After Xpeng hit record-breaking sales, it turns out the company’s most profitable business isn’t actually selling cars?

Xpeng appears to be just one step away from achieving full profitability.

A few days ago, the company released its Q3 2025 financial report. Given its recent sales momentum, many expected strong results — and the numbers indeed delivered. Revenue, gross margin, and deliveries all hit record highs.
CEO He Xiaopeng even posted on social media: “We finally see the light of the blue ocean after struggling in the bloodiest red ocean.”

🚗 Record Deliveries: M03 Becomes the Driving Force

In Q3, Xpeng delivered 116,000 vehicles, up 12.4% QoQ and a massive 149.3% YoY, setting a new quarterly record.

Since late last year, several popular models — M03, P7+, and the new P7 — have driven strong sales.
The M03, launched in August 2024, has sold nearly 200,000 units in just 14 months, with recent monthly sales stabilizing around 15,000 units.

Interestingly, unlike most EV brands that rely on SUVs for volume, Xpeng sells more sedans than SUVs — a rare achievement in the EV market.

📈 Revenue Doubles, Gross Margin Surpasses 20%

Q3 revenue reached 20.38 billion RMB, more than doubling from 10.1 billion RMB YoY.

The overall gross margin reached 20.1%, the benchmark for “healthy profitability” in the auto industry.

But digging deeper reveals a concern:

❗ Vehicle Gross Margin Declined

Vehicle-level margin was 13.1%, down 1.2 percentage points from Q2.

The official explanation was “product transitions,” but the main reason is clear:

➤ The low-priced M03 dominates sales, dragging down margins

This mirrors Li Auto’s situation when the L6 outsold its higher-margin siblings.

Xpeng is unlikely to launch cheaper models soon. A MONA-series SUV expected next year may better fill the price gap between M03 (139,800 RMB) and G6 (176,800 RMB).

💰 The Surprise: Xpeng’s Most Profitable Business Isn’t Selling Cars — It’s Selling Technology

Xpeng’s services and other revenue reached 2.33 billion RMB in Q3, up 78.1% YoY and 67.3% QoQ.

This segment carried a stunning 74.6% gross margin, driven largely by technology licensing rather than after-sales services.

✔ Technology Partnership with Volkswagen Paying Off

The cooperation is accelerating:

• The co-developed model “Yuzhong 08” has entered the MIIT listing
• VW is purchasing Xpeng’s autonomous driving hardware and software
• Xpeng’s Turing chips will be used in two upcoming VW B-segment models
• VW will be the launch customer for Xpeng’s second-gen VLA platform

The partnership is in a strong “honeymoon phase.”

📉 Losses Shrink Sharply, but Q4 Still Uncertain

Q3 net loss was 380 million RMB, a significant improvement compared with 1.81 billion RMB a year ago.

Q4 delivery guidance is 125,000–132,000 units — higher than Q3 but slightly below analysts’ expectations due to subsidy cuts and battery supply tightness.

Overall, Xpeng is extremely close to its goal of becoming profitable in Q4, but current profitability relies heavily on technology licensing, not vehicle sales alone.

🎯 Will Xpeng Be the Next EV Startup to Achieve Sustainable Profitability?

Challenges remain:

• High deliveries, but margins pulled down by low-cost models
• Tech revenue is high-margin but not guaranteed long-term
• Vehicle profitability still needs improvement

Whether Xpeng can become the next consistently profitable EV newcomer remains to be seen.