Morgan Stanley maintains a "Overweight" rating on Xpeng (XPEV.US) with a target price of USD 17.00.

Morgan Stanley released a research report maintaining a "buy" rating for Xpeng (09868, XPEV.US), assigning weights of 25%/50%/25% to the optimistic/baseline/pessimistic scenarios, respectively, and setting a target price of US$17.00. Management expects the gross margin of the Mona series to exceed 10% as new models are rolled out. At Xpeng's China BEST Conference, the company's focus was on its autonomous driving technology, vehicle gross margin, and order performance in the off-season. Management expressed confidence in the recovery of sales at the end of the first quarter, thanks to the company's strong model lineup. Morgan Stanley believes that the gross margin of the auto business will rise sequentially in the fourth quarter of 2024 (8.4% in the third quarter), but still below 10%, mainly due to the optimization of product mix, especially the increase in the proportion of P7+ and overseas sales, as well as the improvement of Mona MO3's economies of scale. Xpeng said it expects to achieve a sales target of 400,000 units by 2025, with overseas sales expected to grow more than double year-on-year. In terms of product planning, G6 and G9 will launch upgraded models in March, equipped with advanced pure visual high-end driving assistance systems. A five-seat SUV based on the same platform as P7+ is scheduled to be delivered in the second quarter of 2025. In addition, the company will launch a B-class sports sedan in the second to third quarters and two plug-in hybrid electric vehicles in the second half of the year. Moreover, the Volkswagen cooperation project is expected to contribute annual revenue equivalent to that in the fourth quarter of 2024 for Xpeng in 2025, and the two sides may conduct more licensing cooperation in the European Economic Area (EEA) in the future. Risk warning: (upside) enhanced competitiveness of new models drives sales growth, gross margin expansion beyond expectations, and improved brand image and outstanding user experience lead to increased market recognition; (downside) intensified competition in the mid-to-high-end market, declining profitability leads to increased cash flow pressure, and the slowdown in the overall industry's sales growth affects valuation.