XPeng: Has the guidance collapsed? Can XPeng still turn things around?

$XPeng(XPEV.US) XPeng Motors released its Q4 2024 financial report after the Hong Kong stock market close and before the US stock market open on March 18, 2025, Beijing time. From the actual performance:

1) The average selling price of cars decreased by nearly 30,000 yuan quarter-on-quarter, leading to lower-than-expected sales revenue: In Q4, the average selling price of cars fell by 29,000 yuan from 189,000 yuan in the previous quarter to only 160,000 yuan this quarter, lower than the market expectation of 167,000 yuan and XPeng's guidance of 162,000 yuan (implied average selling price guidance from revenue guidance). Dolphin Research believes this is mainly due to the impact of the model structure (the low-priced M03 model selling well) and the price cuts for older models in anticipation of the model refresh cycle in Q1 this year.

2) However, despite the lower-than-expected revenue per vehicle, the gross margin for cars still reached over 10%, reflecting a significant improvement in XPeng's cost reduction capabilities: This quarter, the gross margin for cars finally returned to double digits, reaching 10%, exceeding the market expectation of 9.4%. This is mainly due to XPeng's significant improvement in cost reduction capabilities, which Dolphin Research believes is primarily driven by substantial improvements in supply chain management.

3) The main issue lies in the Q1 2025 guidance: The sales guidance for Q1 2025 is 91,000 to 93,000 vehicles, implying March sales of 30,000 to 32,000 vehicles, which is basically flat compared to February, with only an increase of about 2,000 vehicles. This guidance, in the context of the launch of the refreshed G6 and G9 models, is relatively lackluster, raising market concerns about whether the sales momentum of the popular models P7+ and M03 can be maintained.

4) The implied average selling price in the Q1 revenue guidance continues to decline: The implied average selling price for cars in the Q1 revenue guidance is only 150,000 yuan. Dolphin Research expects this decline in average selling price to be understandable, given the potential continued increase in the proportion of M03 (which reached half in January-February 2025, compared to only 42% in Q4 2024) and the discounts starting to be offered on models other than P7+ and M03 (with overall discounts in Q1 compared to Q4 2024 at 4%-5%). XPeng also guided that the gross margin for cars in Q1 will still remain at double-digit levels, reflecting a very strong cost reduction capability.

5) A significant increase in selling and administrative expenses in Q4 led to adjusted operating profit falling short of expectations: Although the gross margin this quarter exceeded market expectations, the significant increase in selling and administrative expenses resulted in adjusted operating profit falling short of expectations. The increase in selling and administrative expenses this quarter was primarily due to the expansion of dealership stores in preparation for the model structure shift (Mona M03).

The increase in selling and administrative expenses this quarter was mainly due to the transition to a dealership model, and as sales volume increases, the commissions paid to franchise stores also rise. Therefore, in the context of high sales, the market will not overly criticize the high selling and administrative expenses

Dolphin Research Perspective:

Overall, in the context of XPeng's explosive sales in the fourth quarter, although the revenue per vehicle did not meet expectations, the automotive gross margin still standing at a double-digit 10% reflects a significant improvement in XPeng's cost reduction capabilities. Such fourth-quarter performance itself will not be harshly criticized by the market.

However, what truly worries the market is the guidance for the first quarter of this year, which shows mediocre sales guidance, while the implied vehicle price in the revenue guidance is expected to continue to decline.

The sales guidance of 91,000 to 93,000 units for this quarter implies a sales guidance of 30,000 to 32,000 units for March, which is basically flat compared to February, with only an increase of about 2,000 units. This guidance, in light of the launch of the refreshed G6 and G9, is relatively bland, causing the market to start worrying about whether the sales momentum of the two explosive models, P7+ and M03, can be maintained. After all, P7+ has already dropped from over 10,000 units in January to over 7,000 units in February, and the current delivery time is only 1-2 weeks, which actually implies that the order volume for P7+ is already insufficient.

