XPeng Inc.

Hello, ladies and gentlemen. Thank you for standing by for the fourth quarter and fiscal year 2021 earnings conference call for XPING, Inc. At this time, all participants are in a listen-only mode. After 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. Alex Shea, head of investor relations of the company. Please go ahead, Alex.

Thank you. Hello, everyone, and welcome to Exxon's fourth quarter and fiscal year 2021 earnings conference call. Our financial and operating results were issued by our 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 from our management will include co-founder, chairman and CEO Mr. He Xiaofeng, Vice Chairman and President Dr. Brian Gu, Vice President of Finance Mr. Dennis Liu, Vice President of Corporate Finance and Investments 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 in the IR section 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 Dedication Reform Act of 1995. Forward-looking statements involve adherence 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 forward-looking statements except as required under applicable law. Please also note that EXPON's earnings press release and this conference call includes the disclosure of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. EXPON's earnings press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. I will now turn the call over to our co-founder, chairman, and CEO, Mr. He Xiaopeng. Please go ahead.

Hello, everyone. In the fourth quarter of 2021, Xiaopeng's exchange rate reached a record high of 41,751 units, with a growth rate of 222%. In 2021, the total turnover of the whole year reached 98,155 units, which is 263% of the total growth. In the middle of the new trend, in the first place, the annual income broke 20 billion yuan.

Hi, everyone. We closed 2021 with another record quarter of deliveries. We delivered 41,751 units in the fourth quarter alone, growing 222% year over year. And our total deliveries for the full year of 2021 increased by 263% compared with 2020 and reached 98,155 units, making us the top-ranked emerging EV maker in China. Our 2021 full-year revenue exceeded 20 billion RMB.

Through the adjustment of sales and delivery cycle, our new order will quickly recover to the best level in December last year. From March 21st, the price of products on the whole line is 10,000 to 20,000 yuan, which covers the cost of the latest battery and raw materials. I believe that in such a big environment with high oil prices, The advantage of electric vehicles compared to the cost of men's and women's vehicles will be significantly increased. The high-end pure electric market designated by Xiaofeng Motors will have a greater chance of growth. At the same time, because the consumers of this market value the quality and technology of electric vehicles more, I believe that this year will be a critical stage to test the power of domestic electric vehicles. Next, with the rapid delivery of our technology products, we believe that the advantage of the power of electric vehicles accumulated in the long term will continue to increase.

我们有信心我们今年的销量也会继续在行业里面持续领跑。 Heading into 2022, we are experiencing even higher demand for our products, which continue to outpace our production. To expedite delivery of large volume of order backlog carried over from 2021 and our newly acquired orders early this year, we completed technology upgrades of our Jiaoqing plant during scheduled downtime over the Chinese New Year holiday. By adjusting our sales and delivery schedules, new orders that came in late February and the first half of March picked up quickly and have returned to the same robust level as the peak season in last December. Starting from March 21, we raised the prices across our product lineups by 10,000 to 20,000 RMB, each in order to pass through the rise in cost of batteries and raw materials. Against the backdrop of higher oil prices, driving electric vehicles typically brings increasing cost advantages over ICE vehicles, allowing for greater growth opportunities in the mid- to high-end BEV market, which is the target segment for our smart EVs. This market also features a vast array of consumers who attach more importance to EV quality and technologies. Therefore, 2022 will be a crucial year for each EV maker to validate their product's competitiveness. Looking ahead, as we pursue rapid technology and product iterations, we'll continue to strengthen the overall competitiveness of our products. I'm confident that our sales performance will continue to lead the industry.

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Even though we experienced some hiccups in terms of our self-deliveries in certain areas of China, but because of our technology upgrade in our Zhaoqing plant, as well as our newly acquired large volume of orders, we expect to welcome in a new level of large orders in March, which will be similar to our peak level last year. And that will help us definitely to enhance our market share and maintain our leadership position.

Our sales of a few core products in 2022 are currently in full swing. In 2021, P7's sales exceeded 60,000 units. It is ranked third among the B-class and above power-saving cars. It is one of the best-selling models at that time. It is already a standard model for autonomous vehicles. With the increase in P7's production capacity and reputation, we expect this year's impact to exceed P7's monthly sales.

Our confidence about the sales volume potential of our core EV products has extended into 2022. We delivered over 60,000 P7s in 2021, placing it in the top three class BBs and above by sales volume, making it an indisputable blockbuster model and setting P7 as a new benchmark smart EV in China. With the build-up of P7's production capacity and reputation, one of our goals in 2022 is to exceed 10,000 P7 deliveries in a single month.

P5 is officially delivered in the fourth quarter of 2021. In the first quarter, it delivered nearly 8,000 cars. With the improvement of the supply chain and the launch of P5's city NGP, I believe P5 will continue to break through.

