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spk08: And gentlemen, thank you for standing by for the second quarter 2021 earnings conference call for Xpeng Incorporated. At this time, all participants are in a 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. Ziling Ma, Director of Investor Relations of the company. Please go ahead, Mr. Ma.
spk00: Thank you. Hello everyone and welcome to EXPAND's second 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 session of our website at ir.shelford.com. Participants on today's call will include our co-founder, chairman, and CEO, Mr. He Xiaopeng, Vice Chairman and President, Dr. Brian Du, Vice President of Finance, Mr. Dennis Liu, Managing Director of Strategy, Mr. Chow Chang, 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 the website. Before we continue, please note that today's discussion will contain forward-looking statements made under safe harbor provisions of the U.S. Private Security Litigation Reform Act of 1995. Forward-looking statements involve inherent risk and uncertainty. As such, the company's results may be maturely different from those 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. Security and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that any press release and this conference call will include a disclosure of unaudited gap financial measures as well as unaudited non-gap financial measures. XPeng's ending press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. I'll now send the call over to our co-founder, chairman, and CEO, Mr. He Xiaopeng. Please go ahead.
spk03: Hello, everyone. Thank you for joining XPeng's second quarter 2021 earnings conference call. In the second quarter of this year, the delivery volume of small and medium-sized vehicles reached a new high of 17,398 units. The total growth is 439%. By the end of June this year, the total delivery volume of small and medium-sized vehicles reached 30,738 units in the first half of the year. It has exceeded the total delivery volume of 2020. In July, we renewed the delivery volume of single-month vehicles again, breaking 8,000 units. In the second quarter of 2021, S-Pan's vehicle deliveries reached 17,398, another quarterly record high, representing a 439% increase year-over-year.
spk09: For the six-month period ended June 30, 2021, Xpeng delivered 30,738 vehicles, surpassing the total number of vehicles delivered for the full year of 2020. And in July, our monthly deliveries exceeded 8,000 units, setting a new monthly record with an all-time high order backlog. With the rapid growth in deliveries, our second quarter profitability further improved, and our gross margin reached 11.9%.
spk03: We believe that the increase in delivery and rapid growth comes from the increase in the market's recognition of autonomous electric vehicles, as well as our leading position and rapid delivery capacity in autonomous electric vehicle products. In the second quarter, Xiaofeng's X-Panel 3.0 automatic driving software penetration rate reached 25%, At the end of June, we have delivered nearly 3.5 million batches of X-PAD 3.0. In June, our users drove about 1.45 million kilometers of high-speed public transport with high-speed NGP support. The flow rate exceeded 60%, and the average use rate of NGP exceeded 65%. Our users continuously improve their self-support driving, I believe that after we launch XPanel 3.5 next year, and even later, when we launch XPanel 4.0, which is the hardware and software platform of the next generation of smart assistant drivers, we will be able to cover a wider range of driving scenarios from end-to-end, including scenarios without high-resolution maps. We also see that users will greatly improve their dependence and demand for smart assistant drivers. At the same time as we continue to explore the technology innovation, safety will always be our priority. We continue to use users' safety education, hardware integration, and software delivery to improve the safety of our users using our self-driving vehicles. For example, Xiaobong is the first Chinese company to require users to use the self-driving vehicle system after the test. We will continue to improve the processing ability of special scenarios in various auxiliary assets to further ensure the safety of users.
spk09: Our rapid delivery growth was driven by consumers increasing demand for smart EVs and our leadership position and smart electric vehicle products and our fast product iteration. In the second quarter, the attach rate of XPILOT 3.0 software reached 25%. Among the nearly 35,000 P7s that have been delivered as of the end of June 2021, close to 8,000 units were equipped with XPILOT 3.0. Also, in June, our highway NGP mileage penetration rate exceeded 60%, and NGP assisted our customers in driving for around 1.45 million kilometers. The average monthly usage rate of NGP exceeded 65%. This is a clear demonstration of customers' increasing adoption and reliance on our advanced driver assistance system. With the rollout of XPILOT 3.5 earlier next year, and afterwards, XPilot 4.0, our future advanced driver assistance system built on our next-generation hardware platform will be able to empower a broader range of end-to-end driver driving scenarios, including those not covered by HD maps. As a result, customers' demand and reliance on advanced driver assistance system will continue to increase. As we advance in developing cutting-edge technologies safety will always remain our top priority. We have an unwavering commitment to enhancing driver safety education and providing hardware redundancy and software iteration to ensure our customers can safely use our advanced driver assistance system. To illustrate, Xpeng is the first EV maker to implement a driver safety proficiency test for customers before they can activate our advanced driver assistance system. In addition, we are also the first in the industry, starting from our P5 model that equips larger technology to be adopted in some of the configurations to increase redundancy of perception through hardware and sharpen its adaptabilities in handling corner cases to further safeguard driver safety.
spk03: We have expanded the current market size through the fast delivery of products. In the second quarter, we started to sell and deliver G3s and P7s in Linxuan and Tianli versions. Currently, the delivery volume has exceeded 20% of the over-the-top vehicle delivery volume. This has also expanded the price range and target customer group of modern models. With the expansion of the supply and delivery scale of iron, iron, and aluminum, we are very optimistic that the future will increase the weight of this footwear. In addition, the market response of G3's medium-term reform G3i has also significantly exceeded our initial expectations. The current production switch and adjustment of G3i is expected to affect G3 and G3i's production and delivery in the last few weeks. We expect to start delivering G3i in a small amount at the end of August and continue to increase the scale in the next quarter.