Since Mona M03's delivery volume surged to 15,000 units, there has been no trend of further increase, and the delivery cycles for the 515 and 620 versions have now reached 2-4 weeks, leading the market to worry whether the delivery momentum of M03 has begun to show signs of decline.

Currently, XPeng's stock price is at a relatively high level, and with the market's expectation of 400,000 units in sales (considered a pessimistic expectation), the implied P/S for selling cars in 2025 has reached around 2-2.1 times, while the overall P/S has reached about 2.3-2.4 times, making it the highest-valued automotive stock among new forces (only second to Xiaomi's 2.5 times, but Xiaomi is still driven by supply-side logic rather than demand-side, leading to different valuation perspectives).

However, Dolphin Research believes that in terms of XPeng's fundamentals this year, it remains a relatively strong target:

① Significant improvement in cost reduction capabilities, strategically guided by "high cost-performance": Whether from the fourth quarter's automotive unit price not meeting expectations while the automotive gross margin still exceeded expectations, or from the first quarter's guidance indicating a continued decline in automotive unit price (with M03's proportion continuing to increase + discounts on older models reaching about 4%-5%), XPeng still guides for a double-digit automotive gross margin in the first quarter, which actually reflects a leap in XPeng's cost reduction capabilities.

Dolphin Research believes that this reflects the significant achievements XPeng has made in its supply chain: by bringing in Great Wall Motors President Wang Fengying, XPeng has made substantial reforms in the supply chain, compressing unnecessary procurement costs without damaging product strength, and has achieved significant results so far.

This point was actually highlighted by Dolphin Research in XPeng's third-quarter financial report; for details, please see: "[After nearly three years of setbacks, is XPeng finally making a comeback?](https://longportapp.cn/zh-CN/topics/25607744? app_id=longbridge&utm_source=longbridge_app_share&channel=t25607744&invite-code=4NOXYT&locale=en-US&community_badge=1&profile_following_followers_activities=1)》

② More precise product positioning, seeing the shift towards a user-centric approach:

XPeng's positioning in both product and R&D has become more precise: by streamlining SKUs, eliminating redundant configurations, and focusing on high-perception user functions (such as improvements in intelligent driving capabilities and battery life, which remain the most critical pain points for users), it does not blindly pile on R&D costs and high BOM costs to pass on to users, but instead invests both R&D costs and BOM costs into the areas most demanded by users.

The newly updated G6, unlike what Dolphin Research thought last year regarding the 2024 update, has no updates in configuration and is primarily aimed at price reduction. This G6 update not only shows Dolphin Research that XPeng's cost-reduction capabilities have significantly improved but also that XPeng is more focused on being user-oriented, continuing to significantly enhance battery life (equipped with 800V and 5C batteries), while spending 200 million to resolve previous chassis issues, making the handling feel smoother. Additionally, adjustments to the vehicle's exterior and interior have been made based on user feedback, reflecting XPeng's strategic shift towards a direct user-oriented approach.

According to current market information, the updated G6+G9 has received a total of 15,000 to 18,000 pre-orders within 72 hours, with approximately 13,000 for the G6 and around 5,000 for the G9. Although this is not as hot as the G6's initial launch (with 25,000 pre-orders in 72 hours), these two models are still expected to contribute a stable monthly sales volume of 8,000 to 10,000 units (including overseas sales).

③ The new energy vehicle industry is expected to focus on two main lines of "intelligent driving equality" and "intelligent driving technology" by 2025. XPeng possesses the capability to lead high-level intelligent driving technology (first-tier intelligent driving) into models priced at 150,000 yuan (Mona M03 Max version), achieving intelligent driving equality, while very few automakers have both capabilities (currently, Leapmotor and BYD do not possess them).

④ XPeng's product cycle this year is very strong:

New models and updated models are being launched every quarter. Dolphin Research believes that XPeng's strategy this year continues to focus on price reduction, with cost-effectiveness and user demand as direct guiding principles, while also leveraging first-tier intelligent driving capabilities as a means of differentiated competition. Dolphin Research believes that XPeng's sales fundamentals for 2025 will remain strong.