We officially commenced mass deliveries of our P5 family sedan model in the fourth quarter of 2021, delivering close to 8,000 units in its initial quarter debut. With supply chain improvement and our city NGP launch, we can expect a more consistent ramp-up in sales volume of the P5, As supply chain constraints ease off in the coming months, I'm confident the P5 monthly sales volume will begin to approach that of the P7 in the second half of the year.

旗舰SUV车型G9, 那么当前PT生产样式已经从工厂下线了, 我们计划G9将在三季度正式上市发售。 In the past few years, G9 has maintained the highest technical level of software and core hardware development. We believe that the product rate is largely ahead of the current market. I believe that G9 will also become a major shareholder in the HVC market this year.

Next EV model in mind for us is our flagship SUV model, the G9. Its PT production vehicle has successfully rode off the production line, and we are on track to officially launch the G9 in the third quarter. The G9 represents the most advanced technology XPeng has ever developed, building on years of in-house developed software and core hardware. Consequently, the performance of our G9 is head and shoulders above popular SUV models in the same category. I firmly believe the G9 will become a blockbuster model in the medium to large-size smart electric SUV market.

我们还计划在2023年推出两个全新车型平台的首款车型。 那么这两个平台包括了一个面向C级车和一个面向B级车的平台。 These two new platforms will inherit and develop small and medium-sized automobiles, and continue to excel in aesthetic design capabilities, electrification capabilities, and our intelligent driving capabilities, and expand our product performance. In addition, we will use platform-sized, higher-level design and more advanced manufacturing techniques, such as super-large integrated compression. Then the new platform will help us get very strong cost control capabilities. In a market with a huge growth potential, it will help us cover a wider customer base.

Furthermore, we plan to launch the first production model built on our two newly established smart EV platforms, respectively, in 2023. These two new platforms, comprising a platform tailored for C-class vehicles and the other for B-class vehicles, will inherit and further advance XPeng's robust capabilities in aesthetic design, electrification, and smart technology, thus strengthening our product portfolio's competitive advantages. In addition, as we strive to make our platforms more scalable by employing more highly integrated design and state-of-the-art manufacturing processes, such as ultra-large integrated die-casting technology, the new platforms will also enact powerful cost-control abilities, as well as help us address a broader customer base in the mid- to high-end market segments, which have tremendous growth potential. 分享关于智能化的一些进展

In the fourth quarter, between P7 and P5, HPI3.0's software penetration is close to 20%. Currently, P5 is mainly used for the core function of HPI3.5, and NGP is progressing smoothly. We can see that the tested version is in rapid decline, and the security and experience of each version are improving. We plan to complete the NGP technology development in the second quarter of this year, After the approval of the city's high-definition map, we will gradually support the number of cities across the city NGP to implement OTA. What we are very excited about is that the performance of the new X8.3.5 in the city scene is far beyond our initial expectations. In the mass production vehicle of P5, the number of 100 kilometers of NGP in the city has now begun to approach We are targeting Nobotaxi, the leading company in China. We have seen that it has reached the same level in some aspects, even in some aspects it has reached the same level.

Next, I would like to share some updates on R&D of our Smart EV technologies. For our P7 and P5 models delivered in the fourth quarter, the attach rate of the XPilot 3.0 software was close to 20%. Currently, the progress on the R&D of our CDNTP, the key function of XPilot 3.0, which is mainly deployed on P5, is well-advanced. Its beta version is undergoing a fast iteration process, making continuous improvement in safety and user experience. We also plan to complete the development of our city NGP in second quarter of this year and plan to roll out in cities by batches once we receive the approval of the city HD map. The Xpilot 3.5 that is built on our next-generation technology architecture has presented much higher than expected performance in the city driving scenarios. We are extremely proud of this. Notably, among our mass-produced P5s, the number of driver interventions per 100 kilometers for city NGP is approaching that of highway NGP, and the level of its overall user experience can be benchmarked against domestic top robo-taxi players. And in some respects, we already have caught up and even exceeded those companies' performances.

So, based on the new price system and data avoidance of X-Pi 3.5, we plan to officially launch X-Pi 4.0 in 2023 to achieve the smart service value of high-speed and city-wide all-terrain vehicles. and we are gradually uniting the hardware and software platform of the new car model. We plan to have at least four models in 2023, including new and existing models, which can support X-Party 4.0. We believe that in comparison with other mass-produced artificial drive systems in the industry, We believe there will be a significant improvement in the rate of vibration compared to the current rate of vibration.

