XPeng Inc.

Gentlemen, thank you for standing by for the second quarter 2022 earnings conference call of X-Peng Inc. At this time, all participants are in listen-only mode. After management's remarks, there will be a question and answer session. Today's conference call is being recorded. I would now like to turn the call over to your host, Mr. Alex Shia, head of investor relations of the company. Please go ahead, Alex.

Thank you. Hello, everyone, and welcome to Exxon's second quarter 2022 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 Xiaopeng, 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 the prepared remarks and the call will conclude with a Q&A session. A web-accounted replay of this conference call will be available on 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 Security Signification Reform Act of 1995. Four looking statements involved inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties included in the relevant public findings of the company, as fired with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any follow-up statements except as required under applicable law. Please also note that EXPON's early press release and this company's call include the disclosure of unaudited gap financial measures as well as unaudited non-gap financial measures. EXPON's early press release contains a reconciliation of the unaudited non-gap measures to the unaudited gap measures. I will now turn the call over to our co-founder, chairman, and CEO, Mr. He Xiaopeng. Please go ahead.

Hi, everyone. In the second quarter of 2022, Xpeng delivered 34,422 vehicles, representing 98% growth year-over-year.

For the fourth consecutive quarter, we ranked number one among emerging EV makers in China as measured by vehicle insurance registration volume. Starting from the second half of this year, we'll launch a suite of industry-leading products and technologies developed in-house, as well as next-generation smart EV models equipped with these state-of-the-art technologies. These upcoming product launches will bring our customers an unparalleled driving experience through innovation in both electrification and smart technologies.

我们的旗舰SUV车型G9在8月10号公布了类似跟开放预定。 24小时以后,G9的预定就已经突破了2.2万,远超同期的P7跟P5,并且还在持续快速的增加,这显示出用户的需求十分的强劲。 On the 26th of August, G9 will meet with the consumers in Chengdu. We plan to hold G9's 38th press conference in September and announce the price and handover in October. G9's design, operation, performance, comfort, and luxury experience are all representative of millions of luxury cars and SUVs. It is definitely a flagship SUV. G9 fully embodies Xiaopeng's leading advantage in electrification technology. It first realized We believe that G9

On August 10th, we unveiled interior design of our new flagship G9 SUV and began accepting reservations. The pre-orders of G9 exceeded 22,000 within 24 hours, and this has exceeded the models that we launched previously, which were the P7 and G9 that were launched at the same period. and the orders of G9 keeps increasing, which shows the strong demand from our customers. On August 26th, the G9 will join us at the Chengdu Auto. We plan to announce the G9's price during its official launch in September and commence deliveries in October. With its stylish design, superior control and driving performance, lavish comfort and other luxury features that benchmark against luxury SUVs priced nearly 1 million RMB, the G9 has already proven itself a veritable flagship model in the SUV segment. The G9 also showcases our leadership position in electrification technology innovations as the first model to offer our groundbreaking end-to-end high-voltage charging technology, which is comprised of an onboard 800-volt high-voltage platform and 480-kilowatt supercharging station, bringing the ultimate charging experience to our customers. With respect to smart technology configurations, based on our industry-leading City Navigation Guided Pilots, or City NGP, G9 will provide our next-generation, full-scenario, advanced driving assistance system to market. The G9 will significantly expand the coverage of advanced-level driving assistance systems, making driving easier and safer. I believe the G9 will be the market's best SUV under 500,000 RMB and become one of the best sellers among medium to large size SUVs.

We plan to launch a B-level new model next year. The new model will expand our market share in this segment market. We will also launch a C-level new model, which will bring an extreme product to a user group that needs a larger and more comfortable space. Next year, we will add G9 through these two models. I believe it will promote our sales growth at a high speed, and at the same time, with our self-developed electric and intelligent platform technology, as well as the upgrade of the entire product range, we will increase the average price of our products. And compared to the same level and the same level of the standard model, we still have a stronger competition. So I am very confident that through our comprehensive system, the system platformization of the whole car, as well as the improvement of multiple manufacturing power, such as unidirectional compression technology, we can predict that the friction rate of the new model will be significantly improved than that of today's modern models.

I believe that based on our technological innovation and our platform systems architecture, we will actually innovate and accelerate the pace of our new product launches to round out our offering with vehicles priced between 150,000 to 500,000 RMB. In 2023, we plan to launch a new B-class model, which will help us expand our market share in this segment. will also roll out a new C-Class model next year to bring a compelling product to customers in need of additional cabin space with greater comfort. These two new models, in addition to the G9, will bolster our strong sales growth momentum to carry through next year. Meanwhile, leveraging our top-notch electrification and smart technologies and our platform development system developed in-house to constantly upgrade product performance The average selling price of our products will rise accordingly as our products superior features boost their competitiveness among same class and even higher class models. With our concerted efforts to advance our platform based vehicle architecture and multiple technological improvement in manufacturing, such as integrated die casting techniques, we expect a meaningful vehicle margin expansion for the G9 as well as our new models coming next year.

From G9, Xiaopeng's long-term investment and self-development in electrification will determine our future. In addition to automation, we also believe that we will enter the new technology leading advantage and bring a significant improvement to consumers' experience. G9 will provide a whole generation of electrification infrastructure for Xiaopeng. From G9 and subsequent new models, we will fully support the super-fast system. Then use the technology to continuously improve the efficiency of users Our new model can not only achieve the best charging efficiency in Xiaopeng super-wide network It can also get a higher power distribution and longer wind power in the third-party charging station In this way, it will add more battery life to the new model at the same time In addition, we have achieved the self-development of the electric machine We will accelerate the application of innovative technology in this area We will continue to promote the design of electronic systems and the integration of large systems in the whole car with more underlying electrification technology innovations to bring more long-term battery life, faster charging, and lower manufacturing costs to the market.