spk09: Our strategic focus on advancing fast product iteration allows us to further expand our addressable market. In the second quarter, we began sales and deliveries of lithium iron phosphate or LFP battery power G3s and P7s. And their deliveries comprise more than 20% of total deliveries for each model. These new additions expand our price range and customer base. With the growing supply of LFP cells, we're confident with the increasing proportion of LFP models among our deliveries in the future. Moreover, the strong market response to our recently launched G3i, the new mid-cycle phase version of the G3, exceeded our expectations. The production preparation and switching of G3i is expected to have impact on G3 and G3i production and delivery for a few weeks. We plan to start deliveries at the end of August and will increase delivery scale in the next quarter.
spk03: In July, we announced Xiaofeng's third mass-produced model, which is the P5, and officially launched the pre-order. The market feedback is strong. We plan to launch the P5 in mid-June and announce the official price. We will officially deliver it in October. If the PC shows the user the ability and experience of the self-driving driving system of the first full-size Zhiyuan and the most Chinese driving scene, then we believe that the P5 will bring new surprises to our users in the city scene and the connection between different scenes. I think this is also the beginning of our expansion of the technical advantages of self-driving driving. In July, we announced configuration details and the price range for our third production model, the P5, and its market reception has been overwhelmingly positive.
spk09: We expect to officially launch the P5 and unveil its MSRP in mid-September and begin its deliveries in October. With P7, we have already demonstrated the unique driving experience brought by our full-stack in-house algorithm for advanced driver assistance system that is capable of handling complex driving scenarios in China. Now with P5, we are bringing to our users a driving experience that will enable them to utilize advanced driver assistance systems in urban driving scenarios with the ability to switch between different driving scenarios smoothly. I believe this is only the start of XBank's journey to accentuate the development of our leading advanced driver assistance technologies. Moreover, with the P5, we're able to offer our industry-leading advanced driver assistance system and smart cockpit technology to the broader family sedan market with an attractive pricing range from 160,000 to 230,000 RMB, further accelerating the EV disruption of the traditional ICE and non-intelligent automobile market. 暫時我也分享一下我們對於未來發展的幾個判斷
spk03: First, in China, between $150,000 and $400,000, it will be the largest and fastest-growing electric car segment market. And in this segment market, the naturalization of traditional cars will be the strongest and fastest. Second, the real high-level smart service drivers will start to bring positive changes to customer service. Third, China will lead the development of global smart electric cars. China's smart... electric vehicles will also bring very good global opportunities. Therefore, on July 7 this year, after Xiaofeng Electronics was officially listed on the Hong Kong Stock Exchange, we invested 15.8 billion Hong Kong dollars to realize the double major listing of the United States and Hong Kong. Our plan is to further expand the investment in smart technology innovation, brands and market services, including supermarkets and sales channels, as well as globalization and other aspects. Here I would like to share some of my predictions for the future.
spk09: First, in China, vehicles priced between 150,000 and 400,000 RMB will constitute the largest segment in EV market and show the fastest growth rate. Furthermore, the disruptive forces that smart EV brings to traditional mobility in this segment will also be the most vigorous and the swiftest. Second, high-level or advanced driving assistance system will trigger qualitative changes in users' mobility experience. Third, as China is poised to take the lead in the development of smart EVs around the world, China's smart EV makers will be in an excellent position to expand globally. In order to be able to capitalize on such opportunities, on July 7, XPeng completed our dual primary IPO on the Hong Kong Stock Exchange and raised HK$15.8 billion. Looking ahead, we plan to further increase investment in intelligent technology innovations, branding and marketing service facilities across our supercharging, self-channeled network, and global expansion. Our differentiated products and technological path we chose, along with investments in human capital and global expansion, not only bolster our leading position in the current landscape, but also underscore our long-term vision and strategic deployment.
spk03: In the next few years, we will further accelerate our product launch pace. Starting from 2023, we plan to launch at least two to three new models every year. All new models will support the X-Panel 4.0 high-level AI support system. This especially shows that all of our new models will support the international market at the same time, We will also expand from 15 to 30 million yuan to 15 to 40 million yuan in China's mainstream price sales area, making our advanced autonomous vehicles cover a wider customer base.
spk09: Looking forward, in a few years' time, we will accelerate the pace of our new product deployment development. Starting from 2023, we plan to launch at least two or three new vehicles every year supporting XPILOT 3.0 or above. We intend to make these future new models, including hardware, software, and services, simultaneously available in China and in international markets. will also broaden our primary price range in China from between 150,000 and 300,000 RMB to between 150,000 to 400,000 RMB, making our cutting-edge smart EVs accessible to a broader customer base.
spk03: With the acceleration of more vehicle development and key technology innovations, we will continue to strengthen the construction of our development team. As of 2021, more than 3,000 small and medium-sized R&D teams will be added to the R&D team. We expect that more than 4,500 R&D teams will be added by the end of this year. We expect that more than 1,500 R&D teams will be added by the end of this year.
spk09: As we accelerate our efforts in technology innovations and product design and development for more new models, we are committed to growing and developing our R&D team. As of the end of second quarter 2021, our R&D headcount exceeded 3,000, a nearly 50% increase compared to the beginning of this year. And by the end of 2021, it will increase to more than 4,500, We also plan to increase the number of engineers dedicated to research and development of autonomous driving technology spanning software, hardware, big data, and navigation maps for international markets. We estimate the total number of engineers working in our autonomous driving software, hardware, and relative supporting infrastructure teams to exceed 1,500 by the end of this year.
