XPeng Inc.

restricted cash, short-term investment, and time deposit in total of $40.1 billion. To be mindful of the length of our earnings call, I will encourage listeners to refer to our press release for more details on our third quarter financial results. This concludes our prepared remarks. We will now open the court questions. Operator, please go ahead.

Thank you. If you wish to ask a question, please press star one on your telephone and wait for a name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up your handset to ask your question. For the benefit of all participants on today's call, if you wish to ask your question to the 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. We have a first question from the line of Tim Sao with Morgan Stanley. Please go ahead.

Thank you, Manager Chen, for accepting my question. I have two questions, which may be related to what Mr. Xiaofeng shared in the briefing. The first question is about the delivery of vehicles. Maybe because of the pandemic and the change of vehicles, the delivery of our vehicles has been weak in the past few months. We also saw that Xiaofeng Motors has made a series of organizational adjustments to this. For investors, we should look forward to how fast and how specific such an organizational adjustment will reflect on the obvious improvement in sales in the next few months. In addition, for G9 month sales, our previous target of 10,000, or the overall turnover target of the new generation of P7 next year, due to the current situation of the entire market, whether our target has been adjusted, this is because it is also closely related to the profit and loss ability of small and medium-sized cars next year. So my first question is about deliveries, because the vehicle deliveries have been slow in the rest of the month, likely due to the modern transition and the COVID curbs. AXPEN has done a series of organizational restructuring, but how fast could this adjustment translate into more meaningful voluntary recovery in the upcoming months, assuming the impact from the COVID restriction could ease over time? And separately, Have we adjusted our 10,000 target for GNI per month or the new P7 next year due to the current supply-demand challenges? This is also highly correlated to the company's profitability into 2023. So this is my first question. Thank you.

Thank you, Tim. I have recently read a lot of cases related to manufacturing in history. I believe that Xiao Peng's current adjustments are mainly for the medium-long term and will not change for short-term actions. So please, investors, be patient. We hope that after a few seasons, we will continue to see the change in the performance of this performance. It's getting more and more obvious. In 2023, Xiao Peng will expand the four segments. As for the most short-term situation, if the situation of the epidemic does not expand further, then we hope that in December, our delivery will exceed 10,000. At the same time, we predict that G9 will become the top three in the storage SV of more than 300,000 in December. So in 2023, with the accumulation of G9's reputation and the landing of FNGP, we also compared our P7 in the past. We believe that G9's sales will be further reduced and the gap between the top three in the storage SV of more than 300,000 is our goal. So about the new version of P7, we believe that the product competitiveness Thank you.

All right, first of all, thank you for your question. Regarding, well, I've just reviewed a lot of historic cases of how manufacturers do changes over time. And currently, the organization adjustments that Xpeng is conducting is for the major long-term goals, not for the short term. So we ask for your patience. At the same time, we are very confident that we can see more significant changes to be translated into our sales performance in the coming several quarters. And in 2023, our market share will be further expanded. Now, in the short term, if the pandemic can be well under control, we are confident that in December, we can still maintain our original goal of reaching 10,000 of monthly sales for G9. And we are very confident that we can be ranked among the top three players in the battery electric SUVs segment, priced above 300,000 RMBs. Now in 2023, with the rollout of our further developed X-NGP function, we believe that G9 cells volume can be further enhanced to further exceed actually P7's performance compared to the same developmental stage in the history. At the same time, P7's competitiveness will be further enhanced alongside with our technological improvements and also their cells performance will be improved in the coming year as well. Now, in mid-2023, we expect to launch a new product or a new model that applies between 200,000 to 300,000 RMB, which will be a B-class mid-size SUV. And that will definitely help us to further boost our product sales, and we believe that the sales volume of this particular model will actually exceed our current product portfolio. Thank you.

I just want to make a clarification. We mentioned that the December delivery overall will reach 10,000, not just G9, the overall delivery for December. I just want to make that clarification.