Starting from G9, Xpeng's commitment to long-term investment in proprietary electrification technologies has fostered our leading edge in this area, while significantly enhancing our customers' experience. The G9 has leveled up Xpeng's electrification technologies to the next generation. What's more, the G9 and subsequent new models will be fully compatible with high-power supercharging system and we will consistently enhance charging efficiency for customers through technological upgrades. Our new models can not only achieve the best charging speed on XPeng's self-operated high-power supercharging network, but also allow our customers to have better charging experience in third-party charging stations, benefit from our leading high-voltage platform, Xpeng's new models will be able to obtain a higher power allocation and longer-lasting peak power at third-party charging piles than other EV models. Besides, we have built our in-house capabilities in both the development and production of electrical motors, where we also have been accelerating technology innovations. Looking ahead, we'll continue to uphold our unique approach to incorporate powertrain system designs into one cohesive vehicle architecture, leveraging a growing suite of electrification technology innovations to provide consumers with smart EVs supporting longer range, faster charging, and lower cost. 我们将在市营的超级充电网络上放大我们的电动化。

We have established one of the best charging networks with the widest coverage of China's independent brands. So as of early August this year, Xiaopeng's self-propelled charging station has reached 1,000 seats. In order to fully support the large-scale delivery of 800V super-fast charging vehicles, we have developed a 480,000-watt super-fast charging installation, which is a major lead in performance and cost. Through technical innovation, our new generation of super-fast charging installation has not only reached the current industry's mainstream 120,000W fast charging equipment, and achieved a single charge cost equal to that of the previous generation of fast chargers. So, Xiaopeng's super fast charging system can do up to 200km of charging in up to 5 minutes, and achieve high-charging battery power, high-pressure platform and charging capacity avoidance, as well as the fastest and best charging efficiency in the industry. Since August, we have fully deployed 484,000W self-driving supercharging stations. We will accelerate in major cities across the country, We are planning to build another 2,000 super-high-speed charging stations by 2025, so that children and young people can have the best experience. In the near future, we hope that, whether it is in the city, or more importantly, when we travel during the holidays or go home during the New Year, the charging experience of children and young people's cars will be dramatically changed. In the past, many of our friends had two cars in their homes, and they used electric cars in the city, and they used oil cars in the suburbs. We believe that with the construction of super-high-speed charging systems,

Xpeng's self-operated supercharging network will further compound our advantages in electrification, technologies, and established competitive edges. Our well-established self-operated supercharging network already features one of the broadest coverage and the best customer experience among China's independent EV brands. As of early August, the number of XPeng's self-operated supercharging stations reached 1,000, which is a new milestone. To fully support the mass delivery of our vehicle models featuring 800-voltage high-power charging, we in-house developed 480 kilowatt supercharging stations surpassing the industry's benchmarks in terms of performance and cost. Through technology innovations, our new generation supercharging station not only achieves the power three times higher than the industry's mainstream 120 kilowatt supercharging station, but also make the cost at the same level of the previous generation supercharging stations. Xpeng's supercharging system can charge up to 200 kilometers range in five minutes. This outstanding charging performance demonstrates our end-to-end high power fast charging capability constituted by EV battery capable of fast charging on board high voltage platform and supercharging station, underlying the best charging efficiency in our industry. We began building our self-operated 480-kilowatt supercharging stations in August, and we'll soon step up our development in major cities and along main highways nationwide. By 2025, we hope to build another 2,000 high-powered supercharging stations to provide the best-in-class charging experience for our consumers and customers. In the upcoming years, XPeng's customers' charging experience will be completely revolutionized across all scenarios, including vacation trips, returning to their hometowns for the Chinese New Year, or long-distance travels. The scenario of using EV to drive in the city and ICE for cross-country driving will be completely changed very soon. 在这种话方面,

We also see that the level of user acceptance and use of the artificial intelligence service is constantly improving. In the second stage, the reach of high-speed NGP has exceeded 65%. Since the beginning of May, we have integrated the software and hardware of the artificial intelligence service to start sales, so that more users can experience the best high-level artificial intelligence service in the industry at a lower cost. This will gradually cultivate the customer's trust in the automatic self-support driver and the user's desire to be able to afford it. And this will allow Xiaopeng to integrate and provide more innovative automation functions, providing a hardware platform-based support. Between our orders from the beginning of May to the end of July, we saw that the penetration rate of medium and high-end vehicle-type software with automatic self-support drivers has significantly increased by more than 50%.

Moving on to our smart technology advancement, we are very excited to see that customers' acceptance of our advanced driver assistance system is growing at a steady pace, as is the positive influence of word of mouth among customers. As a result, our highway NGP mileage penetration rate in the second quarter reached over 65%. Beginning in early May, we integrated our XPilot software as standard configurations on native to high-end versions of our models, allowing a broader customer base to experience our industry-leading best-in-class, more advanced driver-assistant functions at an affordable price. It has helped us cultivate trust in XPilot, reshaping driver habits towards a human-machine co-pilot pattern, and provide hardware platform support for more innovative intelligence functions in the future. Among orders received from early May to the end of July, the proportion of buyers who chose meat and high-end versions of our models equipped with XPilot grew significantly to over 50%.

We are also expanding the edge of the self-driving car with a faster speed to introduce new generation products that are more popular with users. We completed the development and testing work of the first mass-produced version of the city NGP in the second quarter. In the middle of the series of high-density scene testing in Laosi and Yuyi, Xiaofeng P5 used only 30 types of algorithm and related sensing hardware to achieve the best safety and traffic efficiency in the industry under the same scene. This will allow us to gain a lot of experience in the landscape first. It also establishes the deep movement of Xiaopeng for the complex city roads. In early August, Xiaopeng, Qizhe and Ali Yun also co-founded the Autonomous Driving Computing Center, FUYAO, which has been used. The computing power can reach 600 billion times per second. This is also the largest autonomous driving computing center in the Chinese Qizhe industry at present. This will be the basis for the deep learning and training of the L4 automated driving algorithm that will come in the future in the entire scene of autonomous driving and the future of autonomous driving. All of these will be greatly

