XPeng Inc.

Hello, ladies and gentlemen. Thank you for standing by for the first quarter 2021 earnings conference call for Expen Incorporated. At this time, all participants are in a listen-only mode. At the management 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. Zilin Ma, Director of Investor Relations of the company. Please go ahead, Mr. Ma.

Thank you. Hello, everyone, and welcome to XBank's first quarter 2021 earnings conference call. Our financial and operating results were issued by Newswire Services earlier today and are available online. You can also view the earnings press release by visiting the IR section of our website at ir.xiaopeng.com. Participants on today's call will include our co-founder, chairman, and CEO, Mr. He Xiaofeng, my chairman and president, Dr. Brian Gu, my president of finance, Mr. Dennis Liu, and managing director of strategy, Mr. Charles Zhang, and myself. Management will begin with prepared remarks and the call will conclude with a Q&A session. A webcast replay of this conference call will be available on the IR session of our website. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forelooking 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 filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forelooking statements except as required under applicable law. Please note that expense earning press release and this conference call include the disclosure of unaudited gap financial measures as well as unaudited non-gap financial measures. Expense earning press release contains a reconciliation of the unaudited non-gap measures to the unaudited gap measures. I will now turn the call over to our co-founder, chairman, and CEO, Mr. He Xiaopeng. Please go ahead.

Hello, everyone. Thank you for joining X-Bank's first quarter 2021 earnings conference call today.

In 2021, we saw that electric and natural gas are accelerating the downfall of traditional fuel cars.

In March this year, we saw that the new car sales rate of new energy used cars broke 10% in history. The development of the first-tier cities is even better. In the first quarter, we saw a growth of about 20% in new cars in the first-tier cities. In the midst of this historical and subversive situation, I believe that small and medium-sized cars will be able to attract the development and transformation of the entire industry through the long-term layout in the past few years.

Heading into 2021, the electrification and modification are accelerating the disruption of internal combustion vehicles. Notably, in March, the penetration rate of high-energy passenger vehicles in China surpassed the 10% threshold for the first time. The EV adoption in top two cities experienced a record high growth, with the penetration rate reaching around 20%. Being part of this unprecedented disruption opportunity, I strongly believe that Xpeng is well poised to lead the development and transformation of the industry. My belief is firmly underpinned by our long-term strategic investment and the leadership in smart EV technology that we have been building out over the past years.

With Xiaofeng, we are leading in the industry in terms of the software technology and our product strategy. In the first quarter of this year, Xiaofeng's car sales, in the traditional sense, And we have overcome the challenge of chip shortcomings in the entire industry. The small red light achieved a strong performance performance. Then the delivery volume once again created a new high in history, reaching 13,340 units. Then achieved the same growth of 487.4%. Then this includes 5,366 G3s and 7,974 P7s. According to the data of the China Technology Research Center, in the first quarter of this year, G3 ranked first in China's A-level pure electric SUVs, and P7 ranked third in China's B-level pure electric teachers. In this quarter, we achieved a sales income of RMB 2.95 billion, with a growth of 616.1% and 3.5% respectively. At the same time, Our strong momentum continued in the first quarter of 2021, with another quarter of record vehicle deliveries, despite traditionally slower season demand and challenges of industry-wide chip shortage.

Our total vehicle delivery number in the first quarter reached 13,340, representing a 487.4% year-over-year increase, consisting of 5,366 G3s and 7,974 P7s. According to the new car insurance registration data reported by China Automotive Technology and Research Center, in terms of volume, the G3 ranks number one amongst A-class BEV SUVs and the P7 ranks number three among B-class BEV sedans in Q1. We attribute this outstanding performance to our industry-leading full-stack in-house developed software technology and our solid differentiator product strategy. Herald by strong delivery growth, our revenue reached RMB 2.95 billion in Q1, representing year-over-year and quarter-over-quarter growth of 616.1% and 3.5% respectively. Meanwhile, our profitability continued to improve, highlighted by a gross margin of 11.2%, an increase of 3.8% from the prior quarter.

After the recovery of OTA through OTA on January 26th, we first confirmed the X-Panel automatic driving software income in this quarter. I believe we are the only company in China to realize the full-time automatic driving software of Ziyan to separately charge the car company. Since we started delivering P7 in June last year to March 31, 2021, we have delivered more than 23,000 P7s in total. Xpilot 3.0's total return rate has exceeded 20%, and in March this year, the growth reached 25%. I believe that the transformation of Xpilot software will become a continuous income and profit source for us in addition to the sales and sales of hardware. I believe that in the near future, with our fast-tracking ability combined with our full-time self-reliance, we will use the next generation of X-Panel 3.5 and X-Panel 4.0 to increase the coverage of various new road scenes and achieve the automatic driving value of the end-to-end. At this time, the automation positioning of small and medium-sized vehicles will be more popular.

