CICC has released a research report maintaining an "Outperform Industry" rating on XPENG-W (09868) but lowering its target price. The report states that the current Hong Kong and U.S. (XPEV.US) share prices correspond to 2026 P/S ratios of 1.0x and 1.1x, respectively. Due to increased expense investments by the company in 2025 and intensified market competition, the 2025 profit forecast has been revised down to a loss of RMB 11.3 billion, compared to a previous forecast of a RMB 7.8 billion loss. Considering market competition and the company's ongoing cost reduction and efficiency efforts, the 2026 profit forecast remains unchanged, while a new 2027 profit forecast of RMB 4.78 billion has been introduced. As several of the company's innovative businesses enter mass production, the valuation methodology has been switched to a sum-of-the-parts (SOTP) model. Consequently, the target prices for the Hong Kong and U.S. shares have been lowered by 17% and 18% to HK$90 and $23, respectively, implying potential upside of 45% and 42% from current levels.
Key points from the report are as follows:
**Investment Rationale** Since its organizational restructuring began in 2023, the company has successfully navigated a turnaround and is entering a strong product cycle, bolstered by models like the MONA. Furthermore, the strategic partnership with Volkswagen has created a revenue stream through technology licensing, enhancing profitability. Beyond automobiles, continued investment in Robotaxi and humanoid robots has positioned the company as a leader in both technological and commercial development within these areas.
**Expanding Product Portfolio to Target Market Segments, Super Range Extension Adds Growth** The company is fully implementing its "Dual-Energy Strategy" with models such as the X9, P7+, G7, and GX, which feature the "Kunpeng" super range extension technology. This focuses on the mainstream RMB 100,000-400,000 market segment, using AI and smart driving experiences as core differentiators to improve product definition. Combined with long pure-electric range and 5C ultra-fast charging capabilities, the strategy aims to address industry and policy challenges while achieving an upward brand breakthrough.
**Broadening Collaboration with Volkswagen, Initiating Technology Monetization Cycle** The cooperation with Volkswagen has expanded from the G9 platform to include E/E architecture and Turing chips, achieving full-stack hardware and software coverage. Starting from 2024, both other business revenue and gross margin have increased, validating the technology monetization capability. By 2026, with the mass production of collaborative models like the 07 and 08, the fee structure is expected to upgrade to a diversified combination of technical service fees and sales-based royalties, forming a stable profit contribution.
**VLA 2.0 Launch, Building a More Comprehensive AI Ecosystem** 2026 is anticipated to be the inaugural year for the large-scale deployment of the company's Robotaxi and physical AI technologies. With the integration of VLA 2.0, the flywheel of algorithms, computing power, data, and testing is set to accelerate, equipping vehicle models with the capability to progress towards L4 commercialization. Simultaneously, robotics will enter the mass production phase, with the IRON ET1 deeply leveraging the automotive supply chain and automotive-grade standards. The company has transcended the boundaries of a singular passenger car business, forming a closed-loop AI ecosystem encompassing Turing chips, algorithms, and multi-dimensional terminals. The efficient generalization and reuse of underlying technologies are expected to continuously release economies of scale.
**Risk Warning:** Potential risks include weaker-than-expected demand for new vehicles and autonomous driving technology, and slower-than-anticipated progress in the collaboration with Volkswagen.
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