XPeng Inc.

Hello, ladies and gentlemen. Thank you for standing by for the fourth quarter and fiscal year 2020 earnings conference call for Xpeng Inc. At this time, all participants are in listen-only mode. After the management's remarks, there will be a question-and-answer session. Today's conference call is being recorded. I will now turn the call over to your host, Mr. Charles Chung, Managing Director of Strategy of the company. Please go ahead, Mr. Chung.

Thank you. Hello, everyone, and welcome to the fourth quarter and the physical year 2020 earnings conference call of Xpeng Inc. The company's financial and operating results were issued via newswire services early today and are available online. You can also view the earnings press release by visiting the RR section of our website at rr.xpeng.com. Participants on today's call will include our co-founder, chairman, and CEO, Mr. Xiaofeng He. Vice Chairman and President Dr. Brian Gu, Vice President of Finance Mr. Dennis Liu, and myself. Management will begin with prepared remarks and the call will conclude with the Q&A session. As a reminder, this conference is being recorded. A webcast replay of this conference call will be available on the RR section of our website. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provision of the U.S. Private Securities Mitigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the relevant public filings of the company as far away as the U.S. SEC. The company does not assume any obligations to update any forward-looking statements except as required under the applicable law. Please also note that XPON's earnings press release and this conference call include disclosure of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. XPON's earnings press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. I will now turn the call over to our co-founder, chairman, and CEO, Mr. Xiaofeng Ge. Please go ahead.

Hello, everyone. Thank you for attending Xiaofeng Ge's fourth quarter of 2020 and the annual sales conference.

Hello, everyone. Thank you for joining XBank's fourth quarter and Cisco Year 2020 earnings conference call today.

In the fourth quarter of 2020, we refreshed our quarter's sales record again. The total delivery volume reached 12,964 units, with the same growth rate of 303% and 51% in return. In 2020, the total delivery volume reached 27,041 units, with the same growth rate of 112%. In the fourth quarter of 2020, we achieved another quarter of record-high vehicle delivery, which reached 12,964 units, up 303% year-over-year and 51% quarter-over-quarter.

Vehicle deliveries for the full year of 2020 increased by 112% year-over-year to 27,041 units. Driven by strong delivery growth, we increased our revenue in 2020 by 151.8% to 5.8 billion RMB. More excitingly, we achieved a positive full-year growth margin for the first time in the company's history, marking a significant milestone.

I think 2020 is the first year of the development of China's smart electric vehicles. This year, Xiaofeng has been insisting on the all-time smart self-development technology route since its founding in 2006. It provides our customers with clearly differentiated smart electric vehicle products. And I am very happy that this has led to the technological innovation of China's smart electric vehicles.

I believe that 2020 signified the beginning of a new era in China's Smart EV development. During the year, our consistent execution of the past six years of full-stack in-house R&D strategy bolstered our ability to provide customers with differentiated Smart EV products and lead the technology innovation of Smart EVs in China.

Let me summarize the development of our technology innovation in the smart electric vehicle.

Next, I would like to go through our recent advancements in smart EV technology innovation.

In October 2020, we upgraded our second generation smart car system through OTA. It includes the first full-screen voice system of our Zhiyuan industry. It can support our customers' natural and continuous car-to-car voice interaction in multiple scenes in the car. In October 2020, we released our second-generation smart in-car operating system through OTA, which features the first-of-its-kind all-voice in-car system.

This is one of our key proprietary technologies that allow our customers to interact with our vehicles in natural language and continuous dialogues. In January and February 2021, the average daily utilization rate for our AI voice assistant exceeded 90%. This illustrates the disruptive changes our self-developed smart in-car operating system is bringing to traditional in-car interactions.

On January 26, 2021, Xiaopeng launched the first OTA version of X-Panel 3.0, which is the NGP automatic navigation assist system. By the end of February, NGP has been activated on about 20% of the sold P7. From OTA to the end of February, NGP has helped our users to drive 1.3 million kilometers. Through the user's actual driving data and our data, we can continue to train and quickly treat and optimize our algorithm to provide our users with a self-sustaining driving system that can drive long distances in China. In the middle of the already activated NGP P7, We see some very new data. For example, in February, the process penetration rate, that is, the current NGP use process, divided by the NGP usable process, is more than 50%. This is a very exciting data. We believe that with the continuous improvement of the automatic service value, we are confident that in the near future, the automatic value, or even the accurate unmanned value, will be the core point of the user's purchase decision. In order to allow more users to experience this kind of floating price, we will start in March, which is this month, to do a long-term event for Guangzhou to Beijing's full-scale high-end NGP floating price.

