Tapping into the industry-leading AI megatrend
- Raised FY25/26F sales volume growth by c.20%/10% on better-than-expected take-up of MONA M03, its first AI model P7+, and launch of four new models next year
- AI-enabled models and engineering cost reductions expected to enhance vehicle margins by 2.0ppt/1.5ppt y/y for FY25/26F to 10.5% and 12%, respectively
- Extension into EREV segment to strengthen medium-term growth outlook with its latest Kunpeng Super Electric System; EREV retail market growing about 5x faster than BEV in 10M24
- Raised TP to HKD67.0 on improving sales and margins outlook; pegged to 1.7x FY25F PS. Maintain BUY
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Entry into EREV market as a strategic move
XPeng is entering the EREV market to enhance sales growth and improve its product mix by capitalising on the market’s rapid expansion in recent years. EREVs are increasingly popular with users due to its extended range and charging convenience. From 2020-2023, sales of EREVs in China grew c.180% annually, and a c.100% y/y increase in 10M24. Furthermore, EREV sales now account for 11% of total vehicle sales in 10M24, compared to 0.1% in 2019. Notably, EREV sales growth in 10M24 was about 5x faster compared to BEVs.
The plan to roll out EREV models with the Kunpeng Super Electric System, which enables seamless switching between pure electric and range-extended driving, could accelerate its growth trajectory in the coming few years. This aligns with XPeng's goals to boost sales and control development costs, while increasing its market competitiveness in the medium term.
Fast-charging technology to further enhance customer driving experience
On its AI Tech Day, XPeng announced its latest AI battery equipped with 5C fast-charging capabilities, a rising industry trend in EV charging. This new technology enables batteries to charge rapidly to 80% in approximately 12 minutes, with power of 540kW (up from previous 4C charging with a maximum power of 480kW), providing customers with enhanced charging convenience. At end-Sep 24, XPeng’s self-operated charging station network expanded to 1,557 stations, including 654 S4 ultra-fast charging stations.
Self-developed AI chip to support higher level of autonomous driving, including robotaxi in the long run
Turing chip powerful for autonomous driving…
XPeng’s AI-focused Turing chip supports autonomous driving and is one of the more powerful computing power chips for AI-powered vehicles. Compared to general-purpose chips, the Turing chip’s performance is equivalent to three Nvidia Orin X chips, potentially exceeding 750 TOPS to support fast computing. Leveraging on the Turing AI chip and a full-stack self-developed system including cloud-based and vehicle-based large language models, XPeng aims to achieve L3+ AD capabilities by end-2025. According to the company’s development plans, by 2025, XPeng expects its cloud computing power to reach 10 Eflops and looks to achieve L4 AD capabilities by 2026.
…Also supports long-term plans for robotaxi launch
In addition to equipping new models with more sophisticated AD capabilities through its Turing chip, XPeng plans to launch its “Ultra” series by 2026, targeting the robotaxi industry. The Ultra series will feature L4 AD capabilities, with steering wheels becoming optional for drivers. The current penetration rate of robotaxis in China is low, with around 5k operational units nationwide, primarily in designated areas. This compares to a total taxi fleet and ride-hailing cars of 1.4mn and 3.1mn units, respectively.
Margin outlook improving with scale effect and cost reductions
Low-cost solutions and advanced chip to accelerate new product rollout
With its new AI-powered chip, XPeng can accelerate the adoption of its vision-based solutions in its AD vehicles in future. Since vision-based solutions are a lower cost option for AD, we expect this could improve future product margins. Referring to XPeng’s G6 and G9 models, which use RoboSense’s “M1 Plus” LiDAR, we note that despite ongoing decreases in LiDAR pricing, each “M1 Plus” LiDAR costs ~Rmb2,500-3,000 currently. As XPeng’s models require dual-LiDARs units, total LiDAR cost per car is estimated to be between Rmb5,000-6,000. In contrast, cameras that are used in visual-based solutions cost about 10% of the LiDAR price. Therefore, excluding LiDARs from future models could significantly reduce manufacturing costs for XPeng.
XPeng plans to introduce four new models in 2025, including one EREV model, and upgrade several existing models, implying the release of one new model per quarter.
Vehicle margin on expansion trajectory since 2Q23
Since XPeng will be migrating to vision-based technologies in its new product cycle that is set to launch in 2025, the new AD-enabled models are expected to generate double-digit vehicle margins. Apart from higher deliveries and an improving revenue mix, the company’s cost reduction measures are also paying off. Vehicle gross margins hit 8.6% in 3Q24, compared to a negative 8.6% in 2Q23 and an increase of 2.2ppt q/q. We estimate vehicle margin would reach about 10% in 4Q24.
Overall, we expect FY25F blended GP margins to reach 15.2% (+1.5ppt y/y), with vehicle margins expanding 2ppt y/y to about 11.0%, riding on higher GP margins for new car models while existing car models benefit from operational leverage.
XPeng’s GP margin projections, 2021-2026F
Source: Company, DBS HK
Looking to FY25 and beyond, we believe its MONA M03 model will continue be a major sales driver, with total deliveries expected to hit 150k (13k monthly sales) in FY25F. Additionally, considering the strong pre-orders for its AI model, P7+ (ASP: Rmb 186.8k), we expect it to be another volume driver. Given that 2025 is a key year for new product launches, we lifted our sales growth forecast for FY25/26F by 20%/10% to 65%/25%.
XPeng’s sales projections, FY21-26F
Source: Company, DBS HK
Ratings & Valuation
Maintain BUY; lift TPs to HKD67.0 (vs. prev HKD60). We lift our FY25/FY26F revenue estimates by 4%/3% to factor in the upward revision to sales volume. We also lift our TPs to HKD67.0, pegged to 1.7x FY25F P/S (previously 1.6x FY25F P/S) on improving sales and margins, which should help the company achieve operating breakeven in 4Q25. Besides, achieving positive free cash flow in 4Q24 would also indicate higher profitability from its auto business. Reiterate BUY. The stock is currently trading at 0.8 SD below historical average PS ratio.
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