While Xpeng Motors (XPEV) is up over 65% for the year to date, it has looked weak in recent days and has come off its highs. The company’s Q1 2025 financial performance was quite impressive, but concerns over regulatory scrutiny over sales of new cars as “used cars” in the second-hand market by some automotive companies in China and an escalating price war in China have pressured XPEV stock. In this article, we’ll discuss whether you should buy the dip in the stock or steer clear.

Xpeng Motors Stands Out Due to Strong Execution

Xpeng Motors has impressed with its strong execution over the last few months. The company has delivered over 30,000 vehicles for six consecutive months, and its Q2 guidance implies that the run rate will be sustained in May and June as well. 

Xpeng Motors’ Mona M03 has been a success story, and the model’s cumulative sales have surpassed 100,000 units in eight months since its launch. The company’s P7+ also achieved the milestone of 50,000 cumulative deliveries in the first five months of its launch. The strong growth in deliveries has resulted in economies of scale, and its gross margins have expanded for seven consecutive quarters, reaching a record high of 15.6% in the March quarter.

The company is still posting a loss, but its net loss more than halved to $0.09 billion in Q1, which was the lowest in five years. The company has also turned a corner on free cash flow, and the metric surged above $400 million in Q1.

Xpeng Motors Expects Strong Growth in 2026 Also

Xpeng Motors expects its sales to more than double this year and is optimistic about posting a net profit in the final quarter of the year, while generating “substantial free cash flow for the entire year.” The company expects its gross margin to push toward the high teens in the second half of the year, amid continued cost-cutting efforts.

Xpeng Motors is set to launch several new models over the next year, which will help drive its deliveries in 2026 and beyond. Among others, it plans to launch new models in the Mona series, which is in the budget range. 

Xpeng Motors has developed its custom Turing chip, whose production has already commenced. The company will use these chips in its cars, which will help it lower costs and also enhance its autonomous driving capabilities. XPEV is leveraging its lead in autonomous driving and working on humanoids – a strategy similar to that of Tesla (TSLA).

International expansion is another growth driver for Xpeng Motors. Last year, it sold 20,000 cars in global markets and expects the volumes to double in 2025. The company listed Europe, the Middle East, and Southeast Asia as its focus global markets for this year.

China’s EV Price War Is Worsening

China boasts of dozens of electric vehicle (EV) companies, some of which happen to be listed stateside. The country is also home to BYD (BYDDY), which is the world’s largest seller of new energy vehicles (NEVs), and looks set to dwarf Tesla’s annual battery electric vehicle deliveries this year.

While there has been a price war in China for the last few years, there are signs that things might worsen further as market leader BYD has also cut prices on multiple models. After the price cuts, BYD’s seagull hatchback will be priced at just $7,780 in China. The company is looking to grow its deliveries to 5.5 million this year, as compared to just about 4.3 million last year, and the price cuts should help it meet the target.

Notably, while BYD has aggressively slashed prices for lower-end cars, the premium lines have been spared from price cuts that will run until the end of June. So far, Xpeng Motors hasn’t responded to the cuts, but the company might need to react to pricing strategies of its competitors, especially if BYD extends the scope of its cuts beyond June.

While a price war is seldom a positive, Xpeng Motors should be able to tackle the headwinds better given its relatively strong financial position, as it had a cash pile of over $6.2 billion at the end of March. Also, the company has a technological advantage over most of its peers and offers a good value proposition with advanced self-driving features. 

From a valuation perspective, the stock trades at a next 12-month enterprise value-to-sales multiple of 1.46x, which is similar to what it has averaged over the last three years. However, after its impressive execution over the last few months, the stock has earned the right to trade at premium valuations.

Overall, given the stock's positive long-term fundamentals, I won’t panic sell XPEV amid the price war and will instead add to my existing positions if the stock comes under pressure.

XPEV Stock Forecast

Wall Street analysts are also reasonably bullish on XPEV, and it has a consensus rating of “Moderate Buy” from the 14 analysts covering the stock. The stock has a mean target price of $22.83, which is 17.1% higher than the current price.