On January 26, 2021, we have released the first OTA of XPILOT 3.0, our full-stack in-house developed autonomous driving system, which includes our navigation-assisted highway autonomous driving solution for navigation-guided pilots, NGP. NGP has been activated in approximately 20% of all P7s delivered as of the end of February. It has assisted our customers in driving for more than 1.3 million kilometers. Leveraging field data from our customers and our closed-loop data capability, we can continuously train our algorithms and implement fast iterations, providing our customers with an evolving autonomous driving system that is capable of handling complex road conditions in China. In February, the NGP-assisted mileage penetration rate, which refers to the mileage assisted by the NGP as a percentage of the drivable mileage of NGP, exceeded 50% amongst those P7s that activated the NGP. This is a very exciting figure. With the continuous advancement in our autonomous driving capabilities, we're confident that autonomous driving features will be a key consideration of our customers' purchasing decisions. later this month will also kick off the NGP expedition from Guangzhou to Beijing to showcase the disruptive experiences our cutting-edge autonomous driving system can offer to the customers.

The first upgraded version of X-Panel 3.0. We are also planning to release more new versions of X-Panel 3.0 this year, including memory broadcasts and various other capabilities such as functions, performance, safety, etc.

In addition to that, we're also planning to release multiple OTA updates of XPilot 3.0 in 2021, including memory parking and a further improved version of the NPG to enhance our vehicles in terms of safety, functionality and performance.

Taiwan Taiwan Taiwan Taiwan Based on our vision-based, laser radar-based sensing capabilities, we will launch X-Panel 3.5, which has the full capacity of the main road NGP of the city. At the same time, we also plan to launch the fourth car of Xiaopeng in 2022, equipped with the next generation, which is the X-Panel 4.0, automatic auxiliary driving hardware, software, and data platform. We are very confident that the X-Panel 4.0 will bring a new, high-level automatic driving experience.

We'll deploy automotive-grade LiDAR technology on our third Smart EV model, which we plan to deliver in the second half of this year. We believe our third model will be the first mass-produced Smart EV equipped with LiDAR in the world. Leveraging our visual-based perception capability, complemented by LiDAR, we plan to roll out XPilot 3.5, which will support NGP on major urban roads. We also plan to introduce XPilot 4.0, built on our next-generation autonomous driving hardware and software platform, to be deployed on our fourth model, which will be launched in 2022. We are confident that XPilot 4.0 will provide our customers with a new level of autonomous driving experiences.

We will continue to quickly update and update our X-Panel and our smart operating system, X-Mart OS. At the same time, we will actively deploy and invest in multi-layered technologies in smart electric vehicles to strengthen our long-term technology leading advantage.

Each aforementioned technological advancement underpins our mission to drive Smart EV transformation with data and technology, shaping the mobility experience of the future. Looking forward, as we upgrade our XPilot and XSmart in-car operating system, we're committed to investing in Smart EV technologies and leading technology innovation.

As we solidify our core strength in technology, we'll strive to diversify our product portfolio to address additional customer needs and expand our market share. Later in March this year, we expect to start to deliver the P7 Wing Edition that was unveiled in November at the Guangzhou Auto Show 2020.

This edition features sporty wing doors. It is also equipped with the XPILOT 3.0 system as the standard configuration. It provides an exclusive and exhilarating mobility experience to auto enthusiasts.

On March 3, we launched the G3 and P7 zero-solar lithium-ion batteries, and we plan to start delivery in April and May of this year. I believe this will expand the target customer group of these two models.

On March 3, we announced lithium-ion phosphate or LFP battery-powered G3 SUVs and P7 sedans. And we plan to start deliveries in April and May respectively this year. We expect these two models to resonate across a broader customer base.

We will announce the third mass production model and start sales in the second quarter. As I said, this model is also the world's first mass-produced car with a radar. It will support X-Panel 3.5. At the same time, we will support a new and innovative third generation of autonomous vehicles, which will make the relationship between cars and life more intimate. We expect this model to be delivered in the fourth quarter of this year.

In the second quarter of 2021, we'll unveil and begin selling our third mass-produced vehicle model. This brand new design will be the first mass-produced smart EV equipped with LiDAR and will support our XPILOT 3.5. Also, it will feature an innovative third-generation smart cockpit, connecting the vehicle to our everyday life in an even closer way. Mass delivery of this new model will start in the fourth quarter of this year.

Furthermore, we plan to begin delivering the mid-cycle facelift version of the Q3s in the late third quarter of 2021. At the end of December 2020, there were 160 small and medium-sized stores in China, and 54 service stores in China, covering 69 cities. Of these 160 stores, 72 were self-serve stores. In the past year, we have greatly improved the efficiency of the stores, especially the efficiency of self-serve stores. In terms of sales and service network, as of December 31, 2020, Xpeng's physical sales and service network consisted of 160 sales stores and 54 service centers across 69 cities in China.

Of the 160 stores, 72 were direct stores operated by us. During 2020, we greatly increased the efficiency of our stores, especially direct stores. By the end of 2021, we plan to increase the number of sales stores to approximately 300, covering 110 cities.

In terms of the network layout of charging facilities, we are also accelerating expansion. By the end of December 2020, Xiaopeng's supercharging station has operated 159 cities, covering 54 cities. In order to further improve the charging experience of users, we plan to increase the number of to improve the operation network of Xiaopeng's car brand and reach more than 500 operation stations at the end of the year. We have started to implement the operation free charging plan in 2020. Currently, it has been launched in more than 100 cities. In 2021, more than 200 cities will provide free charging service for Xiaopeng, and expand the charging experience of Xiaopeng's car group in high-speed, airport, shopping malls, etc. In terms of our supercharging network, we also accelerated our efforts to expand our coverage across the nation. As of December 31st, the number of X-ray-branded supercharging stations was 159, covering 54 cities.

