 8.4% on Tuesday.

Chinese EV makers have been rallying on optimism over the government’s push to expand purchases, making the sector a rare bright spot in the sluggish stock market. While peers Li Auto Inc. and Nio Inc. have also gained more than 30% each since the start of June, XPeng has outperformed as analysts praised the competitive pricing strategy of its new G6 electric SUV model, unveiled last week.

Sentiment seems to be turning cautious following overheated signs in the rally and worries over the toll of an intensifying price war. The ratio of sell ratings on XPeng edged higher in June to 13.3% from 12.5% a month earlier, according to analyst recommendations tracked by Bloomberg. XPeng also has the highest 30-day volatility among the 50 members on the Hang Seng China Enterprise Index.

“G6 sales may be good due to low price but this also means even weaker profitability in the coming quarters,” said Kelvin Lau, analyst at Daiwa Capital Markets Hong Kong Ltd, who has a sell rating on XPeng on concerns over the company’s profitability. The automaker reported a wider-than-expected loss in the first quarter.

Short interest on its US-listed stock has come down from a peak in December but still accounts for more than a third of the company’s outstanding shares, making the stock one of the most shorted among American Depositary Receipts of Chinese firms, IHS Markit data show.

The company’s gross profit margin in the third quarter and a ramp up in sales volume will be the key things to watch to gauge the rally’s sustainability, Citigroup Inc analysts led by Jeff Chung wrote in a note Monday.