Electric vehicle (EV) stocks are certainly feeling the pain today, spurred by a number of negative catalysts in the sector. However, XPeng (NYSE:XPEV) is among the leading decliners in this space today, with XPEV stock dropping around 5% in early afternoon trading.
As is often the case with such moves, XPeng has a company-specific headwind investors are pricing in today. In a new Securities and Exchange Commission (SEC) filing, it was reported today that Alibaba (NYSE:BABA) saw its stake in the EV maker reduced to only 12.5% of XPeng. Previously, Alibaba had owned as much as 19% of XPeng at the time of its initial public offering (IPO). This move was due entirely to dilution and highlights some concerns the market appears to have about XPeng’s continued feverish pace with issuing shares.
Let’s dive into what investors may want to make of this move in XPeng today.
Why Is XPEV Stock Down Today?
Dilution, or an investor’s position becoming smaller (as a percentage of ownership of a given company), is something that is often discussed but rarely paid attention to. Indeed, various sources reporting on Alibaba’s holdings noted that the e-commerce giant trimmed its position in the EV maker. That isn’t the case at all, but the result is effectively the same due to XPeng issuing so many shares. A 19% ownership stake being reduced to 12.5% is a big deal.
For investors in upstart EV companies, the rate at which a company burns through cash matters a lot. That’s because in order to fund those losses, a company will either take on debt or issue shares, which reduces the value of an investor’s holdings in proportion to the issuance.
While XPeng is still in growth mode, investors are likely to see more of the same. This is something to keep in mind when considering whether XPEV stock will fit into your portfolio at this point in its lifecycle.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