In summary, Dolphin Research believes that with the launch of major new products, combined with strong cost control capabilities, a focus on user-oriented product design leading to enhanced product strength, and differentiated competition through advanced intelligent driving, the fundamentals remain relatively solid. Although there may be short-term stock price fluctuations due to model cycle misalignment, Dolphin Research believes that the likelihood of XPeng's vehicle sales exceeding 400,000 in 2025 remains high Dolphin Research expects to reach around 450,000 to 500,000 units, corresponding to a 10-20% increase from yesterday's closing price of Hong Kong stocks. Instead, attention can be focused on the opportunity after XPeng's performance and guidance fell short of expectations.

The following is the main text:

1. XPeng's vehicle sales revenue this quarter is slightly below market expectations, but the gross margin for vehicle manufacturing performs well, reaching over 10%.

Since XPeng's fourth-quarter sales have already been announced, investors are more concerned about the automotive business revenue and gross margin situation in this financial report.

XPeng had already guided in the last quarter's earnings call that the gross margin for the P7+ model would reach double digits due to cost reductions, combined with the explosive sales of the P7+ and Mona 03 models, which drove a quarter-on-quarter rebound in automotive gross margin. However, the actual automotive gross margin performance slightly exceeded market expectations, reaching 10%, higher than the market expectation of 9.4%.

However, automotive revenue this quarter was 14.7 billion, slightly below the market expectation of 15.3 billion, mainly due to the single-vehicle revenue being lower than market expectations and XPeng's guidance.

Dolphin Research will analyze from the perspective of single-vehicle economics, specifically:

a) Average vehicle price: Model structure + price reduction impact, single-vehicle price decreased by 29,000 to 160,000.

The average vehicle price this quarter was 160,000, lower than the market expectation of 167,000 and the implied selling price of 162,000 in XPeng's revenue guidance. Dolphin Research believes this is mainly due to the combined impact of model structure and price reductions for non-best-selling models.

① Impact of model structure: Low-priced M03 explosive sales + P7+ starting price lower than expected.

In the third quarter, the low-priced Mona M03 (119,800 - 155,800) was officially delivered only in September, so its proportion of third-quarter sales was not high, accounting for only 23%. However, in the fourth quarter, as the low-priced Mona M03 continued to sell explosively, its proportion in the model structure increased by 19 percentage points to 42%, dragging down the average vehicle price, especially since the M03 Max version priced at 155,800 will only start delivery in May this year.

The starting price of the P7+ model is only 186,800, which is a reduction of 37,000 compared to the old P7's starting price. In the fourth quarter, it gradually replaced the higher-priced old P7i, with its proportion increasing by 19 percentage points. This also contributed to lowering the average vehicle price to some extent.

In the fourth quarter, the M03 and P7+ models became the absolute main force in XPeng's sales, increasing from 23% of total sales in the previous quarter to 61% in the fourth quarter.

② Impact of price reductions for non-best-selling models, in preparation for the 2025 model change cycle:

In the fourth quarter, XPeng continued to reduce prices for the P7i/G9/G6 models. The price reduction for the P7i was mainly due to the launch of the P7+, with a quarter-on-quarter decrease of 1.8%-2.5%. At the same time, price reductions were also made for the G9 and G6 models, mainly in preparation for the model change in the first quarter of 2025, with quarter-on-quarter decreases of 3%-4% and 0%-6%, respectively. Ultimately, in the fourth quarter, XPeng successfully maintained the sales of these three models, with the sales of models other than the M03 and P7+ remaining basically flat compared to the previous quarter

② Per Vehicle Cost: Cost Reduction Capability is Key to Exceeding Automotive Gross Margin Expectations This Quarter

In the fourth quarter, the per vehicle cost was 144,000 yuan, a decrease of 29,000 yuan compared to the previous quarter, and also lower than the market expectation of 152,000 yuan. Therefore, the cost reduction of the vehicle models is the key reason why XPeng's automotive revenue did not meet market expectations this quarter, but the automotive gross margin still slightly exceeded market expectations.