To further improve our customers' charging experience, we plan to significantly expand the number of XPeng-branded supercharging stations in our network to more than 500 by the end of 2021. Since we initiated the free charging program last year, the number of cities in this program has grown to 100 as of the end of December. In 2021, we'll strive to expand our free charging service network to 200 cities and provide greater accessibility in a broader range of locations, including highways and airports. At the same time, we plan to substantially increase the number of X-Men branded supercharging stations and charging piles in selected popular destinations to facilitate more convenient and efficient charging services for our customers.

In the fourth quarter, we also made positive progress in overseas markets.

In December, we fully delivered the first batch of the European version G3s in Norway. In 2021, we'll continue to strengthen our capabilities of international operations in areas such as organization, product development, R&D, branding, and distribution channels.

So with the rapid increase in delivery size, we are also constantly improving our production capacity in Zhaoqing's production factories to reach 10,000 units per month per year to lay the foundation. At the same time, our Guangzhou production base has already begun construction. So it is expected to be able to start production in the third quarter of 2022. Our Guangzhou production base and Zhaoqing production base will provide a good solid foundation for Xiaopeng's daily growth market demand.

With the rapid growth in vehicle deliveries, we have been ramping up our capacity at the Jiaoqing factory to prepare for a monthly production capacity of 10,000 units within this year. Meanwhile, we have started construction of our Guangzhou manufacturing base and expect to commence production in the third quarter of 2022. Our Guangzhou and Jiaoqing smart EV manufacturing base will shore up our production capacity and allow us to further capitalize on the rising demand in the EV market.

In 2021, Xiaopeng will continue to provide our customers with more self-sufficient and decentralized products through fast software and hardware delivery and technological innovation. At the same time, we will invest in our brand, sales, service network, charging network, to develop a new smart system, a 3D system, to strengthen the production and supply chain capabilities, and to develop new production lines in international business as well as in the field of flying vehicles, in order to support our growth at a higher speed in the coming years.

Looking into 2021, we'll remain dedicated to delivering smarter and more differentiated products to our customers in our relentless drive to implement fast software and hardware iteration and technology innovation. We'll also strategically make long-term investments in branding, sales and service network, charging network, brand new smartification system, power chain technologies, production and supply chain capabilities, international operations, and the R&D efforts into innovative product pipelines such as our flying vehicle to support our growth over the next few years. Lastly, on guidance, for the first quarter of 2021, we expect our Smart EV deliveries to be approximately 12,500 units and our total revenue to be approximately 2.6 billion RMB. thank you everyone with that i'll now turn the call over to our vp of finance mr dennis lu to discuss our financial performance for the fourth quarter of 2020. thank you and hello everyone