Given the underlying next-generation technology architecture of our XPILOT 3.5 and our close loop of data, we plan to officially launch the XPILOT 4.0 in 2023 to deliver advanced driving assistance experiences spanning full scenarios of both highways and city roads. Simultaneously, we plan to progressively converge our autonomous driving hardware and software platform that enables advanced driving assistance systems for our future vehicle models. There will be at least four models, including both new models and faceless versions of existing models, to support the XPILOT 4.0 in 2023. With that, our XPILOT 4.0 will boast a clear next-generation leap against other mass-produced advanced driver assistance systems. Simply put, under the premise of offering superior safety, the XPILOT 4.0 will feature a more comprehensive set of use scenarios, even wider geographical coverage, and a better human-vehicle interface and in-vehicle experience for both drivers and passengers. In addition to that, we will control the cost of that production. We believe that our XPilot 4.0 has the potential to spread high-level advanced driver assistance system to an even broader customer base, accelerating the transformation from human driving to the era of advanced driver-assisted driving. When this becomes reality in the future, the attach rate of the XPilot software will naturally be significantly higher than its current level.

We will adhere to the platform technology of the thermal power station and the smart system and the power system. Through these system platforms, we will promote the huge changes in the cost of our power system, manufacturing power, and the entire BOM. I believe that through this upgrade and change, we will have structural changes in the horsepower on the new model, including the engine and the overall horsepower of the company. We will continue to advance and improve product performance

Also, we will continue to be committed to our in-house full-tech software development and platform architecture approach to develop and upgrade our intelligence systems and power chain systems for smart EVs. Applying a platform architecture approach to our system management will propel innovations in our power chain, manufacturing techniques and processes, as well as a bond cost structure. I have confidence in our ability to achieve structural improvement of gross margin for our new models, including G9, and ultimately improve overall gross margin. Our medium and long-term goal is to increase the level of our overall gross margin above 25%. At the same time, we'll remain dedicated to our vision and execute on our founding strategy and operational literacy to continually boost operational efficiency. Going forward, as we achieve economies of scale while improving operating leverage, I believe our operating expense ratio will continue to trend downward. With that overview, now I would like to walk you through a few of our strategic initiatives and expectations moving forward.

Xiaopeng's sales and service network continues to expand. As of the end of 2021, 357 stores have been covered in 129 cities, of which 209 are headquarters stores and 148 are authorized stores. In 2021, we are committed to the layout of the channel-down strategy to grasp the needs and growth opportunities of non-first-tier cities. At the end of last year, the sales volume of our stores outside of the low-end cities was close to 80%. They were basically at the end of last year or the end of the second half of last year. While the network is rapidly developing, the monthly sales volume of single stores in 2021 has significantly improved in every quarter. This reflects the strengthening of our sales system's overall ability and efficiency. In 2022, we will continue to improve the sales network structure and enhance the electricity efficiency.

We've rapidly expanded our sales and services network. As of the end of 2021, XPeng's physical sales network comprised 357 stores across 129 cities, of which 209 were directly operated by us and 148 were franchise stores. In particular, during 2021, we strategically increased our investment in sales channels in lower-tier areas in order to tap into pent-up demand and capture the great growth potential we see in non-tier-one cities. As a result, we closed the year with our non-tier-one sales stores accounting for close to 80% of total Xpeng stores, and most of those performance and sales were achieved during the second half of the year. While we drove rapid network expansion, throughout 2021, our monthly single-store sales increased substantially on a sequential order basis, reflecting our sales model capability to make systemic enhancement as well as sustain efficiency improvement. For 2022, we'll continue to strengthen our sales network expansion and enhance same-store performance.

So in terms of charging network layout, the more extensive and better-experienced Xiaohong supercar has become the current important competitive advantage of Xiaohong cars. So as of January 17, 2022, Xiaohong's car brand has reached 813 seats and covers 337 cities nationwide. So from the second half of 2022, we will deploy the next generation of high-performance supercars.

Regarding our supercharging network, XPeng branded supercharging facilities featuring wide coverage and a better user experience have already become a critical factor in XPeng's competitive edge. As of January 17, 2022, the number of XPeng-branded supercharging stations increased to 813, covering 337 cities nationwide. Beginning in the second half of 2022, we'll deploy next-generation high-capacity supercharging to further shorten users' charging sessions significantly. We also plan to accentuate efforts in deploying supercharging stations alongside high-speed expressways to bring users better, more secure long-distance traveling experiences with XPeng's vehicles.

In February 2022, we announced a strategic cooperation agreement with Europe's leading pharmaceutical companies. With the mature experience of overseas pharmaceutical companies, we will help small and medium-sized companies in the deployment of overseas markets. Our first direct sales experience store in Europe has been opened by the government of St.Germain. We will adopt a new delivery model of direct sales and authorization in China and other countries to encourage Europe and the global sales and service network.

Along with these upgrades, we are actively progressing our overseas expansion initiatives. To this end, we announced in February 2022 we had established partnerships with top-tier European dealers. By leveraging the well-established market presence of respected overseas dealers, we strive to build our international business development capabilities and have established the first branded European retail experience source for our smart EVs in Stockholm, Sweden. We also plan to adopt a novel direct plus franchise retail model, which is what we are doing right now in China, to expand our sales and service network in Europe.