a. By reducing costs through technology and supply chain procurement, XPeng successfully achieved a double-digit automotive gross margin for the P7+ while the pre-sale price was significantly lower than expected, reflecting the rapid improvement in XPeng's supply chain management capabilities.

b. Release of Scale Effects: Due to the improvement in XPeng's product positioning capabilities (more directly user-oriented) and significant improvement in cost reduction capabilities to set a lower starting price, the cost-performance ratio of the products was greatly enhanced. The successful sales of the two models, P7+ and M03, in the fourth quarter drove the release of scale effects, with vehicle sales increasing by 97% quarter-on-quarter, leading to a decline in fixed amortization costs.

③ Per Vehicle Gross Margin: Strong Cost Reduction Capability Keeps Per Vehicle Gross Margin Stable Despite Declining Vehicle Prices

In the fourth quarter, while the average vehicle price decreased by 29,000 yuan quarter-on-quarter, the per vehicle cost also decreased by 29,000 yuan. Ultimately, for each vehicle sold in the fourth quarter, the gross profit was 16,000 yuan, which was basically flat compared to the previous quarter. However, the vehicle gross margin increased by 1.4 percentage points from 8.6% in the previous quarter to 10% this quarter.

II. Fourth Quarter Sales Guidance is Mediocre, but Revenue Guidance is Below Market Expectations

a) Fourth Quarter Automotive Sales Target: 91,000 to 93,000 units; Sales Guidance is Mediocre Given the Launch of the Facelifted G6 & G9, Market Begins to Worry Whether the Sales Momentum of P7+ and M03 Can Be Sustained

Given that January/February sales are known (around 30,000 units each), this implies March sales of 30,000 to 32,000 units, which is only flat compared to February and represents a mere increase of 2,000 units. With the facelifted G6 & G9 launching in March this year, such sales guidance is quite bland, even slightly below market expectations. The market may begin to worry whether the current sales momentum of P7+ and M03 can be maintained, and there may even be signs of a downward trend, as there was no guidance on existing orders for these two best-selling models during this conference call.

However, Dolphin Research has learned that the current G6 & G9 seem to be facing capacity bottlenecks (XPeng may not be adequately prepared for orders of the facelifted models), so the contribution of these two models, G6 & G9, to March delivery volumes may be relatively limited (G6 only starts deliveries on March 21). Attention should be paid to whether there will be guidance on the ramp-up of production capacity for these two facelifted models b) The implied unit price expectations in the revenue guidance continue to decline month-on-month, below market expectations

The revenue guidance for the fourth quarter is 15-15.7 billion yuan. Based on the service business revenue of 1.54 billion yuan, the implied automotive revenue is 13.8 billion yuan, corresponding to an automotive unit price of only around 150,000 yuan, which continues to decline by 10,000 yuan compared to the previous quarter, below market expectations.

Dolphin Research believes that the main reason for the decline still lies in the model structure and the impact of price reductions on older models:

① Model structure: In January-February 2025, the proportion of the low-priced Mona M03 in XPeng's model structure continues to increase, already accounting for half of the model structure (42% in the fourth quarter). The M03 Max intelligent driving version, originally scheduled for release in February, has now been postponed to May, so the continued increase in the proportion of M03 may continue to drag down the unit price.

② Continued price reductions on older models:

In the first quarter of 2025, XPeng will continue to reduce prices on older models in anticipation of the updated G6 and G9 in March, with an average reduction of 4%-5%, which also drives the continued decline in the selling price of cars. Therefore, the market is also concerned about whether the automotive gross margin will decline month-on-month under such unit price expectations, but in the first quarter, XPeng still expects the automotive gross margin to reach double digits, which still reflects a significant improvement in cost reduction capabilities.

3. Overall revenue slightly below market expectations, but gross margin higher than expected

In the fourth quarter, XPeng achieved total revenue of 16.1 billion yuan, slightly below the market expectation of 16.7 billion yuan, mainly due to the selling price of cars being lower than expected, leading to car sales revenue falling short of expectations.

