XPeng: Gross Margin Hits a Record High, Can It Soar Like a 'Great Roc'?

$XPeng(XPEV.US) released its Q2 2025 financial report after the Hong Kong market closed and before the U.S. market opened on August 19, 2025, Beijing time. XPeng's Q2 financial performance was commendable, with the gross margin reaching a historical high:

1) Vehicle sales gross margin reached a historical high: This quarter, the vehicle sales gross margin increased by 4 percentage points quarter-on-quarter to 14.3%, significantly exceeding the market expectation of 11.4%. The primary reasons for the substantial quarter-on-quarter increase in vehicle sales gross margin were the rise in vehicle sales price due to the upward shift in model structure, the continuous cost reduction capability of XPeng's supply chain since Q4 last year, and the release of scale effects.

2) Revenue slightly below expectations, mainly due to a decline in other income this quarter: XPeng's total revenue for the quarter was 18.3 billion yuan, slightly below the market expectation of 18.6 billion yuan, primarily due to a decrease in licensing income recognition in other income, which lowered the revenue and gross margin of other income, while vehicle sales revenue was basically in line with expectations.

3) Adjusted operating loss slightly higher than expected, still mainly due to gross margin exceeding expectations: The Non-GAAP operating loss for the quarter was 840 million yuan, better than the market expectation of a 910 million yuan loss. Although R&D expenses were higher than expected, they were offset by the gross margin exceeding expectations.

In terms of the three expenses, XPeng continues to increase investment in intelligence, with its self-developed "Turing" AI chip already in mass production and installed in vehicles. Additionally, the Kunpeng series of extended-range models will be launched in the second half of the year. Despite this, XPeng has managed to keep R&D expenses at a relatively low level compared to other new forces, indicating high R&D efficiency.

Dolphin Research's View:

Overall, in terms of Q2 performance alone, XPeng delivered a decent report. Total revenue was 18.3 billion yuan, slightly below the market expectation of 18.6 billion yuan, mainly due to a quarter-on-quarter decline in service and other income, caused by a decrease in technical R&D service fee income recognition this quarter.

In terms of key vehicle sales performance, the vehicle sales price was in line with market expectations this quarter, but the vehicle sales gross margin was significantly higher than market expectations, increasing by 4 percentage points quarter-on-quarter to 14.3%, exceeding the market expectation of 11.4%.

The main reasons for the higher-than-expected vehicle sales gross margin this quarter are:

① The proportion of high-priced models (such as the revamped G6/G9/X9) in the model structure increased by 17 percentage points quarter-on-quarter, while the proportion of the low-priced Mona M03 decreased by 12 percentage points quarter-on-quarter.

② The quarter-on-quarter increase in sales volume led to a decrease in per-vehicle amortized costs due to the release of scale effects.

③ XPeng's continuous cost reduction in the supply chain: Since Q4 last year, XPeng's supply chain cost reduction capability has rapidly improved, and this quarter continued to demonstrate XPeng's strong cost reduction capability, driving the quarter-on-quarter increase in vehicle sales gross margin, laying the foundation for XPeng to continue to create high-cost-performance products in the future.

However, for the third quarter expectations, XPeng's revenue and sales guidance are both below market expectations, with Q3 sales guidance of 113,000-118,000 units, implying an average delivery of 38,000-40,000 units in August and September. Since XPeng's new P7 is expected to be launched in August, this lower-than-expected sales guidance may raise concerns in the market about the sales of the new P7.

Currently, the market expects XPeng's 2025 sales to be 450,000 units, corresponding to a 2025 P/S multiple of 1.6-1.7 times, with the valuation at a relatively reasonable level. The pricing of the new P7 and the two extended-range G9 and X9 MPVs in Q4 are the main expectation differences at present, and the market's expectations for the sales of the new P7 and extended-range models are not high.

① The pricing of the new P7 will be the key factor determining sales:

The main point of contention in the market is whether the new P7 can achieve explosive sales, and the pricing of the P7 is the most critical influencing factor. The market expects the new P7 to prioritize high-end pricing and brand building rather than sales, with an expected price of around 250,000-300,000 yuan. Therefore, the sales expectations for this model are not high, but if the pricing of this model exceeds expectations, leading to explosive sales, it will be a catalyst for the stock price to rise.

② XPeng's extended-range potential may be underestimated:

If the G9 and X9 MPV extended-range models achieve explosive sales, XPeng will initiate a "dual-energy" mode, and the stock price still has considerable upside potential.

The following is the main text:

I. XPeng's vehicle sales gross margin performed very well, mainly due to the upward shift in model structure and strong cost reduction capability

Since XPeng's Q2 sales have already been announced, investors are more concerned about the automotive business revenue and gross margin situation in this financial report. The Q2 automotive gross margin performed very well, increasing by 4 percentage points quarter-on-quarter to 14.3%, significantly exceeding the market expectation of 11.4%, and also setting a historical high!

From the perspective of single-vehicle economics:

a) Average vehicle price: The vehicle sales price also increased quarter-on-quarter due to the upward shift in sales structure

This quarter, the vehicle sales price was 164,000 yuan, up 11,000 yuan from 153,000 yuan in the previous quarter, mainly due to the upward shift in model structure:

① Upward shift in model structure:

This quarter, the proportion of high-priced models (such as the revamped G6/G9/X9) in the model structure increased by 17 percentage points quarter-on-quarter, while the proportion of the low-priced Mona M03 decreased by 12 percentage points quarter-on-quarter.