We are very happy to be able to share the growth opportunity of the smart electric car industry with more investors. On March 7, Xiaohong Motors, as a representative company of the self-development theme of Hengsheng Technology Index, officially became one of the 30 components of Hengsheng Technology Index.

On February the 9th of this year, Xpeng was included in the Shenzhen and Shanghai Hong Kong Stock Connect programs. We officially became the first emerging EV maker stock to be accessible for direct investment by qualified investors in mainland China. We're delighted to share the growth opportunities in the smart EV industry with broader investor base from our home country. Shortly thereafter, on March 7th, X-Bank was added to the Hang Seng Tech Index among 30 constituent stocks as one of representative stocks for the autonomous tech theme.

Looking back at 2021, we faced a challenge of industrial chip and telecom short-term. However, I would like to express my special appreciation for the top-level support of our high-tech companies. In order to respond to the challenges, we developed and verified hundreds of supply and demand solutions last year to ensure the stability of supply and demand. In 2022, I believe that the industry will still face the challenge of chip shortcomings and cost increase in electronic raw materials. But I believe that from the mid-term and long-term perspective, these challenges are just a one-time problem in the process of over-speed development of autonomous electric cars. At the same time, it is a better model for small and medium-sized cars. I believe that through our joint efforts with our suppliers and our ability to quickly develop and replace suppliers,

looking back on 2021 we have faced challenges stemming from industry-wide semiconductor and battery cell shortages we would like to express our sincerest gratitude to our excellent supply partners for their great effort of xpeng for their great support for xpeng amid the challenges redeveloped and qualified hundreds of alternative supply solutions to safeguard and stabilize our supply chain. Entering 2022, the ongoing cheap shortage and surge in price for raw battery materials continues to present a challenge for the whole industry. Nevertheless, these near-term obstacles cannot stop the long-term journey we are on where smart EVs are accelerating the disruption of ICE vehicles at an unprecedented speed. And I believe this is going to be a good experience for us to continue to enhance our capabilities. I believe our ability to swiftly develop alternative supply solutions coupled with concerted efforts with our suppliers will help us overcome these challenges.

Although in the first quarter, due to the recurrence of the epidemic, we have managed to overcome the challenges of the supply chain, the seasonal factors, and the challenges of the epidemic. We expect that in the first quarter of 2022, our total turnover will be about 3.35 million to 3.4 million. The income is expected to be between 72 to 73 billion yuan.

As we have been striving to navigate market dynamics amid obstacles in the supply chain, the impact of COVID-19's recurrence, and the seasonality factors, we expect our smart EV deliveries to reach approximately 33,500 to 34,000 in the first quarter of 2022. And our total revenues to be between approximately 7.2 billion to 7.3 billion RMB.

Thank you, everyone. With that, I will now turn the call over to our VP of Finance, Mr. Dennis Liu, to discuss our financial performance for the fourth quarter of 2021.

Thank you, Xiaopeng, and hello, everyone. Now I would like to provide a brief overview of our financial results for the first quarter of 2021. I will reference RMB only in my discussion today unless otherwise stated. Our total revenues were $8.6 billion for the first quarter of 2021, an increase of 200% year-over-year, and an increase of 50% quarter-over-quarter. Revenue from vehicle sales were $8.2 billion for the first quarter of 2021, an increase of 199% year-over-year, and an increase of 50% from the last quarter. Many attributes to high vehicle deliveries, especially for the P7 and P5. Our gross margin was 12% for the first quarter of 2021, compared with 72% for the same period of 2020, and 14.4% for the last quarter. Full-year gross margin reached 12.5%, an increase of 7.9 percentage points year-over-year. Vehicle margin reached 10.9% for the first quarter of 2021 compared with 6.8% for the same period of 2020 and 13.6% for the last quarter. The quarter-over-quarter margin reduction was primarily attributable to economic changes. R&D expenses were $1.5 billion for the first quarter of 2021, an increase of 216% year-over-year, and an increase of 14.8% quarter-over-quarter. mainly due to, one, the increase in employee compensation as a result of expensive research and development staff, and two, high expenses relating to the development of new vehicles to support future growth. SG&A expenses were $2 billion for the first quarter of 2021, an increase of 120% year-over-year, and an increase of 31% quarter-over-quarter. The year-over-year increase was mainly due to, one, higher marketing and advertising expenses to support vehicle sales, and, two, the expansion of our sales network and associate personnel cost and commission for franchise store sales. The quarter-over-quarter increase was mainly driven by the expansion of our sales network and more sales commission in that with the higher vehicle sales. As a result of the foregoing, last month's operation was $2.4 billion for the fourth quarter of 2021, compared with $1.1 billion for the same period of 2020 and $1.8 billion for the last quarter. Fail-value gain on long-term investments was $0.6 billion for the post-quarter of 2021, reflecting the fail-value assessment on our assessment on HT Flying Car Incorporation, or Hui Tian, after its Series A fund capital funding. So December 31, 2021, we invest the approximately $0.6 billion and own approximately 18.8% of the equity interest in Hui Tian. Land loss was $1.3 billion for the first quarter compared with $0.8 billion for the same period a year ago and $1.6 billion for the last quarter. As of December 31st, 2021, our company had cash and cash equivalent, restricted cash, short-term deposits, short-term investments, long-term deposits, in total $43.5 billion. we achieved a positive operating cash flow in the second half of 2021. And in the fourth quarter of 2021, our operating cash inflow was $1.3 billion. To be mindful of the length of our earnings call, I will encourage listeners to refer to our earnings press release for the 2021 full-year financial results and further details. This concludes our prepared remarks. We will now open a call to questions. Operator, please go ahead.