On January 26, we began to push OTA updates for XPilot 3.0 to our customers and started to recognize revenues from XPilot software. As such, our vehicle revenues in the first quarter now include software revenues for the third time in our history. I believe that XPeng is the only Chinese automaker that has been able to charge full-stack self-operated autonomous driving software separately. Since mass deliveries of the P7 began in June 2020, we have delivered over 23,000 P7s as of March 31st. And on a cumulative basis, the attach rate of S3.0 has exceeded 20% as of March 31st. Such attach rate saw the increase to approximately 25% in March 2021. I believe that XPilot software monetization will become a recurring model and generate profits in addition to our sales vehicles. Going forward, building on our rapid technology iterations, powered by our full-stack in-house R&D capabilities and hardware software integration solutions will roll out XPilot 3.5 and XPilot 4.0. Our next generations of autonomous driving technology in the next few years Our X-PILOTs will make the advanced autonomous driving experience accessible across a wider range of road scenarios and ultimately bring about end-to-end highly automated driving. They will also help to further distinguish our brand leadership in the smart EV market.

Let me share some of the progress we have made in terms of technology innovation.

Next, I would like to share our latest achievements in technology advancement for Smart EVs.

Since January 26, 2021, we launched the NGP high-speed automatic navigation assist driving function. Until March 31, NGP has assisted our users by driving 2.3 million kilometers, exceeding 1 million kilometers per month. For NGP cars that are active, the penetration rate of its NGP layer is over 50%. Then, the very strong frequency of use is not only reflected in the wide range of use of NGP, but also proves that users have enough recognition and trust in it.

Since launching our Navigation Guided Pilots for the Highway, or MGP, in late January this year, MGP has assisted our customers in driving 2.3 million kilometers, which is approximately 1 million kilometers a month, with the MGP-assisted mileage penetration rate exceeding 50% amongst those P7s that activated as of March 31, 2021. The strong usage frequency not only reflects the broad applications of NGP, but also testify to the satisfaction and trust customers have in using it.

In March, we completed a long-term long-term long-term long-term long-term long-term long-term long-term long-term long-term long-term long-term In the distance of 3,000 kilometers, we showed NGP performance of 0.7 times per 100 kilometers per NGP level. The success rate of changing lanes, overtaking, and passing through tunnels was more than 90%. I believe this data proves that we are leading in the current market in mass production of all automated floating gas systems.

In March, we successfully accomplished our NGP-guided expedition that crossed highways from Guangzhou to Beijing. This expedition of over 3,000 kilometers marked the nation's longest of its kind. During the entire expedition, the NGP's human intervention was only 0.7 times per 100 kilometers on average. Notably, more than 90% of autonomous lane changes, overtaking other vehicles, switching ramps, and going through tunnels were executed successfully, which I believe outperformed all other mass-produced autonomous driving systems in the market.

The purpose of NGB's pre-installed mass production system and complete OTA is that we can use our middle-end users to create a large number of automatic auxiliary driving systems every day. Here, I would like to highlight the strategic importance of our capability of deploying our autonomous driving technology on mass-produced vehicles.

Through those vehicles equipped with NGP capabilities, we're able to collect highly valuable chronic cases when our customer is using NGP. We're now able to achieve fast iterations of our algorithm on a weekly basis based on our advanced closed-loop data capabilities. With a growing number of P7s on the road, I believe Xpeng will have the largest and fast-growing smart EV fleet with closed-loop data capabilities on China's road networks.

The most outstanding technical talents in recruitment and retention are the foundation of our continuing development in the field of autonomous electric vehicles. By the end of the first quarter of 2021, the total number of employees of the company's R&D team is 40%. We will continue to rely on a strong R&D organization to continue exploring the leading technologies in the entire autonomous electric vehicle industry, including autonomous and electric systems, and continue to consolidate our leading position in the industry.

Recruiting and retaining excellent technical talent is the foundation of our ability to lead innovations in technology and development in the smart EV industry. As of March 31, 2021, our R&D team represent approximately 40% of our total headcounts. With our firm commitment to build a strong R&D team, we aim to strengthen our leadership in cutting-edge innovations, including electrification and smartification for smart EVs and further technological leadership in the industry. we'll be able to continuously introduce new vehicle models featuring more powerful hardware to support our fast innovation of software.

On April 9th, we launched the world's first mass-produced P5 in Shanghai. After 53 hours of opening, we received tens of millions. The market feedback exceeded our expectations.

At the Shanghai Auto Show on April 19th, we unveiled the P5, the world's first mass-produced body equipped with LiDAR. The market warmly welcomed the P5 with enthusiasm supporting pre-order reservations that exceed our expectations and surpassed 10,000 in just 53 hours following its debut.

Its extreme car space design surpasses most of the current B-class cars in the market. We have created a new third-person experience for our customers in addition to working and living spaces, such as high-level automatic driving, self-driving, and such a large car space. Whether it's a nap at noon, or a private dinner, or breakfast, or outdoor camping, we can all get different experiences.

