Xiaopeng Motors has reached a critical turning point.

The financial report released on March 20 shows that Xiaopeng's full-year revenue reached RMB 76.72 billion, up 87.7% year-on-year, a record high; full-year deliveries hit 429,000 units, up 125.9% year-on-year.

More importantly, the fourth quarter saw a net profit of RMB 380 million, marking Xiaopeng's first single-quarter profit.

For a new force established over a decade with cumulative losses in the billions, this is undoubtedly a milestone.

However, can this be a new starting point for Xiaopeng? In other words, how was Xiaopeng's first profit achieved, and is it sustainable? With new energy vehicle (NEV) penetration exceeding 60%, how are Xiaopeng's automotive business and physical AI positioned?

I. The True Value of First Quarterly Profitability

The conclusion is that Xiaopeng's profitability has indeed improved, but its significance falls far short of considering 'Q4 as the tipping point from losses to profitability,' with sustained profitability still in question.

In Q4 2025, Xiaopeng's other income reached RMB 840 million, exceeding quarterly net profit and more than tripling year-on-year, primarily due to increased government subsidies.

Of course, as mentioned earlier, Xiaopeng's performance has shown clear improvement.

Excluding subsidies, taxes, and interest—factors less related to core operations—profitability is measured by 'gross profit minus three major expenses (sales, R&D, and administrative costs).' Under this metric, 'losses' in Q4 2025 more than halved year-on-year, with the 'loss rate' dropping from 12.2% to 4.2%.

Xiaopeng's Q4 financials are indeed impressive: revenue of RMB 22.25 billion, up 38.2% year-on-year; deliveries of 116,000 units, a record high; and a gross margin of 21.3%, also a record.

A 20% gross margin is considered a critical threshold for evaluating NEV makers' profitability and technological moats, carrying significant weight. Xiaopeng's gross margin even surpassed Tesla's and BYD's.

So, how was the 21.3% gross margin achieved?

Mainly through lighter-weight business models, namely providing R&D services to partner automakers.

In Q4, service and other income, including technical service revenue, had a gross margin exceeding 70%, contributing around 48% of gross profit despite accounting for just 14% of revenue.

Benefiting from this, Xiaopeng's overall gross margin has consistently hit new highs. Cooperation with Volkswagen in intelligent driving, chips, and electronic architecture allowed Xiaopeng to break free from the traditional logic of 'selling cars for profit.'

However, Xiaopeng's performance in selling cars has been far less impressive than 'selling technology.'

In Q4, automotive revenue reached RMB 19.07 billion, up 30% year-on-year, with a vehicle gross margin of 13%, up 3 percentage points year-on-year but down 0.1 percentage points quarter-on-quarter and 1.3 percentage points from Q2.

A 13% vehicle gross margin is unremarkable among NEV makers. To sustain profitability, vehicle gross margins need further improvement, and economies of scale must continue to take effect.

This explains why Xiaopeng's Q1 guidance has made the market nervous.

In January and February, Xiaopeng delivered 20,000 and 15,000 units, respectively, totaling just 35,000 units. While in line with industry trends, this performance was relatively weak. Xiaopeng's Q1 guidance was even lower at 61,000–66,000 units, down about 30%–35% year-on-year, below market expectations; revenue was projected at RMB 12.2–13.28 billion, down 16%–22.8% year-on-year.

Of course, Q1 is traditionally a slow season for car sales, especially this year with greater pressure from purchase tax reductions. The issue is that Xiaopeng's product offensive in Q1 was not weak.

In January, the P7+ and G7 extended-range and pure-electric versions were launched, along with pure-electric versions of the G6 and G9; in March, the G6 extended-range version followed. Among them, the P7+ and G7 extended-range versions are equipped with a 1.5T range extender, offering a CLTC pure-electric range of 430 km and a combined range of 1,550–1,704 km, with a relatively aggressive pricing strategy: the P7+ and G7 extended-range versions are priced the same as their pure-electric counterparts, while the G6 extended-range version is RMB 10,000 more expensive than the pure-electric version. The new models offer increased features without raising prices, attempting to capture market share at the start of 2026.