The overall gross margin reached 14.4%, about 1 percentage point higher than market expectations, mainly due to both the automotive business and other business gross margins being higher than expected.

a) Automotive sales revenue: This quarter's automotive sales revenue is 14.67 billion yuan, slightly below market expectations of 15.3 billion yuan

This quarter's automotive sales revenue fell short of expectations mainly due to the increased proportion of the low-priced M03 in the model structure, which lowered the model unit price, as well as price reductions on older models. However, whether the M03 becomes a hit and does not drag down the automotive business gross margin is what the market is most concerned about, so the issue of the unit price being below expectations is not too significant.

b) Services and others: The technical research and development service fees in cooperation with Volkswagen boosted revenue and gross margin

This quarter, the revenue from services and other businesses reached 1.43 billion yuan, with a gross margin of 59.6%. Although there was a slight decline compared to the previous quarter (a decrease of 0.6 percentage points), it still exceeded market expectations of 57.2%.

Similar to the previous quarter, this quarter also benefited from high-margin technical service fees in cooperation with Volkswagen, which have become a recurring revenue source. Therefore, the gross margin of other businesses remains at a high level, but the quarter-on-quarter increase in other business revenue this quarter is mainly due to the increase in maintenance services and automotive financing services revenue based on cumulative delivery volume XPeng's cooperation with Volkswagen began in July 2023, initially focusing on jointly developing two B-class electric vehicles based on the G9 platform and XPeng's intelligent driving capabilities by 2026. However, in April 2024, the collaboration will expand to include the latest generation EEA 3.5 electronic architecture from XPeng, integrating it into Volkswagen's CMP and MEB platforms in China.

Currently, in addition to confirming the preliminary technical licensing service fees based on the G9 platform and software, Volkswagen has also begun to confirm the preliminary technical licensing service fees for using XPeng's EEA electronic architecture, which has increased revenue and gross margin from other businesses.

IV. Operating expenses exceed market expectations, leading to operating profit slightly below expectations

XPeng Motors positions itself with intelligence as its core competitiveness, which necessitates continuous investment in R&D to strengthen its advantages. At the same time, the company is deepening channel reforms, enhancing the dealership ratio through the Jupiter Plan, and transitioning from a direct sales model to a dealership model.

R&D expenses of 1.63 billion, lower than market expectations of 1.82 billion

From this quarter's situation, XPeng's R&D expenses reached 2 billion, slightly lower than market expectations of 2.18 billion.

XPeng's R&D expenses are primarily invested in intelligence and new model development:

a. In terms of intelligence, XPeng focuses on intelligence as its core competitiveness. Due to significant improvements in algorithm capabilities, the intelligent driving system has completely switched to an end-to-end pure vision solution. For example, the previously launched P7+, as well as the newly launched G6 and G9, are based on the "AI Eagle Eye Vision" intelligent driving solution. By switching to a pure vision solution, XPeng has achieved a 50% reduction in the cost of automatic driving hardware, allowing advanced intelligent driving to be available on models priced at 150,000 yuan (the Mona M03, which will be delivered in May 2025).

Even with the switch to a pure vision route, XPeng's intelligent driving capabilities remain firmly in the first tier, having rolled out the first phase of end-to-end parking-to-parking autonomous driving features at the end of last year and the beginning of this year.

XPeng still maintains plans to mass-produce L3-level autonomous driving in the second half of this year and L4-level autonomous driving in 2026.

b. New model development: This year is a significant product year for XPeng, requiring continuous investment in the development of new models and facelifts. Unlike previous years' minor facelifts (the G6 facelift launched last year had no major configuration changes and primarily focused on price reductions), the newly launched G6 and G6 facelift this year have significant improvements in key areas such as intelligent driving, range (800V + 5C charging), and chassis, necessitating ongoing investment in new model development during this significant product year.

