When Software People Build Cars: The Xpeng Motors Story

In Q2 2023, Xpeng was losing money on every single car sold with -3.9% gross margins. Twelve months later, they hit 14.9% margins and delivered 190,000 vehicles. How do you go from death spiral to growth mode that fast?

Author

Nick Horob
August 08, 2025

Today I'm diving into Xpeng Motors (XPEG), a Chinese EV maker that's basically what happens when internet people decide to build cars.

  • Founded by traditional auto execs in 2014

  • Gets completely transformed when He Xiaopeng (UCWeb founder, ex-Alibaba) joins as Chairman in 2017

  • Now 40% of their 14,000 employees work in R&D

  • They've hired 4,000 AI engineers in just the past year. This is insane.

But here's the thing - having an impressive team doesn't guarantee success when you're in a knife fight with 100+ other EV makers in China.

One thing I noticed was their 2023 gross margin got crushed (more on that in the report below). But it made me take a broader look at EV gross margins.

Xpeng TTM: 14.9% Tesla 2024: 17.9% BYD Q3 2024: 21.9% (BYD is a hell of an impressive business, more to come on it)

So yeah, they're profitable on a gross basis but trailing both major competitors. BYD is crushing it on margins while selling at lower price points.

What makes them worth studying:

  • They're treating cars like smartphones (continuous updates, direct sales, AI-first)

  • Volkswagen paid $700M for a piece of their tech stack

  • Their budget MONA model moved 120,000 units last year

  • They're sitting on $5.75B cash with minimal debt

But this is a tough space.

  • Still losing $800M annually

  • BYD sells 20x more vehicles

  • CEO himself says only 7-8 auto companies will survive globally

  • 90% of sales concentrated in China

The global EV competition is going to be fun to watch play out!

With that, I'll talk to you tomorrow.

Nick

TL;DR

  • Chinese EV maker founded by ex-Alibaba executives treating cars like smartphones, constantly updateable, AI powered, and priced for the masses

  • Revenue hit $6.94 B (TTM) with improving margins after years of losses; on track for profitability by 2026

  • Key insight: Import playbooks from other industries, Xpeng applied internet-company DNA to auto manufacturing

  • Main lesson: The sharpest disruption often comes from acting as if you are in a completely different business

The 30,000-Foot View

Xpeng designs and builds smart electric vehicles with a heavy focus on autonomous driving and AI. Unlike traditional automakers, they position themselves as a tech company that happens to make cars (about 40 percent of the workforce is in R&D).

Business model: Direct-to-consumer sales (à la Tesla) but aimed at middle-class buyers who want premium tech at accessible prices—think Xiaomi for EVs.

Revenue mix

  • Vehicle sales: 87-91 percent (G-series SUVs, P-series sedans, new MONA budget line)

  • Services & other: 9-13 percent (Volkswagen tech licensing, charging, maintenance)

  • Approx. 90% of sales come from China today

Key stats

  • Market cap: $18.4 B

  • TTM revenue: $6.94 B

  • Gross margin: 14.9 percent

  • Net income: -$0.8 B

  • Employees: ~15,000

  • Industry: EV manufacturing / autonomous-driving technology

Company History

Year

Milestone

2014

Founded in Guangzhou by former GAC executives

2017

UCWeb founder He Xiaopeng becomes chairman, injects internet DNA

2018

Launches G3 SUV; faces but later beats Tesla/Apple IP-theft claims

2020

NYSE IPO raises $1.5 B, shares jump 40 percent day one

2021

Dual-lists in Hong Kong; unveils P5, first production car with LiDAR

2023

Volkswagen invests $700 M and buys DiDi’s smart-EV development arm to jointly build mass-market platforms

2024

MONA M03 budget model surpasses 150 K cumulative deliveries; records 190 K vehicles shipped for the year; unveils humanoid factory robot “Iron,” now active on production lines

2025 (target)

Aims to operate in 60+ markets and expand proprietary charging network to 2,000 stations (from just over 1,000 today)

Show Me the Money

Stand-out features

  • Gross margin absolutely cratered in 2023 due to inventory write-downs on the G3i model and ggressive price cuts/promotions. Nice rebound in 2024

  • $5.75 B cash with minimal debt

  • Operating losses narrowing (-35.6 percent to -12 percent margin)

  • Revenue growth accelerating 60 percent YoY as fresh models scale

Financial Data

Metric

2021

2022

2023

TTM

Revenue

$3.25 B

$3.99 B

$4.33 B

$6.94 B

Gross Profit

$0.41 B

$0.46 B

$0.07 B

$1.03 B

Gross Margin

12.5 %

11.5 %

1.5 %

14.9 %

Ops Profit

-$1.02 B

-$1.30 B

-$1.54 B

-$0.83 B

Ops Margin

-31.4 %

-32.4 %

-35.6 %

-12.0 %

CapEx

$0.20 B

$0.25 B

$0.28 B

$0.33 B

Net Debt

Minimal

Minimal

Minimal

Net cash

The N.O.O.B. Nine — Competitive Powers

The Nerd Out on Business Nine is made up of Hamliton Helmer's famous "7 Powers" of competitive advantage (Scale Economies, Network Economies, Counter-Positioning, Switching Costs, Branding, Cornered Resource, and Process Power) combined with two of my own (Data Flywheel and Distribution Advantage).