For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. For the sake of clarity and order, please ask one question at a time. Management will respond and then feel free to follow up with your next question. Please press star 1 to ask a question. Your first question comes from the line of Tim Shao.

Hello, Mr. Guan. Thank you for answering my question. Congratulations on maintaining a very strong exchange rate in the first quarter. I have two questions. The first question is about the price increase. Because Xiao Fengqi is an electric vehicle company that has a very high price increase in the market. Could you please share with us the logic behind the price increase and the assumption that the price of raw materials and components will rise this year? Does the price increase this time reflect the current price of raw materials? So my first question is about the price hike, because Exxon is one of the early movers announcing to raise the prices. Could we get a rough sense about how the company made a foundation of 10,000 to 20,000 or 5% to 9% price hikes? What kind of cost inflation and batteries, raw material, chips, et cetera, have been pricing? so is the price increase just um the right amount to cover the contract or also reflect on expense adjustment of more price hikes in the supply chain later this year

Thank you for this question. I'm Dennis. Let me respond to your questions regarding the price realignment. Actually, we increased our price at about $10,000 to $20,000 for the old car lines on March 21st. starting from March 20. This reflects the projected components, especially on the battery cost increase. We haven't finalized the battery price negotiation with our suppliers, but according to the trend and also the components, we anticipate We will have the cost increase in the low material as well as the battery. So we technically increase the price to cover the cost increase. That's the main driver of the price increase to basically to cover the potential cost increase for all the components costs.

Thank you, Dennis. My second question is about the X-PILOTs. As Mr. Xiaotong mentioned, the current X-PILOTs are around 20%. I would like to ask, partly due to the low-end configuration of the model, which is more popular in the past. In the future, what kind of X-PILOTs can we expect to achieve in the next one to two years? When can we expect to see more than 50% of X-PILOTs? So my second question is about ex-pilot tick rate, because I think during the presentation, the chairman just mentioned about 20% tick rate of ex-pilot. It seems relatively low. Honestly, this is just due mainly to more low-spec models we saw during the past quarter. But when do we expect more meaningful increase? in the adoption rate of the next pilot? And what would be more ideal check rate in your view in the next one to two years? Is it likely to top 50%? Thank you.

Sorry, because our signal is not particularly clear. I can probably only listen to the topic of the planet. That is to say, the ratio of our current X.5.4.0 is mainly dependent on the supply of our chips. So when we supply more chips, our X.5.4.0 will actually be worse. I actually believe more in the penetration rate of X.5.4.0. According to our data, once users use X-Pilot, their penetration rate is very high. In this case, in a 4-layer NGP, especially from point to point, from your home to your company, or from your home to your destination, most users can use X-Pilot. In this case, the penetration rate will be very high. I actually think that X-Pilot 4.0's penetration rate I think it will be much higher than 50% in consumer technology. But in the end, it depends on the performance of the data.

I'm sorry. On my end, the connection is not perfect, but I get the gist of your question. So here is my response. Now, in regards to the attach rate of XPilot 3.0, actually, it all depends on the chip supply. So when the chip supply recovers to the normal level, we believe that the attach rate will increase as well. I actually have more confidence in the attach rate improvement of XPilot 4.0 because according to our data, our users' habits and their satisfaction rate of using our X pilot is actually very high as they get used to actually having the navigation assistance according to our, I mean, with the help of our CT and GP function in their daily life from one destination to another, for example, from their home to their offices, or from their offices to a shopping mall, et cetera, that definitely will give them the trend of keeping the habit of using this sort of assistance from the X-PILOT. So by that time, the attach rate of our X-PILOT will be even higher than the current level. And in my own understanding, actually the X-PILOT 4.0's attach rate will exceed 50%. future market statistic, and we'll see.

Thank you, Mr. Xiaofeng.

And your next question comes from the line of Jeff Chang with Citi.