We are also expanding the boundaries of smart driving at an accelerated pace as we roll out next-generation products that create greater value for customers. For instance, we have completed the development and testing process for city MGPs in the second quarter. during an array of tests throughout challenging driving situations such as crowded downtown streets and rainy nights our p5 model equips with only 30 tops of computing power in combination with its sensor hardware to achieve the industry's highest safety and driving efficiency levels among similar scenarios by taking the lead in exploring urban driving scenarios we have amassed a tremendous amount of experience and developed deep insight into complex city road scenarios. Notably, the Autonomous Driving Computing Center we co-developed with Alibaba Cloud commenced operations in early August. Buyao's computing power can reach 600 petaflops, making it the largest domestic autonomous driving computing center in China. It will provide the requisite foundation of computing power for deep learning training, which empowers our full scenario advanced driver assistance system and will facilitate the future development of level 4 autonomous driving algorithms. All of these advancements will greatly enhance our competitive advantages in smart technology.

From this year, we can see that The super-high-level government is accelerating the use of artificial intelligence technology. The Ministry of Natural Resources has recently announced the opening of high-precision maps and applications for artificial intelligence network connections in six cities, such as Beishangguang. Based on this, we expect that Xiaopeng's NGP will officially start work soon. The launch of NGP will mark us as intelligent leaders. With the efficiency of the human resources data system, Since this year, we have been very happy and excited to see the development of smart driving technology has received active support from governments at all levels. The Ministry of Natural Resources

recently announced a pilot project that high-definition maps applicate in smart driving vehicles in six cities, including Beijing, Shanghai, and Guangzhou. On this basis, we look forward to the public beta tests of the CDMGP in the near future. The launch of CDMGP showcases our capabilities as a pioneer in smart technology. We will leverage our competitive edges in talent, data, and system efficiency to further cement our leadership position in autonomous driving technologies, broadening our advantages in coverage, overall experience, safety performance, and cost.

Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan and become the mainstream choice for consumers. At the same time, we have already launched a mobile software development based on GlobalTancy based on fully automated self-sufficiency driving. We hope to create innovative and renewable industries in the future with low-cost mass production equipment and very powerful delivery capabilities.

I believe that the revolution of driving habits and car purchase decision-making driven by technology has begun. So our next generation technology to be unveiled next year will upgrade the architecture in all fronts, paving the way for fast and widespread adoption of full scenario ADAS-enabled driving nationwide and making safe and convenient intelligent driving software a reliable partner for users. I firmly believe that a full scenario ADAS will become a core deciding factor in consumers' car purchase decisions, and that consumer adoption of ADAS software will become mainstream after the adoption increase of full scenario ADAS in the future. Additionally, we have already commenced R&D for our RoboTaxi software based on a full scenario ADAS in an effort to utilize lower-cost, mass-produced smart EV models and algorithms with strong generalization capabilities to lead the innovation.

另外,與大家分享小鵬生態企業的最近的進展。 小鵬的鵬型在7月份完成了超過1億美元的A倫融資簽約。 在融資完成之後, Moreover, I would like to share recent developments of portfolio companies in our ecosystem.

Xpeng Robotics completed over $100 million in Series A fundraising in July. Upon completion of the fundraising, Xpeng Robotics will accelerate its R&D of bionic robots while pursuing synergies with smart EV technologies to create greater value. Also, Xpeng ROHG's first manufacturing factory for production trials of flying cars officially came into service in July, marking a significant milestone in the development of X-plane flying cars.

根据中国乘用车上显量的数据, 在今年二季度,纯电的渗透率接近20%。 但是如果不包括A0级和A00级的纯电渗透率, 当前仅有14%。 在当前,自能气的渗透率比 More than 4% or even less. In another perspective, we can see that this is a huge market and has a long-term, fast-moving opportunity. We believe that Xiaopeng's super-fast-charge electrification and the long-term investment in the long-term investment in the automation core technology of the smart support value of the whole scene will accelerate the release of new products in the middle of the next many new products and enter the harvest period. The G9-marked Xiaopeng 7 will enter the new generation of electric, We believe that with a longer battery life, higher charging efficiency, and a wider charging network, the advantages of these three aspects will continue to be enhanced. Xiaobong will also promote oil cars and motor vehicles in the mid- and high-end markets, and a faster transition to pure electric vehicles.

According to China Passenger Vehicle Insurance Registration data, BEV penetration rate reached nearly 20% in the second quarter of 2022, while BEV penetration rate excluding A0 class and A00 class was only 14%, clearly indicating a vast market potential with long-term disruptive opportunities for us. Although market competition is becoming increasingly intense, I believe we'll reap the rewards of XPeng's steadfast long-term investment in electrification and core smart technologies for years to come as we bring more highly competitive new products to market. With the G9, we have taken electrification, smart technology, and platform development architecture to new heights. We will continue to propel innovations across software and hardware products, bringing consumers smart EVs featuring an unparalleled combination of advanced technology, brilliant design and an exceptional smart driving experience. With the continuous advancement of our advantages in longer driving range, higher charging efficiency and broader charging network coverage, XPeng will accelerate the transformation from ICEs and PHEVs in the mid-to-high-end market towards BEVs.

We are looking forward to the impact of the third quarter's efforts to overcome the pandemic and seasonal factors. We expect that in the third quarter of 2022, our total turnover will be 29,000 to 31,000 taels, and the revenue will be 68 to 72 billion RMB.

In the third quarter, we will work to overcome the impact of COVID-19 as well as seasonal factors. We expect to deliver a total of 29,000 to 31,000 vehicles in the third quarter of 2022, with estimated revenue of 6.8 to 7.2 billion RMB. Thank you, everyone.

Next, we will have our financial VP, Danison, to introduce the financial situation for the second quarter of 2022.

Thank you, everyone. 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 2022.