spk03: In June of this year, China's electric cars' productivity was over 10% for the first time. We believe that the electric car market has accelerated. Therefore, we will speed up the construction and expand our basic facilities to do long-term deployment and investment. By the end of June, Xiaopeng has reached 200 sales outlets nationwide, covering 72 cities. Of these sales outlets, Zhiyin Electronics has 114.
spk09: In this June, the penetration rate of EVs in China's market has surpassed 10% for the first time. I believe the Chinese smart EV market is navigating through an inflection point for the next level of growth, which arrived earlier than expected. To tap into these booming opportunities, we will accelerate the construction of our infrastructure facilities, underpinning our long-term strategic roadmap and investments. As of the end of June, Xpeng's physical sales network consisted of 200 sales stores across 72 cities in China. Of these sales stores, 110 were directly operated by us. To keep pace with our rapid development delivery growth, we plan to lift our guidance of the number of cell stores from 300 to more than 350 stores by the end of 2021.
spk03: We will continue to accelerate the expansion in terms of charging facilities and network layout. As of June 30, 2021, Xiaofeng's supercharging station has operated 231 supercharging stations covering 65 cities. We are planning to reach the end of this year We also continue to rapidly expand our supercharging network. As of June 30, the number of Xpeng-branded supercharging stations grew to 231, covering 65 cities.
spk09: Recently, the first batch of 11 XPeng-branded supercharging stations has been deployed on the Shandong section of the Beijing-Shanghai Expressway and the Henan section of the Beijing-Hong Kong-Macau Expressway. We'll move forward to deploy our supercharging capabilities across the entire Beijing-Shanghai, Beijing-Guangzhou, and Beijing-Hong Kong-Macau Expressways. further enhancing our ability to serve our customers in long-distance driving. We plan to have more than 500 Xpeng-branded supercharging stations operational by the end of this year, accelerating the expansion of our charging network across lower-tier cities.
spk03: At the end of June, our export to Norway's G3 will be nearly 500 taels. We plan to export P7 to Norway in August this year, and continue to be active in Norway and more European markets, constantly improving our local sales, delivery and service system. Our goal is to complete our overseas market in three years from 2020 to 2022, including the basic layout of the left-hand market and the right-hand market, including hardware, software, In terms of our international expansion, as of this June the 30th, we have explored approximately 500 G3s to Norway. And in August, we plan to export T7 to the Norwegian market as well.
spk09: We'll continue our efforts in Norway and other European markets to further strengthen our local operations through sales, delivery and customer service enhancements. Our target is to prepare ourselves for the overseas markets in both left and right-hand drive countries within the three years time of 2020 to 2022. and accelerate our penetration into international markets with our upcoming smart EV models equipped with X-PILOT 4.0 starting from 2023.
spk03: In terms of production and manufacturing, along with our G3i and P5, we have already started production of P7, G3i and P5. We have already started production of two classes of cars in August. With the release of capacity, in the fourth quarter, we are confident that our unit supply will continue to increase and expect to break through 150,000 units. Of course, I believe that the supply chain challenge is still the biggest challenge to achieve this goal. Under the support of the Zhaoxing City Government, we launched the second expansion project of Zhaoxing Factory on August 18. It is expected that in the first half of next year, the capacity of the fourth quarter can increase from the current 100,000 units to more than 200,000 units per year. At the same time, the construction of the Guangzhou factory is going smoothly. It is expected that the main structure will be completed by the first quarter of next year, and that it will be officially started in the third quarter of next year.
spk09: Turning to our production, with our G3i and P5 commencing production, our Zhaoqing factory is now able to produce the G3i, P7, and P5 concurrently. And in August, we added a second production shift at the Zhaoqing factory. With the increasing production output, we expect our monthly delivery volume to potentially reach 15,000 in the fourth quarter. That said, supply chain challenges, particularly those pertaining to chip shortage, remain the biggest production hurdle we're facing. With the support of the Jiaojin Municipal Government, in August, we kicked off the Phase 2 expansion of our Jiaojin factory, which we expect to increase annual design production capacity at the site from 100,000 to 200,000 by the end of the first half of 2022. construction for our guangzhou factory remains on track and we expect the main structure to be completed in the first quarter next year and mass production to begin in the third quarter 2022.
spk03: Finally, in the third quarter, we will work hard to overcome the chip shortage, the structural shortage of telecommunications, the impact of the power supply in some areas, and the challenges of G3 switching to G3i in production. We expect that in the third quarter of 2021, our total delivery will be 21,500 to 22,500 taels, and the revenue is expected to be 4.8 billion to 5 billion yuan.
spk09: In summary, we'll continue to strive to overcome the various challenges before us, stemming from chip shortage, sound structural shortage, COVID-19 resurgence in some parts of the world, and production transition from G3 to G3i. In the third quarter of 2021, we expect our smart EV deliveries to be between approximately 21,500 and 22,500 units, and our total revenue to be between approximately 4.8 billion and 5 billion RMB. I look forward to sharing with you our latest progress on technology innovations on our third Expand Technology Day on October 24th this year.
spk03: Thank you, everyone.
spk09: With that, I'll now turn the call over to our VP of Finance, Mr. Dennis Liu, to discuss our financial performance for the second quarter of 2021. Thank you, Xiaopeng, and hello, everyone.