Hi, Mr. Xiaofeng, everyone. I'm Jeff from Huaqi. First of all, I would like to ask about the quantity and profit rate. We know that there are a lot of interference today. In the worst case scenario, can we multiply the sales target of 34,000 units per quarter by 4? This is the worst sales target of the year. I can think about it this way. Second, I want to ask, we just talked about P7. In January, it challenged 10,000 units. When will this happen? Is it at the end of the year, December? Or is it possible in June or July? If P7 has a sales target, should we also have a sales target in September? So my first question It's about the worst-case scenario this year's full-year sales volume and production capacity if we assume further disruptions in chip shortages. Second question is about the G9 and T7 GP margins. And is it necessary for us to also set a monthly sales target for G9 going forward? Thank you.

Jeff, this is Brian. Let me answer the question for you. Can you hear me? So first of all, we obviously, as our policy, don't give guidance on the sales number as well as individual model numbers. But I would say that obviously this quarter represents, you know, a quarter that's in a low season as well as face disruption from COVID measures in China. So I would probably consider it not an appropriate base for extrapolating for the full year. We're confident with our new model launch as well as further market momentum, the stealth number should be higher than the first quarter. So that's the first answer to your question. Second question is that on G9, we do have high hopes. This will be a blockbuster in its class, which is the premium SUV class. And you could also find benchmark models in that class, and we think they should be one of the top players in that category. And I think in that vein, I think they should approach it like the P7 level. The third question is whether the P7 and G9 is interchangeable from a supply chain perspective. I think, you know, we hope by the time that G9 has started volume delivery towards the second half or the fourth quarter, the supply chain issue will get alleviated. But I think right now both models are representing high gross margin products for us in the high teens. So I think for us, those are models that we will obviously make sure that it has adequate chip suppliers for production.

Thank you, Brian. I have another question to ask. I heard that after we increased the price, we did our own research. It is about the order backlog. After we raised the MSRP price, we saw a significant surge in new orders. So roughly speaking, right now, the waiting time to get a car ranging from 16 months to 20 months, which implies around four to five undelivered or the background. So I just want to clarify on these numbers. Thank you. I think there is good news and bad news. I think the most difficult thing about bad news is the challenge of the supply chain brought by the epidemic, especially Shanghai. Because Shanghai is one of the most important cities in the supply chain of all Chinese cars. This is bad news. But the good news is that we are improving our ability in other areas, including telecommunications and other related areas. So there is fluctuation and risk in this. But I think we will work hard and hope to be able to do better than this.

I think there's a mix of good and bad news with what's happening right now. Obviously, the bad news is the resurgence and recurrence of the pandemic, which really affect our supply chain, especially in cities such as Shanghai, because this is really the headquarter of all of the key suppliers of our company. And the good side of the story is that we are actually improving our overall capability in enhancing our battery cell supply. And so obviously there's a lot of disruption in the market and also there's a lot of risk, but we will do our best and be fully committed to speed up the delivery time, lead time.

Okay.

Overall, I believe that the actual outcome would be better than expected.

Next question, please.

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

Hello everyone. I have two questions. The first question is about battery supply. Currently, we already have three batteries, but in the past two months, we have seen some bottlenecks in the electric vehicle version of the Lushan Railway. I would like to understand the bottlenecks of the Lushan Railway. My first question is, It's regarding the battery supply situation. Currently, you have three suppliers, but you are still lacking of LFP battery supply. So you also delay some vehicle delivery. So what is the current situation? My second question is about our new platform. I would like to know, as Mr. Xiaopeng mentioned, in the next year, we will have two new cars, two different new platforms. Do you understand that Zaoqing Factory is currently manufacturing these three cars? The original car has a daily oil platform. The second factory, Guangzhou Factory, is manufacturing the future P7 plus G9. My second question is regarding the new platform and your capacity breakdown for your street plant in the future. Thank you, that's my question.

Xiaohong is not the same as many other new technologies. We are selecting many new suppliers. I think in the past, there have been some challenges in some platforms. Users in some aspects, such as the demand in the field, are far greater than the ability of our partners to support. But now the whole situation is clearly changing in a good direction. This is what we have seen. In the future, we will continue to cooperate closely with the major telecommunications companies. From this point of view, I am more confident in the situation of telecommunications in the second half of this year and next year. We are more concerned about the logic of output. In fact, a factory has a planned output. We can greatly increase the output through the overtime system. So, whether it is our current plastic factory or the factory we are expecting to start in the future, we are actually planning the backup between different models and different platforms and how to increase production. From our point of view, we hope that in a few factories, we can achieve More than 500,000 capacity And in a relatively short time Because this piece of information There is no final announcement So I think it's one More than 500,000 such a plan

In response to your first question, first of all, we are very different from other new energy vehicle makers in a sense that we actually collaborated with multiple suppliers of batteries. And so in the past, what we experienced is that there has been a lot of demand for LSD batteries. Sorry, we... So there's a lot of noise going on. So in the past, what we experienced that the market demand for LFP demand actually has surpassed our suppliers capacity for batteries supply. So that's why we experience a lot of challenges in the supply chain. But going forward, we actually have been able to gradually alleviate this problem and we are very confident that we can continue to improve the situation. And for the second half of this year and for the coming year, we are very confident that the overall supply chain shortages can be relieved to a certain extent. And then in response to your second question, basically we differentiate the concept of planned capacity and the actual deliveries or the actual carried out or executed capacity. And so we do have plant capacity for each single plant of ours, and through multiple shifts of working, we can actually maximize those capacity. And so what we are doing right now is that we are trying to coordinate different plants in producing different models on different platforms because we haven't been able to – we're not in a position to announce the exact number in terms of the capacity of each single plant yet. I can just give you a rough idea that the single – single plant capacity will surpass half a million.