Thank you, President Peng and Brian. My second question is about cash flow. There is a challenge in the financial market and the general economy. Investors are particularly worried about the cash flow of small and medium-sized cars. There is still a very sufficient amount of cash on Jason's three-level report. But next year, if we look at our own observations, such as the payment period of suppliers, the cycle of storage, and the investment of two new platforms next year, will it cause some extra pressure on the single-segment or last year's competitive cash flow? So my second question is about the cash flow. In light of the challenging macro backdrop, investors are increasingly concerned about expense cash flow. The company still has pretty strong cash position in balance sheet based on the latest financial statement, but will there be any potential changes to our supplier payment term or surging new model investment next year that may deteriorate our operating cash flow? What kind of cash burns? should we expect next year? And separately, based on the latest financial statement, expended short-term borrowing also increased more substantially in the quarter. Is there any specific reason to that? That's my second question. Thank you.

Hey, Tim. It's Brian. Let me address your question. First of all, the payment terms for our suppliers We don't see any material change. We're actually maintaining a pretty favorable payment terms with our supplier and partners. And if you look at the cash, operating cash outflow, the first three quarters, it's actually less than $6 billion. And then we actually also foresee the entire CapEx for this year, 2022, to be less than $4.5 billion RMB, lower than what we anticipated earlier in the year. And then looking to 2023, we actually see a significant change reduction in CapEx due to a number of factors. First of all, as Xiaopeng mentioned earlier, that we actually pretty much completed our capacity build out, so we don't need to incur significant CapEx for that. We also have also completed the construction of these new product platforms for the new car launches. So a lot of these CapEx has been already incurred already. So next year, we think the CapEx for us will be significantly lower, actually below 3 billion RMB in our estimate for next year. And also, in line with the current streaming line and focus, that we are doing in our R&D projects. We think the R&D expenses next year compared to 2022 will also see not growth, actually inline or reduction. And we also see the SG&A expenses going down due to some of the structural organizational changes we mentioned. So overall, we're actually very confident that we can see free cash flow outflow significantly improve next year compared to this year. And also, with our current cash on hand, we have very adequate resources to meet our business plan, and we also anticipate that carries us to our projected cash flow positive sometimes in 2024.

Thank you very much for sharing the details.

This is Dennis. I just want to supplement one point regarding your question on the short-term borrowing. Yes, you're right. We have increased our short-term borrowing in the third quarter. The reason is basically for the money management because we have established considerable credit lines with a variety of banks, and then we technically draw down some part of the pretty nice to strengthen the relationship with banks. So that's why you see a slight increase in the short-term borrowing at the end of September.

Great. Thank you very much for sharing, Dennis and Brian.

Hi, this is Alex. I just would like to clarify, when Brian mentioned the decrease of SG&A expenses, it means as percentage of revenues in 2023, compared with that percentage of revenues in 2022. Thank you. Perfect. Thank you.

Thank you. We have next question from the lineup, Ming Sun Li with Bank of America. Please go ahead.

Thank you, President Peng, and everyone in the management team. My first question is about the guidance of the four seasons. When it comes to the increase in sales and sales volume, In the middle, it is about 8% to 9%. Is it expected that we will have some discounts in the fourth quarter? And then there are some versions of this P7. It's starting to stop now. It's been on sale, so it's going to have some impact on ASP. I also want to know if there is a trend direction in the fourth quarter. Next year, My question is the ASP trend in 4Q based on the difference between your voting guidance and also the revenue guidance. So could you give us some more color on this? And besides that, looking into 2023, what's your plan to control the component costs as well as the battery costs in order to maintain your gross margin? Thank you.

Min, this is Dennis. Regarding your question on the ASP, yes, you're right. In the third quarter, Our ASP increased primarily compared with quarter two primarily due to the beta mixed, beta P7. As mentioned, that also improved the margin. For the quarter four, the P7, in terms of P7 mixed, will be lower. However, because of the mass delivery of the G9, so we'll be able to maintain. together the P7 and the G9 mix at about maybe 55% to 60%. So we actually will have slight increase in terms of ASP compared with the quarter three. offsetting some variable market spending on the P5 and G3. So that's the answer to your first question. In terms of mature cost increase, so far we haven't seen the big changes in terms of the battery cost for the next year, mainly for the first quarter. But we believe due to more supply, we are seeing opportunities in terms of the battery supply and that would in return translate into a cost reduction, maybe in the second half. So with that, the cost improvement will help to maintain or to improve our margin offsetting the NEV subsidy discontinuation.

