US Tiger Securities cuts XPeng stock rating on valuation concerns By Investing.com

XPeng reported Q4 2025 revenue of RMB22.25 billion (+38% YoY) and its first-ever quarterly net profit of RMB0.38 billion; gross margin expanded to 21.3% (+6.9 ppts / 690bps YoY) and full-year deliveries rose 126% to 429,000 units. Cash on hand was RMB47.7 billion, exceeding debt and providing funding flexibility. Despite strong operating metrics and margin expansion, US Tiger downgraded the stock to Hold with a $20 PT and Macquarie cut its PT to $26 (from $32) citing slowing China EV demand, while Morgan Stanley maintained Overweight with a $34 PT. XPeng also rolled out an in-app charging payment system in Hong Kong with Antom and is reportedly in talks with Stellantis/Xiaomi on potential European deals.

Analysis

XPeng’s move from loss-making toward sustainable profitability materially changes the investment geometry: lower near-term dilution risk and a faster path from customer acquisition to recurring revenue means the market should start valuing a higher multiple on installed base and software monetization rather than on unit growth alone. That reweights winners toward software-first EV players and their preferred Tier‑1 suppliers (software, sensors, payment rails) while pressuring legacy OEMs that still rely on hardware volume to justify capex.

The Stellantis-China talks create an asymmetric catalyst set: a consummated asset deal would be an inexpensive, rapid European distribution channel for a Chinese EV brand, but the same talks raise regulatory and execution risk that can compress multiples quickly if blocked or leaked. Expect headline-driven volatility in the near term (days–weeks) and structural demand/monetization outcomes to play out over quarters; chip supply and Chinese domestic demand act as 3–12 month swing factors that can reverse any re-rating.

From a second‑order supply perspective, increased services adoption (in‑car payments, OTA monetization, AD stack upgrades) tilts procurement toward higher‑margin software and cloud partners and away from low‑margin hardware commoditization — this favors firms that can sell software licensing and cloud compute recurring revenue to OEMs. Meanwhile, an M&A path into Europe would accelerate order patterns for localization (ADAS calibration, homologation) and temporarily boost European engineering spend, creating pockets of downside for mass-market volume suppliers.

Contrarian read: the market is underpricing the option value of a European foothold bought via takeover versus organic expansion — if XPeng secures assets, upside will be non-linear as addressable market expands without linear capex. Conversely, consensus may be excessingly sanguine about smooth execution; regulatory pushback or waning Chinese demand would flip sentiment sharply, so position sizing and explicit hedge cost are critical.

Key Decisions for Investors

• Initiate a tactical long XPEV position (target 2% NAV) with a 6–12 month horizon: set a profit target of +80% and a hard stop at -30%. Rationale: capture re-rating from services monetization and potential European M&A optionality while keeping position size limited to the idiosyncratic execution risk.
• Buy a directional XPEV 12‑month call spread (buy near‑OTM call / sell a higher strike call) sized to cost ~0.4% NAV: asymmetric upside if headlines/M&A or continued margin expansion drives a >50% move, with capped premium loss if China demand softens.
• Pair trade: long XPEV / short STLA equal notional exposure, horizon 6–18 months. Thesis: express a view that software-first Chinese EV re-rating will outpace legacy European OEMs facing transition and potential M&A disruption. Exit if spread compresses by 25% adverse to the pair or upon definitive regulatory outcomes.
• Buy STLA 3–6 month puts as insurance (small allocation, ~0.25% NAV) to hedge the pair and systemic shock from a failed/blocked transaction or an EU regulatory reversal. Cost is insurance against headline-driven downside that would disproportionately hit legacy OEM equity.
• Small macro hedge / macro long via UBS call spread (3–6 month): allocate 0.25–0.5% NAV to benefit if risk appetite reacceleration lifts global equities and trading/M&A flows; unwind quickly on clear evidence that China EV demand is weakening or M&A is dead.