We are very pleased to have achieved solid results in our first quarter and throughout fiscal year 2020, which demonstrates our ability to effectively cater the rapidly growing market event for a compelling smart mobility experience. Our top line in our first quarter and for the full year expanded year over year with robust vehicle delivery performance. In particular, We increased growth margins sequentially in the first quarter and passed the first positive four-year growth margin. Additionally, we had a strong cash position to ensure a solid financial foundation to scale our business strategies and to enhance our competitive advantages. Now I would like to walk you through our detailed financial results for the first quarter of 2020. Total revenues were RMB 2.9 billion for the first quarter, representing an increase of 345% from RMB 640 million for the same period of 2019, and an increase of 43% from RMB 2 billion for the third quarter of 2020. Revenues from vehicle sales were RMB 2.7 billion for the first quarter, up 376% from RMB 575 million for the same period of 2019, and an increase of 44% from RMB 1.9 billion for the third quarter of 2020. The year-over-year increase was mainly due to mass delivery of the P7. The quarter-over-quarter increase was primarily due to accelerated vehicle deliveries for both P7 and G3 in the fourth quarter of 2020. Growth margin was 7.4% for the first quarter compared with a negative 6.6% for the same period of 2019 and 4.6% for the third quarter of 2020. Vehicle margin was 6.8% for the fourth quarter compared with a negative 8.5% for the same period a year ago and 3.2% for the third quarter of 2020. The improvement was primarily due to better product mix, decrease material cost, and increase manufacturing efficiencies. Research and development expenses were RMB $460 million for the third quarter, down 29% from RMB $662 million for the same period in 2019. and down 28% from RMB 635 million for the third quarter of 2020. The year-over-year decrease was mainly due to higher expenses relating to the development of the P7 a year ago. The quarter-over-quarter decrease was mainly due to the reduced share-based compensation expenses in the first quarter compared with one of larger amounts recognized in the third quarter. Selling general and administrative expenses were RMB 918 million for the first quarter, representing an increase of 133% from RMB 395 million for the same period a year ago, and a decrease of 24% from RMB 1.2 billion for the third quarter of 2020. The year-over-year increase was mainly due to, number one, higher marketing, promotional, and advertising expense to support vehicle sales. Number two, the expansion of our sales network and associated personnel cost. This expands our physical sales and service center and also the commission for the franchise stores. The quarter-over-quarter decrease was mainly due to the reduced amount of share-based compensation expense. compared with one of the larger amount recognized in the previous quarter. offset partially by increase in marketing, promotional, and advertising expense, as well as personnel cost, lease expense, and commission, as mentioned above. Excluding the share-based compensation expenses, the year-over-year and quarter-over-quarter increase was mainly resulted from higher marketing, promotional, and advertising to support new vehicle sales, and also the expansion of our sales network and associated personnel cost. and also the increased commission paid to our franchise dealers. Lost fund operation was RMB $1.1 billion for the first quarter compared with RMB $1.1 billion for the same period of 2019 and RMB $1.7 billion for the same quarter of 2020. Excluding the share-based compensation, the non-GAAP lost fund operation was RMB $1 billion in the first quarter compared with RMB $1.1 billion for the same period of 2019 and also RMB $823 million for the third quarter of 2020. Net loss was RMB $787 million for the fourth quarter compared with RMB $1 billion for the same period a year ago and RMB $1.1 billion for the third quarter of 2020. Excluding share-based compensation expenses, The fair value change on derivative liabilities related to the redemption drive of the approved shares. The non-GAAP-adjusted name loss was RMB $713 million for the fourth quarter of 2020, compared with RMB $1.1 billion for the same period of 2019, and also RMB $865 million for the third quarter of 2020. Net loss attributable to ordinary shareholders of Shoken was RMB 787 million for the first quarter compared with RMB 1.3 billion for the same period a year ago and also RMB 2 billion for the third quarter of 2020. Excluding the share-based compensation expense, the fair value change on derivative liabilities related to the redemption right of people's shares and also the accretion of people's share to redemption value. The non-GAAP net loss attributable to ordinary shareholders of SharePoint was RMB 713 million for the first quarter of 2020, compared with RMB 1.1 billion loss for the same period, 2019, and RMB 865 million for the third quarter of 2020. Basic and diluted net loss per ADS were both RMB 1.05 yen for the first quarter of 2020. Non-GAAP basic and diluted net loss per ADS were both 0.95 for the fourth quarter of 2020. Each ADS represents two classic ordinary shares. It is worthwhile to note that the calculation of earnings per share per the ADS is based on the weighty average number of the ADS. For example, 747 million ADS were used for the first quarter of 2020, while 377 million Million ADS has been used for the fiscal year 2020, and all year-end ADS count was 789 million at the end of the year. Turning back to the balance sheet, at the end of 2020, our company has the cash and cash equivalent, restricted cash, short-term deposits, and also the short-term investment in total of RMB 35.3 billion. compared with $2.8 billion as of December 31, 2019. To be mindful of the length of our earnings call for other full-year financial results, I will encourage listeners to refer to our earnings press release for further details. This concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead.

Thank you. At this time, I would like to remind everyone, in order to ask a question, press the number 1 on your telephone keypad. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. For the sake of clarity and order, please ask one question at a time. Management will respond, and then feel free to follow up with your next question. Your first question comes from Tim Shao. of Morgan Stanley. Your line is open.

Hello, everyone. This is Tim from Morgan Stanley. Congratulations on the strong results, and thanks for taking my questions. So my question is about the guidance, because based on the latest guidance, we are looking for about 5% sequential price erosion in first quarter. So could you please elaborate more about underlying factors Especially, I think, previously the management mentioned some of ex-pilot 3.0 revenue would be recognized in first quarter. So isn't that ASP accredited? Why are we still expecting ASP to be down quarter to quarter? Thanks. Thanks.

Hello everyone, I am from Melbourne. First of all, congratulations on our excellent performance in the past year and the past quarter. Thank you for letting me ask a question. The first question I would like to ask is about our future guidance. You just mentioned that the ASP of the first quarter of our future will be down by 5%. I would like to understand the reason behind this. Especially when we mentioned that the future of XPilot 3.5 Okay, thank you for your question. I think in quarter four, we delivered close to 13,000 units.

uh in the first quarter because of the seasonality issue the fabric was which was very slow uh typically the lowest amounts in a year so our guy night for the moment is twelve thousand five hundred units so you can see that's uh 500 units uh like violent and mixed impact And, yeah, you are right. We have included the X-Tide 3.0 for those vehicles, those customers who have activated the functionality. We have included that in our first quarter, mainly in the January and part in February. But due to the violent and mixed impact we are foreseeing, there was some minor impact on the overall revenue compared with the quarter for last year.

okay thanks um my second question is about um uh more like the the impact from the components supply timers uh so uh we have uh we are going to launch the lp version p7 in second quarter so just want to know that um with the increasing battery variety how to use the battery bottleneck in second quarter or the other way around in the meantime appears the another traditional yen highlighted impact run hiccup cost by component time is. So what's our assessment of the potential impact to Hexpen to the company's second quarter shipments? Thank you.

