The deeper you dig into XPeng's financials, the more troubling the picture becomes. Inventory has surged to 13.7 billion yuan, the gross margin on its Volkswagen partnership appears unusually high, and the debt-to-asset ratio has climbed to 73.4%. The bottom line is that compared to the first-quarter report, XPeng's latest earnings reveal a growing cause for concern.
On one side, the business with Volkswagen is becoming increasingly vital, with service and other business gross profit now matching XPeng's core auto operations. The gross margin for these services climbed to 75% in the second quarter, and if parts sales revenue is excluded, that figure could potentially reach as high as 85%. With such a high-margin, high-profit-contribution segment, XPeng has an obligation to provide far more detailed disclosure in its financial statements. On the other side, the balance sheet is deteriorating at a rapid clip. Inventory, short-term borrowings, and long-term borrowings are all climbing simultaneously, pushing the debt-to-asset ratio from 70.56% at the end of last year to 73.41%. Losing money on car sales while making money on services and seeing debt balloon—XPeng is experiencing a "structural split." How much longer will Volkswagen's technology payments hold up? And could the soaring inventory levels become the next ticking time bomb? We break it down item by item.
What's the Lifespan of the Volkswagen Cushion?
In the first half of the year, XPeng reported revenue of 32.78 billion yuan, a year-on-year decline of 3.84%. The net loss attributable to shareholders widened to 3.12 billion yuan, a 173.35% plunge from the prior year. Notably, XPeng's vehicle sales revenue dropped 10.26% year-on-year, and its gross profit from autos fell 13.66%. But here's the twist: service and other businesses stepped up once again, hitting a new record high of 4.73 billion yuan in the first half. Thanks to their high gross margin, these services generated a gross profit of 3.38 billion yuan—now on par with XPeng's main auto business. Even more striking is the margin trajectory: services posted a 66.49% gross margin in the first quarter, which jumped to 75.07% in the second quarter.
According to XPeng's earnings report, this explosive growth in service revenue is largely due to leaning on its deep-pocketed partner. In 2023, after Volkswagen injected 5 billion yuan into XPeng as part of a strategic investment, the two companies established deep cooperation across multiple technology fronts. Under the agreement, Volkswagen pays XPeng technology service fees at each R&D milestone, rather than buying the technology outright in one lump sum. Since the formal partnership kicked off in 2024, XPeng's service and other business revenue and gross margins have surged.
What does a 75% gross margin really mean? Looking at the latest half-year reports, fewer than 290 companies across all A-shares achieve a gross margin above that level. But that 75% is the blended rate for the entire service and other business segment. XPeng's service revenue stems from three streams: technology R&D service fees paid by car manufacturers (including the Volkswagen deal), spare parts sales, and carbon credit revenue. Theoretically, as XPeng's car sales increase, its spare parts sales should also trend upward. Li Auto, for instance, has seen revenue in these categories nearly double since 2023.
If we assume XPeng's spare parts and carbon credit revenue also doubled compared to 2023—meaning the first half of this year roughly matches 2023's full-year levels—then XPeng's revenue from the Volkswagen partnership in the first half would be 2.07 billion yuan, with gross profit of 2.48 billion yuan, implying a gross margin of a staggering 120%. (4.73 billion minus 2.67 billion equals 2.07 billion; 3.38 billion minus 0.9 billion equals 2.48 billion.) Even if we instead assume zero growth in spare parts and carbon credits, the Volkswagen revenue would be 3.57 billion yuan, with gross profit of 3.04 billion yuan, delivering a gross margin of 85.08%. (4.73 billion minus 1.16 billion equals 3.57 billion; 3.38 billion minus 0.34 billion equals 3.04 billion.) Whether it's 75%, 85%, or 120%, these are eyebrow-raising numbers. All in all, given the sheer scale of this segment's profit contribution, XPeng owes investors more transparent and granular disclosure.
A Balance Sheet Under Pressure
XPeng's balance sheet also sparks worry. On the asset side, liquidity is weakening. Cash and cash equivalents plus restricted deposits total 22.3 billion yuan, down roughly 2 billion yuan from 24.3 billion at the end of last year. Accounts receivable and notes, plus prepayments and other receivables, sit at 7.83 billion yuan, up about 1 billion yuan from 6.89 billion. Inventory has ballooned to 13.73 billion yuan, a massive 3.35 billion yuan surge from 10.38 billion at the end of last year. With new energy vehicles being refreshed at an ever-faster pace, such hefty inventory levels pose a formidable challenge for XPeng.
Worth highlighting is that XPeng's inventory remained relatively steady before 2024, but in 2025—especially the second half—it has spiked dramatically. Both the absolute value and the growth rate deserve close attention. Beyond assets, the liability side shows abnormalities too. In the first half, short-term liabilities grew by roughly 4.6 billion yuan, while long-term liabilities expanded by about 2.4 billion yuan. Meanwhile, accounts payable and notes reached 29.72 billion yuan, down 3.21% year-on-year. But accrued expenses and other payables jumped 27.99% year-on-year to 12.85 billion yuan. This growing debt load has pushed XPeng's debt-to-asset ratio from 70.56% at the end of 2025 to 73.41%.
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