The P5 is designed as the A-plus class sedan with a roomier inner space than most of the B-class sedans in the market. Through more advanced autonomous driving systems and smart cockpit technology in a roomy space, we have created for our customers a completely new experience of a smart third space beyond their homes and workplaces. Our customers can now use this space to take a nap, watch films, like in a private cinema, and enjoy outdoor camping and more.

We plan to start delivering P5 in the fourth quarter of this year. For the X-Panel 3.5 system, which is the main road for NGP, we plan to start internal user testing at the end of this year and provide it to all users through OTA at the beginning of next year. We will optimize software and engineering capabilities by using relatively low cost of intelligent hardware to provide users with a stronger mass production and self-sufficiency on the road. This is not the same as what many manufacturers and our friends do.

We plan to start deliveries of the P5 in the fourth quarter of this year. Additionally, we plan to start internal user testing of XPilot 3.5 with MGP autonomous driving capabilities on the major urban roads at the end of this year and release it via OTA update at the end of next year. In our continuing efforts to improve software and engineering performance, we provide customers with the most powerful mass-produced autonomous driving system available for China's road system at an attractive price point. Such approach significantly differentiated us from many of our peers.

In addition, we are planning to launch the next generation of hardware platforms in the next year, including the next generation of 3D systems, including high-pressure systems, super fast charging systems, and other platforms. So these developments have made good progress. We will communicate with the market and customers in the future.

In addition, we are making solid progress in the research and development of our next-generation autonomous driving hardware platform and next-generation powertrain systems, including high-voltage and supercharging systems. We look forward to updating you on these developments in due course.

Today, we see that the market size of smart electric vehicles is growing rapidly. We are planning to further expand our infrastructure in this year. to do long-term deployment and investment. By the end of the first quarter, Xiaobong has reached 178 sales outlets nationwide, 61 service outlets, and covers 70 cities. Out of all the sales outlets, Ziyin has 88. In addition, in April this year, we established strategic cooperation and partnership with China's largest car manufacturer, Zhongsheng, to accelerate the spread of autonomous electric cars in China. As the smart EV market continues to grow fast, we are accelerating the build-out of our infrastructure facilities as part of our long-term strategic roadmap and investment.

As of March 31st, Xpeng's physical sales and service network consists of 178 sales stores and 61 service centers across 70 cities in China. Of 178 stores, 88 were directly operated by us. Notably in this regard, in April, we entered into a long-term strategic partnership with China's biggest auto dealership company, the Zhongshan Group. Actually, this partnership will serve to provide both Xpeng's industry-leading smart EV products and Qicheng's high-quality services to consumers across China and further accelerate smart EV adoption. We remain committed to expanding our nationwide sales network to approximately 200 stores, covering more than 10 cities by end of the year.

In terms of the deployment of charging facilities, we will further accelerate expansion. By the end of March, there will be 172 supercharging stations of Xiaopeng brand, covering 60 cities. Xiaopeng's free charging system will have more than 1,000 charging stations by the end of April, covering more than 160 cities. Our goal is to achieve more than 500 free charging stations of Xiaopeng brand by the end of this year.

We also continue to expand our supercharging network. As of March 31st, the number of expanded supercharging stations expanded to 172, covering 60 cities. Additionally, our free charging program has been available on more than 1,000 supercharging stations as of April 30th this year, covering over 160 cities. We expect that there will be more than 500 X-Pen-branded supercharging stations by the end of this year.

We expect that there will be more than 500 X-Pen-branded supercharging stations by the end of this year. We expect that there will be more than 500 X-Pen-branded supercharging stations by the end of this year. Taiwan Taiwan We will speed up the investment construction of these two new factories in Wuhan and Guangzhou. When the construction is complete, Xiaopeng will build up the design capacity of three factories in Guangzhou and Wuhan. The total will reach 300,000 taels. If the work is moderately modified and increased, we believe that these three factories can achieve the production capacity of nearly 500,000 taels. Then Xiaopeng will welcome the arrival of the entire market of autonomous vehicles and lay down a better foundation.

In terms of production, at our Jiaoqin factory, we have completed upgrading the production lines so that they can produce both the P7 and the aforementioned P5 concurrently. We now are conducting trial production runs of the P5 model. We believe our manufacturing costs will be meaningfully declined when we are able to produce the P7, P5, and the new G3 at the same production plant. In addition, with financial support from the Wuhan government, in April, we enter into a cooperation agreement with the city of Wuhan to build our third factory there. The new manufacturing base will contain both manufacturing and powertrain plants and have an annual capacity of 100,000 units. With funding support from local governments in Wuhan and Guangzhou, we will expedite investment and construction of our plants in these two cities. Once fully completed, Xpeng's three factories located in Shaoqing, Guangzhou, and Wuhan will have a total annual design capacity of 300,000 units. Moreover, with minimal factory revamps and increased worksheets, the potential peak outputs can come close to 500,000 units in total. This provides us an excellent foundation for which we can capture widespread demand in the transformation towards smart TVs.

We will continue to actively deploy in Norway and other European markets to improve our sales, delivery and service performance in Europe and other European markets.