我的第一個問題是關於我們未來的一個包括PC在未來的一個新的第二個季度的一個交付的問題 因為我們在未來也提到說我們將會推出新的一個電池的使用 我想知道這兩種電池的一個使用對我們的未來的一個交付會有什麼樣的影響 特別是在未來第二個季度會不會造成有一些面臨一些供應電池供應方面的一個瓶頸問題呢

Yes, I believe in the last six months, batteries have been a focus of public opinion. With the appearance of the new P7 model and the G3 model, I believe that in the second quarter, the battery problem will bring new challenges. The lithium-ion battery is a new battery, and we are closely cooperating with our supplier. 我相信二季度对小棚的脾气来看, 临沿田里建制可能是一个爬坡的一个过程, 但是我相信在今年的三四季度会有一个明显的上涨。 同时我们从我们之前在G3上面, 在推出低于500的续航的这样一个里程的经验来看, 我们是对于临沿田里逐步能够比较快速能够上量, 我们是拥有很强的信心的。

Yes, indeed. I think for the coming six months, battery supply will remain very important for all the EMs out there. And for our new models of P7s and GCs, for their Q2 deliveries, I think that would be very challenging in terms of battery supplies because we are adopting this new LCF battery system. And we're working very closely with our battery suppliers to solve this challenge. I believe in the long run, we will be facing ramp-up in terms of our battery supply. And by 2023 and 2024, in the coming year, we'll be able to solve the supply issue. And with our past experience of successful delivery of the 500 kilometers version, the range version of G3, we are very confident that we can solve this kind of challenge of adopting LSP as a new battery for our vehicles in the coming year.

Tim, this is Brian. Let me just add to what Xiaofeng just said on this LFP battery version of our products. We're seeing actually very healthy and very strong demand for that product. As we see actually, since we just recently launched, we already see up to like 20% of our P7 actually have the LFP version battery orders, which is actually very interesting and very exciting. The supply issue, I think, as Xiaofeng mentioned, I think we actually expect this to gradually sort of resolve as we actually head towards the second half of the second quarter. And I think this volume will be picking up as we see. So for the second quarter, actually, we are very confident that we can see actually quite healthy growth over the first quarter overall for the deliveries.

Got it. Thank you very much, Mr. Ho, Brian, and Dennis.

Thanks for the answers.

Your next question comes from Edison Yu of Deutsche Bank. Your line is open.

Hi, thanks for taking the questions. First, kind of more near term, I know you just said 2Q should see sequential growth. Can you give us kind of an idea of not only 2Q, but in the second half as well? I'm obviously not trying to pin you down to a number, but just assuming demand is there, what kind of monthly sales run rate could we see? And is there any sort of limitations due to the semiconductor shortage?

So Edison, this is Brian again. We obviously don't want to give out long-range guidances for company policy, but what we can see Xiaofeng described in the opening remarks that we actually have new product introductions every quarter for the next three quarters. So we actually see growth picking up on a sequential basis. fairly healthy. And in terms of supply constraints, right now we have visibility for about two to three months of semiconductor supply, which I think on a long-range basis we are monitoring very closely as to whether that will impact our supply chain overall. So far, in the foreseeable period, we don't see any impact. But that's something we're actually paying a lot of focus on. At the same time, I think we, given our volume, is relatively small compared to some larger OEMs that are facing much bigger crisis. I think we are more nimble to address this issue. But this is definitely something we'll be monitoring very closely.

Great. The second question, unrelated. So I wanted to ask about Xpilot. So as we think about the next generation offering, would you consider moving to a subscription-only model for the features? And if not, would you expect the pricing of it to go up since now you're equipping it with LiDAR? Thank you.

My next question is not related to the previous one. I would like to ask a question about XPilot. Will we consider using a subscription-only payment model in the future when we launch the new generation of XPilot? If not, will we consider increasing its price in the next generation? Because we now have a LIDAR technology embedded in it.

Yes, we will take higher-level fees for different versions of X-Panel. But is this fee based on one-time or annual or monthly fees? We will decide based on the actual customer feedback and our thinking. But overall, the price will definitely be higher and higher, which is useless.

Yes, based on our newer generations of XPilot, we'll definitely increase the pricing for different configurations. But whether or not it's a subscription model or a one-off payment model, it will depend on our customers' feedback and also our overall strategy. But generally speaking, definitely DSP will go up for higher versions of XPilot.

Thank you.

Thank you.

Your next question comes from Jeff Chung of Citi.

Your line is open. My first question is how should we see the sales mix between RFP and the NCM power, the BEV, going forward and the differences in margin outlook and guidance on the changing the VIA sales target. So this is my first question.

Hello, everyone. First of all, my first question is to ask about the future. We have two different batteries in sales, including the original three-way battery and our zero-sand battery, the latest zero-sand battery. What is our expectation of the future sales combination in the two versions? Including in March, there will be a future exhibition. This is my first question.

