XPeng surprises bears—AI chips, new models, and a delivery boom in Q1

XPeng Inc. (NYSE: XPEV) surged by 13% to close at $22.25 on May 21, 2025, outperforming broader market indices and leading a rally among Chinese electric vehicle (EV) manufacturers. The bullish momentum was triggered by XPeng’s first-quarter 2025 earnings announcement, which highlighted record-high vehicle deliveries, a return to improving margins, and a sharp reduction in net losses. The results marked a turning point for the company’s operational metrics and reaffirmed investor belief in XPeng’s long-term strategy, particularly its AI-led transformation of electric mobility.

How Did XPeng Perform Financially in Q1 2025?

XPeng reported first-quarter revenue of RMB15.81 billion (approximately USD 2.18 billion), a 141.5% increase year-over-year. This spike was primarily attributed to record vehicle deliveries, which stood at 94,008 units for the quarter—a staggering 330.8% increase from the same period in 2024. The company also posted its highest-ever quarterly gross margin at 15.6%, a material improvement from 12.9% in Q1 2024. Vehicle margin, a critical indicator of product-level profitability, improved to 10.5%, nearly doubling from 5.5% a year earlier.

Despite being loss-making, XPeng significantly narrowed its net loss to RMB660 million (approximately USD 91.4 million), the lowest level since the second quarter of 2020. This trend is viewed by analysts as evidence of structural financial recovery driven by production efficiencies, scale benefits, and improved cost controls across logistics and procurement functions.

What Role Does AI Play in XPeng’s EV Strategy?

XPeng is increasingly being recognized not merely as an electric vehicle manufacturer, but as an AI mobility innovator. The company’s AI-driven strategy is headlined by the P7+, launched in late 2024, which XPeng describes as the “world’s first AI-defined vehicle.” It is powered by XPeng’s proprietary Turing AI chip, offering computing performance that is reportedly three times higher than previous generation platforms. The chip supports Level 4 autonomous capabilities, placing XPeng among a narrow cohort of automakers globally with credible full self-driving (FSD) development.

A key feature of XPeng’s AI stack is the Hawkeye Visual Solution—an advanced perception module that integrates deep learning with camera-sensor fusion. This innovation enhances the vehicle’s ability to navigate complex urban and highway environments, regardless of lighting or weather conditions, giving XPeng a potential edge in the race toward full autonomy in China’s congested cities.

Which Product Launches Are Powering XPeng’s Momentum?

In Q1 2025, XPeng benefited from a strategically diversified product rollout. The launch of the MONA M03—a mid-priced sedan under the new MONA sub-brand—has driven significant volumes, targeting young urban consumers with AI-assisted driving and entertainment features. Meanwhile, the X9 minivan, positioned in the high-end segment, has gained traction among family buyers and premium fleet operators.

Looking ahead, XPeng plans to launch its new G7 SUV in June, followed by an AI-upgraded MONA M03 on May 28, 2025. These launches are expected to further reinforce XPeng’s footprint in China’s mass and premium EV segments. With 690 retail outlets across 223 cities and 2,115 self-operated charging stations, XPeng is also scaling its infrastructure to support future volume.

How Are Institutional Investors Responding to XPeng’s Trajectory?

XPeng’s improving fundamentals and aggressive AI positioning have not gone unnoticed among institutional investors. Early flow indicators suggest renewed interest from tech-aligned funds and long-only institutional investors seeking exposure to Chinese EV growth without exposure to legacy auto platforms. Short interest has declined notably since March, while buy-side commentary has turned optimistic on XPeng’s ability to scale profitably and compete with Tesla and BYD on advanced driver assistance systems (ADAS).

Investment banks tracking XPeng have revised their price targets upward following the earnings beat. Several research desks flagged XPeng’s accelerated delivery trajectory—on track to exceed 100,000 vehicles in Q2 2025—as a sign of sustainable demand. Moreover, analysts believe XPeng’s gross margin may expand further as localization of the AI stack and hardware sourcing cuts costs through 2025.

What Is XPeng’s Guidance for Q2 2025 and Beyond?

For the second quarter, XPeng projects vehicle deliveries between 102,000 and 108,000 units, indicating sequential growth of approximately 10–15%. Revenue is guided in the range of RMB17.5 billion to RMB18.7 billion, with a continued focus on margin improvement. The company has also signaled intentions to expand internationally, with early-stage market tests underway in Southeast Asia and the Middle East.

XPeng’s management has reiterated its intention to turn profitable at the operating level by late 2025, driven by scaling benefits, AI monetization, and premium segment penetration. Executives also confirmed ongoing R&D into next-generation solid-state batteries and AI voice-agent development—both expected to debut in 2026 models.

What Are the Broader Sector Implications of XPeng’s Rise?

XPeng’s Q1 2025 performance underscores a broader rebound in China’s EV sector, following regulatory tailwinds including extended subsidies for intelligent vehicles and government-led smart city initiatives. XPeng’s momentum also reflects a shift in investor preference from volume-led players to those with differentiated software and AI capabilities.

In a landscape where Tesla has increasingly prioritized Full Self-Driving (FSD) software subscriptions and BYD dominates mid-market volumes, XPeng is carving a third path—offering premium AI features in mid-priced models. This positioning could be crucial as EV makers seek to avoid commoditization and retain pricing power.

Investor Takeaway: Can XPeng Sustain Its Rally?

XPeng’s ability to maintain its recent momentum will hinge on the successful rollout of its upcoming AI-driven models and further delivery expansion. If Q2 guidance holds and AI-powered variants attract new buyer segments, the company could be well-positioned to report its first operating profit within the next 12 months. However, global EV headwinds—ranging from lithium price volatility to geopolitical trade barriers—could still present challenges.

Investors bullish on the intersection of AI and automotive innovation may see XPeng as a compelling long-term bet, particularly as software-defined vehicles become central to mobility ecosystems. Sentiment remains positive but cautious, with most institutions closely monitoring Q2 execution and developments in XPeng’s overseas expansion efforts.