Maintain BUY. We view Xpeng’s 3Q25 earnings as largely in line with slight miss in vehicle GPM and SG&A. We believe it is well on track to turn profitable in 4Q25. We expect solid sales volume and profit growth to continue in FY26, given new Mona models and EREV variants. We think Xpeng deserves a valuation premium, as its advantages in AD technologies could help it be well positioned in humanoid robots.
Vehicle margin below expectation in 3Q25. Xpeng’s 3Q25 revenue was 2% lower than our prior forecast. Its GPM in 3Q25 reached all-time high of 20.1%, or 2.4ppts higher than our estimates, largely aided by higher-thanexpected R&D service income from VW (VOW GR, NR). During the period, vehicle GPM fell 1.2ppts QoQ to 13.1%, lower than our forecast by 0.7ppts. SG&A and R&D expenses combined in 3Q25 were about RMB400mn higher than our projection, offsetting the beat in gross profit. Net loss of RMB381mn in 3Q25 was about RMB110mn wider than our prior forecast.
4Q25 and FY26 outlook. Management expects a similar level of R&D service income in 4Q25 vs. 3Q25, which lays foundation for breakeven in 4Q25. We also expect both vehicle ASP and GPM to improve sequentially in 4Q25, aided by the contribution of the redesigned P7. Accordingly, we project Xpeng to turn profitable in 4Q25 with a net profit of RMB124mn. We project FY26 sales volume to be 0.61mn units amid new models and EREV variants. We project FY26 GPM to widen 0.1ppt YoY to 18.7%, aided by a better product mix and continuous income from VW. We project net profit in FY26 to be RMB4.1bn, taking a possible tax credit into account.
Humanoid robots could double Xpeng’s revenue in FY30. Xpeng showcased its 7th-generation humanoid robot Iron on 5 Nov 2025, which became a key topic during the earnings call. Xpeng targets mass production of its humanoid robots by the end of 2026 and an annual sales volume of 1mn units in 2030 with a similar price tag as a car. We are of the view that carmakers could be important players in humanoid robots given their advantages in autonomous driving (AD) technologies. It appears to us that Xpeng now has the first-mover advantage in humanoid robot, although we have not factored it in our model.
Valuation. We maintain our BUY rating and raise our ADR/H share target prices slightly from US$28.00/HK$110.00 to US$29.00/HK$113.00, still based on 1.8x (unchanged) our FY26E P/S. Key risks to our rating and target price include lower sales volume and/or GPM than we expect, slower monetization for robots and a sector de-rating.