For the LP battery, we are seeing, obviously it's still recent days, that on the P7 version, the LP version actually is close to 20% of the new orders. And then on the G3, I think it's around 10% of the new orders at the LP battery. We believe that that mix will probably kind of increase as we continue the promotion in introducing these new LP battery products. Another very interesting, I would say, mix on ALP battery versions is that since we got rid of the low-end configuration without the autonomous driving and assisted driving systems, actually, the percentage of these uh um lp battery version p7 that that's incorporating our expat 3.0 hardware is actually much higher in terms of percentage than the the the entire p7 population which also can potentially translate to higher software penetration for these products which is actually quite exciting in terms of uh growth for march and the full year i think i already gave the comments earlier i don't know whether you're looking for anything specific

Yeah, just the margin outlook. If we take off the software portion, just considering the hardware, the vehicle portion, could you give us some of the roughly level between the margin trend on the vehicle powered by RFP and on vehicle powered by NCM? because in some some oem actually can achieve a higher margin from the lfp power the uh bev so i just want to know what the companies think about the long-term margin trend uh thank you jeff uh this is dennis uh for the margin actually the instruction of the uh l

LFP product, there are two purposes. One is to improve sales. The other one actually is to reduce cost. So definitely this product will improve sales as well as will improve our margin. I cannot give you specifically the number or the amount of the margin improvement, but this product will bring us better margin for these two products, both P7 and G3.

Okay, thank you. And my second question is on the autopilot revenue and income. So considering the previous P7 equivalent for autopilot 3.0, the software income, and also the first quarter income will be combined together in the first quarter earnings this year. But a while ago, the management seems to give a rather conservative guidance on the software income. So I just want to know the why. And secondly, could you give us some color on the attach rate on autopilot 3.0 right now and also going forward as well as autopilot 3.5 penetration level in the future? Thank you.

我们下一个问题是关于我们Autopilot方面的一个收入啊,我们知道在一季度呢,我们Xpilot 3.0,它的软件收入呢,也会进入到我们的收入里面,但是呢,我们早前管理层给出了一个相对保守的一个预估,我想知道,那么在未来我们这个Xpilot 3.5推出之后呢,他们对我们的一个收入会是一个什么样的影响,以及未来Xpilot 3.5的话,它的渗度率会达到什么样的一个数字? 谢谢。

Hey Jeff, this is Brian again. So I think I mentioned earlier that the entire P7, the activation of our XPILOT 3.0 represents over 20% of the entire P7 population, which we have delivered over 20,000 units already. And upon introduction or OTAing the MGP in January, we saw actually the penetration slightly going up, which is very encouraging. We also saw the utilization rate of that product is at a very high level, over 50%. We're actually very confident that as we go into more and more products that have the Xpilot 3.0 architecture embedded in the vehicle, we see the penetration rate will continue to increase. That's the trend that we're foreseeing. It's difficult to predict the ex-pilot 3.5, the penetration rate. But for the third product that we're going to introduce in the fourth quarter, we're actually going to have the product mostly in the configuration have either 3.0 or 3.5 ex-pilot capabilities. which means that the majority, let's say over 80% of the models for the third product, will be able to charge software revenue because they have the hardware configuration. So we anticipate the penetration rate for that product will be higher than P7.

I would like to add that as our X-Panel is constantly upgrading, we will remove the old version of the X-Panel in the newer models. For example, we plan to remove the X-Panel 2.5 in our third model. All of them are 3.0 or above. In our fourth model, we only have X-Panel 4.0. We believe that with the improvement of the software and data capabilities of the automatic driver and the price of the hardware with the integration of size and technology, in the future, we will do, in the short term, in the future, we will do all the models, we may bring all the related hardware of the automatic driver and the hardware through the software to collect such a possibility.

So I would just like to add to that. Basically, right now, if you look at our current XPilot upgrading, you will notice the trend that we've been upgrading them quite aggressively and rapidly. Basically, in the future, new models launched by XPeng, all of them will be equipped with newer version of XPilot, and we plan to remove all of the older versions. For example, latest upcoming third model that's going to be launched by XPeng will be equipped with XPilot 2.5 or above. So all of those will be a chargeable version of XPilot. And for our fourth upcoming model to be launched by our company, it will be equipped with XPilot 4.0. So as a result, with the development and advancement of our software and technology, and also this kind of advancement on R&D efforts into autonomous driving, and with future reduction in cost of these hardware preparation to support such Xpilot technologies, we believe in the future, all of the new vehicles launched by Xpeng will be equipped with not only the hardware and architecture that are able to support newer versions of Xpilot, but also we will forecast more and more revenue income from the software in Xpilot. Thank you.

Thank you, Manager. No more questions from me. Thank you.

Thank you.

Your next question comes from Ben Wong of Credit Suisse. Your line is open.

