In 3Q25, XPeng’s total revenue grew 11.5% QoQ, broadly in line but structure was mixed as vehicle sales missed with wider ASP decline whereas revenue of services and others beat on higher technological service income from Volkswagen. The rise in high-margin technical services also boosted blended gross margin by 2.8ppts QoQ to 20.1%. The 4Q25 delivery guidance of 125k-132k units implies November deliveries may pull back from October, stemming from softer end-user demand for key launches, compounded by delays in pipeline models like X9 EREV. Looking into 2026, XPeng aims to introduce three super EREV versions for existing models (G6/G7/P7+) in 1Q26 and four brand-new models with dual-powertrain options. In our view, XPeng’s recent introduction of AI blueprint in physical AI innovations (humanoid robots, robotaxi etc.) and advancements may help reinforce its valuation premium, but it is still too early to shift valuation methodology to SOTP. Maintain BUY with TP of US$31.00/HK$120.00.
Key Factors for Rating
3Q25 total revenue broadly in line yet structure mixed. In 3Q25, total revenue reached RMB20.4bn, marking an 11.5% QoQ increase and aligning closely with our prior estimates. That said, the underlying revenue mix revealed significant variances. Vehicle sales grew by a tepid 6.9% QoQ, missing our projections owing to a steeper-than-forecasted drop in blended ASP, likely influenced by lower sales mix of higher-priced variants and stiffer competition dynamics. On the positive side, services and other revenue surged nearly 100% QoQ to RMB2.33bn, well above expectations thanks to the milestone payments from R&D services to Volkswagen. For 4Q25, the mgmt. guided for technological service income from Volkswagen to remain on par with 3Q25 levels, positioning it as a sustained revenue stream that could provide stability and support nearterm top-line resilience (with VLA software and Turing SoC sales ahead as well).
3Q25 vehicle margin missed, but blended gross margin beat driven by outsized contribution from technological service. In 3Q25, vehicle margin contracted by 0.8ppt QoQ to 13.1%, slightly missing our prior estimate on weaker fixed-cost absorption in early-stage deliveries of new models and softer demand for key launches like G7 and all-new P7, which somewhat limited scale efficiencies. On the other hand, services and other sales boasted an impressively-high 75% gross margin and accounted for 42% of 3Q25 gross profit, effectively offsetting the vehicle sales margin drag and highlighting the profitability leverage from the company’s tech-driven adjacencies. The outsized gross profit contribution from service revenue lifted blended gross margin up 2.8ppts QoQ to a record high of 20.1%, ahead of our forecasts. For 4Q25, management guided the blended gross margin to hold steady at close to 20%.
Subdued 4Q25 delivery guidance implies November deliveries may pull back from October. 4Q25 delivery guidance of 125,000-132,000 units suggests monthly averages of 41,000-45,000 vehicles in November and December, essentially flat versus October’s 42,013 deliveries. The guidance range lags our earlier assumptions, likely stemming from softer end-user demand for key launches (mainly G7 and all-new P7), compounded by delays in pipeline models like X9 EREV and a new large six-seater SUV. For 2026, XPeng outlined plans for three super EREV products and four dual-powertrain (“onecar dual-energy”) brand-new models, which management believes could drive sales outperformance relative to the broader industry. The product campaign could capitalise on untapped niche demand trends and XPeng’s tech strengths, potentially boosting market relevance.
2025 AI Tech Day outlined physical AI blueprint. At the 2025 AI Tech Day, XPeng unveiled XPENG VLA 2.0 (a next-gen visual-language-action AI model), navigation-free L4 robotaxi capabilities, the next-generation IRON humanoid robot (dramatically demonstrated by unzipping its skin live on stage), and flying-car updates — positioning XPeng as a leader in AI-driven mobility and robotics beyond traditional EVs. For Robotaxi business, the mgmt. announced plans for three Robotaxi models launching in 2026, with trial operations kicking off in cities like Guangzhou. For humanoid robots, the company aims for mass production by end of 2026, initially deployed for commercial services in XPeng’s stores, offices, and factories, scaling to an annual sales of 1m units by 2030 — signaling ambitious expansion in AI-driven adjacencies beyond traditional autos.
Valuation
To reflect the weaker-than-anticipated delivery guidance and ASP erosion as seen in 3Q25, which was partly compensated by higher technological service income from Volkswagen, we revise down revenue forecasts for 2025-26 by 6- 7% to RMB77.2bn/110.3bn, based on vehicle sales forecasts of 442k units and 600k units, respectively.
While XPeng has recently unveiled intriguing physical AI breakthrough, including robotaxi business outlook and humanoid robot, which could theoretically support a SOTP valuation to capture these emerging ventures, we believe it is premature to shift methodologies at this moment due to their early conceptual nature, absence of concrete mass production timelines, and underdeveloped commercial applications. Nonetheless, we believe its diversification into non-vehicle business and high-value technological services demonstrates XPeng’s evolving business model other than automaker, offering resilience and valuation premium above direct rivalries. Maintain BUY with TP of US$31.00/HK$120.00, equivalent to 1.9x 2026E P/S.