AI. Self-driving cars. Even robotaxis. Xpeng is China's answer to Tesla, and DBS says Buy

DBS maintain BUY on Xpeng; lift TPs to HKD67.0/USD17.0 (prev. HKD60/USD15).

XPeng Inc., a leading player in the autonomous driving (AD) industry, is capitalising on a strong sales backlog for its P7+ and MONA M03 models, along with four new models set for launch in 2025 (including an extended range electric vehicle [EREV] model).

This leads us to raise our sales volume growth estimates to 65%/25% y/y to about 308k/385k units for FY25F/26F.

The expansion into the EREV market with its Kunpeng Super Electric System (enabling seamless switching between pure electric and range-extended driving) is set to accelerate future growth.

XPeng has developed an AI chip (Turing) with performance equivalent to three Nvidia Orin X chips, according to reports.

The breakthrough will enable the company to deploy L3+ AD capabilities by end-2025 and enter the robotaxi industry by 2026 with its new "Ultra" models.

This underscores XPeng's strong edge in automotive AI, building on the success of its first AI-enabled model P7+, which utilised visual-based solutions to support autonomous driving.

Margin outlook becoming more favourable.

Vehicle margins have been recovering from a negative 8.6% in 2Q23 to positive 8.6% in 3Q24 (+2.2ppt q/q), and is likely to reach c.10% in 4Q24, due to an improving sales, cost reductions, and higher overseas contributions (15% in 3Q24).

All in, we expect blended margin to hit c.17.3% in FY26, driven by scale benefits, new models, and a steady increase in contributions from its collaboration with Volkswagen.

We lift our FY25/FY26F revenue estimates by 4%/3% to factor in the upward volume sales revisions. TPs were raised to HKD67.0/USD17.0, pegged to 1.7x FY25F P/S on strong model cycle (previously 1.6x). Reiterate BUY on improving sales and margins, which could help the company achieve operating breakeven in 4Q25.

Lacklustre user experience in vision-based solutions, and weak economic activity lowering EV sales.