spk02: Our outstanding performance in the second quarter continued to reflect experts' leadership in China's booming smart EV industry, where we continued to introduce innovative technology, differentiated products, and premium service. Filled with strong delivery performance, our revenues in the second quarter grew 537% compared with the same period of 2020. We also witnessed further improvement in our financials. In particular, our gross margin continually upward trend and reached 11.9% in the second quarter. Now I would like to walk you through our detailed financial results for the second quarter of 2021. I will reference RMB only in my discussion today unless otherwise stated. Total revenues were RMB 3.8 billion for the second quarter of 2021, representing an increase of 537% from RMB 591 million for the same period of 2020, and an increase of 28% from RMB 2.95 billion for the first quarter of 2021. Revenues from vehicle sales were RMB 3.6 billion for the second quarter of 2021, representing an increase of 562% from RMB 541 million for the same period of 2020, and an increase of 28% from RMB 2.8 billion for the first quarter of 2021. The year-over-year increase was mainly due to higher vehicle delivery, especially for the P7. The quarter-over-quarter increase was also attributable to higher P7 sales as a result of seasonality, channel expansion, and increase in brand equity. Revenues from service and others were RMB $177 million for the second quarter of 2021, representing an increase of 256% from RMB $49.7 million for the same period of 2020 and an increase of 26% from RMB $141 million for the first quarter of 2021. The year-over-year and the quarter-over-quarter increase were mainly due to more income from service, parts, and accessory sales in that with higher accumulated vehicle sales. Gross margin was 11.9% for the second quarter of 2021 compared with a negative 2.7% for the same period a year ago and 11.2% for the first quarter of 2021 respectively. Vehicle margin was 11% for the second quarter of 2021 compared with negative 5.6% for the same period, 2020, and 10.1% for the first quarter of 2021. The improvement was primarily attributable to better product mix and material cost reduction. Research and development expenses were RMB $864 million for the second quarter of 2021, representing an increase of 170% from RMB $390 million for the same period of 2020 and an increase of 61% from RMB 535 million for the first quarter of 2021. The year-over-year and quarter-over-quarter increase were mainly due to, one, the increase in employee compensation as a result of expanded research and development steps, and two, higher expenses related to the development of vehicles and related software technologies. SELLING GENERAL AND ADMINISTRATIVE EXPENSES FOR RMB $1 BILLION FOR THE SECOND QUARTER OF 2021, REGARDING AN INCREASE OF 116% FROM RMB $477 MILLION. for the same period of 2020, and an increase of 43% from RMB $721 million for the first quarter of 2021. The year-over-year and the quarter-over-quarter increase were mainly due to, one, higher marketing, promotional, and advertising expenses to support vehicle sales, and two, the expansion of sales network and associated personnel costs and commission for the franchise store sales. Lost farm operation was RMB $1.4 billion for the second quarter of 2021, compared with RMB $779 million for the same period of 2020 and RMB $904 million for the first quarter of 2021. Excluding share-based compensation expense, non-GAAP loss from operations was RMB $1.3 billion for the second quarter of 2021, compared with RMB $779 million for the same period of 2020 and RMB $814 million for the first quarter of 2021. Net loss was RMB $1.2 billion for the second quarter of compared with RMB 146 million for the same period a year ago and RMB 787 million for the first quarter of 2021. Excluding share-based compensation expense and fair value change on derivative liabilities related to the retention rate of the approval shares, The non-GAAP adjusted net loss was r&b $1.1 billion for the second quarter of 2021, compared with r&b $770 million for the same period of 2020 and r&b $696 million for the first quarter of 2021. Net loss attributable to ordinary shareholders of Expo Inc. was r&b $1.2 billion for the second quarter, compared with r&b $1.1 billion for the same period of 2020 and compare with the R&D 787 million for the first quarter of 2021. Excluding share-based compensation expense, the fair value change on derivative liabilities related to the retention value of the prefered shares and accretion on the prefered shares to the retention value did not get net loss attributable to Ordinary shareholders of Expo Inc. was RMB 1.1 billion for the second quarter of 2021, compared with RMB 769 million for the same period of 2020 and RMB 696 million for the first quarter of 2021. Basic and diluted net loss per ADS was under 1.5 yen for the second quarter of 2021. The non-GAAP basic and diluted net loss per ADS was under 1.38 for the second quarter of 2021. Each ADS represents two Class A ordinary shares. Turning back to the balance sheet, as of June 30th, Our company has cash and cash equivalent restricted cash, short-term deposit, short-term investment, and long-term deposit in total of RMB 32.9 billion, which is exclusively a Hong Kong IPO procedure of RMB 13 billion, compared with RMB 35.3 billion for the December 31, 2020. With that, now I would like to turn the call to a three-month.
spk00: To be mindful of the length of our earning call for our second quarter financial results, I would encourage listeners to refer to our earning press release for further details. This concludes our prepared remarks. We will now open the call to the questions. Operator, please go ahead.
spk08: Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. To ask a question, please press star one on your telephone keypad. And to withdraw your question, press the pound key. Your first question comes from Tim Chow with Morgan Stanley. Your line is open.
spk05: Thanks for taking my questions and congratulations on a great result. I've got two questions. The first question is about the component supply. I think the nearing chip shortage now is well anticipated. But should we concern about a similar supply crisis into next year, especially X-Pen will need to secure the key component supply for four models in total, with model likely doubling? So I just want to know that how could X-Pen cope with such challenge into next year? We had a company consider investing or forming strategic alliances with the parts makers, like for a chip or battery, to ensure we can get sufficient supply. My second question is about the demand of P5, because I think Mr. Ho already mentioned that the demand is pretty strong. But could you share more information about the progress in collecting the orders during its pre-sale? I understand we might not be able to share too much detail, but how should we think about that volume scale relatively to, for example, that of our fraction model P7? And would the component shortage or the volume ramp up of P5 into fourth quotient? Hello, everyone. I have two questions. The first one is, how do we look at the shortage of key components or chips? If we still encounter such a situation next year, how do we confirm or ensure that we have sufficient component supply? Will we consider investing in these key component manufacturers? Or is there another way? Uh,
spk03: There are two types of short-circuit chips. I think the first one is predictable, and the second one is unpredictable. The predictable one is mainly from the perspective of chips. The unpredictable one is mainly from the perspective of the epidemic. For example, the recent Nanjing epidemic has brought many challenges to many chess players in China. Because once the epidemic closes a certain area, it will have a bigger challenge in this area if it happens to have your first tier 1 or tier 2.