Thank you, Mr. He, and hello, everyone. Now, I would like to provide a brief overview of our financial results for the second quarter of 2022. I will reference RMB only in my discussion today, unless otherwise stated. Our total revenues were $7.4 billion for the second quarter of 2022, an increase of 98% year-over-year and equivalent to the level of the last quarter. Revenues from vehicle sales were $6.9 billion for the second quarter of 2022, an increase of 94% year-over-year and a decrease of 0.9% from the last quarter. The year-over-year increase was mainly attributable to higher vehicle deliveries, especially for the P7 and P5. Gross margin was 10.9% for the second quarter of 2022 compared with 11.9% for the same period of 2021 and 12.2% for the last quarter. Vehicle margin reached 9.1% for the second quarter of 2022 compared with 11% for the same period of 2021 and 10.4% for the last quarter. The quarter-over-quarter decrease was mainly attributable to battery cost increase, offset partially by the revenue increase as a result of selling price adjustment. Our R&D expenses were $1.3 billion for the second quarter of 2022, an increase of 46.5% year-over-year, and an increase of 3.6% quarter-over-quarter. The year-over-year and quarter-over-quarter increase were mainly due to, number one, the increase in employee compensation as a result of expanded research and development staff, and number two, high expenses relating to the development of new vehicles to support our future growth. SG&A expenses were $1.7 billion for the second quarter of 2022, an increase of 61.5% year-over-year and equivalent to the level of the last quarter. The year-over-year increase was mainly due to, number one, higher marketing, promotional, and advertising expenses to support vehicle sales, and number two, the expansion of our sales network and the associated personnel costs and commission for the franchise store sales. As a result of foregoing, loss from operations was $2.1 billion for the second quarter of 2022, compared with $1.4 billion for the same period of 2021. and $1.9 billion for the last quarter. Exchange notes from foreign currency transactions was $0.9 billion for the second quarter of 2022, primarily resulting from the revaluation impact of RMB-dominated assets held in the U.S. functional currency subsidiaries and rapid depreciation of the RMB against the U.S. dollar in the second quarter of 2022. Net loss was $2.7 billion for the second quarter compared with $1.2 billion for the same period a year ago and $1.7 billion for the last quarter. As of June 30, 2022, our company had cash, cash equipment, restricted cash, short-term deposits, short-term investment, and long-term deposits in total of $41.3 billion. To be mindful of the length of our earnings call, I will encourage listeners to refer to our earnings press release for more details on our second quarter financial results. This concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead.

Thank you. If you would like to ask a question, please press star then 1. We do ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. 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. Also, 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. Today's first question comes from Tim Sal with Morgan Stanley. Please.

Hello, I would like to thank you for answering my question. My first question is about the technology innovation in the field of small and medium-sized cars. We have seen that small and medium-sized cars are leading the industry in the field of technology. For example, as Mr. Peng mentioned, the city's NGP and Balev superchargers. How can we use these technology innovations to attract more end-of-the-line users and further stimulate the sales of our next few seasons. In particular, the small and medium-sized cars are in the public market. Compared to the technological innovation, users may pay more attention to some cost-effectiveness and hardware specifications. We have also seen that a lot of retail products are also focusing on the advantage of high cost-effectiveness, so I would like to hear your opinion on this. So my first question is about the technology innovation and how we are going to translate that into our vehicle sales. Because X-Pen is the leader in several technology domains, for example, like CTNGP and 800 volts is supercharging. So how can we maximize the traction of all the technological innovation, especially in the premium mass market where we notice consumers might be less tech savvy and care more about their pricing performance ratio? and how we're spec. So that's my first question.

Thank you. I believe it's not a price comparison. I believe it's what we call a price comparison, which means the specific configuration and price. In the past, we thought that if a new car had a good price comparison, it would have a better sales volume in the early stages. But how to have a better sales in six months to 18 months or even longer I believe more importantly, it comes from its brand and from its continued difference between the product it brings to the customer and the customer. In the past, in fact, the sales of the first six months of the first delivery were not big. But when we launched the high-end GP and when we Thank you for the question. Actually, we did not talk about performance over price ratio that much. Rather, we put more emphasis on the configuration versus pricing more.

If the configuration for a particular pricing is good of our vehicle, then the sales will naturally increase. However, if you look at the sales performance for the subsequent six months and 18 months after the launch of a particular product, you actually have to rely on the branding, the after-sales services, the product quality, and the unique competitiveness of our products themselves. Let's take P7 for example. If you look at the first six months of sales performance of that particular product after its first launch, the sales wasn't that great. However, ever since we launched the CTMGP function as well as other high-quality configurations in accordance with the P7 model, we definitely see a huge increase in the sales.

I believe in the past, As a customer of new cars, they will pay attention to the overall configuration ratio and balance of the car. So more people will pay attention to the overall, including the battery life, the cost of battery life, the safety of the battery life, and the convenience of the car. So in the past, Xiaopeng has gained a lot of customers who are interested in automation and are full of hobby. So I believe that Xiaopeng, from the beginning, we have been in the automotive industry, How can we achieve the first balance in a lower cost, longer battery life, better security, faster charging efficiency, and a more standardized charging network? This will lead to the customer's satisfaction in terms of the entire experience of pure electricity in the future. Second, I believe that in 2023, the automation of Xiaotong will start from G9. For the past four years, we have been able to attract a large quantity of customers that are interested in the configuration versus price ratio or that kind of balance in new energy vehicles.

And ever since last year, we noticed that customers begin to pay more and more attention to the driving range of new energy vehicles and also the safety of driving and the charging experience, et cetera. And as a result, because of our concerted effort and commitment into boosting our performance in those areas for the past four years, we are also able to gain a lot of trust and love and support from our loyal customers as well. And in the future, especially going forward as we continue to develop our smart technologies and electrification in different aspects in terms of extending the driving range, driving safety, as well as the charging network and the convenience of charging, we will be able to enjoy the economies of scale benefiting from our previous R&D efforts And as a result, we believe that we can gradually converge those customers that were not so happy with the, for example, charging experience for new energy vehicles, as well as other aspects of the performance of new energy vehicles, and slowly transition them into adopting more and more new energy vehicles, especially BEVs. And going forward, especially since the launch of G9, we believe that with the adoption of full scenario ADAS technology, we will be able to boost our performance of our products to a whole new level, and ever since then, we will be able to attract more and more users, and that will translate into our sales performance. Thank you.

