Thanks to the improved product portfolio, 2Q25 vehicle ASP rallied QoQ by RMB10k+, while vehicle margin notably expanded 3.9ppts QoQ to 14.3%. 2Q25 non-GAAP net losses extended declines to RMB385m, nicely beat. 3Q25 delivery guidance was largely in line with deliveries moderately stepping towards milestone of 40k+ units. Despite higher guidance for R&D in 2H25, we expect the expanded delivery scale and high-teens gross margin outlook would provide a solid foundation for achieving breakeven in 4Q25 as scheduled. We expect the deepened supply-chain integration and AI technological expertise (breakthrough in L4 robotaxi and potential external supply of AD chips) might serve as the differentiated edge for XPeng to sustain market relevance over the long-term horizon, but near-term earnings profile largely hinges on the potential success of upcoming new P7 and EREV X9. These two models are pivotal for XPeng to verify its capability to go upscale as well. Maintain BUY with unchanged TP of US$31.00.
　　Key Factors for Rating
　　2Q25 revenue largely in line with a QoQ rally in vehicle ASP. 2Q25 vehicle sales rose by 17.5% QoQ to RMB16.9bn, outpacing the sales volume growth of 9.8% and largely in line with our prior anticipation, mainly supported by improved product mix as the lower MONA delivery mix (38% in 2Q vs. 50% in 1Q) and sales ramp up of updated G6/G9 models lifted the blended ASP up by 7.1% QoQ to RMB164k. The revenue of services and others slightly decreased QoQ due to the temporary fluctuations in revenues from technical R&D services. Going forward, we expect continued increase in vehicle ASP driven by new launches and deliveries of higher-priced models (G7/new P7/EREV X9) in 2H25.
　　Vehicle margin expanded beyond anticipation by virtue of favourable product mix change. 2Q25 vehicle margin notably expanded from 1Q’s 10.5% to 14.3%, beyond our initial forecast helped by optimised product portfolio and supply chain cost-cut efforts. Combined with a moderate pullback in gross profit from service and other sales, 2Q25 blended margin well improved 1.8ppts QoQ to 17.3%. During the conference call, the company reiterated that it maintained guidance for achieving high-teens company-level gross margin in 4Q unchanged. This is primarily to provide sufficient buffer to support the market success of intensive new launches in 2H25 and to address potential shifts in the policy/competitive dynamics.
　　Staying on track to achieve break-even in 4Q25. 2Q25 OPEX ratio further optimised to 23.9%. Combined with the contribution of government subsidy and FX gains subjected to rising overseas revenue scale, the company further narrowed non-GAAP net loss from 1Q’s RMB426m to RMB385m in 2Q25, above expectation. For 2H25, in spite of higher R&D guidance from RMB8.5bn to 9bn, the mgmt. indicated loss-reduction momentum on a path towards profitability in 4Q25 as scheduled, aided by scale expansion and solid gross margin expansion, which appears achievable.
　　Delivery guidance for 3Q25 in line. For 3Q25, the company guided sales volume of 113k-118k units, which implies average monthly sales of 38-41k units over Aug-Sep, in line with our forecasts. During the earnings call, the company highlighted 2026 as a more robust year for XPeng, with a significantly higher number of new and revamped models compared to 2025. On one hand, the company plans to complete the product lineups of dual-powertrain options across multiple price segments and model types in both domestic and international markets. On the other hand, the high-volume MONA series will introduce two SUV models in 2026, to be sold concurrently in domestic and overseas markets. Given the rich pipelines and ambitious overseas push ahead, we deem the company is likely to regain growth momentum from 4Q25 onwards.
　　The narratives of non-vehicle AI business unfolded. During the earnings call, CEO He Xiaopeng unveiled a clear roadmap for its growth narratives of robotics business for the first time. (i) robotaxi business, XPeng plans to achieve mass production of L4 autonomous driving vehicles by 2026, with pilot operations and services for Robotaxi to commence in selected regions alongside this milestone. (ii) humanoid robotics products, CEO He Xiaopeng disclosed the production timeline for XPeng’s humanoid robots, targeting mass production in the second half of 2026. Additionally, the next-generation humanoid robot is slated for debut at XPeng’s 1024 Tech Day this year. Although the revenue realisation from robotaxi and humanoid robotics initiatives may still be some time away, we believe that any progress updates in these two areas are likely to drive positive sentiment in the market. (iii) potential external supply of Turing AI SoC. In addition to providing EEA technology licensing services to the Volkswagen Group at present, we learnt that the company’s self-developed AI Turing chip is poised for external sales and supply in future, with preliminary discussions already underway with interested clients. This would be pivotal to diversify revenue streams, monetise technological expertise, and reinforce the company’s tech leadership among Chinese NEV space.
　　Valuation
　　We slightly revised down 2025 sales volume forecast to 460k units whereas trimmed up 2026 delivery forecast to 630k units to reflect stronger new model pipelines ahead.
　　We fine-tuned our revenue forecasts for 2025-26 to RMB82.5bn/118.1bn, respectively, based on sales volume forecasts of 460k/630k units. To reflect higher gross margin assumption, we nudged up our 2025-26 non-GAAP net income forecasts from RMB-1.7bn/1.7bn to RMB-928m/2.7bn, respectively.