spk09: So, in regards to core components and chipset shortage, I think we have to look at it from two ways. The first way is there are some expected shortage that we can deal with and prepare for, and the other kind is the unexpected ones. Now, for the expected ones, I'm mainly talking about the chipset or chip shortage, but the unexpected ones are mainly referring to pandemic resurgence. For example, lately, we saw this this emergency happening in Nanjing where we face a serious lockdown. And if it so happened that one of your tier one or tier two suppliers is located in one of those lockdown cities, there's nothing you could do about it. And those will be considered as unexpected elements that affect our shortage and add to our challenge.
spk03: We will adopt a series of policies regarding the shortcomings of chips and other key components, including that we will make clear orders in advance, and we will adopt a strategic cooperation agreement with the chip manufacturers and our main T1. We may also use investment means. We will also work with the government to create a joint purchase system for the chip. From my point of view, the chip shortage is a matter for the entire industry. But for a new technology like Xiaopeng, on the whole, we can achieve better Thank you. So we can actually be more flexible in considering how we can have more A-B point choices between different models, and how we can have more possibility of purchasing chips in the overseas market in a series of ways.
spk09: So for the first kind of challenge, which is the core components or chip shortage, we can do several things to prepare for it. For example, the first one is we can make orders way ahead of time so that we can better prepare for chip shortage. The second thing is we can work with some top tier suppliers in terms of chipset production and development, we can work with them in several ways. First of all, we can find collaboration fields. Also, we can invest in some of those core suppliers. And also, we can work with local governments in terms of bulk purchasing or pre-ordering of the chipsets or chips that we need. Basically, chip shortage is a big challenge faced by the whole industry, but as a company equipped with leading technology of its kind, Xpeng actually has a very, very variable position to play in this value chain because a lot of the chip suppliers consider us as their VIPs thanks to our fast development and fast iteration of our models. And also, we are actually very flexible in a sense that we don't have a large delivery backlog yet. So that allows us to be really flexible in selecting different suppliers in order to fulfill our chip demands. We also can look to the overseas market for more chip supply.
spk03: 关于P5的相关情况,我只能跟P7做一个简单的对比。 Compared to P7 and P5 at the same time, I think there are two points to be shared. First, the demand intensity is significantly higher than P7. This is the first point. Second, our planning for P5 is much more accurate than P7 this time. We are now in the pre-sale of P5 for about two months. We can see the order volume of each week in our planning range. So this will greatly improve the efficiency of our delivery this year.
spk09: So in regards to the second question, which is about the market demand of P5, if you ask me to compare it with P7, I would say that actually we see an even stronger demand compared to P7 of the same developmental stage. And also, we are able to actually better plan ahead for the pre-ordering of P5. And right now, the pre-order has started since two months ago. And every month, we are seeing the demand come in more and more as expected. That allows us to actually deliver what we guaranteed by 4Q this year. So in order to fulfill the core component or core parts demands for P5, we actually have prepared for this since the beginning of this year. So that is why, by comparison, we actually face a smaller challenge compared to the fulfillment of the order for P7 and G3. Thank you.
spk05: Thanks for sharing the insight. Thank you.
spk08: And your next question comes from Bin Wang with credit fees. Your line is open.
spk04: Thank you, Director. I have three questions. First, I would like to ask what our fifth and sixth products are. Because I see that we have announced three products this year, and we have announced more than ten products this year. I would like to ask what our fifth and sixth products will be like. This is the first question. The first question is whether the leadership can clarify the increase in the efficiency of the second quarter and the first quarter. It seems to be 2.7 points. If we subtract the heating income in 2020, how can these 2.7 points be divided? At the same time, look at the efficiency of the second half of the year. The third question is related to this. I want to ask how much the heating penetration rate of the second quarter is. How much will it be in the second half of the year? Compare the penetration rate of the first quarter. We want to talk about the contribution of heating. I actually got three questions. Number one is about new products. Actually, I want to know the number five and number six products, given your competitors actually has been announced pretty aggressive new product plan. For example, one of them actually offer three products in six years, and the other one actually getting more than 10 products in the next few years. Basically, a detail about the number five and number six products. Second question is about the margin, because it seems that if you're excluding the software income in 2020, actually, the Q&Q in the second quarter actually increased around 2.7%, according to my calculation. Can you break down the driver for the 2.7% gross margin increase? In the meanwhile, what's your guidance for the second half of this year about the gross margin chain? And last, a question about a link to a second question about the software attach rate as pallet, attach rate, tick rate in the first quarter, second quarter, and the second half guidance. Thank you.
spk03: Hey, Bain, it's Brian. Let me just address your first question. Obviously, we can't detail the fifth or the sixth product at the moment, but what we can share with you is that we are intending to develop a new platform for the fifth and sixth product. That platform we aim to be probably the largest in terms of the quantity and addressable market. So it will be a platform that is targeted in the mid to high end that we're selling right now. At the same time, I think around the same time that we will be also rolling out a high end product in the same year that will probably be above the current price range, increasing it to over $400,000 or even above. So that's another product that we aim to launch in the 2023 timeframe. So you can see that in addition to the G3, the P7, and P5, we will have a new platform that will have both the right-hand and left-hand driving capability targeted both domestic and international market. It will be a very large volume driver. At the same time, we'll be launching a product that will be actually higher than our current high-end, $400,000 and above. So let me turn to Dennis to talk about the margins.