In the past, every car of Xiaopeng was in the process of fast technology forwarding. So from now on, we can achieve 90% of the technology in three lines. We will unify and parallelize to greatly reduce the cost of development and improve the quality and efficiency of the whole car. In addition, we have done a lot of research and development on the manufacturing process from the end of 2019 to the next two to three years. In the manufacturing process, we will greatly improve the sense of quality, the quality of the materials, and the material pressure. including C2C, C2C2P, and other series in manufacturing technology. This will significantly reduce the cost of development of the entire car and improve efficiency. I am more confident in the combination of these three points. In the future, many small companies will be able to meet the demand of customers in this new technology and gain a better sales experience.

In addition to that, I would also like to mention that actually with our commitment and investment in our R&D technologies, we are able to further decrease our cost of manufacturing and R&D in the future with the adoption of our platform-based vehicle architecture as well as our new generation of smartification and electrification technologies. Let's say G9, for example. This is our first flagship product that actually adopts the material level of these three areas of the technologies, which as a result are able to bring down our manufacturing costs as well as our R&D costs as well because for the past years, every single product that we launch has been focusing on advancing technologies and iterating next-generation technologies. But in the future, we will begin to reap the rewards of our previous investment in the R&D, and as a result, that will translate into a lot of reduction in our R&D costs as well as manufacturing costs, and that will also contribute to the enhancement of our overall quality of the products that we are going to launch in the future, as well as enhancing the manufacturing efficiency R&D efficiency as well. And since 2019 we've been investing in improving our manufacturing craftsmanship as well. As a result, in the upcoming two to three years, we believe that we will also welcome a new generation of quality boosts in terms of the overall user feel of both the interior and the exterior of our vehicles in the future, as well as the adoption of more and more integrated die-casting technologies that will allow us to achieve future upgrades of our product quality. And as a result, as I mentioned earlier, we will be able to actually lower our R&D and manufacturing cost as well as, you know, enhancing our overall product quality. And so in the future, we believe that we will be able to actually witness better sales performance as a result. Thank you.

Thank you very much, President Peng. My second question is related to some of the platform strategies mentioned earlier. Can you share with us some of the strategies of the G9, after the Apple platform, because you mentioned that there will be two vehicles next year, the B-Class and C-Class models, and there will be two additional platforms. We have seen that the entire product technology range is accelerating, and competition is escalating. How long do you think the life span of these new smart electric vehicles is? How many vehicles can each platform support in the life span? My second question is about the platform strategy. So following the launch of the GNI powered by AdWords platform, I think Xpen is going to launch two new models next year based on two platforms. So in light of faster iteration and more intense competition, what would be the reasonable lifecycle of our next generation platform and how many models we plan to build on each of the platforms throughout their lifecycle? So that's my second question. Thank you.

Yes, we will launch two new platforms in 2023. We believe that these two platforms, we will develop at least six new vehicles in total. We believe that the life cycle of these two platforms, at least before the first mid-term change, we think it will have about three years of such a life cycle. We are still discussing We can see clearly that in 2025, these two platforms will be able to quickly upgrade and enter the next intelligent and electrified areas. So we believe that in the electrification of intelligent vehicles, we believe that Xiaofeng has entered a platform-based cycle of three to six years. Thank you for your question. Indeed, in 2023, we aim to launch two new platforms to develop in total six new vehicles in the future that's based on our current platforms in total.

And we also estimate an average of three years lifecycle for each single platform before any system upgrades for those platforms. And we also have been discussing internally a lot of possibilities to upgrade our current platforms to allow them to empower our next generation of smartification and electrification technologies in the future as well. And so in the future, we estimate that actually our products have already entered into a very good cycle of developing based on our platform-based vehicle architecture technology of using at least three to six years of lifecycle for those platforms, which will continue to fuel our future product development.

Thank you very much for sharing all the insights. Thank you.

And our next question today comes from Jeff Chong with Citi. Please go ahead.

Hello, Mr. Xiaofeng. This is Jeff from Huaxi. I would like to ask, it seems that there will be a big product cycle next year. I just heard that there will be a C-Class, B-Class, G-Class, Ram Up, and a new P7. Will there be a big change? So I would like to ask, if the new and old models are added together, will reach six new products, plus G3i and P5. Is it possible to challenge the sales of 300,000 products next year? Because I feel that new products will also have a single sales of about 15,000 to 20,000 units. Will the old products remain at the level of 10,000 to 15,000 units? It is closer to 10,000 units a month, which is the current P7. So my first question is about the strong motorcycle I had in 2023. we are going to launch a brand new product, the C-Segment, E-Segment G9, and the midterm facelift P7. So could you give us some insight at whether we can challenge the annual sales run rate at about 300,000 unit level? And if yes, could you break down the portion between the old products and the new products, and whether the current old product, P7, G3i, and P5, a matured, sustainable monthly run rate can be maintained at 12,000 units. Thank you. This is my first question. Thank you.

Hey, Jeff. This is Brian. Let me answer your question. First of all, as you know that we don't give guidances that far out, so I cannot give you a number, but I can give you some color regarding how do we see the new models going to position and compete in our lineup. First of all, I think we still see continued growth in our core product, for example, P7. With the update next year, we believe P7 will renew and continue strong performance. We have hope that G9 next year will exceed the monthly delivery of P7, so you can actually do a little bit of calculation of what number that will represent. The next year's new models, the first half will launch a B-class-based product that's actually going to target even larger market segments. You could probably consider that to be strong competitors to the current model Y in the market. So we believe that will actually also be a model that can generate substantial numbers in terms of delivery and sales. Obviously, the fourth new product, the C-class product, will be launched in the second half. And given the premium and large format positioning, the number may be limited in terms of contribution. But again, it's still going to be targeting a brand new segment that we did not cover before. So with that, you can get a sense of what the likely sort of peak level monthly delivery next year will look like. And we're very confident about our strong growth.