So Ming, just to also add to this, the fourth quarter, due to the volume contraction, and also launching of our new product, G9, I think the gross profit will face some pressure versus the third quarter. And then the first quarter, given the subsidy elimination, which impacts on our lower price models, so that will also present a challenge for the gross profit. However, our view is that with the volume rebounding starting the second quarter and then the rest of the year with scale, and also we anticipate battery prices moderate and also show some opportunities for decline later in the year, I think the gross profit trend will improve significantly in the later half of next year.

Okay.

Thank you, Brian and Dennis. I have another question.

Thank you. We have next question from the line of Nick Lai with JP Morgan. Please go ahead.

Good evening, everyone. I'm Nick. I have two simple questions. First, I'd like to ask Mr. Peng about the change in management structure. Mr. He spent 15 minutes on the organization structure adjustment. I'd like to ask about the strategy and changes in the brand and sales team. Let me translate my question firstly. Chairman Mr. He just mentioned that we are going to change a lot of strategy regarding the measurement including branding and marketing team. And can we elaborate more what are going to change in terms of branding strategy and marketing campaign? And when can we expect those change having an impact on underlying demand or volume?

Thank you, Nick. We are still in the middle of adjusting the organization of brand marketing. Overall, in the past, Xiaopeng's brand marketing team will actually think more about marketing, and the way to do it will be more effective. But in the future, we will open up more innovative ways for marketing and services. Overall, we will lower costs in terms of marketing. Then we will increase our investment in sales and service. This is our first strategy. Secondly, we will carry out some integrations in the organization later. And it will lead to more outstanding talents in the sales and service sector. We will redefine the strategy of work and defense. To better meet the needs of the entire product range and customers. Because in our sales movement, and will continue to do so. So what we are talking about is a PR strategy in the next few months. Thank you.

All right, thank you Nick for your question. We are actually conducting or in the midst of doing this organizational adjustment with focus on our branding and marketing. Looking back, I mean in the past our branding and sales and marketing mainly focused on sales with more focus on boosting the sales of our products. But going into the future, we are going to balance different aspects of our branding, marketing, and sales. with innovative measures. And we plan to actually reduce our spending to boost in the sales while increasing our spending in the marketing. Now, the second thing that is regarding the organizational adjustment is that we plan to – we expect to integrate our organization to make it more efficient and effective. And we plan to recruit, you know, very high quality talent from different industries in order to boost our sales and marketing efficiency. And we aim to launch a series of measures in order to tackle different challenges as well as boost our efficiency. effectiveness in order to align our product portfolio as well as to achieve higher customer satisfaction rate while adjusting the customer demand. Now, we are talking about our near-term strategy for this organizational changes in the coming 15 months, but we believe that in the long run, we will continue this adjustment in order to achieve our meet-the-long-term goal. Thank you.

Yes, I would like to add a few points. The first point is to have a clearer positioning. The second point is that based on this clear positioning, we will have a more long-term approach, rather than considering a shorter one. The third point is that we will have a more aggressive action, rather than the previous one, which is relatively defensive. The fourth point is to focus on the customer. Okay, I will add this point.

And just allow me to add several key points. The first one is that we will have a clearer positioning of our brands and products. And the second thing is that we are aiming for the long game. We are not doing this for the short term. And the third point is that we are going to be more aggressive and more proactive in our sales and marketing campaigns rather than being rather passive just like in the past. And the fourth and the last point is that we will remain very customer-oriented and focused. Thank you.

My second simple question is related to the concept of MGP and FNGP. Mr. Xiaotong has been talking about this for a long time. I have a technical question to ask. From the perspective of the consumer's use, what is the most important difference between CGNGP and other solutions such as Mobileye and Huawei? At the same time, President He mentioned that we are exploring some opportunities for strategic cooperation. My second question is really about autonomous driving as an NGP solution. Can we elaborate a bit more? How are we different from the other solutions such as Mobileye and Huawei and so on? and also mentioned that we are looking for potential opportunities to work with other potential partners at NGP Plada, and can we extend a bit more on that as well? Thank you.

