XPeng’s Robot Business Is Booming But Its Car Business Isn’t

Chinese automaker XPeng made the news on August 24 by setting a new record: the company’s robotics division secured an estimated $900 million private financing round, giving the unit’s valuation a boost to above $6.3 billion. Now, it’s officially the largest single private raise in China’s embodied AI industry, dethroning Shanghai-based TARS Robotics, which had previously held the record since April with a $455 million deal.

On the surface, this is great news. Digging a little deeper into the same earnings press release, however, gives a completely different perspective on the story, which the majority of media coverage of this XPeng robotics funding is missing.(Yahoo Finance)

What’s Behind the XPeng Robotics Funding Round

The funding round was led by IDG Capital and backed by Chinese giants Tencent and Alibaba, indicating that the world’s biggest tech companies see the potential in XPeng’s robotics business, they think that humanoids will be the next big platform transition in the way that smart EVs did a decade ago.

Funds will go towards developing robotics hardware and software, training XPeng’s physical AI models, collecting quality data, and setting up production lines. XPeng intends to launch production of its humanoid robot named IRON by the end of 2026, with initial units being delivered to XPeng retail locations and industrial campuses. Sales to external clients in China and internationally  are planned to commence in 2027.

Back in June, CEO He Xiaopeng said that he would take personal control of the robotics unit  yet another indication of the strategic importance of the unit to the overall corporate strategy of XPeng. XPeng is not the only automaker investing in robotics. Many global automakers are moving in this direction due to overlap between the technological stack of these two areas sensors, batteries, AI software, and industrial-scale manufacturing.

The Number Nobody Is Discussing Right Now

The reason why the details of this XPeng robotics funding announcement are being downplayed by media is that, according to the same earnings press release, the core car business of the company is not doing so well at the moment. The company reported a loss of RMB 1.29 per share in Q2, exceeding analyst expectations and the loss of RMB 0.29 per share expected on the Street. Revenue came in at RMB 19.74 billion, up 8% year-over-year but still missing analysts’ estimates of RMB 20.57 billion.

While vehicle deliveries were quite stable at 103,295 units and vehicle sales revenue showed year-over-year and quarter-over-quarter growth, margins indicate otherwise, the vehicle margin narrowed from 14.3% to 12.1% compared to the year prior, implying that XPeng continues losing money in the current price war in the Chinese EV market. The company’s shares declined in pre-market U.S. trading following the earnings release.

Why Timing of XPeng Robotics Funding Announcements Matters

It’s the angle worth focusing on here, XPeng chose to announce the record-breaking robotics funding on the same day when it published disappointing earnings results for the second quarter of 2023. It’s no surprise that the company chose such timing deliberately, the record-breaking robotics valuation funded by Tencent and Alibaba made for a much more attractive headline than “losses grow amid price war.” It paid off, and most media outlets covered the story about robots, ignoring the numbers.

This, however, doesn’t mean that the achievement in the robotics industry by the company is not impressive. The valuation of $6.3 billion of a unit that does not produce any commercial products yet is a significant endorsement from some of the best capital allocators in China. Yet, it means that XPeng currently runs two fundamentally different businesses under the same umbrella. One that requires significant investments and doesn’t generate any revenue, and another one that generates losses amid price competition.

The bigger context: China’s embodied AI race

The XPeng robotics raise comes at the time when the country is pursuing the commercialization of humanoid robots. Events such as World Humanoid Robot Games in Beijing have transformed fine motor skill tasks (using tools, screws, handling delicate objects, etc.) into a public demonstration of how close the robots are to industrial application. Automakers consider themselves natural leaders in this race, claiming that the technology stack used in autonomous driving sensors, batteries, AI software  is directly applicable to humanoid robots.

Should XPeng successfully bring its IRON robot to the market by 2026 and deliver it commercially by 2027, the company will become one of the pioneers in bringing humanoid robots to the market among automakers, surpassing several other competing units that are still working on prototypes.

TheTweaks Verdict

The headline figure $900 million, $6.3 billion valuation is truly impressive and definitely deserves all the media attention it’s getting. However, it doesn’t reflect what’s currently happening at XPeng. In simple terms, this is a company that uses its futuristic robotics story to soften the blow of an actual earnings miss in its core business. Readers and investors looking for the latest news in the robotics area are getting only half of the story.

The value of the robotics division reflects XPeng’s bets on 2027 and beyond. The widening losses of the EV division are a 2026 problem, and price competition in China is unlikely to solve it by itself. Both things are true simultaneously. XPeng is developing an interesting robotics platform while struggling in its bread-and-butter car business. The question is whether IDG Capital, Tencent, and Alibaba’s confidence in XPeng’s robotics unit is enough to overcome difficulties of the EV cycle in the next couple of quarters.