Okay, thank you. And then I have a second question. It's a quick one. The horsepower rate of the second season has dropped a little bit. I feel it's still better than the market thought. But we just look at it, the P7 high horsepower car is about 3,000 less than the first season. And then the battery cost actually increased. It feels like our 21st-generation horsepower rate is relatively more defensive. It's more resistant. Can you help us figure out how much horsepower is reduced by the reduction of P7? How much is the battery cost? How much is it reduced? Then the horsepower rate may be more resistant. Maybe it's because of the software. Can you help us figure it out? It's better than expected. Then if this can give us an answer, then how do we look at the margin trend in the third quarter? Because we also gave a guide before, that is, the margin of the third quarter can go back to the first quarter. Now it means that the margin of the third quarter is relatively conservative, but the margin of the second quarter is not as bad as expected. So now So my second question is about the GDP margin in the second quarter. So I think it's a little bit better than consensus. And on the negative side, we had a P7 sales volume declined by 3.5 thousand unit Q on Q. And this was a high margin product. And also after factoring the battery cost high Q on Q, it seems that the GB margin was still quite resilient. So could you break down the details, elaborate a bit on the second quarter? And also how about going to the third quarter? How do we see the margin trend? Thank you.

Hi, Jeff. Let me answer your questions, and Brian or Charles can supplement later. You're right. In the first quarter, our vehicle margin was 10.4%. In the second quarter, the vehicle margin was 9.1%, so we dropped about 1.3 points. This was better than our original expectation because we were able to price the battery cost increase However, due to some accumulated orders, so the new price order was delivered until late May. So we could not fully recover the better cost through the price adjustment. And the other one would be, as you mentioned, the P7 mix in the second quarter was lower than 50%, so that has some mixed impact. I cannot bring the detailed numbers to you, but basically the margin reduction was primarily due to, number one, the cost increase, which was not fully covered in the second quarter, and then the mix changing. Looking forward to the third quarter, I think we will be able to deliver the new price orders starting from July, so lots of good news compared with the second quarter. And more importantly, we will have better product mix in terms of the P7 as a percent of the total deliveries compared with second quarter. So we are anticipating the margin in the third quarter will improve compared with the second quarter, will be equivalent or very close to the first quarter level. That's all I can tell you for the moment. Yeah.

And then, Jeff, let me comment on your sort of point about a product cycle and also the current sort of whether both from the margin as well as from growth rate, how do we see the current situation? As Dennis mentioned, the margin, because of the mixed change as well as the stabilization of battery and also our orders are now reflective of the few price changes as well as our sort of incentive mixed change. We see third quarter margins should be stabilized and perhaps better than the second quarter. And also because we are starting to launch new products, obviously G9 being delivered in October will be the first of the few new products that we can launch. We start to see growth being sort of generated from these new product launches as well as going to fourth quarter, we feel like the seasonality is in our favor. So we do think there is a strong chance and strong confidence that we are going to a growth cycle led by our new product launches this end of this year as well as throughout the next year as well as I think with these new models also representing better margin due to the platform design as well as higher price points compared to our ASP. So those are the observations I can make at the moment.

And our next question today comes from Ben Wong with Credit Suisse. Please go ahead.

Huang Bideng, let's talk about this discount. Is it going to be canceled? Especially in August and the second half of the month, is it going to be canceled in September? There will be such a guidance or say that this guide is to assume that this discount. He also gave a guide that this interest rate will return to the level of a quarter. Does this include the consideration of this discount? It is said that it has been considered to cancel the whole quarter. There will also be an interest rate improvement. Or assume that the discount will be canceled this month. There is no such thing in September. Thank you. My question is all about there was a promotion in the start flow mid-October to July. So what's the low in terms of both the volume guidance in the third quarter? So basically, if you have a bigger promotion, you should have a better volume. So this means you have a relatively conservative volume guidance means that you already plan to cancel the promotion start flow in this month. Meanwhile, you also give a pretty positive guidance about the margin in the third quarter, which will be returned to the level of the first quarter. you can also assume your promotion will disappear and start from, say, obviously this month and next month. Thank you.

So, Bing, this is Brian. To answer your question, first of all, the third quarter delivery guidance is what, you know, it's considered all the information to date. So it will include the, you know, obviously all the promotion and price adjustments that were made in the past. I think the guidance also reflected the fact that we are entering into a relatively slow season, and also we can see that some of the traffics in the stores are less than what we've seen before because of post-COVID situations. And also I think there's a part also due to that before the new model launch and deliveries, there are a little bit of people waiting to compare to existing purchases. So all that I think you will see both from our experience as well as from peers' performance as well. On the margin front, I think what I would say is that the promotions we offer to the models actually is less than the price increases that we made in the second quarter. So net-net actually the margin on the products is actually slightly better in this current sort of pricing environment, pricing mix. So we are seeing improvement in third quarter or stabilization in third quarter margins. I don't think we have actually guided back to the first quarter level yet, but I think we see stabilization improvement. in the third quarter versus second quarter.

Okay, thank you. Thank you.

Our next question today comes from Ming Lee at B of A. Please go ahead.

Thank you. Thank you, Mr. Manager. I'm Ming. My first question is about the superfast battery that Mr. Peng mentioned earlier. I'd like to know how this battery My question is, is regarding the battery technology because you just mentioned that the charging speed is much faster than the current battery. So do you own the patent and the technology or your supplier own it? And can they supply such kind of battery to other OEMs? And also, what is the reason for you to manufacture the motor on yourself?