Thank you. Next question, please.

Your next question comes from the line of Nick Lyon with J.P. Morgan.

My question is really about the use of cash. By the end of last year, we had about $33 billion in cash on balance sheet. and how should we think about the use of cash in terms of CapEx on the spending and the sales marketing? Thank you for the first question.

Nick, hi Nick. Let me respond to your first question. Yeah, you're right. We actually have about $43 billion cash in hand as of the end of last year. And our plan, actually as I mentioned, we actually achieved operating cash flow, or positive cash inflow in the second half of last year. So our plan is to continue to improve the efficiency and also to improve the capital spending. So we are projecting or we are trying very hard to continue the positive break-even operating cash flow this year. And other than that, we also have some spending on the CapEx. For example, we continue to have new products. We will have the facility and equipment for the new product, and we also have the investment in terms of the capacity, the new plant capacity. So that's our plan for the usage of our cash in hand. Operating-wise, we will try to be proactive and positive, and capital expenditure will continue to include efficiency of spending while supporting the product development and also to support the capacity development. for this year.

Thank you, my child. Our plan is to carry out testing of Lobotesty on G9 in the fourth quarter of this year.

We don't have a level 4 plan for 2024. From a time point of view, we think that in 2026, we will continue our current policy. We will first explore and then see Thank you.

Now, we actually plan to test the Robotaxi sort of capability and performance by Q4 this year on G9. We didn't actually announce or make any statement regarding achieving Level 4 by 2024. Our estimate is that we can actually achieve or work towards the goal of autonomous driving by 2026. Now in terms of the exploration in the RoboTaxi model, right now we need to do a lot more testing to be able to find out the business logic behind RoboTaxi and to gather more data from the actual execution of the capability and also to understand better the regulatory environment in this regard. But currently, with our observations in the ex-pilot development as well as the gathering of the data, we are very confident and very, very excited about the future of RoboTaxi. And we estimate that we can actually achieve a high level of autonomous driving sooner than expected.

Thank you.

And your next question comes from the line of Bing Wang with Credit Suisse.

Because of this, our leaders have said that next year we will have four products that can be made into NGP. Then I think about P5, P7, G9, and next year's products together should be four body parts to the current new parts, there will be only one new product. So I want to make this thing up, we will probably have a few new products next year, especially one or two. Thank you. Okay, my question is about new products for 2023. Because we actually said that we have some products from the new technology platform, so it doesn't mean one product from each platform, or actually just one product for two platforms. Meanwhile, I just mentioned that 4 Plus will be available for the CT and GP. That means that you can upgrade current P5, P7, and G9 and upcoming 2 Plus will be eligible for the upcoming CT and GP with the hardware upgrade. Thank you.

Hi, this is Xiaopeng. Next year, we plan to launch two new products on two platforms, and both of them will support the deployment of XPilot 4.0. Thank you.

Great, thank you.

And your next question comes from the line of Vinti Yen with Citic Securities.

Hello, Mr. Peng. Hello, Mr. Guan. I have two questions. The first question is about the G9. Can you tell us more details about the G9? For example, how many wheels does this car have? And will there be a six-seater or a seven-seater car? Because I saw some news on the Internet the other day that this car may only have five seats. I hope Mr. Guan can help us clarify this. The second question I want to ask is about our capital spending. Guangzhou and Wuhan factories, because I saw in the annual report that these two factories have disclosed their current loan receivables. One is 11 billion, the other is 30 billion. I want to ask about these two factories. My two question is about G9 and CapEx. So the first question is, could you please provide more details about G9, and what's the will base of G9, and will there be a six-seat version or a seven-seat version? And my second question is about CapEx. So what's the CapEx budget on Guangzhou and Wuhan factory respectively? What's the progress of these two factories? Thank you.

Thank you. I'm Xiaobang. My first question is, I can now clearly see that there are no 6-seat and 7-seat, but 5-seat medium-sized SUVs. So, about the specific axis and other similar details, we will officially discuss them later. This is some of our related information about the G9. Thank you. So, let's ask Dennis to answer the second question.

