Citi upgrades Xpeng Motors amid strong deliveries

Citi upgraded Xpeng Motors (NYSE: XPEV) from a “hold” to “buy” after the Chinese electric vehicle (EV) company’s strong deliveries over the last few months. While Xpeng Motors’ deliveries were quite tepid in the first half of 2024, things have looked strong since it started delivering its Mona MO3 model in the back half of the year.

Xpeng Motors delivered 30,453 EVs in February, which was 570% higher YoY. While the rise is admittedly coming from a lower base, as the company’s deliveries were quite subdued in the first half of 2024, the numbers are nonetheless quite reassuring and came in ahead of estimates.

Xpeng Motors’ deliveries have been strong

Notably, while other Chinese EV companies reported a sequential fall in deliveries, the February deliveries of BYD, Zeekr, and Xpeng Motors were high compared to January.

Meanwhile, it is prudent to look at the combined figures for January and February, as China’s economic data at the beginning of the year gets distorted due to the Lunar New Year Holidays. While the Lunar New Year fell in January last year, this year, it overlapped between January and February.

Xpeng Motors delivered 60,803 vehicles in the first two months of 2025, which is 375% higher than the corresponding period last year.

Xpeng Motors’ Mona MO3 model has been a hit, and its sales have been above 15,000 units for three consecutive months. Thanks to the stellar sales of the budget EV model, Xpeng Motors’ total deliveries have been above 30,000 for four consecutive months. The sales of its XPENG P7+ model have also been strong, and cumulative sales have topped 30,000 within the first three months of launch.

Citi upgrades Xpeng Motors shares

In its note, Citi said, “Upgrade to Buy considering strong volume growth in 2025/26E on robust order intake and new model launches, 2026E earnings turnaround and potentially extra growth drivers on AI/Robotics.”

Notably, Xpeng Motors also has autonomous driving capabilities, which are among the most advanced in China. In its release, Xpeng Motors said, “According to the Spring Festival smart driving usage report released by XPENG, XPENG’s total mileage of smart driving and total time by smart driving during the Spring Festival travel season increased 98.2% and 103.5%, respectively, over the same period last year.”

Xpeng Motors said that the monthly active user penetration rate of its XNGP in urban driving reached 86% in February and added that it intends to release its Turing AI Smart Driving features in international driving this year.

Meanwhile, Citi joins the growing list of brokerages that have turned bullish on Xpeng Motors over the last six months. JPMorgan expects Xpeng Motors to deliver 300,000 vehicles in 2025, while Citi expects the Chinese EV company to deliver 400,000 vehicles in 2026. Xpeng plans to launch new models this year, which are expected to spur its deliveries.

Xpeng Motors is also looking to launch extended-range electric vehicles (EREVs), which are quite popular as they come with a generator that can extend the battery’s range.

Volkswagen invested in Xpeng Motors in 2023

In 2023, Volkswagen invested in Xpeng Motors, and as part of the agreement, XPEV will build two EVs on its platform. The deal was a milestone for the Chinese EV ecosystem as it reflected the confidence of Volkswagen in a startup EV company. It was also a testimony to Xpeng Motor’s self-driving capabilities, which the company intends to build upon further. The two companies are also said to be exploring international partnerships.

Chinese shares have outperformed

Notably, Chinese shares including Xpeng Motors have outperformed US peers in 2025 amid renewed optimism towards the world’s second largest economy despite fears of trade tensions with the US.

China has announced a flurry of stimulus measures to spur its economy. Last month, Chinese President Xi Jinping delivered a speech at a symposium of entrepreneurs. Among those in attendance was Alibaba’s co-founder Jack Ma, who perhaps previously became the face of China’s tech crackdown in 2021.

Xi’s meeting with Chinese entrepreneurs was a positive sign, especially as the Chinese president is known for his hard communist credentials. Under his leadership, China cracked down on its burgeoning tech sector, especially edtech companies. The crackdown began in late 2020 when the country scraped Ant Financial’s IPO.

Investors have warmed up to Chinese shares since DeepSeek revealed its AI model

All said, by meeting Chinese entrepreneurs, Jinping seems to have warmed up to the country’s private sector amid the AI war with the US. DeepSeek’s AI model showcases China’s AI capabilities and raises doubt over the dominance of US tech giants in AI models. Incidentally, the US barred exports of Nvidia’s high-end AI chips to China over concerns that they might also be used for military purposes. However, DeepSeek managed to achieve the feat despite US sanctions. We saw something similar with Huawei, which not only survived US sanctions but has now emerged as Apple’s biggest competitor in the Chinese market.

There seems to be no easy remedy for the structural slowdown in the Chinese economy though. China’s industrial sector has been plagued by a massive overcapacity and with many countries clamping down on imports from China, Chinese companies are struggling to export their overcapacity.

Moreover, the bulk of the wealth of Chinese households is tied up in the real estate sector which is under massive stress. This is prompting Chinese consumers to hold back on their purchases.

Xpeng Motors to release its Q4 earnings next week

Meanwhile, Xpeng Motors will release its Q4 earnings next week where the company might also provide a delivery guidance for this year. It might also provide colour on its profitability and free cash flow targets as the company continues to improve its financial performance led by strong deliveries.