Thank you. The first question is about fast charging. In fact, it requires power supply, including power supply management, pack, including the whole car, including electric installation, and other four aspects of cooperation. So in this system, in Xiaopeng's system, the power supply will be designed and developed together with our cooperation partners. So in this, we share the patent in part. But in the whole car, In the management of the entire power supply pack, as well as in the development of the power plant, and in our deployment, these are all achieved in the small red system. So about your second question, in terms of the manufacturing and manufacturing of electric machines, I believe there are a few points. The first point is how to have a longer battery life, and a lower cost, and a better quality. So we are working on these three aspects.

Now, thank you for your question. In regards to supercharging, now there are several aspects of the consideration in the technologies behind the supercharging. First of all, you have to look at the battery themselves and the management of the battery, the battery pack, as well as the whole vehicle manufacturing and design, as well as the charging piles. Now, we do conduct collaborations in terms of the R&D of the development of the berries with our suppliers and our partners. And so we share some of those patents in those areas. However, we have in-house partnerships R&D capabilities and we own the patents of our management of the batteries as well as the design and manufacturing of the whole vehicles and the charging piles as well. So that's to the first part of your question. In regards to the second part of your question, which is about the reasons behind or the rationale behind the in-house development and research of our motors. It is because it's very important for us to control the quality for the development of the motors to uphold the highest standards of the, for example, quality of our products, as well as to maintain the level of technology level that we aim to achieve. And so in order to achieve that, we have to do the R&D in-house. Thank you.

Hey, Ming, let me just add, to answer your second question, the reason is better performance because our self-designed motor actually has a very compact design, also efficiency that allows us to prolong the range of the vehicles better than what we can get on the market.

Thank you, Brian. So a quick follow-up question. Regarding the new model in 2023, Brian just mentioned that the product could be a comparative product of Model Y. So can I say it will be slightly smaller than G9, and price-wise will be slightly lower. So it has a large addressable market.

Thank you. Yes, that's what it will likely to be positioned.

All right, thank you.

Thank you. And our next question today comes from Paul Gong with UBS. Please go ahead.

Yeah, hi. Thanks for taking my question. Just two questions. The first one still want to discuss a little bit more on the Q3 guidance. Do you see it is more like a supply-side constraint or demand-side constraint? So is it like the supply chain or do you see the really it's a demand-side temporary due to the seasonality? The second question is regarding the potential cannibalization. You are going to have a B-segment SUV as well as a C-segment model next year. Given you already have the medium-sized sedan and the SUV, P7 and G9, how do you see the cannibalization versus each other? The first question is, I would like to clarify the guidance of the third quarter. Now, is it more because of the supply chain problem or the deterioration of the season of demand? The second question is, if the B-class SUV and C-class cars in the next year are the same as our current P7 and G9, can we share some mutual knowledge?

Hey, Paul. So on the first question, I think I mentioned earlier that we see the weakness mostly due to seasonal weakness, but also post-COVID control measures. There's a lack of traffic. And also, ahead of the new model launches, there's a little bit of a comparison and wait-and-see attitude, which you saw, I think, in other models or other peers as well. But from our own perspective, also there's the level of orders not pairing with the supply chain because the mismatch in some of the order models. So those are the reasons that I think we have currently provided such a delivery estimate view. So that's to answer your first question. Second question you had on the new models versus our current lineup. We feel like, first of all, there's very minimal overlap in cannibalization. What I answered before this question, the new B-class model product in terms of size and in terms of price points will be different compared to G9. It will be positioned also very differently and competing with a very different segment. And also, next year, the new models are not sedan models, so it does not compete with P7 as well. So there's minimal cannibalization from our model positioning and lineup.

Okay, thank you very much.

And our next question today comes from Nick Lay with J.P. Morgan. Please go ahead.

Good evening, everyone. I have two simple questions. Many questions have already been asked by other panelists. The first is related to the problem of chip supply. I want to update it. We understand that the short circuit of chips now should not be a problem. Last year, there were quite a lot of short circuits in MSU. But now we understand from the supply chain and this channel that in addition to a small part of the chip, such as infilin, these drive chips, most of them should not have short circuit problems. I'd like to ask about this part. Is our situation similar to our understanding? Regarding the issue of supply, some customers are concerned about the problem of limited electricity in China. I don't know if this has any impact on the public sector. This is the first issue about supply. If I can ask directly, the second issue is about finance. In the second quarter, we had a loss of $8.9 billion in foreign exchange. Let me quickly translate my question. The first question is really an update on chip supply's condition as well as any production impact from power shortage currently in China, if at all. about the first question related to production and supply equation. And second question is really second quarter or first half. We booked about 890 million FS loads. Can we explain a little bit more on that? Thank you.

Yes, I think to answer your first question, since last year, the short-circuit problem of telecom and chip has always been around small and medium-sized automobiles. From what we can see now, I believe Next year, at the beginning of the year, there will be a better solution for the entire power supply problem, including Xiaopeng and the entire industry. In terms of chips, in the first half of the year, there were dozens of chips that were often in a long-term high risk situation. But from the current point of view, the number of chips that are still in high risk has dropped significantly. Just like we said, we have 5,000 chips in a car. So chips may be more or less in the size of this self-driving car. There will also be some slight bottlenecks. But I believe that next year there will also be a considerable amount of bottlenecks. Regarding the limited power in some cities such as Sichuan, at present, we are in the management of this supply chain. I talked to them about the communication. There has been a related communication before. So from our current supply chain in Xiaohong, Let me address your questions.

First of all, in regards to the chip and battery shortage, definitely since last year, we have been greatly challenged by these two problems in the supply chain. However, since we believe that the problem, the shortage in these two raw materials will be greatly relieved by the beginning of next year. Now, for the first half of this year, there were a total of about 10 types of chipsets that were in high risk of supply shortage, and so far we have seen a reduction in the number of the types of shortage that face high risk of supply shortage, and as I mentioned, You know, previously, there's a total of 5,000 different types of chips included in every single vehicle. And so definitely chip shortage will still be a big problem. But however, we are very excited and glad to see that the supply shortage is being relieved. And definitely by the beginning of next year, the problem will be much less stress and dire for us. Now, in regards to the second part of your question, because of very early pre-empt measures and communications, we are not being challenged or troubled or concerned with the power shortage or power supply shortage in, for example, provinces such as Sichuan. Thank you.