Hi, this is Xiaopeng. Let me respond to your first question. In terms of G9, what I can announce right now is G9 is going to be a five-seat medium to large-size SUV. It won't be a six-seater or a seven-seater. And in terms of the details such as wheelbase, et cetera, we will give you more details in our official announcement when we have the information. Thank you.

Okay, the second question. This is Dennis. Let me handle this. In our Guangzhou plan, our total capital expenditure is somewhere around 2.5 billion to 3 billion. And among that, the construction and the land actually is funded by the government. And the government provides loans to us for interest. And in terms of facility, actually the government is funding 50% of the interest cost. So we will pay 50% of the interest cost in terms of the bank loan. The plan in terms of construction has been completed and now we are doing the equipment and facility for the new production line. So this is to support the new vehicle production. In terms of Wuhan plan, Wuhan plan, the then speaker, then the Guangzhou plan, so the total capital expenditure of the original project was about $4 billion, about slightly higher than $4 billion. And among that, the government well-fund, the interest... of the Long Tribune. The interest will be funded by the government, and the rest will be funded by Xiaokong itself. The plant is under construction, including the building and also the facility, and that actually is to support the new production, as we mentioned, for next year. So that's the status of the plant construction and also the capital spending of the plant.

Okay, thank you very much.

Next question, please.

And your final question comes from the line of Jing Chang with CICC.

Hello, everyone. I have two questions for you. The first question is about the TV supply chain. We have adopted a model of multi-supply chain. Looking at the current process of talks, what are the economic effects of multi-supply chains on us? What are the effects of multi-supply chains on us? What are the effects of multi-supply chains on us? My first question is about our dietary multi-supplier method this year and what are the positive or negative effects of our multiple supplier method, especially on our supply and maintenance and also our purchase cost. The second question is about the situation of the entire industry this year. Based on the current cost and the price of our products, how should we predict the trade rate this year? Will there be a relatively conservative expectation compared to last year? In addition, we can also see that in 2021, the development and sales management have shown a relatively strong large-scale effect. And my second question about the growth property margin and also expense ratios guidance is here. And considering the current cost and our product price increase, How can you expect our growth margin this year? And also about the expense ratio. Will our expectation of our R&D and GEN ratios reflect a stronger scale effect?

Hello, I'm Xiaopeng. Let me answer your first question. The choice of multiple battery partners is very valuable to us now. I will briefly talk about two values. The first is that in Xiaotong's car system, as we saw last year, we have many large models, but our delivery speed is very slow. This is mainly due to the lack of battery supply. I just asked about the nucleic acid field. The nucleic acid field battery can account for a large proportion of our sales. But from last year's perspective, it accounts for a very small proportion. So we believe that after this year, through our communication, we will greatly increase our cooperation with our partners. These are some of the capabilities in the supply and supply. The second is related to the cost. This year, the whole material is actually growing very fast. But I believe that in a quarter, in about three quarters, I believe that the material will change. Thank you.

Hi, this is Shilpa. Let me respond to your first question. Having multiple suppliers for our battery cells definitely gives us a lot of value, mainly in two respects. The first one is to definitely make sure that we have enough supply, and the second is help us to optimize or enhance our cost control capability. Now for the first benefit, because we have multiple models that definitely are really popular in the market and we received a lot of orders last year, but due to the supply shortage in batteries, especially in LP batteries, we were not able to actually fulfill or deliver those orders. last year, and the actual sales of our models or our products containing LFP batteries was actually a lot smaller than the actual orders that we received. And this year, with our concerted effort with our supplier partners, we hope that – and we are very confident that we can alleviate the situation this year. And the second benefit, which I mentioned earlier, is the cost control capability enhancement. You know, as the raw materials for batteries and for a lot of the core components continue to increase, the whole industry experience a lot of cost increase risk. But because of our multiple supplier partner network and this model, we are able to actually relieve this sort of stress within, I think, one quarters to three quarters time. And this year, we will continue to... our suppliers to better control our coffee. That's all. Thank you.

For the second one, the margin, firstly, we don't provide the margin guideline for the future. But according to the information we have on hand, actually in the first quarter, we used majority of the battery stock which we acquired or we purchased last. So the cost increase did not really hit us on the full quarter basis. So we anticipate some material cost good news on the battery and also we have better product mix. The P7 actually the mix is higher than quarter four. last year. And for the second half, because we have increased the price, and then after we deleted those price protection orders, probably starting in late May or June, we will have capability to cover the cost. So all you know, we anticipate the quarter one and quarter two margin would be equivalent or even slightly better than the quarter four margin level. And starting from June, the price will be able to cover the cost. And more importantly, we have G9, which will be sold in the second half. So we anticipate the second half margin will be better than the first half. That's kind of the general assessment for the margin thus far. Thank you.

That's all for our Germany session.

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

So thank you once again for joining us today. If you have further questions, please feel free to contact EXPON's investor relations through contact information provided on our website or the Pearson's group investor relations.

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