What happened
Shares of Chinese electric vehicle (EV) maker XPeng (XPEV 2.44%) spiked Friday morning, reversing a downtrend for the week. XPeng shares were down by almost 11% this week before they jumped by more than 10% Friday morning. As of 10:50 a.m. ET, the stock was still up by 8% for the session.
So what
Ironically, what caused investor angst earlier in the week seems to be what is driving the stock higher Friday. That's because early results show the market's initial negative reaction to the price cuts that XPeng announced may have been misguided.
XPeng slashed prices on its EVs earlier this week in response to Tesla's price cuts in China. Investors first viewed XPeng's decision as a sign of desperation, and a tactic that could hurt the company's long-term prospects. That still may be true, but it now appears that -- for Tesla, at least -- price cuts are driving a surge in demand among Chinese consumers.
Image source: XPeng.
Now what
According to an article published by Barron's Friday, there may be merit in the price-cutting strategy -- but it could still be a negative development for XPeng. A survey of 500 Chinese EV buyers showed that Tesla's price cuts had indeed spurred interest in its EVs in China. Wedbush analyst Dan Ives conducted the survey, and based on the results, he's calling Tesla's price cuts "a huge success."
A large majority of survey respondents said Tesla's price cuts had made them more likely to buy a Model Y. Data from weekly car insurance registrations backs up the survey: More than six times as many Teslas were registered in the week after it lowered prices than were registered in the prior week.
The positive impacts of price cuts likely will carry over to XPeng as well, and should drive demand. But Tesla and XPeng are in very different positions financially. Tesla is very profitable, and while these price cuts may trim its profit margins, they won't cause it to start generating bottom-line losses. XPeng will need to see a huge surge in sales for its price cuts to result in a positive outcome.
XPeng will report its January sales numbers on the first day of February, and investors will want to see a big jump from the 11,292 vehicles it delivered in December. Only then will we know if the EV maker's latest move is paying off.