Turning to our overseas development, in the third quarter, we exported more than 300 G3s to Norway. We plan to start deliveries of the P7 to Norway in the second half of the year. Moving forward, we'll actively boost our efforts in Norway and other European markets to expand our local sales, delivery, and service mechanisms.

As China's leading smart electric vehicle designer and manufacturer, Xiaofeng will continue to provide differentiated and intelligent products through China's leading automatic assistant driving technology to meet the market needs. In the global field, we hope to be a future transportation explorer.

As a smart EV designer and manufacturer that knows China better than any other peer, Xpeng will remain focused on delivering differentiated and smart products built upon our industry-leading autonomous driving technologies that meet vast market demands. This relentless effort will further our mission to shape the mobility experience of the future.

Finally, I would like to share with you that even if we do not calculate the default units of the current P5, Xiaopeng's pre-delivered units have already reached a historical high. In the second quarter, we will try to reduce the impact of the production capacity caused by the shortage of chips and increase the production capacity. Now moving on to our guidance. Excluding pre-orders reservations of the two sides, we are already seeing a historical high of our order backlog.

will strive to ramp up production and minimize the impact from industry-wide chip shortage. In the second quarter of 2021, we expect our smart EV delivery to be approximately 15,500 to 16,000 units and our total revenue to be approximately RMB 3.4 billion to 3.5 billion.

Thank you, Xiaopeng. With that, I'll now turn the call over to our VP of Finance, Mr. Dennis Liu, to discuss our financial performance for the first quarter of 2021.

Thank you, Xiaopeng. Hello, everyone.

Xperms' robust performance in the first quarter of 2021 validates our strong capability to make differentiated smart EVs that appeal to various needs of the large and growing customer base. Thanks to our record-breaking deliveries in the traditional week season, in quarter one we witnessed a quarter-over-quarter increase in our top nine and further improvement in our probability. In particular, our growth margin continued an upward trend sequentially, hitting double digits in the quarter. Additionally, for the first time, revenue from our X-Pilot software was recognized in top-line and reflected in gross margin, making a significant milestone in our Chinese EV industry. Moreover, our sound financial condition and strong cash position enabled us to better execute our growth strategies, cement competitive advantages, and seize tremendous growth opportunities in the smart EV sector. Now I would like to walk you through our detailed financials for the first quarter of 2021. Total revenues were RMB 2.95 billion for the first quarter of 2021, representing an increase of 616% from RMB 412 million for the same period a year ago, and an increase of 3.5% from RMB 2.85 billion for the fourth quarter of 2020. Revenues from vehicle sales were RMB 2.81 billion for the first quarter of 2021, representing an increase of 665% from RMB 372 million for the same period of 2020, and an increase of 2.7% from RMB 2.74 billion for the first quarter of 2020. The year-over-year increase was primarily due to the delivery of the P7, which started at the end of June last year. The quarter-over-quarter increase was primarily attributable to the revenue recognition of XPilot 3.0 software in the first quarter of 2021, since the functionality was fully delivered to the accumulated group of the software practices. Partially offset by the low government subsidy for the new energy vehicles starting from January this year. Growth margin was 11.2% for the first quarter of 2021 compared with negative 4.8% for the same period 2020 and 7.4% for the first quarter of last year. Vehicle margin was 10.1% for the first quarter of 2021 compared to negative 5.3% for the same period of 2020 and 6.8% for fourth quarter of 2020. The improvement was primarily attributable to the material cost reduction and revenue recognition of the X-Pilot software sales. Research and development expenses were RMB 535 million for the first quarter of 2021, representing an increase of 72% from RMB 311 million for the same period of 2020, and an increase of 16% from RMB 460 million for the first quarter of 2020. The year-over-year increase was mainly due to, number one, the increase in employee compensation as a result of expanded research and development staff. Number two, higher expenses relating to the P5 development. And number three, share-based compensation expense recognized in the first quarter of 2021. The quarter-over-quarter increase was mainly due to, number one, increasing employee compensation in line with increasing engineering staff, and number two, higher expenses related to the development of the P5. Sale in general and administrative expenses were RMB $721 million for the first quarter of 2021, representing an increase of 124% from RMB $322 million for the same period 2020, and a decrease of 22% from RMB $918 million for the first quarter of 2020. The year-over-year increase was mainly due to, number one, higher marketing, promotional, and advertising expenses to support vehicle sales. Number two, the expansion of our sales network and associated personnel costs. These expenses for the sales and service stores and commission for the franchise stores. And number three, the share-based compensation expense is recognized in the first quarter of 2021. The quarter-over-quarter decrease was mainly due to lower marketing, promotional, and advertising expense compared with the peak sales season in the fourth quarter last year. Loss from operations was RMB 904 million for the first quarter of 2021, compared with RMB 649 million for the same period of 2020, and RMB 1.1 billion for the fourth quarter of 2020. Excluding share-based compensation expense, the non-GAAP loss from operations was RMB 840 million. for the first quarter compared with RMB $649 million for the same period of 2020 and RMB $1.1 billion for the first quarter of 2020. Net loss was RMB $787 million for the first quarter compared with RMB $650 million for the same period a year ago and RMB $787 million for the first quarter of 2020. Excluding share-based compensation expense, the fair value change on derivative liabilities related to the retention rate of people's shares, the non-GAAP adjusted net loss was RMB 696 million for the first quarter of 2021, compared with 645 million for the same period a year ago and RMB 713 million for the first quarter of 2020. Net loss attributable to the ordinary shareholders of EXPEN in cooperation was RMB 787 million for the first quarter, compared with RMB 935 million for the same period of 2020, and compared with RMB 787 million for the first quarter of 2020. excluding share-based compensation expenses, February changes on derivative liabilities related to the redemption rate of people's shares, and accretion of the people's shares to redemption value. The non-GAAP net loss attributable to the ordinary shareholders of Exxon Inc. Corporation was RMB $696 million for the first quarter of 2021. compared with 645 million for the same period of 2020, and also 713 million for the first quarter of 2020. Basic and diluted net loss per American depository share were both RMB 0.99 for the first quarter of 2021. The non-GAAP basic and diluted net loss per ADS were both RMB 0.88 for the first quarter of 2021. Each ADS represents two class A ordinary shares. Now turning back to balance sheets, as of March 31st, 2021, our company had a cash and cash equivalent, restricted cash, short-term deposit, short-term investment and long-term deposits in total of RMB 36.2 billion compared with 35.3 billion as of December 31st last year. To be mindful of the length of our earnings call for the first quarter financial results, I will encourage listeners to refer to the earnings press release for further details. This concludes our prepared remarks. We will now open to the call to questions. Operator, please go ahead.