spk02: Yes, Bing, you're right. If we take out the software margin impact, we actually had about 2.3 percentage point margin improvement quarter over quarter. Among that, around 1.1 to 1.2 was driven by beta product mix. You know, in the second quarter, we had more P7 in our total sales. In the first quarter, our P7 accounted for about 60% of the total sales. But in the second quarter, the P7 increased to about 66%. So we had the mixed improvement. The other big part is the material cost reduction. As we mentioned in the previous earning call, we have reached the battery cost negotiations starting from the first quarter. But in the first quarter, we also have some inventory which we purchased. In quarter four last year, so the cost reduction impact for the first quarter was not 100%, but in the second quarter, we basically have the 100% usage for the lower battery cost. So that accounted for about 1.1 to 1.2 percentage points in terms of margin contribution as well. So this is a big part of the margin improvement by the causal factors.
spk03: Yeah, Bing. Charles here to address your third question regarding the software attach rate. In Q2, our software attach rate increased from around 20% last quarter to around 25% this quarter. And we believe the increase in software attach rate was mainly driven by the high utilization rate and also the overwhelmingly positive feedback from our customers. For example, in June's hour monthly, the NGP utilization rate exceeded 65%, and also the NGP mileage penetration rate in June also exceeded 60%. And looking forward, I think it's starting from Q4, and we will start to recognize the revenue from the XPAD 3.0 on the hour of P5. Thank you.
spk04: How about guidance? Second half. Guidance. Thank you.
spk08: And our next question comes from Nick Lai with J.P. Morgan. Your line's open.
spk07: Yeah, hi, thanks. It's Nick from J.P. Morgan. Thank you for taking my question. There are two simple questions. First is related to financial, and second is related to the policy guideline. On the financial, you know, you mentioned earlier, as of June, we have a new offer, nearly $33 billion in cash on balance sheet. Can you remind us what are our strategy using that level of cash? You mentioned earlier that we are launching two free new model per year from coming free on work. Also, Brian just mentioned that we are going to launch a new production platform. Also, sales marketing is going to increase in 2Q. So a very strong top line. Can you help us understand how should we think about the profitability or margin in that a lot of expansion or investment going forward at both cost level and OPEX level. That's the first question. And the second question is the trans-government MIT announced recently a policy guideline regarding data control, data security in autonomous driving business and how should we integrate that and what does that mean to our business operationally and financially? I will quickly translate my question to you, Mr. Guan. The first question is that we have about 300 million RMB of cash on balance in the last half year. We can talk about our capital investment. While launching a new product or a new brand, how do we look at the毛利 or OP margin issue? As I just mentioned, the stock market is relatively high in the second quarter due to the expansion of the network. That's the first question. The second question is whether there are any implications for the cost of transportation or the cost of transportation. These are two simple questions. Thank you.
spk03: Thank you. This is Brian. Let me just address your first question regarding our cash reserve and then the future use of those cash. Including the Hong Kong IPO raise, our cash balance actually exceeds 4.6 billion RMB at the moment. As we stated in our Hong Kong IPO prospectus, we actually intend to use the proceeds mostly for R&D as well as self-marketing expansion. What I can say at this moment is that we are seeing a tremendous opportunity in China. The acceleration of the market is actually faster than what we expected in the beginning of the year. And I think as the leading company in this segment, we want to maintain our leadership by further invest into R&D, infrastructure, self-marketing, brand building, and other sort of related efforts. So you can see that we will increase the investment pace of our business in all these areas. For example, in the area of R&D, we think this year we will further accelerate the use of R&D funding. We expect the R&D expenses for the whole year will approach about $4 billion R&D. So that will be an increase. from the earlier year, you know, early in the year. Also, in the sales and marketing, I think given that expected launching of our new models in third and fourth quarter will be also increase the spending on market, sales and marketing infrastructure build-out, brand, as well as other areas and charging facilities, et cetera. We intend to increase the delivery target for our business. So as Xiaopeng mentioned in the script earlier, in the fourth quarter, we aim to achieve on a monthly delivery a peak number of above 15,000 vehicles per month. So that's actually, you know, the exaggeration of current pace of delivery that we've seen. And based on what we see today in the supply chain and, you know, the constraints, we are confident we can hit that level in the fourth quarter. So let me turn now to Dennis, turn now to Xiaofeng to talk about the data and the regulatory issues I mentioned. Okay, thank you. I'm Xiao Peng. The Ministry of Industry and Information Technology issued an opinion on strengthening the networked car production enterprise and product accuracy management. From our point of view, this is a very good thing for the entire industry, especially for Xiao Peng. First of all, what I want to say is that today Xiao Peng's model is already in line with the policy rules according to our regulations. So our security data is not only in China, but we are also to look at European and global standards. At the same time, what we especially want to say is that we want to make the artificial intelligence system in accordance with the regulations. We think it is a different thing. In the past, many people have shown that they have made some of the different boards very well. But the most difficult thing, for example, is to make the other boards that we can't see, for example, safe and manageable. These boards can be made well. This requires the ability of the whole station to do so, and this is what Xiaopeng has always wanted to do and is still doing. In terms of the optimization of software OTAs and other products that protect these products, it is also more conducive to long-term development in the industry. For example, from the point of view of autonomous driving safety, we are the first car to do an autonomous driving test, and the first car to use an automatic radar. In regards to your second question,
spk09: In regards to your second question regarding data security, we are actually very, very happy to see this new regulation coming out from the Chinese government because it's going to be very, very beneficial, not just for the whole industry, but especially for Xiaopo because Xpeng has been always very stringent on its data protection and also on its safety, safeguarding. Since our inception, we've been investing a lot in the R&D industry. of the data security and also safety safeguarding, we not only fulfill the requirements and regulation in China, but also in Europe and across the world as well. And in terms of the whole industry development in this regard, we believe that a lot of the OEMs and other competitors out there are focusing on building their advantage on different modules, but really the challenge lies in the combination of different modules and also how to coordinate different modules to make sure that the whole set of your intelligence or driver assistance systems fulfill all of those safety requirements and data security protection requirements. The most challenging part actually comes in the safety safeguarding and also the manageable modules that really requires a full set of in-house R&D capabilities, which XPAN always possesses. And also, in terms of the software OTA, which also is an important matrix in regards to your data protection and also safety safeguarding, we are very, very cutting edge in this development as well. For example, we are the first company OEM or EVOM in the industry that actually conduct a driver proficiency test before allowing them to use our driver assistance system. We are also the first company of its kind that adopted this lighted technology on top of our visual technology to make sure that we protect the driver's safety. as our top priority. So definitely we see this new regulation as a beneficial news for not just the industry, but especially for OEMs such as us that actually possess the in-house full-stack R&D capability. Thank you.