Sales and administrative expenses of 2.28 billion, exceeding market expectations by about 500 million

Sales and administrative expenses reached 2.28 billion this quarter, an increase of 640 million quarter-on-quarter. As XPeng is currently transitioning to a dealership model, the increase in commissions paid to franchise stores due to rising sales has led to sales and administrative expenses exceeding market expectations by about 500 million In the fourth quarter, XPeng's sales network continued to expand. By the end of the fourth quarter, XPeng had a total of 690 stores, an increase of 541 stores compared to the previous quarter, and the coverage of cities continued to deepen (mainly by expanding the dealership network to quickly penetrate the sinking market, supporting the sinking of XPeng's models: such as the low-priced car Mona). In the fourth quarter, 20 new cities were added, so as long as the models can maintain the trend of explosive sales, the high sales and administrative expenses market will not be overly critical.

In this quarter, the Non-GAAP operating loss was only -1.6 billion, which was higher than the market expectation of -1.55 billion. Although the overall gross margin exceeded expectations, the sales expenses were 500 million higher than the market, and even with the leverage effect brought by high sales growth, the sales expense ratio still exceeded market expectations by 3 percentage points, ultimately leading to adjusted operating profit and profit margin slightly lower than market expectations.

Dolphin Research's in-depth study and follow-up comments on XPeng include:

Earnings Season

November 19, 2024 Earnings Commentary: ** Has XPeng Finally Come Back After Almost Three Years of Losses? ****

August 20, 2024 Earnings Commentary: ** XPeng: Is It Difficult to Be the Sales Leader, Finally Welcoming Dawn? ****

August 21, 2024 Conference Call Minutes: ** Mona Delivery + Overseas Expansion Drives Monthly Deliveries Back to 20,000 in Q4 **** May 21, 2024 Financial Report Review: “The Explosion” Did Not Spread, XPeng Managed to Hold On

May 22, 2024 Conference Call: Overall Gross Margin Maintains at 10%-15%

March 19, 2024 Financial Report Review: XPeng: Sales Are a Major Challenge, Only Relying on Didi's Mona

March 19, 2024 Conference Call: Expecting Mona to Achieve Positive Gross Margin, Stable Monthly Sales Over 10,000

November 15, 2023 Financial Report Review: When Will the “Mediocre” XPeng Welcome a New Outburst?

November 16, 2023 Conference Call: [Fourth Quarter Gross Margin Will Turn Positive (XPeng 3Q Conference Call Minutes)](https://longportapp.cn/zh-CN/topics/10486258? channel=t10486258&invite-code=4NOXYT&app_id=longbridge&utm_source=longbridge_app_share)》

August 18, 2023 Financial Report Review: XPeng's Gross Margin Collapse? The Last "Struggle" Before Rebirth》

August 18, 2023 Conference Call: The G3i's Residual Impact Will Still Be Felt in Q4, Expected Gross Margin to Turn Positive in Q4》

May 24, 2023 Financial Report Review: XPeng: Performance Has Indeed "Cooled Down," When Will It Recover?

May 24, 2023 Conference Call: XPeng's Military Order: 20,000 Monthly Sales in Q4 (Minutes)

March 17, 2023 Conference Call: XPeng's 2023: Reform, Cost Reduction, New Product Launch (22Q4 Conference Call Minutes)

March 17, 2023 Financial Report Review: XPeng Motors: Targeted by Many, Can It Survive the Crisis?

November 30, 2022 Conference Call: What Did XPeng Say During the Call After a Nearly 50% Surge Overnight? (Minutes)》

November 30, 2022 Financial Report Review: Poor Performance Still Rising? XPeng Still Needs to "Rebuild Its Foundation"》

August 24, 2022 Conference Call: G9 and B-Class "Model Y," Perhaps XPeng's Last Effort (22Q2 Conference Call)》 August 23, 2022 Financial Report Review: "XPeng is still far from 'making a profit'"

May 24, 2022 Conference Call: "XPeng: The fourth quarter will reflect the price increase results and a significant rebound in gross margin (Minutes)"

May 23, 2022 Financial Report Review: "Sales champion, loss king, is the market still buying XPeng's story?"

March 29, 2022 Conference Call: "Rapid channel penetration has opened the ceiling for XPeng's delivery volume (2021 Q4 Report Minutes)"