Maintain BUY. Xpeng’s 4Q24 earnings were largely in line with a slight beat of GPM. We raise our FY25-26E sales volume forecasts to 440,000 units and 600,000 units, respectively, given the current strong model cycle. We estimate a quarterly breakeven sales volume of 130,000-140,000 units and therefore, we project a breakeven in 4Q25E and net profit of RMB1.2bn in FY26E. We also believe its early move in robot with AI capabilities could lift valuation.
　　4Q24 largely in line with slight beat of GPM. Xpeng’s 4Q24 revenue was 1% lower than our prior forecast while its GPM was 0.4ppts higher than our projection. Such slight beat was offset by higher-than-expected R&D and SG&A expenses, resulting in both in-line operating loss and net loss.
　　Strong model cycle with overseas expansion to lift FY25-26E sales volume and profit. We are of the view that Xpeng’s strong sales volume in 1Q25 could extend into the rest of 2025, as it still has a plethora of new models in the pipeline. We raise our FY25E sales volume forecast by 50,000 units to 440,000 units. We also project its vehicle margin to widen from 10.0% in 4Q24 to 11.3% in FY25E. We estimate a quarterly breakeven sales volume to be 130,000-140,000 units amid the current product mix. Therefore, we expect Xpeng to achieve breakeven in 4Q25E. New models in FY25E would have a full-year contribution in FY26E, which leads our FY26E sales volume forecast to 600,000 units. We project FY26E net profit to be RMB1.2bn, taking possibly higher R&D for robots and other AI projects into consideration.
　　Early mover in robot with AI capabilities to lift valuation. Most questions during the earnings call focused on autonomous driving (AD) and robot, both of which are related to AI capabilities. We are of the view that automakers with superb AD technologies are naturally strong competitors in the robot industry. Xpeng’s early move in robot could make it even more competitive.
　　Valuation/Key risks. We maintain our BUY rating and raise our target price from US$16.00 to US$28.00 (HK$110), based on 1.8x our revised FY26E P/S (prior 1.5x FY25E). We roll over our valuation multiple, as we believe FY26E could better reflect Xpeng’s strong model cycle when new models have full-year contribution. We think a valuation that is slightly higher than peers and previous multiple is justified given its leading AI capabilities and better outlook for humanoid robots than before. Key risks to our rating and target price include lower sales volume and/or GPM than we expect, slower monetization timeline for robot and a sector de-rating.