However, based on January and February delivery numbers, the explosive potential of the new product cycle remains to be seen.

II. Product Matrix: MONA Leads, Extended-Range Fills Gaps

In 2025, Xiaopeng's sales mix underwent a fundamental change.

Multiple data sources report that the low-priced MONA M03 accounted for over 40% of total 2025 sales, making it Xiaopeng's undisputed flagship model, followed by the slightly higher-priced P7+. The other three pure-electric SUVs—G6, G7, and G9—performed average.

This means Xiaopeng's sales increasingly rely on models priced below RMB 200,000.

This structure has two consequences: first, sales volume has surged, with the full-year total of 429,000 units indeed impressive; second, the average selling price (ASP) per vehicle has dropped, with the 2025 full-year ASP (about RMB 159,200) down RMB 29,000 from 2024.

But the flip side is that brand positioning is being lowered.

When a brand's flagship models shift from the G series priced above RMB 200,000 to the MONA priced just above RMB 100,000, 'Xiaopeng' in users' minds becomes increasingly associated with 'cost-effectiveness' rather than 'technology' or 'premium.'

Vehicles priced in the tens of thousands have limited profit margin ceilings. If Xiaopeng continues to rely on the MONA, true profitability may remain elusive.

The success of the MONA has kept Xiaopeng afloat, but to thrive, it must establish a foothold and achieve volume in higher price segments.

In 2026, Xiaopeng's product strategy centers on 'one model, dual capabilities,' meaning parallel development of pure-electric and extended-range models.

2026 is a major product year for Xiaopeng. The new models launched in January are just the beginning. Xiaopeng plans to introduce four entirely new models this year.

Xiaopeng has made significant upfront strategic investments in AI and prepared for the 'product-heavy' 2026. In Q4 2025, Xiaopeng's administrative and sales expenses reached RMB 2.79 billion, up RMB 300 million quarter-on-quarter, due to terminal marketing and channel expansion. R&D expenses increased by RMB 450 million quarter-on-quarter, with both expense increases exceeding revenue growth.

Doubling down on extended-range models at this juncture will inevitably raise questions, such as whether it represents a step backward.

However, He Xiaopeng believes extended-range technology will be needed for 10–20 years. He pushed for extended-range powertrains five times before finally launching them. He also has high expectations for extended-range sales.

In January, the X9 extended-range version delivered 4,219 units in a single month, with cumulative deliveries exceeding 50,000 units, validating market demand. The X9 super extended-range model has gained unexpected attention in northern and inland cities, with pre-sale orders matching those of the same period.

From a market demand perspective, Li Auto, Aito, and Leapmotor all have popular extended-range models. However, data also shows that growth in extended-range models is slowing, with 2025 extended-range electric vehicle (EREV) sales reaching 1.235 million units, up 6.0% year-on-year, lower than the growth rates of pure-electric (24.4%) and plug-in hybrid (8.8%) models.

Additionally, the 2026 passenger vehicle market outlook is pessimistic, with the China Passenger Car Association (CPCA) projecting 1% growth and the China Association of Automobile Manufacturers (CAAM) even more conservative at 0.5%. Whether Xiaopeng's extended-range models can replicate the success of the X9 remains questionable, considering both market capacity and competition.

Zooming out to the global stage, the situation looks better.

Overseas public charging stations account for about one-third of the global total, making extended-range models essential for international expansion.

In 2025, Xiaopeng delivered 45,000 units overseas, up 96% year-on-year, ranking first among Chinese new NEV makers in pure-electric overseas sales. To continue expanding, extended-range models are almost a necessity.

III. AI Narrative: Xiaopeng's Next Major Battle

With NEV penetration exceeding 60%, automakers are seeking new narratives or second growth drivers.