Thank you, leaders. I have a question about self-driving. Compared to October 24th, it seems that the self-driving is a bit early. Because it seems that the next car, the medium-sized car, can achieve 3.5, which means that it can achieve NGP in the city, which means that it can achieve a 90-degree turn in the city. I want to ask if this is already earlier than before. Because it seems that 3.5 is in 2022, from today, So I want to check if the time is right. This is the first step. The second step is to see if it is possible to achieve the 3.5% of the city road automatic driving in the future. Only the next generation of hardware, for example, will be able to achieve the 4.0% or 4.0% automatic driving in 2022. So, I would like to confirm with you on the left, whether it is possible to achieve the city road automatic driving at the end of this year. Do you want to repeat it in English for the other people to understand the question? sure actually i just want to know whether you actually speed up your r d for a time striving because if you compare to your plan announced in the last october you actually find that in the s pilot 3.5 actually we are only launched in 2022 but since that in the open remark you mentioned maybe end of this year you already achieved s pilot 3.5 for the same issue actually you also announced you will realize an s pilot 4.0 in 2022 these things will be earlier compared to your announcer in the technology that you got only 2023 so let's actually can i assume you will have a speed up in the anti-capability and meanwhile actually in the urban driving uh that actually As far as 3.5, it doesn't mean you can already achieve the 90-degree turning in the vehicle, but also you actually look at the traffic light. Lastly, actually, because if you really speed up your R&D, we do have a big jump in R&D expense for the upcoming two or three years. Thank you.

Thank you. Yes, in 2020, following our X-Panel 3.0 development, we are more confident in the overall X-Panel 3.5, 4.0, and even the future 5.0. And compared to the original plan, from the further future, we have the earlier plan. From the perspective of 3.5 and 4.0, we will be a step ahead of our original plan. This also comes from the fact that we have a lot of data on the basis of 3.0. We are more confident. This is the first one. Then we believe that this radar and The higher-level and more efficient autonomous vehicles will be the standard of the future of autonomous driving. This machine-controlled radar can be used with the good-mobility radar and the four-wheel drive to improve the safety. The more efficient and more efficient it is, it can really help us to be able to go from the city's first-class road to the second-class road, and then to the whole area. On the road to the city, it can provide a safer, better interaction, and a better experience of this autonomous driving capability. Thank you.

Thank you for your question. Indeed, in 2020, based on our efforts, our R&D efforts in particular, into X by the 3.0, we actually gained confidence into our future R&D effort and future launching of X by the 3.5, 4.0, and even 5.0. So, yes, we plan to bring ahead the schedule of launching fewer um i mean in the future um more higher version of x pilots and all of those comes from our current r d efforts and also the data that we collected from our customers which is very which has been very positive so that's um to the first part of your question to the second part of your question i believe that in the future um lighter technology middleweight technology and cameras will be part of the center configuration of the hardware architecture that supports a safer driving experience for future um autonomous driving technology in general because that will give us a better computing power that allow us to not only navigate among level one level two highways but also in a broader sense of the urban world in across China and in other regions of the world however we believe that in order to achieve a full level of autonomous driving there is still a long way to go not only in China but all over the world but we definitely have confidence that this will come sooner than expected thank you

Regarding the investment in the development, we will have a considerable increase in the development compared to last year, and we are focusing on the automation, including the automation of the software, data, algorithm, and the automation of the automation of the next generation of automation technology and the automation of the automation of the automation of the automation of the automation of the automation of the automation of the automation

And yes, we are going to significantly increase our R&D spending this year and for upcoming years as well. Mainly, we'll be focusing on all of the areas surrounding autonomous driving, including the software upgrade, all the data and computing, and also the internationalization of autonomous driving, and also an exploration into the level four autonomous driving strategy, and also to the hardware upgrade in relation to supporting the software upgrades. Thank you.

Your next question comes from Ming Lee of Bank of America. Your line is open.

Hello, Mr. Chen. My question is mainly about the opening of the overseas market. First of all, could you please give some guidance on the current overseas market, including the establishment of Point of Sales, and what is the difference with our domestic development? And the other piece is that I just mentioned the internationalization of autonomous driving. I would like to understand, for example, In terms of self-driving vehicles, such as HDMAP and other software or hardware, do we need to change the needs of suppliers? The other thing is that in China, the infotainment system is also one of our strengths. I want to know if this will encounter any challenges and bottlenecks in internationalization. I also want to understand the development of overseas My question is regarding the international expansion. especially in Europe countries, because for some hardware or HD map, because of initial security reasons, so you probably need to change the vendor or change the software, et cetera. So what kind of challenge and a bottleneck do you see for your international expansion, especially the smart cabin and the autonomous driving are your strengths? Thank you.

About the development of the overseas market, in 2010, when I first started my business, I started to work overseas. My view and view of the international market is different from that of many other business entrepreneurs. The overseas market needs a very long-term foundation to be able to make a huge opportunity. We expect that the development in China and overseas will be similar from the overall model. We will not make huge changes. This will ensure that the ability of multiple product lines, operations, and organizations in the future can be expanded relatively quickly. In terms of the internationalization of autonomous driving, we will start to develop the overseas version of X-Panel 4.0 on the basis of X-Panel 2.5. We will mainly use Europe and more developed countries and regions to promote our overseas version. Then in the self-sufficiency field, because Xiaopeng's self-sufficiency is quite a bit, this one is all self-sufficient. We are overseas now, from last year, 2020, there has already been a certain team. This year, a very large team will be expanded to start self-sufficient. Then the process of self-sufficient foundation may be slower, it may take 12 months, or even more time. But once you do a better foundation, the speed and cost and efficiency of the later expansion will be very good. So overseas, whether it's self-driving, self-service, or our platform-based capabilities, we believe that in the past few years, in many countries, mainly in the developed countries, we have built the foundation, built the brand, built the channels and services, and then built the self-sufficient capabilities, the self-sufficient power station. So at this time, we believe that in the future overseas, we can quickly reproduce and grow. Thank you.

