XPeng Inc. (XPeng (XPEV)) shares barely budged in premarket trading Thursday after the company reported first-quarter results that highlighted a familiar tension: improving margins on paper, but rising costs underneath.

The Chinese EV maker posted quarterly revenue of 13.03 billion Chinese yuan ($1.89 billion), down 17.6% from a year ago and well below the $3.13 billion analysts had expected. Revenue also dropped 41.4% from the previous quarter. Deliveries fell to 62,682 vehicles, a 33.3% decline from the same period last year.

But here's where it gets interesting. Gross margin actually improved to 20.6% from 15.6% a year earlier, and vehicle margin rose to 12.1% from 10.5%. That sounds like good news, and it is—partly. The improvement came from cost reductions and a better product mix. But XPeng warned that quarter-over-quarter margin pressure was driven by higher unit vehicle costs, specifically from rising memory chip and battery-related expenses.

So the margin story is a mixed bag: year-over-year progress, but near-term headwinds from components that every EV maker needs. Memory chips and batteries aren't getting cheaper, and that's squeezing XPeng's profitability.

The operating loss widened to 1.87 billion yuan ($271.7 million) from 1.04 billion yuan a year earlier. Adjusted loss per ADS was 1.76 yuan (26 cents), wider than the analyst consensus estimate of a 1.12 yuan loss. Cash position stood at $6.10 billion as of March 31, 2026—a decent cushion for a company investing heavily in new models and AI.

As of March 31, XPeng's physical sales network included 733 stores across 256 cities, and its self-operated charging network expanded to 3,455 stations, including 2,398 ultra-fast charging stations.

Chairman and CEO Xiaopeng He said the successful launch of the GX model positioned the company for stronger sales growth as it prepares to introduce four new models this year. He emphasized that the company is prioritizing the mass production of robotaxis and humanoid robots, building a global ecosystem aimed at turning physical AI technologies into new revenue and profit drivers.

Vice Chairman and Co-President Hongdi Brian Gu noted that XPeng delivered a gross margin above 20% in the first quarter despite seasonal industry weakness, supported by in-house technology innovation and growing international revenue. Gu added that the company plans to accelerate commercialization and broader adoption of physical AI applications as part of its long-term strategy.

Looking ahead, XPeng expects second-quarter 2026 vehicle deliveries between 100,000 and 106,000 units, which represents a year-over-year change ranging from a decline of 3.08% to growth of 2.73%. The company projected second-quarter revenue between 19.6 billion yuan and 20.8 billion yuan, implying year-over-year growth of 7.25% to 13.82%. That forecast came in below the analyst consensus estimate of 21.1 billion yuan.

XPeng shares were up 0.30% at $16.50 during premarket trading on Thursday.