② Quarter-on-quarter increase in overseas sales proportion:

In Q2, XPeng's overseas sales were 11,000 units, with the proportion in the model structure increasing by 2.6 percentage points quarter-on-quarter to 10.7%, which also raised the overall vehicle sales price to some extent.

b) Single-vehicle cost: Scale effect + company's strong cost reduction capability led to reasonable control of single-vehicle cost

In Q2, XPeng's single-vehicle cost was 140,000 yuan, and the strong cost control capability on the cost side was mainly due to:

① Release of per-vehicle amortized cost: This quarter, sales volume increased by 10% quarter-on-quarter to 103,000 units, with some release of scale effects, leading to a decrease in fixed per-vehicle amortized costs.

② XPeng's continuous cost reduction in the supply chain: Since Q4 last year, XPeng's supply chain cost reduction capability has rapidly improved, and this quarter continued to demonstrate XPeng's strong cost reduction capability, driving the quarter-on-quarter increase in vehicle sales gross margin, laying the foundation for XPeng to continue to create high-cost-performance products in the future.

c) Single-vehicle gross profit: Increased by 8,000 yuan quarter-on-quarter to 24,000 yuan

In Q2, XPeng's single-vehicle gross profit increased by 8,000 yuan quarter-on-quarter to 24,000 yuan, also setting a historical high! The vehicle sales gross margin also increased from 10.5% in Q1 to 14.3% in Q2 due to the quarter-on-quarter upward shift in model structure and XPeng's continuous strong cost reduction capability in the supply chain.

II. Q3 sales and revenue guidance slightly below expectations

a) Q3 automotive sales target: 113,000-118,000 units, slightly below market expectation of 119,000 units

Q3 sales guidance is 113,000-118,000 units, implying an average monthly sales of 38,000-41,000 units in August and September, but slightly below the market expectation of 119,000 units. Currently, since XPeng's new P7 is expected to be launched in Q3 (expected in August), the main point of contention in the market is whether the new P7 can achieve explosive sales, and the pricing of the P7 is the most critical influencing factor.

b) Revenue guidance implies a continued quarter-on-quarter increase in expected unit price

Q3 revenue guidance is 19.6-21.0 billion yuan, implying a vehicle sales price of approximately 169,000 yuan, a quarter-on-quarter increase of 5,000 yuan, showing a trend of continued marginal improvement, expected to be driven by the quarter-on-quarter increase in the proportion of the higher-priced new P7 and G7 models.

Looking ahead to the second half of the year, XPeng will launch the new P7 in August, and the G9/X9 Kunpeng series will be released and launched in Q4, which is expected to drive the unit price and gross margin upward. Dolphin Research expects XPeng to maintain breakeven in Q4.

III. Overall gross margin exceeded expectations, mainly due to the record high automotive revenue gross margin!

In Q2, XPeng achieved total revenue of 18.3 billion yuan, slightly below the market expectation of 18.6 billion yuan, mainly due to a quarter-on-quarter decline in service and other business income, but the automotive business still achieved an above-expectation performance.

a) Automotive sales business: Automotive gross margin reached a record high

This quarter, due to the upward shift in model structure, leading to a quarter-on-quarter increase in vehicle sales price, and the release of scale effects, the automotive gross margin increased by 4 percentage points quarter-on-quarter to 14.3%, also setting a record high!

b) Service and other business: Decline in technical R&D service income led to a decline in gross margin

This quarter, service and other business income was 1.39 billion yuan, slightly below the market expectation of 1.58 billion yuan, mainly due to a decline in technical R&D service income recognition this quarter, and this business is basically a pure gross margin business, resulting in the service and other business gross margin declining from 66% in the previous quarter to 54% this quarter.

IV. Three expenses are relatively reasonable, with R&D expenses still increasing investment in intelligence

XPeng positions itself with intelligence as its core competitiveness, which necessitates continuous increased investment in R&D to form and consolidate its advantages in intelligence.

1) R&D expenses of 2.2 billion yuan, slightly above market expectation of 2.08 billion yuan

In this quarter, XPeng's R&D expenses reached 2.2 billion yuan, slightly above the market expectation of 2.08 billion yuan.

However, due to the need for continuous investment in intelligence, especially as XPeng positions intelligence as its core competitiveness, the pure vision solution requires higher algorithm requirements, but the end-to-end progress is still at the forefront of the first echelon, and it is currently the only player to deploy the city NOA algorithm to the 130,000 yuan model (Mona M03 Max).

In terms of intelligent driving planning, XPeng plans to mass-produce L3 level in the second half of the year and L4 level autonomous driving in 2026, so intelligent driving is expected to continue to upgrade in the second half of the year.

At the same time, XPeng's self-developed "Turing" AI chip has already been mass-produced and installed in vehicles, and the Kunpeng series of extended-range models will be launched in the second half of the year. Despite this, XPeng has managed to keep R&D expenses at a relatively low level compared to other new forces, indicating high R&D efficiency;

2) Sales and administrative expenses of 2.17 billion yuan, basically in line with expectations

This quarter, sales and administrative expenses reached 2.17 billion yuan, an increase of 220 million yuan quarter-on-quarter, basically in line with market expectations, mainly due to the launch of the new G7 model this quarter and the increase in commissions paid to franchise stores due to rising sales.

This quarter, the number of XPeng stores decreased by 13 from 690 in the previous quarter to 677, but the number of covered cities increased by 21 to 244, indicating that XPeng is still undergoing channel reform.

This quarter, the Non-GAAP operating loss was 800 million yuan, better than the market expectation of a 900 million yuan loss, mainly due to the gross margin exceeding expectations.