As a reminder, if you would like to ask a question, press star 1. That is star 1 for questions. The first question comes from the line of Jeff Chung with Citi.

Hi, excellent result. This is Jeff from CBA. So I have two questions. The first question is about the software. Could you break down the software revenue and gross profit in first quarter this year. More specific, how much software revenue was derived from first quarter this year and how much from the rest of the 2020 and the GDP margin? How should we see this software income and profitability in the second quarter and the second half? This is my first question. Second question is about the vehicle GP margin. It seems that the G3 equipping with LFP is created to the GP margin. So, how much better compared with the LCM battery? Secondly, in the 1Q announcement, you mentioned that the first quarter cost of good show came down Q1Q due to a lower material cost. Could you quantify a bit in terms of what kind of materials leading to a lower cost? And how would you see the cost trend into the second quarter You have a very good performance. I will talk about these two questions. The first one is about software. I would like to ask how much is the income and labor of software in the first quarter? And how much of this income comes from the first quarter of 2020? And how should we look at the situation of software profits in the future? This is the first question. It's about the horsepower of the car. If you want to know how much horsepower the G3 will have after using LLP, the horsepower of the car will be higher than that of the NCM. Thank you, Jeff. Very good questions.

I will try to handle the questions and then Brian or Charles or Xiaopeng can supplement later. Number one is the software. Actually, in Q1, our total revenue from the XPilot 3.0 software was about RMB 80 million. Among that, $50-some million was from those contracts we purchased, the customer purchased last year. And the other around $30 million is from those software we sold this year. So in general, the software accounts for about 2.5 percentage points of the margin. Among the 2.5 points, 1.5 will be contributed from those contracts we sold last year. And the other 1 percentage point is from those contracts we sold in the first quarter. Because we have a very good NGP scheme from the Guangzhou to Beijing, we actually are seeing the software and also the hardware for the X-Pilot is increasing actually in March and also in April. So we foresee the software penetration will be even higher in the second quarter. But again, in the first quarter, the total revenue or the total margin includes around 3,000 units of those software the customer purchased last year. So the second quarter will not as high as 2.5%, but definitely will be higher than one percentage point for the first quarter. That's number one. The second question is for the G3. Yes, actually, we have mature advantage compared with the LFP battery versus the NCM battery. But I cannot tell you exactly number. We are seeing, for example, we maintain the same MSRP, same variable marketing. However, we have the better mature cost So that will improve our G3 margin as well. We started the delivery of the LFP G3 in Apple, so we will foresee the margin improvement for G3 in the second quarter. And number three is for the material cost reduction. Yes, we have the material good news compared with the quarter four. The good news is primarily from the battery cost reduction. We actually, we negotiate with our battery supplier to get the battery cost reduction. That basically was the negotiation was completed earlier this year, so we have some material cost reduction the um the percentage would be from five to ten percent in terms of the area cost reduction versus the level at the end of last year i hope i answer your questions thank you no more questions thank you the next question comes from the line of edison you with the georgia bank

Hi, thank you. And congratulations on the quarter. First question is, could you give us an update on the LIDAR testing and validation with Livox? Is it meeting your performance requirements? And are you confident that the P5 with a LIDAR on it will be hitting the streets in the fourth quarter? And then second question is on the reservation number. I know you disclosed it shortly after the release. Could you maybe provide us an update? And if it's not the exact number, I know you don't give that, but some sense of relative to your own expectations, how much higher is this number tracking? I'll translate. Okay, thank you.

