International Expansion And Margin Improvement Will Drive Long-Term Profit Prospects

Key Takeaways

• Proprietary AI hardware, smart vehicle tech, and premium model launches are driving higher margins, software revenue, and progressing toward profitability.
  
• International expansion and key partnerships are diversifying revenue streams and positioning XPeng for strong future growth in global EV markets.
  
• Persistent net losses, fierce domestic competition, expansion challenges, heavy capital needs, and uncertain technological edge could constrain XPeng's profitability, growth, and shareholder returns.

Catalysts

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

• XPeng's rapid in-house development and deployment of proprietary AI hardware (Turing AI SoC) and vision-based ADAS are expected to significantly advance its vehicle autonomy and smart cockpit solutions, aligning with surging consumer demand for intelligent, software-centric vehicles-setting the stage for higher-margin software revenue and enhanced gross/net margins.
  
• The company's aggressive international expansion-now showing triple-digit growth in overseas deliveries and entry into local manufacturing in Indonesia-positions XPeng to capture EV adoption tailwinds in both developed and emerging markets, diversifying revenue and bolstering medium
• to long-term top-line growth.
  
• XPeng's upcoming launches of "Super Electric" models with industry-leading range (over 1,500 km combined) and 5C ultra-fast battery charging, along with a scalable, modular vehicle technology platform, position it to benefit from ongoing improvements in battery tech and regulatory support for clean transportation, which will expand its addressable market and support future sales growth.
  
• Strategic collaborations, most notably with Volkswagen, are generating recurring IP/licensing revenue streams beyond vehicle sales, and could be further monetized as XPeng's E/E architecture becomes foundational for more VW models (including ICE and PHEV), driving incremental high-margin revenue and supporting EPS growth.
  
• Management's focus on upward-shifting its brand ASP (with new premium models like the P7 and X9), aesthetic-driven design, and operational efficiencies has already resulted in sustained vehicle margin improvement and narrowing net losses; as these efforts scale, they should continue to support gross/operating margin improvement and accelerate the path to profitability.

XPeng Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming XPeng's revenue will grow by 31.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -7.1% today to 4.6% in 3 years time.
• Analysts expect earnings to reach CN¥6.4 billion (and earnings per share of CN¥4.62) by about September 2028, up from CN¥-4.3 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥8.8 billion in earnings, and the most bearish expecting CN¥-340.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 40.8x on those 2028 earnings, up from -32.2x today. This future PE is greater than the current PE for the US Auto industry at 18.1x.
• Analysts expect the number of shares outstanding to grow by 0.46% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.8%, as per the Simply Wall St company report.

XPeng Future Earnings Per Share Growth

Risks

• Despite significant sales and revenue growth, XPeng continues to operate at a net loss, with high R&D and marketing expenses outpacing gross profit improvements-persistent negative net margins or delayed profitability could weigh on future earnings and limit share price appreciation.
  
• The company faces ongoing intense price competition and oversupply in the Chinese EV sector, which may undermine its ability to sustainably increase average selling prices (ASP) or defend industry profitability, placing downward pressure on revenue growth and long-term margins.
  
• XPeng's international expansion is called out as a strategic priority, but rising global trade tensions and regulatory scrutiny-especially in Western markets-could limit access to key overseas markets, capping growth potential and impacting top-line revenues.
  
• High ongoing capital requirements for product launches, new technology (AI, robotics, L4 autonomy), and global build-out pose the risk of frequent capital raises and share dilution, which would directly limit EPS growth and long-term shareholder returns.
  
• While XPeng touts leading-edge software and hardware integration, management acknowledges that current ADAS and smart-driving capabilities are "roughly the same" as domestic competitors, raising the risk of lagging behind local leaders (BYD, NIO, Huawei); loss of technological edge would erode XPeng's brand premiumization efforts and cap future high-margin software revenues.

Valuation

• The analysts have a consensus price target of $26.291 for XPeng based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $33.26, and the most bearish reporting a price target of just $18.27.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥137.4 billion, earnings will come to CN¥6.4 billion, and it would be trading on a PE ratio of 40.8x, assuming you use a discount rate of 12.8%.
• Given the current share price of $20.25, the analyst price target of $26.29 is 23.0% 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.