Global EV Shift And Advanced Autonomy Will Unlock New Opportunities

Key Takeaways

• Rapid rollout of proprietary AI chips and features, plus global expansion into premium segments, positions XPeng for faster margin growth and risk diversification than expected.
  
• Vertical integration and democratization of advanced technologies support cost reduction, operational resilience, and exposure to emerging high-margin business areas.
  
• The company faces margin pressure from global trade barriers, heavy reliance on subsidies, ongoing losses, fierce competition, and high R&D spending without guaranteed innovation leadership.

Catalysts

Designs, develops, manufactures, and markets smart electric vehicles (EVs) in the People’s Republic of China.

• While analyst consensus expects large-scale AI investment to weigh on short-term profit margins, XPeng's rapid commercialization of self-developed Turing chips and full-stack physical AI models could drive a step-change in both operating efficiency and premium pricing, meaning margin expansion and profit acceleration may arrive sooner and stronger than expected.
  
• Analysts broadly agree that globalization entails near-term SG&A pressure, but the speed and execution of XPeng's multi-continent expansion-combined with successful penetration of premium European and Southeast Asian segments-suggests international sales could outpace forecasts and deliver significant revenue upside in the coming years, with diversified earnings streams reducing overall risk.
  
• XPeng's unique approach to democratizing advanced AI features-such as bringing high-end autonomous capability into mid-priced models like MONA-positions the company to capture outsized share of the rapidly growing global EV market, driving volume growth and boosting top-line revenue well ahead of peers.
  
• Vertical integration of key technology (in-house chips, foundation models, vehicle engineering) is yielding consistent cost reductions and operational resilience, supporting seven consecutive quarters of gross margin improvement and setting the stage for sustained upward movement in net margins as scale increases.
  
• Accelerated commercial development of humanoid robots, powered by XPeng's leading edge in hardware/software AI convergence, creates a potential new high-margin growth vertical from 2026 onward, offering an additional profit stream that is not currently reflected in consensus earnings models.

XPeng Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on XPeng compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming XPeng's revenue will grow by 56.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -10.1% today to 5.8% in 3 years time.
• The bullish analysts expect earnings to reach CN¥11.2 billion (and earnings per share of CN¥8.04) by about July 2028, up from CN¥-5.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 30.9x on those 2028 earnings, up from -25.3x today. This future PE is greater than the current PE for the US Auto industry at 15.7x.
• Analysts expect the number of shares outstanding to grow by 0.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.04%, as per the Simply Wall St company report.

XPeng Future Earnings Per Share Growth

Risks

• The company's international growth strategy is threatened by rising trade protectionism and increased tariffs on Chinese-made EVs in key export markets such as Europe, which management acknowledges is already having a negative impact on profitability and could constrain both future revenue and net margins if these barriers persist or escalate.
  
• XPeng remains heavily reliant on government subsidies and regulatory incentives, which significantly contributed to other income in the first quarter but are stated by management as unpredictable in their ongoing availability, creating risk for future revenue streams and the stability of net margins if such support is reduced or ends.
  
• Despite record deliveries and growing revenues, XPeng continues to report substantial net losses and high R&D expenses, with management guiding R&D to rise further in 2025; if revenue growth or margin improvement stalls, this heavy ongoing investment may delay breakeven and lead to continued net losses and potential shareholder dilution.
  
• Intensifying competition in the Chinese and global EV markets, including aggressive moves by foreign automakers launching locally tailored and competitively priced models, could spark price wars and margin compression, which would negatively impact XPeng's revenue growth, average selling prices, and gross profit margins.
  
• The company's aggressive push into developing advanced autonomous driving and AI-powered vehicles and robotics is capital
• and R&D-intensive, and if technological shifts outpace XPeng's innovation or the company fails to achieve a genuine edge over leading domestic and international competitors, future earnings and operating margins could be significantly reduced due to higher capital expenditures and missed market share opportunities.

Valuation

• The assumed bullish price target for XPeng is $34.53, which represents two standard deviations above the consensus price target of $25.71. This valuation is based on what can be assumed as the expectations of XPeng's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $35.67, and the most bearish reporting a price target of just $18.07.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CN¥193.5 billion, earnings will come to CN¥11.2 billion, and it would be trading on a PE ratio of 30.9x, assuming you use a discount rate of 13.0%.
• Given the current share price of $18.87, the bullish analyst price target of $34.53 is 45.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.