Hey, Nick. This is Dennis. Let me first explain so-called currency law, exchange laws from the foreign currency transaction. Because when we had the US IPO and the Hong Kong IPO, major money was raised and kept in the US subsidiaries. So the functional currency is the US dollar. And through kind of intercompany lending, the US subsidiary lend the money to the domestic, I mean the company that's the... the subsidiaries in China through that kind of intercompany lending. So this is kind of the R&B dominated assets held by the U.S. subsidiaries. So in the future, the money should be returned back to the U.S., so to convert back to the U.S. dollar. So when RMB has the appreciation, we will get the revaluation benefits. And in the second quarter, due to the rapid RMB depreciation against the U.S. dollar, there was a negative revaluation impact held in the second quarter. So in the future, it will be a currency change. we will do that on a monthly basis. So if RMB appreciates against the U.S. dollar, that will have the positive gain on the foreign currency transaction. So you're right. That's the trend. Nick, just to make it clear, first of all, it's not cash.

It doesn't mean that we have converted the cash. It's just the valuation because of the currency exchange rate differences resulting in such sort of swings. Obviously, you know, every quarter we have to value the assets using our functional currency, and that's why there's differences resulting from that, because the RMB exchange rate reacted pretty, I would say, significantly in the last quarter.

Yeah, I understand. It's a non-cash item. Thank you indeed, Dennis and Brian. Thank you.

And our next question today comes from Jing Sheng with CICC. Please go ahead.

Hello, everyone. I'm Jing Sheng from CICC. I have two questions. One is, we would like to ask how we see the competitive pattern and consumer preference in the price range of around $200,000. If we look at the current market, This is my first question. How do we look at the competition, patent, and consumer preference of the market pressed at 200,000 RMB compared with peer models. Can you share what we think are our major advantages and disadvantages? Whether there would be a new version of P5 Max here, and how should we expect the monthly sales volume at a steady state?

The whole car model will continue to grow in the competition this year and even next year. There are two main competitions in this. The first competition comes from the cost-performance ratio. The second competition, I believe, is mainly based on the balance of battery life, design, and intelligence. In the P5 system, P5 is all about intelligence and space. It can achieve a better advantage. From what we see now, the sales of the entire P5 is stable. um um

But I think because we have a new update for P7, I think it will continue to grow. For P5, I think competition is increasing. We think the amount of P5 will have some losses at the current level. But I think there is still a strong competitiveness. According to the release of CNGP, we believe it will be similar to the P7 release of NGP.

Thank you. Thank you.

Thank you. Thank you for your question. Now in regards to the competitive landscape within the price range of 200,000 RMB, we believe the competition will continue to be very intense for this year and the coming year as well. And there are two types of competition out there really. The first type is regarding the driving range as well as the performance over pricing ratio. And the other is about the overall design and the smartification features for those kind of products. And for P5, its advantages, it's definitely in regards to the, you know, it's very outstanding in terms of the overall design, its smart features, as well as its immersive and very immense sort of cabin space as well. And we have observed a very steady sales performance for P5. In regards to P5 sales performance guidance for 2023, we did not give out guidance with that kind of level of details in terms of specific quantity of sales expectation. But because there are some new updates for P7, we definitely I believe that maybe it will have a small impact on the sales performance of P5, but overall we expect to see very good performance in terms of the sales for P5 overall. And also with the... As we observe for P7 with the newly launched city NGP, we observed a boost in the sales performance, and we expect to see the same situation happen for P5 as well, which means that with the launch of a higher level of smart features such as city-level NGP, the sales performance for P5 will grow. Thank you. The second question is about the super fast charge and the network construction. It will be a relatively large-scale promotion. I would like to ask how you consider the large-scale use of the super fast charge. We think it will be very fast, and it may reach the price range. Consumers may still say that it may need to be penetrated gradually over the years. My second question is, how do you think about the timing of mass usage of supercharging? Will it be popularized quickly or will it need to gradually penetrate over a few years? In addition, how should the high-voltage platform increase the purchase or manufacturing cost of the vehicle? Can it be penetrated through a low-price model?

China China China China China China In addition to the high configuration support for 4C charging, all other configurations support 3C super fast charging. We also support high voltage, high current fast charging, and super fast charging systems on the platform after G9. Therefore, in addition to G9, the rest of the platforms are all using high-pressure platforms. In fact, we are still very confident in the management of the supply chain and the cost management of the high-pressure platform. So only by doing this, it is possible to It means that first of all, the car needs to support this super-tron, and secondly, the installation needs to be fast enough. We believe that in the second half of next year, our super-tron network will have a preliminary formation, and in the second half of next year, we will have a major formation. Thank you.

Now, in regards to the construction and the adoption of our supercharging network, definitely it's developing quicker than expected. This quarter, we started the aggressive construction of our network, and by Q4 this year, we believe that we will have another series of new stations equipped with these supercharging facilities. And by 2023, our supercharging networks will be constructed even at a higher pace. Now, for example, G9, you know, with its highest configuration model, you know, fully compatible with the 4C supercharging facility, all the other configurations and other, you know, models actually of G9, other versions of G9 actually support 3C supercharging function. And in the future, you know, because our platforms right now support this high voltage and high power supercharging facility, we believe that our future models will all be equipped with this kind of functionality, which means that we can be able to do better supply chain control to equip our future products with this kind of facility and allow us to achieve better economies of scales as well as cost-controlled effects. Now, there are two things that we need to focus on when we talk about the supercharging network construction. One is development and the design of our vehicle products to support this kind of high-voltage supercharging function. And the other is the quickening construction of our supercharging network and the charging piles And by the second half of 2023, we believe that you will, you know, we expect to see a very well-established supercharging network that can fully, you know, promote the adoption of our supercharging, quick charging facility. Thank you.

And ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to the company for closing remarks.

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

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