China’s push to build an electric SUV that could beat Tesla’s Model Y on both price and technology puts Xpeng at the center of a fresh wave of competition, especially in Europe. With the new L03 SUV priced below the Model Y, European manufacturing expansion on the table, and autonomous driving software planned for 2027, the ripple effects stretch well beyond one company. This article looks at three stocks exposed to these catalysts, with two that could benefit and one that may face pressure, so you can judge which stories might fit or clash with your current portfolio.

Mercedes-Benz Group (XTRA:MBG)

Overview: Mercedes-Benz Group is a global premium automaker that designs, manufactures, and sells cars and vans under brands such as Mercedes-Benz, Mercedes-AMG, Mercedes-Maybach, and G-Class, while also offering financing, leasing, insurance, and digital services linked to its vehicles and charging network.

Operations: The company generates most of its revenue from Mercedes-Benz Cars at about €95.1b, with additional contributions from Mercedes-Benz Financial Services at about €24.3b and Mercedes-Benz Vans at about €17.2b.

Market Cap: €42.1b

Mercedes-Benz Group might look tempting for value focused investors, with a low P/E against peers and analysts expecting earnings growth. However, the picture behind that low multiple is more complicated. China, a key premium market, is seeing a deep sales slump, while Xpeng’s push into Europe with cheaper, tech heavy EVs threatens pricing and share in Mercedes’ core segments. Management is leaning on AI driven cost cuts, plant reallocation, and a heavy new model pipeline. Yet margins are already under pressure, one off losses have distorted recent results, and electrification investments remain expensive. Anyone considering the stock needs to weigh whether the brand and efficiency plan can offset rising EV competition and a tougher funding profile, or whether today’s valuation is signaling prolonged strain.

Mercedes-Benz Group’s low P/E might be masking the real cost of EV price wars, China weakness, and heavy software spending. It is therefore worth reading the 3 key rewards and 4 important warning signs (1 is major!)

XPeng (XPEV)

Overview: XPeng is a Chinese smart EV company that designs and sells software heavy electric cars and SUVs, pairing its own operating system, powertrain and vehicle platforms with services such as supercharging, maintenance, and financing to support customers in China and overseas markets.

Operations: XPeng generates all of its CN¥73.9b in revenue from auto manufacturing in China.

Market Cap: US$12.9b

XPeng sits at the center of China’s push to challenge Tesla, with the L03 SUV priced below the Model Y, plans for European manufacturing, and a Volkswagen partnership that takes its tech into other brands as well. In addition, XPeng is betting heavily on AI with its VLA autonomous driving stack, robotaxi program, and humanoid robot plans, all backed by in house chips and software. The trade off is clear: the company is still loss making, competing in a crowded Chinese EV market, and funding capital intensive projects that could require more cash. For investors who want EV exposure tied closely to AI and automation, XPeng is one of the more focused pure plays, but it comes with execution and profitability risks.

XPeng’s AI heavy EV story is accelerating, but most investors only see the headlines about losses and competition. Before you decide where it fits in your portfolio, scan the analysis report for XPeng.

Volkswagen (XTRA:VOW3)

Overview: Volkswagen is a global automaker that produces passenger cars, light commercial vehicles, trucks, buses, motorcycles, and related mobility services under brands ranging from Volkswagen, Škoda and Audi to Porsche, Lamborghini and Scania, alongside financing, leasing, insurance and fleet management offerings.

Operations: Volkswagen generates most of its revenue from Passenger Cars and Light Commercial Vehicles at about €242.6b, with additional contributions from Commercial Vehicles at about €42.0b and Financial Services at about €63.2b, partly offset by a segment adjustment of about €34.3b.

Market Cap: €37.2b

Volkswagen sits at the crossroads of several big shifts in autos, combining a low P/E and high dividend yield with a major cost overhaul, a broad electric rollout and deeper ties to partners like Xpeng and Rivian for software and EV platforms. The company is pushing around 30 electrified models into China by 2027 and expanding budget EVs in Europe, while also cutting models, reviewing plants and targeting efficiency gains to address thin 1.9% margins, underperforming brands and funding pressure from heavy investment. For investors, the mix of aggressive restructuring, AI and autonomous driving projects, and China focused partnerships creates a story where execution risks and job cut headlines sit alongside the potential for a leaner, more software centric Volkswagen.

Volkswagen’s low P/E and aggressive overhaul could be masking a very different future for earnings and capital returns. The real twist may sit in the 3 key rewards and 4 important warning signs (1 is major!)

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.