Key Points Summary
The biggest highlight of Xpeng Motors' second-quarter performance is that "selling technology is more profitable than selling cars." Although services and other businesses (mainly technology R&D services for Volkswagen) only account for 13.7% of total revenue, they contributed nearly half (49.6%) of the gross profit. In contrast, car sales, which account for 86.3% of revenue, only contributed 50.4% of the gross profit. As a result, the overall gross profit margin increased to 20.7%, but the gross profit margin for the car business declined to 12.1%, resulting in a net loss of 1.34 billion yuan (a 179.9% increase year-over-year and a decrease from the previous quarter). The key to future profitability lies in whether the car business's gross profit margin can recover and whether the technology services can reduce their dependence on Volkswagen. There is also significant hope for the overseas market and the robotics business.
1. Technology Services Become the "Profit Savior," but Too Dependent on Volkswagen
Xpeng's service business had a high gross profit margin of 75.1% in the second quarter, mainly from providing technology R&D services to Volkswagen Group. Simply put, Xpeng sells the electric vehicle platforms, software, and electronic and electrical architectures it has developed to Volkswagen, and Volkswagen pays based on project milestones (for example, revenue is recognized after the joint-developed Volkswagen ID08 goes on sale). This has changed Xpeng's way of recouping R&D costs: previously, it had to rely on selling cars to recover the costs of its R&D efforts; now, with Volkswagen sharing the costs, the same technology can be sold to more customers.
However, the problem is that Xpeng's technology revenue almost entirely comes from Volkswagen. This "single-client dependence" is very unstable—should Volkswagen reduce its projects, this portion of the profit will decrease. Xpeng has realized this and has recently established a group-level business development team to seek cooperation with other companies both overseas and domestically, aiming to sell AI chips, intelligent driving models, and other technologies to a wider range of customers.
2. Declining Gross Profit Margin for the Car Business Due to Product Upgrades
Why is the profit from selling cars decreasing? Xpeng attributes this to "product upgrades." This year, Xpeng has updated the P7+, G6, and G9 models, as well as introduced several extended-range models (capable of both charging and refueling). The high-end GX model was also launched (only 10,000 units were produced by the end of June). While these moves aim to attract more customers, they have increased costs: older models need to be discounted to clear inventory, new models require marketing investment, and the supply chain needs to be reorganized. Producing both extended-range and pure electric vehicles has also increased complexity in management.
The growth forecast for the car business is relatively modest: 115,000 to 121,000 units are expected to be delivered in the third quarter (similar to last year). Management is hoping for the new MONA L03 model in the fourth quarter, as its orders have broken historical records. However, production capacity expansion has been hindered by extreme weather and supply chain issues, slowing down delivery speeds.
3. Losses Still Exist, but Less Severe than Before; Profitability Lacks Stability
Xpeng incurred a net loss of 1.34 billion yuan in the second quarter, nearly twice as much as the same period last year, but less than the 1.78 billion yuan in the first quarter. The reason for the loss is that expenses exceeded revenue: R&D, sales, and management costs totaled 5.41 billion yuan, exceeding the gross profit of 4.08 billion yuan.
Xpeng did manage to make a profit of 380 million yuan in the fourth quarter of 2025, but that was due to "one-time" revenues from technology sales, carbon credit trading, and government subsidies. These revenues declined in the first quarter of this year, leading to another loss. This indicates that Xpeng's profitability is unstable, and it needs to rely on stable car sales profits to achieve sustainability.
4. Seeking Profitability through the Overseas Market and More Technology Buyers
Xpeng has identified two potential breakthroughs:
1. Overseas Market: Overseas sales exceeded 20,000 units for the first time in the second quarter (an 81% year-over-year increase), accounting for more than 25% of total revenue, with an average selling price of over 40,000 euros (about 300,000 yuan). Xpeng has also established factories in Austria (with Magna) and Indonesia, which can reduce transportation and tariff costs and allow access to additional markets.
2. Expansion of Technology Sales: If Xpeng can sell its technologies to other automakers, it can spread the R&D costs. Technologies such as AI chips and intelligent driving models can be sold repeatedly, generating revenue each time. Additionally, the humanoid robotics business has raised 900 million yuan in funding and will enter mass production by the end of the year, with a market launch planned for 2027. He Xiaopeng claims that each robot will generate more profit over its lifetime than selling a single car currently, but whether this will be successful remains to be seen.
In summary, Xpeng is currently relying on technology services to maintain its gross profit margin, but to turn losses into profits, it needs to stabilize car sales profits and find more technology customers to reduce its dependence on a single project. While the robotics business has potential, it is still far from becoming a profitable venture.
(The entire analysis is explained in plain language, making it easy for non-financial professionals to understand the core logic.)