spk08: All right. And your next question comes from Ming Lee with Bank of America Securities. Your line's open.
spk06: Thank you, Madam Tim. So I have two questions. The first question is regarding your international expansion plan. I think yesterday we just saw news that you also started to ship P7 to Norway. So in the future, will you continue to adapt the wholesale business model or you will start to open your own brand stores through the retail model? Besides that, you also mentioned that starting from 2023, all of your models will be able to using the international standard and to ship to worldwide. So in your view, what's the most difficult and the challenges when you need to localize your component and what kind of components or software is the most difficult to localize? So that's my first question. And the second question actually just follow the previous regulation issue. So actually, I think it's good thing to see a strict regulation. And the new regulation actually give the guidance for all the auto company to comply with. However, I think that in the near term, is it possible that OTA become more difficult? Or when your software and hardware are able to provide level four autonomous driving functions, but the regulation probably only allow you to provide level three functions. In this case, how do you see the possibility on this? And will this narrow down Expo's advantage? 我的第一個問題還是關於海外市場的話,我們以後會用P8還是零售的這個模式。 The second question is still about the OTA and the supervision of the district government. Will it allow us to have the advantage of leading the market? This time window is more strictly regulated by the law. Thank you, Director.
spk03: And your next question comes from... Sorry, let me respond to the question because we were actually on mute. So on the first question, you're talking about the international strategy for self-marketing. Currently, we actually are aiming to try both in terms of working with distributors locally as well as opening our direct-owned stores. We're actually going to try a hybrid model in Europe. For example, in Norway, we're working with the leading distributor right now, but also we have plans to open up our own stores in large cities or capital cities in the European countries that we target. So we're experimenting a mixed model. Obviously, that's something that we will need to decide what is the best model for us, but I think currently it's a hybrid model. Your second question is on the OTA and also the data security. So, Ming, your second question, I think the same question that was asked before, right, the question about the new regulation, how that impacts our ability to innovate as well as stay ahead. I think as Xiaopeng mentioned in the answer earlier, you know, it is obviously we're welcoming the regulatory sort of framework. And I think as a leading company in this, we will benefit from a higher standard, higher bar for such innovation. So I think for us, we don't see this actually will slow down our innovation, nor will it actually narrow the gap between us and the followers. We actually think the increased regulatory tension on this area will actually further strengthen the top players and create more barriers for the followers to come. So that's our view.
spk06: Got it.
spk08: Thank you, Brian. All right. And your next question comes from Addison Liu with Deutsche Bank. Your line is open.
spk03: Thank you for taking our questions, F2. First one, it seems you're making a bigger push into the premium end going forward. I'm just curious if you could share how you will kind of go about this differently than the sort of existing models or the more mass market models. Will you be kind of implementing better service or will there be some sort of brand differentiation with this kind of premium offering? And second question is just about the Xpilot 3.5 pricing. I think in the past you've talked about as the feature set grows, the price should go up. So wondering if you could provide any details there. 我简单翻译一下,就是第一个问题是,看来你们未来想就进入高端市场,就是有什么 Will there be any new methods or new services that will differentiate from your current car? The second question is about the price of the X-Pod 3.5. Can you share your thoughts on this? Thank you. So to answer your second question first is we actually intend to have a higher pricing for XPilot 3.5. It should be priced at a premium to the current XPilot 3.0. Obviously, the XPilot 3.0 will still be available to vehicles with the hardware. So in the foreseeable sort of models, we'll actually have the current pricing maintained for the Xpilot 3.0 and slightly premium price for Xpilot 3.5 to reflect additional features. Thank you. Regarding your first question, through P7, we have already proved that in a market of nearly 300,000, we have already exceeded the sales volume of Audi A4 in China last month. In the future, we will break through 300,000 and go from 300,000 to 400,000. Even if there is a peak, we will go to 500,000. We believe that in this system, we are not doing it through a more advanced service. We will establish a standardized unified service. Compared to that, it is driven by data. It will do better. We believe that the main thing is in the differentiation. We are currently developing these differences. I believe we will see very typical differences in 2023, 2024, and 2025. We hope to strengthen these typical differences to show our ability. Through this difference, we will form our next mine. Because this involves some of the thinking logic of our products. So here, I would like to share with you the year before that. Thank you.