We are testing many types of radars. From our point of view, different types of radars have different capabilities in terms of capacity, technology, cost, and especially in terms of scale. We have launched our first laser partner on P5. It is a laser from Dajiang. But we also see that in 2022 and 2023, we will have more interoperable partners in different small and medium-sized models. This is what I think from this perspective. From the current point of view, Xiaopeng's full-fledged intelligence and capability can relatively make up for the different characteristics of Qiongleda in different companies. This is what we are doing. But we still hope to see Qiongleda in the long run, be able to achieve a balance in terms of price, cost, and performance. This is a simple answer.

As for the second point, So we have tested multiple lighters of different brands and we compare them by different parameters in terms of their human cost, craftsmanship, their cost, and also their capability of being mass produced. And so the lighter that we use on P5 is actually DJI Dajang and we are very open to other options. So by 2022 to 2023, the new models that we are launching may adopt different brands that may that produce lighters. So basically we're very confident that right now with our capabilities of all-round full-stack sensing performance on our vehicle and also on our production capabilities, we can actually be complementary to some of the lighter technology shortage or lighter technology disadvantage out there. however um in the long run we hope that we can achieve a good balance between the cost of the technology and their capability of being less creatures at the same time we can achieve a well balance and move different performances across different parameters um

About your second question, about the data after the P5 in Shanghai Real Estate, I can't tell you the exact data, but I can use some comparisons to explain. After the release of Shanghai Real Estate in P5 and P7 in the same period, the P5 data is the amount of the P7 data in the same period.

So we're very confident that by Q4 this year, we can launch P5 equipped with LiDAR. And regarding your second question about the reservation number, obviously we can't disclose the exact number, but compared to P7's launch on the Shanghai Auto Show last year in the same period, actually P5 reservation number is a few times more than that of P7.

Secondly, after the launch of P7, the price of P7 was still under pressure. But P5, the return from the electricity sector was very positive. So we are still quite confident that the sales after P5 will be significantly higher than P7.

And also getting the feedback from our frontline sales force, the same period last year when we first launched P7, they do feel some pressure from the market regarding the price of P7. However, this year with the launch of P5, every single feedback has been very positive regarding the launch of P5. So we're really confident that the actual performance in terms of the orders and deliveries of P5 will be very, very encouraging.

Many thanks.

The next question comes from the line of Tim Chow with Morgan Stanley.

Hi, Amanda and Tim. Congratulations on a solid result and thanks for taking my questions. So my first question is about the component. Because compared to other EV start-up peers, X10 this year apparently had much more new models and facelift, especially in second half. So while we expect the cheap shortage by EV in second half, But what else has XPEN done to ensure other major components for either facelift or new launches would have sufficient component supply later this year? Especially, I think there are a lot of new models will also be coming to the market in the second half. My second question is just a quick follow-up on the guidance. What kind of visibility do we have so far on chip supply? How much energy do we have at the moment to support the production plan throughout the whole second quarter and meet the guidance of the sequential volume growth into the sequential volume growth? Thank you, Mr. Guan. I have two quick questions. First, I would like to ask, in addition to the supply of chips that may be cut off in the second half of the year, because we have a lot of these changes and the listing of P5 for other key parts, will Xiaopeng take some additional measures to ensure that these key parts will be sold in the second half of the year? um um

The chip is a challenge for all car manufacturers today, but it is also very difficult to answer this question. In our statistics, the number of self-driving chips exceeded our initial statistics. At the beginning, we thought it was a hundred-point level. Now we even find that if we divide it into enough details, we even reached a thousand-point level. Today, from our point of view, the second quarter is likely to be the most challenging quarter for the chip. In the ideal state, it may be able to resolve in the third quarter, but in the worst case, it may have to go to the first quarter of next year. From the current situation of Xiao Peng, we will have some challenges on the few chips. We have done a lot of work to resolve this matter. This includes our last year's third quarter prediction of this year's chip challenge. We pre-ordered, including us and the chip. We will directly communicate with most of the main suppliers. And we are in this chip. In this system, we this this I believe that the chip problem does have many challenges, but in Xiaopeng's current situation, OK.

Thank you for your question. Regarding the shockage in chipsets, basically, it is now a big challenge for all the automakers out there. And nobody out there can really promise that they can solve the problem in a short time. And for smart EV manufacturers, actually, I think Q2, upcoming Q2, will be the most challenging timing. And we hope that by Q3 this year, things will get better. However, if not, then Q1 next year, maybe things will become, the tension may become more released. So in order to prevent ourselves into getting into a difficult situation, we have done several measures. For example, we have made a lot of pre-orders with our existing suppliers. We communicate directly with the suppliers, the head of different suppliers of chipsets to make sure that we have enough inventory and orders come in place to support our future development and production. And also because we have a lot of automated R&D technology that allow us to be really flexible in adapting to different chipsets in manufacturing vehicles. We are able to actually look out for new partners and new manufacturership chipsets so that we can actually become more adaptive to market change and to this chipset shortage. So in the long run, we believe that and we have confidence that this can be resolved, but we can't promise anything right now.