Yes. Actually, I've had many years of experience into expanding into the overseas market. I've been doing that since my first entrepreneurial project, which was back in 2010. So my opinion on overseas expansion is maybe quite different from other counterparts in there. I think it takes a lot of time and efforts to build a solid foundation in order to grasp the international opportunities right there. In the future, our strategy on overseas expansion is engaged general will be very similar to our domestic market ones. Basically, we'll focus on our product portfolio and our operation and organization. In those three areas, I think it will be very similar in our domestic market and international market so that in the future, it can speed up our process of internationalization. And basically, after X-PILOT 2.5, we'll be able to synchronize the launching of future X-PILOT versions, both in the domestic market and in the overseas market as well. And we plan to launch maybe in the European market and also in some very developed markets, X-PILOT 4.0 and above in the future, at the same time as we launch it in the domestic market. Now, in terms of our Smart Cockpit, right now we are doing everything in-house, and we already dedicated a large team of R&D people last year in this regard. And in the coming year, we're going to build an even bigger team that focuses on the R&D of Smart Cockpit. Usually it will take maybe a longer time, such as 12 months to build a good solid technological foundation that allow us to really apply it in all of our products and allow us to have a good foundation to expand overseas. But once that foundation is built, we believe that in the future, the development is going to be very impressive in terms of the speed of expansion, the reduction of cost, and also the core technological and the high quality, the technological foundation and the quality of our smart coffee products. And so in the future, our overall strategy is that we are going to be a very powerful platform that are able to launch a very rich product line that has a very solid autonomous driving capability. And also, we are going to have a very strong and powerful sales and marketing team that supports our overseas market expansion in the future. Thank you.

Thank you. I do have another question.

Your next question comes from Paul Gong of UBS. Your line is open.

Hi, management. Thanks for taking my question. My first question is regarding the RMB headcount. I recall during the IPO, you had 1,500 RMB people, roughly one-third on the autonomous driving. Now you have more financial resources than ever. And I think Xiaopeng also mentioned you are going to increase R&D significantly this year. Do you have any target of the headcount for the R&D heading towards later of this year? My first question is about the R&D team. I remember when it was listed, there were about 1,500 R&D engineers. About one-third of them were in the auto driving field. And then Xiao Peng also mentioned that the R&D budget will be greatly increased this year. Yes. Since this year, Xiaopeng has been developing

and people in the sales and service sector will have a very rapid growth. We expect that by the end of 2021, the number of our R&D personnel will exceed the previous double. At the same time, we will also set up a large number of basic R&D personnel in our ecological system.

Indeed. We plan to greatly increase the headcount in not only the R&D, but also our sales and service teams as well. So by the end of this year, we forecast that the R&D team will double in its size, and also we're going to also increase the R&D people that will be surrounded around our ecosystem as well. Thank you.

Thank you. My second question is about the process of self-driving or software transformation. Currently, 3.0 is still more expensive than 2.5, so the load rate is above P7. The price difference between 2.5 and 3.0 is only about 20%. Have we thought about the price difference between 2.5 and 3.0? Either to reduce the price of 3.0 or to increase the price of 2.5 without the old version of 3.0. and allow consumers to use this software as much as possible. Because the development cost of this software is fixed. The more people use it, the more data you collect. It may be strategic to choose not to transform it into high-end autonomous driving in the short term and choose the data you get. uh let me translate my question uh the second question is regarding the monetization of your autonomous driving uh given the price gap between the x panel 2.5 and 3.0 uh the penetration is just uh 20 percent so far for p7 on the x-pilot 3.0 In view, you have spent a fixed cost on the R&D of the software, and is it worth it for you to consider to narrow down the price gap between the 2.5 and 3.0 and try to monetize this in the near term, but harvest more data to fit into the software and further improve that?

We did not intend to do this because we needed We will not focus on the new models in the future. We will not focus on the new models in the future. We will focus on the new models in the future. We will not focus on the new models in the future. Actually, we don't have any current plans to shorten or narrow the price gap between different versions of xPilot software offerings.

because we are dedicating our R&D efforts into the core AD technological development. And we believe that in the future, we're only going to have newer and newer or higher and higher versions of X-PILOTs. And in the future, older versions or lower versions of X-PILOTs will be removed from our products. And we believe as we advance into the exploration into higher level of AD technologies, actually not only will we be able to upgrade our payment fee for higher level softwares, but also across the ecosystem, we are going to have so many opportunities across different scenarios that allow us to really provide better experience for our customers and also a lot of monetization opportunities in the future. Thank you. Thank you very much. Thank you.

As there are no further questions now, I'd like to turn the call back over to the company for closing remarks.

Thank you once again for joining us today. If you have any further questions, please feel free to contact us. Thank you. Thank you, everyone.

This concludes today's conference call. You may now disconnect your line. Thank you. Bye.