AI is the most consensus-driven and imaginative option.

Li Auto is betting on embodied AI, with Li Xiang stating that 2026 represents the 'last window to become a global AI leader'; NIO is laying the groundwork for autonomous driving and embodied AI with its self-developed 5nm intelligent driving chip, with Li Bin calling it 'preparation for the AGI era'; Seres is anchoring its strategy in 'AI+,' with Zhang Xinghai explicitly stating a push into mobile intelligent agent business.

Xiaopeng has upgraded its positioning to 'mobility explorer in the physical AI world and a global embodied AI company.'

In 2025, Xiaopeng's R&D spending reached RMB 9.49 billion, up 47.0% year-on-year, with AI-related investments accounting for RMB 4.5 billion. In 2026, this figure will further rise to RMB 7 billion.

Intelligent driving is the starting point for physical AI.

Xiaopeng's intelligent assisted driving was once in the top tier, but this strength has gradually been caught up to or even surpassed by latecomers. It wasn't until the second-generation VLA large model that Xiaopeng reclaimed its place in the top tier of intelligent driving.

To explore the VLA technical route, the company has invested 30,000 GPU cards in computing power since 2024, incurring over RMB 2 billion in training costs. For a long time, discussions were held multiple times about whether to halt VLA development due to the lack of visible progress. In Q2 2025, VLA 2.0 achieved a major breakthrough, advancing Xiaopeng's autonomous driving technology upgrade by 'nearly two years.'

In Q1 2026, the second-generation VLA large model began rolling out to Ultra models. This model is not only applicable to vehicles but can also drive four types of embodied AI terminals: Robotaxi, humanoid robots, and flying cars.

The Turing chip is another ace for Xiaopeng. The Turing chip has secured a global nomination from Volkswagen, becoming the first Chinese self-developed intelligent driving chip supplied to an international automaker. The first jointly developed model, the 'Zoy 08,' began mass production in March.

In robotics, the mass production (mass-produced) version of the humanoid robot IRON has completed testing, with a target of achieving scale production by the end of 2026. He Xiaopeng provided a more specific goal at the earnings call: monthly production capacity exceeding 1,000 units by year-end.

The Robotaxi business is also advancing. On March 23, Xiaopeng officially announced the establishment of a Robotaxi business unit, planning to launch three Robotaxi models in 2026 equipped with four Turing chips and 3,000 TOPS of onboard computing power, with safety-operator-assisted passenger tests set to begin in the second half of the year.

However, uncertainties surrounding technical implementation warrant attention.

In technology licensing, Xiaopeng aims to replicate Huawei's 'external supply' path for intelligent driving, but the key lies in maintaining technological leadership amid competition from giants. Huawei has already rolled out its intelligent driving solutions across brands like Aito, Avatr, and Arcfox, while Xiaopeng still needs to gain recognition from more clients beyond Volkswagen.

For humanoid robots, IRON is priced at RMB 200,000–300,000, targeting the high-end commercial market, significantly more expensive than comparable products from Unitree Technology.

Unitree's prospectus shows that humanoid robots have relatively high gross margins, but their applications remain primarily in research, with limited adoption in consumer and industrial settings. This means that for IRON, achieving 'functionality' is insufficient; it must deliver tangible, quantifiable scenario value to attract B-end payments.

More importantly, if the rollout of L3/L4 autonomous driving policies falls short of expectations, it could delay the mass production, operation, and C-end intelligent feature deployment of Robotaxi services.

With simultaneous advances in the Turing chip, VLA large model, humanoid robots, and Robotaxi, Xiaopeng must make trade-offs in management and resource allocation.

In the capital markets, Xiaopeng's valuation (based on the PS method) is higher than that of other NEV makers, reflecting market recognition of its technical route and AI transformation. However, this also places pressure on the company, as investors are willing to pay for the 'physical AI' prospect only if this technological edge can translate into sustainable profit growth.