Hey Tim, this is Brian. I just want to add, in terms of the guidance we gave for this quarter, we have considered the constraints of the chip shortage situation that Xiaopeng described. So that reflected the constraint numbers. Without constraints, obviously, the delivery number will be higher than what we have given out. But on the other hand, I think the ship shortage visibility is still not very clear, so it will be changes, so we keep a very close eye on the situation.

In the third and fourth seasons, there will be some challenges with the delivery of new cars. I think the most important thing is the power supply of some models. The first one is the chip, the second one is the power supply. These are all two-star problems. From the current point of view, the battery of Linxuan Tianli is gradually being delivered, but the current amount is still relatively small. We believe that electric cars will need another quarter to get to the third quarter to get to a more comfortable state. Today, we see that the demand for cars in Linxuan and Tianli is actually higher than we originally expected. So we believe that in the third and fourth quarter, we will solve the electric problem better. But in the second quarter, we think there are still relative challenges. But just like what Bu Liangxu said,

Now, in terms of other components, as we deliver more new models in Q3 or Q4 this year, we are going to face some constraints in terms of other components other than chip shortage. For example, one important thing is the battery supply. Right now, we are using LPS for some of our vehicle models. And the record of the adoption of the LFP, sorry, will take about one quarter. And so by Q3 this year, we estimate that we will reach a comfortable level of adopting the new LFP batteries. And also, the market demand for LFP battery is actually larger than expected. And that is why in Q3, Q4 this year, we are going to be able to reach a more comfortable level of production adopting this new battery. And as was mentioned, by Brian before. Our guidance for this year later on actually included the calculation of all of those components that I've mentioned.

Great. Thank you, Mr. Ho and Brian. Thank you.

The next question comes from the line of Nick Lai with JP Morning.

My two simple questions. The first question is margin in light of cheap shortage and raw material price hike. And I guess Mr. Brown and Mr. He had already answered part of that question regarding cheap supply. And so maybe just on the margin outlook in light of the rising raw material price, can you give us some indication or guidance how we mitigate with such kind of material price headwinds. The second question regarding business model, X-PILOT 3.0. At the moment, our customer paid off about 20,000 RMB to get X-PILOT 3.0 service. I'm curious as we launch or as we roll out S-pilot 3.5 or 4.0 in the future, do customers have the flexibility to pay that on demand or more on a prescription model? Margin Outlook considers two restrictions. One is the increase in raw materials and the shortage of chips. Mr. Kang and Brian have talked about the shortage of chips. We can talk about the rise in raw materials and the impact on margin. Then the second question is related to the question of AD. For example, S-Polite has a customer base of 200,000 yuan, and it is a full-time service. When we launch 3.5 and 4.0, will we use AD on demand, that is, when consumers need to use it, will it change the business model? What are these two simple questions?

Hey, Nick. This is Dennis. Let me handle the first question. Actually, in our first quarter margin, we did not have the material impact on the margin due to the cheap or the low material. So nothing really in the first quarter. But looking at the second quarter, we do have some impact due to the low material. For example, the steel, the aluminum, those components, those raw materials, some kind of cost impact to our margin. And also in terms of cheap, we are also sourcing some alternative cheap and also probably to help our supplier to get cheap. So there are some material, some cost increase. But in total, these two components together, the impact would be less than one percentage point in terms of margin. The amount is somewhere around 1,000 to 1,500 RMB, but less than 1% of the margin impact to the second quarter. For the third quarter, we need to close the monitor, but the situation probably will be released in the third quarter.

Thank you, Nick. Let me answer the second question. From my point of view, if you pay according to the service or pay according to the month, in fact, from the total amount, the cost may be higher according to the one-time payment. From the future, in the case of X-Panel 3.5 and 4.0, we will, in the current payment situation, we will also consider adding other payment methods according to the service. After we are sure, we will announce this matter with the final client.

So let me take the second part of your question. Actually, in my opinion, paying by on-demand model or a subscription model will actually cost our customer more than paying a one-off fee for that software and service charge. Going forward, we are also considering other service charge possibilities, and we will communicate in a timely manner when we have the update to the market. Thank you.

The next question comes from the line of Ben Wong with Credit Suisse.

My question is about the term-serving capability. After Xperia 0 to the 3.5, Xperia was the comparison between the Baidu solution and Huawei solution compared to Xperia 3.5 Open NGP. Thank you. The specific functions of Xperia 3.5

We will share the relevant description at the official launch conference of P5. From our point of view, I can talk a little bit about the evaluation logic in some of the evaluation logic in the automatic return value of the current system on the market. Most of the time, we will compare a certain function or performance combination of an automatic assistant driver. But we also need to pay attention to a few other issues. The first is the comprehensive cost of the entire hardware and software. The second is the range and scene that can be used. The third is the feedback of the data used by the user. The feedback of the data comes from good experience. Then the combination of these points will eventually form a It's a system that evaluates the value of the automated service. So we can see that some videos or some systems have a better performance, but we think it may be achieved in a relatively small range and at a more expensive cost. So the goal of X-Panel 3.5 and 4.0 is that we all hope to be able to Thank you.

