Xpeng's Rally in Hong Kong: A Morgan Stanley Re-Rating and the EV Sector's Crossroads

The recent surge in Xpeng Motors' (XPeng-W) Hong Kong-listed shares—up over 10% following Morgan Stanley's upgraded rating—has reignited debates about the electric vehicle (EV) sector's trajectory. Historical data suggests that Xpeng-W's stock has shown a tendency to rise modestly—approximately 10% by day 30—after earnings announcements since 2022, though these returns have not reached conventional statistical significance. This pattern, while not deterministic, adds context to the current rally.

Morgan Stanley's decision to raise its price target for Xpeng follows the company's Q1 2025 results, which revealed a 330.8% year-over-year surge in vehicle deliveries to 94,008 units and a 141.5% revenue increase to RMB15.81 billion Morgan Stanley Reaffirms $26 PT on XPeng After Q1 Results, …^[1]. The firm highlighted a narrowing net loss (RMB664 million, down from RMB1.37 billion) and a 2.7% improvement in gross margin to 15.6%, driven by government subsidies and cost efficiencies Morgan Stanley Maintains a Buy Rating on XPeng (XPEV) After Q1 …^[3]. Crucially, Morgan Stanley cited Xpeng's progress in AI-driven autonomous driving—particularly the G7 model's performance and strong pre-orders for the Mona Max—as a differentiator in a crowded market Morgan Stanley: Raises XPENG-W target price by 6.9% to HKD …^[5].

The firm's optimism extends beyond Xpeng. It has raised price targets for Nio and Li Auto, signaling a broader re-rating of Chinese EVs amid signs of operational recovery and policy tailwinds Morgan Stanley Maintains a Buy Rating on XPeng (XPEV) After Q1 …^[3]. This aligns with Morgan Stanley's 2025 EV sector strategy, which frames the industry as a long-term growth opportunity despite near-term challenges EV Adoption: How to Invest Long Term^[4].

The EV Sector at a Crossroads: Re-Rating Amid Slowdown

While Xpeng's rally reflects investor enthusiasm, Morgan Stanley's broader analysis paints a nuanced picture. The firm warns of a 12–18-month slowdown in global EV adoption, citing economic uncertainties, trade barriers, and high prices in key markets like the U.S. and EU Electric vehicles outlook for 2025 as per Morgan Stanley^[2]. For instance, U.S. tariffs on Chinese EVs now stand at 100%, while the EU threatens 35% levies Morgan Stanley Reaffirms $26 PT on XPeng After Q1 Results, …^[1]. These hurdles complicate Xpeng's global ambitions, particularly as it aims to double its international presence to 60 markets by 2025 Morgan Stanley Reaffirms $26 PT on XPeng After Q1 Results, …^[1].

Yet, the firm argues that cross-border collaborations between global automakers and Chinese EV firms could mitigate these risks. Such partnerships, it notes, could reduce development costs by 40% and accelerate EV localization in markets like the U.S., unlocking a $150 billion investment opportunity by 2030 Electric vehicles outlook for 2025 as per Morgan Stanley^[2]. For Xpeng, this suggests that its technological edge in AI and autonomous driving may be its most valuable asset in navigating trade barriers.

Xpeng's Strategic Gambit: Global Expansion and AI Leadership

Xpeng's aggressive global expansion—marked by the launch of the X9 MPV in Thailand and plans to test autonomous driving technology internationally—positions it as a key player in emerging markets Morgan Stanley Reaffirms $26 PT on XPeng After Q1 Results, …^[1]. These regions, according to Morgan Stanley, are becoming critical for EV adoption due to policy support and the affordability of Chinese-made models EV Adoption: How to Invest Long Term^[4]. However, the company's success will hinge on its ability to adapt to local regulations and infrastructure gaps.

The firm's revised profitability forecast for Xpeng—now 2026 instead of 2027—reflects confidence in its cost-cutting measures and AI-driven efficiencies Morgan Stanley: Raises XPENG-W target price by 6.9% to HKD …^[5]. This aligns with a sector-wide shift toward software-defined vehicles, where margins are expected to rise as hardware commoditizes.

Risks and Opportunities: A Sector in Transition

Despite the bullish outlook, risks persist. Morgan Stanley projects that battery electric vehicle (BEV) penetration will grow from 14% in 2024 to just 17% by 2026, down from earlier forecasts of 20% Electric vehicles outlook for 2025 as per Morgan Stanley^[2]. This slowdown is attributed to supply chain bottlenecks, particularly in lithium-ion battery production, which remains heavily concentrated in China Morgan Stanley Maintains a Buy Rating on XPeng (XPEV) After Q1 …^[3]. For Xpeng, diversifying its supply chain and investing in recycling technologies will be critical to maintaining margins.

Conclusion: A Test of Resilience

Xpeng's rally, fueled by Morgan Stanley's re-rating, highlights the sector's duality: a race for innovation amid structural challenges. While the firm's upgraded targets signal confidence in Xpeng's execution, investors must weigh this against macroeconomic headwinds and geopolitical risks. For the EV sector, the coming years will test whether companies like Xpeng can leverage their technological prowess to overcome trade barriers and supply chain fragility. As Morgan Stanley notes, the path to 2030—when BEV penetration is projected to reach 32%—will require not just innovation, but strategic alliances and policy agility Electric vehicles outlook for 2025 as per Morgan Stanley^[2].