Power

Score

Rationale

Branding

3/5

Tech-forward image resonates with younger buyers, though it lacks NIO’s premium halo or Tesla’s global cachet

Data Flywheel

4/5

Growing fleet feeds AI models that learn with every mile; XNGP continuously adapts to user patterns

Process Power

4/5

Industry 4.0 plants and seamless OTA updates that materially upgrade vehicle capabilities post-sale

Scale Economies

3/5

Planned 600 K capacity is solid, but BYD produces in the millions; VW tie-up should cut component costs ~30 percent

Switching Costs

3/5

XPILOT software stack and lifetime-free charging create stickiness, but depth is still behind Tesla’s ecosystem

Cornered Resource

4/5

2,994 patents (41 percent in smart-car tech); exclusive VW partnership gives unique market access

Network Economies

4/5

>1,000 proprietary fast-charging stations already online, targeting 2,000 by end 2025; connected-car data improves AI for the whole fleet

Counter-Positioning

4/5

LiDAR + AI challenges Tesla’s camera-only bet and caters to Chinese driving nuances that Western brands overlook

Distribution Advantage

3/5

Rapid rollout toward 60 countries is impressive, but reach still trails traditional dealer networks

Average Score: 3.6/5 - Xpeng’s tech partnerships and AI expertise give it meaningful edges, but scale remains its biggest hurdle.

Memorable Marketing

Xpeng promotes cars like consumer electronics: picture Apple product launches meeting Tesla hype, filtered through Chinese social-media culture.

Singles Day E-commerce Blitz (2020)

  • Sold 6,500 cars in 30 minutes on Tmall

  • Celebrity livestreams and lottery draws drove urgency

  • Proved that big-ticket items can move like cosmetics online

3-D Billboard Revolution (2023)

  • First auto brand to use 3-D programmatic digital-out-of-home in Europe

  • Cars appeared to leap off Stockholm street screens

  • Skyrocketed brand awareness among Swedish car enthusiasts

WeChat Integration (ongoing)

  • Full ownership journey lives inside China’s super-app

  • AI assistant “Xiao P” boasts 98.6 percent voice-recognition accuracy

  • Creates personal, always-on relationships between driver and brand

Tactical takeaways

  • Sell where customers already buy, even if unconventional

  • Educational content builds authority (100-plus videos, 5 M-plus views)

  • Partner with competitors when incentives align

  • Personalization at scale beats one-size-fits-all marketing

AI Uses & Opportunities

Current deployment

  • XPILOT uses quad-sensor fusion and logs 100 K km of simulations daily

  • New “Eagle Eye” vision system eliminates costly HD maps

  • Humanoid robot Iron already works the final assembly line

Future upside

  • Map-less driving to slash autonomy costs

  • Door-to-door navigation without human intervention

  • Licensing the AI stack beyond Volkswagen

  • Turning vehicles into rolling AI platforms with recurring software revenue

Xpeng added roughly 4,000 AI engineers in 2024 and spends about $486 M a year on AI R&D—an “AI-first automaker” bet in action.

Bumps in the Road

  • Brutal competition: More than 100 EV brands crowd China; CEO predicts only 7-8 survivors worldwide by 2030

  • Scale gap: BYD sells roughly 20 times more vehicles

  • Profit timeline: Still burning ~$800 M annually, profit projection pushed to 2026

  • EU provisional duty: 20.7 percent tariff threatens expansion unless production moves closer to European customers

  • Geographic concentration: Around 90 percent of sales come from China, exposing the company to domestic policy swings

Your Swipe File

  • Import playbooks from other industries: Operate like an internet company in a hardware sector

  • Turn costs into revenue: Heavy AI investment already monetized through Volkswagen licensing fees

  • Second-mover advantage: Let Tesla educate the market, then offer similar tech at half the price

  • Culture transformation: He Xiaopeng’s arrival three years post-founding reshaped company DNA

  • Beware the expertise trap: Ex-Tesla and Apple hires brought knowledge, but also legal headaches; always vet IP obligations carefully