XPeng already began spreading costs through scale in Q2. After revenue recovered, R&D expenses were essentially unchanged, and the increase in sales and administrative expenses was lower than revenue growth, so the expanded gross profit translated into a narrower operating loss.But the company is carrying a higher level of R&D and sales/admin spending than last year, and this recovery is not yet enough for XPeng to achieve operating profitability.

RMB 4.083 billion in gross profit must cover how much spending

In Q2 2026, XPeng's revenue was RMB 19.744 billion. After deducting the cost of sales for vehicle and service businesses, RMB 4.083 billion in gross profit remained. Of this, vehicle sales contributed RMB 2.059 billion and services and others contributed RMB 2.025 billion. The latter includes technical R&D services, parts, and other businesses, and together with vehicle sales now covers the company's operating expenses.

Excerpt from XPeng Q2 2026 financial report, amounts in RMB billion.

After gross profit is retained, it must cover company-wide R&D, sales, and administrative expenses. R&D expenses for the quarter were RMB 2.914 billion, and selling and general administrative expenses were RMB 2.496 billion (hereinafter "sales/admin expenses"). The two totaled RMB 5.411 billion per the financial report, exceeding gross profit by RMB 1.327 billion. Including other operating income and related fair value gains of about RMB 185 million, the operating loss was RMB 1.143 billion.

As of the end of June, XPeng had 8,735 R&D personnel. R&D expenses listed in the interim report include personnel compensation, design and development, and materials, and are expensed as incurred. New models and AI technology development were the main reasons for the year-over-year increase in this expense. Models under development have not yet been sold, but the related R&D spending has already entered the current income statement. Gross profit earned by existing vehicle and service businesses must also cover these investments in future products.

Sales and administrative expenses also include channel, marketing, personnel, and leasing costs. They change at a different pace from R&D: R&D depends on the development work the company is advancing, while sales/admin expenses such as franchise store commissions, marketing, and advertising are closely tied to sales activity. How these two expenses change as revenue recovers directly affects how much of the incremental gross profit is retained.

After revenue recovered, R&D did not scale up proportionally

From Q1 to Q2, XPeng's revenue grew 51.5%, while R&D expenses rose only 0.3%, remaining at about RMB 2.9 billion. R&D expenses as a share of revenue fell from 22.3% to 14.8%. The spending scale did not shrink; the company covered this expense with larger revenue.

Consolidated gross margin rose from 20.6% to 20.7%, an increase of only 0.1 percentage point, but total gross profit grew 52.2%. Revenue scale expansion brought most of the incremental gross profit. R&D expenses were basically stable during the same period, so more of this gross profit remained in operating results, and revenue growth began to change the loss level under high R&D spending.

Sales/admin expenses, by contrast, increased noticeably as sales recovered. In Q1, this expense fell sequentially to RMB 1.883 billion, mainly due to lower franchise store commissions; in Q2 it rebounded to RMB 2.496 billion, mainly from increases in franchise store commissions, marketing, and advertising. The additional RMB 613 million spent in the quarter was equivalent to 44% of incremental gross profit. The additional spending needed for sales recovery has already been reflected in the income statement.

However, sales/admin expenses grew 32.5%, still below the 51.5% revenue increase. Their share of total revenue fell from 14.5% to 12.6%. Total expenses increased, but the expense borne per unit of revenue decreased.XPeng this quarter both absorbed the additional spending from sales recovery and benefited from cost spreading as the business expanded.

Calculated from XPeng quarterly financial reports: R&D and sales/admin expenses as a share of revenue, quarterly basis.

The revenue spreading these costs includes both vehicle sales and services and other businesses. In Q2, technical R&D services completed some key milestones, increasing related revenue, and parts and accessories sales revenue also grew. The two businesses together expanded the company's revenue and gross profit; the decline in expense ratio reflects their joint support for the company's overall spending.

Gross profit increased by RMB 1.401 billion quarter over quarter, R&D and sales/admin expenses together increased by RMB 620 million, and after deducting the impact of about RMB 48 million lower other operating income, the operating loss ultimately narrowed by RMB 732 million. The additional expenses consumed part of the growth gains, and the remainder actually reduced the quarterly loss.

Business recovered, so why hasn't profitability caught up

Q1 revenue was at a low level, so the Q2 recovery showed a large increase. Compared with the same period last year, revenue grew only 8.0%, while R&D and sales/admin expenses increased by RMB 1.038 billion, exceeding the RMB 916 million increase in gross profit. The two comparisons have different starting points: sequentially, revenue recovered quickly; year over year, expenses increased more.

Among these, R&D expenses rose from RMB 2.206 billion in Q2 last year to RMB 2.914 billion, an increase of RMB 708 million, accounting for most of the increase in the two expense items; sales/admin expenses increased by another RMB 329 million. New models and AI development raised R&D investment, while marketing and advertising pushed up sales/admin expenses. The additional spending added over the past year