Now, actually, in terms of XPilot 3.0 and its functionality, we will have an official release when we launch the P5 later on this year. However, right now, I can comment on different solutions and different criteria for evaluating different solutions. Basically, we have to balance several things or several aspects. First of all, you have to look at the combination of different functionality. Second of all, you have to look at their integration of the hardware and software and the overall cost of using the solution. The third aspect is that you have to look at the scenario of the usage or the scope of the usage of that particular solution. Last but not least, you also have to take into consideration the data feedback from the users, whether or not they consider it a good experience to use that particular solution. Now, in the market right now, you might come across some videos or some solutions that claim that they're doing very good in certain aspects, but that is only in certain functionality or at a very high cost. Right now, what Aspen is trying to do is that we are coming up with solutions of autonomous driving that can balance all of those aspects at a reasonable cost so that we can deliver the most superior experience in terms of autonomous driving to our customers. And we are launching different versions, and we want to go into the future where we can actually use these technologies to support not just MGP, but also to cover all of the urban roads in China, and then later on to all terrain of traffic roads in scenarios in China, and even go above that to go to the global scenario and scope. And so that is an art. I managed to balance all these different aspects in order to achieve the best solution for our customers.

Thank you.

The next question comes from the line of Ming Lee with Bank of America.

Xiao Peng, Brian, and everyone, hello. First of all, congratulations on your performance. I have two questions. The first question is about G3. We know that G3 will have a mid-term reform in the second half of this year. Is it possible to understand that the level of intelligence of the new reform of G3 will be similar to that of Q5, if they are both daily platforms? In addition, I would like to understand that our G3 is still in the external mode. If it is manufactured by our own factory, will it be a Martian Mutual in the future, or will it be helpful to the efficiency rate? This is my first question. The second question is about the order of carbon-free iron-free batteries. In the last business call, Director Chen mentioned that in March, In our new orders, about 10% of G3 is the zero-acid iron version, and 20% of P7. I would like to know if there are any changes in the structure of such orders after two months. Because like our friend Tesla, they changed the standard version of Model 3 to zero-acid iron last year. My question, I have two questions. The first question is regarding the mid-period G3 upgrade. So when will you start to do this? And will you use the contract manufacturing business model or you will use your own capacity to manufacture it? And if you manufacture by yourself, Will it be margin neutral or is it slightly helpful to your margin? And the second question is regarding the LFP battery orders. Last time during your earning call, you mentioned that around 10% of orders of G3 is for LFP battery version, and the 20% orders of P7 is for LFP battery version. So after two months, do you see any structural change regarding on your order combination. Thank you.

When the new G3 returns to the factory, we are very confident that we can increase the horsepower of this G3, including the other models that I mentioned earlier. There will be indirect influence, and the horsepower will be further improved. Then you just asked the second question about the mass production. Yes, we are increasingly seeing that the demand for telecommunications telecoms for both G3 and SP7 is rapidly increasing. This has exceeded the current proportion of the two data that you just mentioned. So about the newer version of... Sorry, I'll put it in one sentence.

Okay, about the newer version of G3, we actually wouldn't do any upgrade in terms of its autonomous driving capability because we hope that by the next time, another newer upgrade of G3 will be able to support a higher level of autonomous driving. And regarding the second part of your first question, if we were to produce the next version or next model of G3, our own factory definitely the margin will be improved and it will also impact other models uh gross margin as well in a very positive manner and the second question uh regarding the demand for lpf um battery right basically uh we've seen more than not for that battery than expectation so for g3 and p7 that number um that order for lps lfp battery definitely have surpassed that we have surpassed that was disclosed in last conference call And so right now we are in the process of negotiating with a lot of the battery suppliers and hopefully that they can ramp up their capacity of production of that battery so that we can support that order demand for K3 this year. In the long run, we are very confident that actually demand for LSD will continue to go up and we are very confident that it will help us to drive up the margin in general. Thank you.

So, Ming, this is Brian. Let me just add, on the LP battery front, what we see is that the increased demand is actually additive to our existing demand with the NCM battery-powered models. In fact, we have not seen the number of NCM models decline as a result of the launching of NFP batteries. we believe that LP Battery actually expanded our customer base and the reach because of the wider pricing. And also, I think, given the capacity ramp-up, we think that the mix will reach probably a steady state percentage high sometimes in third quarter, and that's where we think we will see the most significant contribution on volume side.

Thank you, Brian.

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

Thank you once again for joining us today. If you have further questions, please feel free to contact Expansive Investor Relations through the contact information provided on our website or the TPT group in Investor Relations. Thank you.

This does conclude today's conference call. You may now disconnect your line. Thank you.