What You Missed This Week in EVs and Clean Energy

Volkswagen to invest $700M in XPeng and jointly develop EVs in China

Institutional investors and professional traders rely on The Fly to keep up-to-the-second on breaking news in the electric vehicle and clean energy space, as well as which stocks in these sectors that the best analysts on Wall Street are saying to buy and sell. 

From the hotly-debated high-flier Tesla (TSLA), Wall Street’s newest darling Rivian (RIVN), traditional-stalwarts turned EV-upstarts GM (GM) and Ford (F) to the numerous SPAC-deal makers that have come public in this red-hot space, The Fly has you covered with “Charged,” a weekly recap of the top stories and expert calls in the sector.

VOLKSWAGEN, XPENG PARTNERSHIP: 

Volkswagen (VWAGY) said it is “strengthening its position on the Chinese automotive market” with cooperation between the VW brand and XPENG (XPEV) and between Audi and SAIC. “The VW brand has concluded a technological framework agreement with XPENG. The initial stage of the cooperation shall provide for the joint development of two VW brand electric models for the mid-size segment in the Chinese market. The China-specific vehicles will supplement the MEB product portfolio and are to be rolled out in 2026 in China. This is subject to the conclusion of final agreements.

“As part of the close and long-term strategic cooperation, the Volkswagen Group is to invest approximately US $700Min the Chinese manufacturer of intelligent electric cars. Volkswagen is thus acquiring 4.99% stake in XPENG at US $15 per ADS by way of a capital increase, and will hold a seat as an observer on the XPENG board of directors. The share issuance will be subject to customary closing conditions including applicable regulatory approvals. Audi has signed a strategic memorandum with its Chinese joint venture partner SAIC to further expand existing cooperation. Joint development activities are to extend the portfolio of fully connected electric vehicles on offer in the premium segment swiftly and efficiently. It is planned to start with electric models in a segment where Audi does not as yet have a presence in China,” VW said.

Following the news, Jefferies upgraded XPeng. The recently announced partnership with Volkswagen will help XPeng to increase its brand image globally and tech service fee, the firm contends. The EV maker is well positioned to enjoy its first mover advantage of autonomous driving development and the firm expects strong sales momentum, added Jefferies, which raised 2023/24 sales volume forecasts.

Meanwhile, JPMorgan also upgraded XPeng. The stock rallied following the unexpected announcement of Volkswagen’s $700M investment and strategic partnership between the two companies, JPMorgan tells investors in a research note. The firm believes XPeng’s long-term equity story “has now fundamentally changed” and will outweigh investor concerns on its near-term margin shortfall and financial stress. However, JPMorgan believes it remains too early to call for an outright Overweight at this stage considering business execution and the broader industry headwinds pertaining to competition.

Citing valuation, UBS downgraded XPeng as the stock has rallied 192% since November 2022. While positive on the Volkswagen investment and collaboration, the firm believes XPeng’s near-term upside catalysts have been priced in. The company remains “vulnerable in a fiercely competitive market” and needs to recover its profitability, UBS adds.

MOVING TO THE SIDELINES: 

Jefferies downgraded Ford. The change in Model E guidance is a setback just a few weeks after the May 22 investor day for a company “that has needed to address volatility in operating performance,” Jefferies tells investors in a research note. The firm now sees a “less differentiated investment case” until 2026. It cites Ford’s worse electric vehicle losses and “strategic wobble” for the downgrade.

Meanwhile, Morgan Stanley called Ford’s Q2 report a “Tale of 2 Auto Companies,” as a “solid” Q2 beat and upped fiscal year guidance were driven by strong margin and cash flows from Blue and Pro despite the company raising Model e EV loss estimates by 50% to $4.5B, or a loss of nearly $40,000 per unit. The firm, which expects “major changes to Ford’s EV strategy may be necessary.”

Click here to check out Ford’s recent Media Buzz Sentiment as measured by TipRanks.

RECALL: 

Ford is recalling over 870,000 F-150 pickup trucks due to a faulty parking brake that could inadvertently activate while driving, Forbes’ Ty Roush reports, citing a NHTSA filing. The recall covers F-150 vehicles made between 2021 and 2023, the author notes.

JOINT INVESTMENT IN EV CHARGING: 

BMW Group (BMWYY), General Motors, Honda (HMC), Hyundai (HYMLF), Kia (KIMTF), Mercedes-Benz Group (DDAIF), Stellantis NV (STLA) are creating a joint venture to accelerate the transition to electric vehicles in North America, by making EV charging more convenient, accessible and reliable. The joint venture will include the development of a new, high-powered charging network with at least 30,000 chargers to make zero-emission driving even more attractive for millions of customers. With the generational investments in public charging being implemented on the Federal and State level, the joint venture will leverage public and private funds to accelerate the installation of high-powered charging for customers. The new charging stations will be accessible to all battery-powered electric vehicles from any automaker using Combined Charging System or North American Charging Standard and are expected to meet or exceed the spirit and requirements of the U.S. National Electric Vehicle Infrastructure program. The joint venture aims to become the leading network of reliable high-powered charging stations in North America. The joint venture is expected to be established this year, subject to customary closing conditions and regulatory approvals. The first stations are expected to open in the United States in the summer of 2024 and in Canada at a later stage. Each site will be equipped with multiple high-powered DC chargers, making long-distance journeys easier for customers. In line with the sustainability strategies of all seven automakers, the joint venture intends to power the charging network solely by renewable energy.

U.S. MARKET SLOWDOWN: 

Wells Fargo downgraded Enphase Energy (ENPH), post the Q2 results. While the company’s growth in Europe remains robust and its valuation has come down, an accelerating U.S. market slowdown in Q4 and 2024 could continue to weigh on the shares, Wells tells investors in a research note. The firm says the combination of California’s NEM 3.0, high interest rates, and low natural gas prices have accelerated the slowdown in the U.S residential solar market.

Deutsche Bank also downgraded Enphase Energy. The firm is more cautious on the growth profile in the next 6-12 months, arguing there is “a growing negative backdrop,” especially when looking at the U.S. residential market and relatively high inventory in the channel. Demand softness in key U.S. markets of California, Arizona, Texas and Florida, coupled with seasonality in Europe, will also add pressure on Enphase’s revenue, Deutsche tells investors.

BUY FIRST SOLAR: 

BofA upgraded First Solar (FSLR). The firm sees lower risk of slowing momentum following the execution shown in Q2 and expects First Solar to outperform against “broader Cleantech uncertainty.”

WEAKNING DEMAND ENVIRONMENT: 

Baird downgraded SunPower (SPWR). The company preannounced Q2 results below expectations, citing a weakening demand environment amid macroeconomic uncertainty and rising rates. The firm is “skeptical” of the near-term setup and believes reducing SunPower’s platform investment may cause it to lose meaningful share to peers. In addition, the company’s exposure to California and new home builds will be near-term headwinds in addition to the macro environment, says Baird.

More bearish on the name, BofA downgraded SunPower, after the company pre-released weaker than expected Q2 preliminary results and updated FY23 guidance. The firm, which notes that it had already “substantially” cut its EBITDA and customer expectations, says its “confidence in execution collapses” given that SunPower’s growth outlook is “much weaker than we previously modeled.”

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Originally Posted July 31, 2023 – What You Missed This Week in EVs and Clean Energy