spk09: Now, in response to your first question, I think P7 has already proven our capability of entering the premium market, especially the one priced at about 300,000 RMB. Actually, last month, our delivery of P7 actually surpassed that of all the A4. So that says a lot about our capability of entering the premium market. In the future, we target the even higher price range. At about $400,000 to $500,000 even. So by entering those premium markets, we plan to actually offer standardized data-driven and technology-driven kind of differentiation that set us apart from our competitors, not by offering other kinds of services. In the long run, we expect to see actually a new development coming out from our R&D that actually allow us to really be different from other market offering by 2023 to 2025. And by that time, you will actually see what I'm talking about. And by that time, you will actually see that we will have something that actually showcase our core R&D capabilities and actually allow us to build an even stronger competitive edge or competitive mode against other competitors in the market. And because this actually involves some confidential information about our key product development logic in behind, allow me to keep it confidential at the moment. And when the time allows, time permitting, I will give you and share with you more information in this regard. Thank you.
spk03: I can give an example. For example, we will enter 500,000 to 1,000,000 cars that can fly and drive. This is our layout in the high-end market.
spk09: And I can actually give you one example as some of the flying cars that we are developing and pipeline that we are R&Ding. At the moment, we plan to actually target an even more premium market price to add about half a million to one million R&D. And so that would be actually one of our flagship products by that time as we enter the premium market.
spk03: Thank you.
spk08: And your next question comes from Paul Gong with UBS. Your line is open.
spk01: Yeah, hi. Thanks for taking my question. My first question is regarding your distribution network. I think you mentioned you are going to expand your number of stores from 200 to 350 by end of this year. I double-checked this number and also When you are expanding, are you mainly opening your own direct operating source, or are you going to leverage with the third-party distributors or the dealers? And also, a related question on this is, in terms of challenge, do you think there is currently more mutation from the coverage of the network or the efficiency of the network? Where do you foresee the further improvement? My second question is regarding the number of models. It seems that you are going to accelerate the launch of new models from 2023, but I think there is a Expo shares many of the similarities versus Tesla, but Tesla has right now only four models, despite of a longer track record and much higher volume. So when you are planning this number of models, what is your main considerations to put so many models? And would this give more challenges to your distribution network, given many of the stores, they do not necessarily have that capacity? many of the positions to have several cars. Let me translate it briefly. The first one is about the distribution network. If I didn't hear it wrong, you will expand from the current 200 stores, 110 of which are direct sales stores, to 350 stores at the end of this year. I want to ask, is this expansion mainly based on us opening new stores, or is it based on the third party, the dealers, to open new stores? The second question is about the number of cars. Oh, Thank you.
spk03: Okay, my child, the first question is that from 200 to 350 sales stores, we will have our own construction and third-party authorization, but the proportion of our own construction will be increased compared to the current one. Please help me translate.
spk09: So in response to your first question, definitely by the end of the year, we plan to open 350 distributor stores, and we will have both directly operated and self-operated and also partnership stores. And the ratio of our directly run stores will increase.
spk03: In terms of the coverage of electricity and the power transfer of single electricity, compared to last year, the power transfer of single electricity is much higher than that of last year, even in terms of single-carburetor. We are very confident in this. So this year, our sales stores have begun to make profit in a large area. In terms of the coverage of the electricity, we believe that when a city has supercharged facilities and has our sales service network, our sales will quickly increase in a few months. We now see this trend. So our coverage of electricity will also increase significantly. This is what we started to do in the second half of this year. Thank you.
spk09: And also, since several months ago, we already saw a great improvement on the single stores profitability. Actually, since last year, we already saw that happening across different models that we actually launch and sell. And so across the board, we see a lot of our stores making profits. And so that is why when we look at the deployment of our new stores, we will look at, first of all, the infrastructure of that particular city, meaning that whether or not we have the supercharging support in that particular city and also how developed the sales network is that support that particular city. And so actually with those two core components of the infrastructure and all those networks, we see great improvement in their sales performance in a few months' time. And so that is what we are going to actually heavily invest in for the second half of the year to actually further expand our distribution network.
spk03: Regarding your second question, I mainly want to answer two points. First, Xiaopeng will continue to stick to our premium route, which means we focus on making the best premium. The concept of success in premium is to be in the top two in the car industry. We consider it to be a successful premium. So we will stick to it and do it well. Xiaopeng's P7, for example, is already in the second place in the market. In the future, with the increase in the number of small and medium-sized vehicles, I believe that our sales stores will have some changes. We will continue to protect our flagship stores and four-storey stores in the mall. But we may only put in these stores a few vehicles that meet the mainstream needs of local customers. Thank you.
spk09: Now, in response to your second question, I would like to talk about two things. The first thing is, Xpeng will still continue to focus on high-quality products, which means that all of the models that we are in, we expect them to achieve the number one or number two of its market share of its kind. For example, P7 has already achieved number two in terms of sales in class B sedan, and G3 is ranked number one or number two in the market of its kind. In the future, going forward, when we have more models in our pipeline and when we launch more models, we are going to adopt a different storage distribution or showcase strategy. So we are going to actually look at the local market and local cities and analyze the market demands in selecting which models to showcase in the showroom and in the storage. And in some of our flagship stores where we have more space, we will actually be able to showcase the whole selection of our models. Thank you.
spk00: Thank you once again for joining us today. If you have further questions, please feel free to contact Xpeng's investor relations through the contact information provided on our website or the TPG investor relations. Thank you.
spk03: Thank you, everyone. Thank you. Thank you all.
spk08: Bye. This concludes conference call. Excuse me now. Disconnect your line. Thank you.
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