Thank you, Nika. Let me answer the first question. From the perspective of using the automatic assistant syntax itself, we think there are four aspects that are of great interest to customers. The first is the scope of use. In the past, high-speed traffic and parking only accounted for about 10% of the use scenarios. Most of them, more than 90% of the scenarios, are in the city. The second is cost. How much cost is the customer willing to pay for it? Today's cost of automatic service value, in fact, I think there will be a chance to drop to 30% to 20% in the future. The third is how to improve safety. The fourth is how to help customers achieve real value. So the problem you just mentioned covers these four aspects. From our point of view, the first difference between XMGP and the original high speed is that it extends 90% of the additional usage range. And in the original, if the customer only uses the city high-frequency map or the machine-controlled radar map to carry out automatic service driving, it will fall into a difficult problem, which is that it will encounter different technical performance in different parts of the road. In other words, in the case of a high-definition map without a high-definition map, it will have a lot of this experience of switching. It will bring security problems and user interaction problems. So from our point of view, just supporting high-speed high-definition maps and urban high-definition maps, its final experience is broken. It is very difficult to complete this experience. So if you want to solve a situation where there is no map in the middle, you must use this. When there is no map in Xiaopeng's XNGB, it can ensure that all the experiences are basically guaranteed to continue on a bloodstream line. Only in this case can it ensure that the whole scene, the whole range, and the experience and sense of security of each scene when switching is the same. Thank you.

First of all, allow me to address the first part of your question. From our own user experience, there are four key components to the adoption of ADAS technology nowadays. The first one is scenario coverage or scenario support. Now, from our data, we noticed that highway and parking only took up about 10% of people's daily use in terms of the scenario, and 90% of people's use of ADAS technology is actually on city roads. And the second component to the adoption of ADAS is the cost, you know, how much people are willing to pay for the advanced technology. And we actually are confident that in the future, the cost of affording our ex-NGP or related ADA software will be able to be reduced to 20% to 30% of their current cost. And the third component is safety. And the fourth component is the true value that you are able to contribute to your customers. Now for ex-NGP, when we are able to roll out our city-based scenario or function, we are actually expanding the scenario coverage by over nine times because 90% of the usage happens on city roads compared to only 10% happen on highways and parking scenarios. Now in the past, without our ex-NGP, people mainly rely on for example, high definition maps or laser-based technology, etc. Those pose a lot of challenges, especially in areas where you don't have high definition mapping available And that caused a sharp difference that actually produced a sharp difference in terms of user experience and in terms of the safety as well. And we don't think that that is our final target. That's why we launched X-NGP. That allows very consistent performance even in areas where we don't have high-definition mapping or high-definition maps available. And that actually is the reason why we are so excited that with the rollout of our city road-based or city scenario-based XNGP, we will be able to support a full scenario functionality in a true sense, and we will be able to provide a very consistent experience when people are switching the use of such functionality from areas with high-definition maps and without high-definition maps. And that will allow our customers to have a very easy and safe and efficient driving experience, just like when you are a passenger in a car driven by an experienced driver. And that kind of seamless integration is our goal here. And that is why we are very confident with the rollout of our X-NGP to achieve higher customer satisfaction. Thank you.

Yeah, and Nick, to answer your second question regarding the openness in terms of collaboration and cooperation, I think it's all generated from the recognition that we have spent a lot of effort and resources to develop market-leading technologies. And we think actually in addition to increase our sales, I think there is tremendous value embedded in these technologies that can be monetized in other ways, potentially. We also saw tremendous interest in such technologies. We have leading technology in smart driving autonomy, in smart cockpit, in electrification, in high voltage platform, etc. So I think these technologies could become valuable if we actually have the ability to make it more scalable and also leveraging potential partners' resources to quickly penetrate scenarios or markets that we currently don't focus on. So with that, I think our openness, I think we are evaluating a number of potential opportunities to hopefully help us to make these technologies reach more scale at the same time without compromising our focus of producing sort of attractive and competitive products ourselves. So this is an attitude. Obviously, you know, if there's more specific progress, I'm happy to update when it's available.

Okay, thank you.

Thank you. We have next question from the line of Bin Wong with Credit Suisse. Please go ahead.

Thank you, everyone. My first question is about the order. My first question is about the order backlog. Basically, it's two parts. Number one, what's the new order flow for G9 in November? Second, what's the accumulated order backlog for G9? Because this year's delivery should be more than 10K order backlogs already secure. Thank you.

Hey, Bing. It's Brian. First of all, you have tried a number of times that we don't disclose backlogs on any model or particular company backlogs. But there are a few things that I want to point out to you. One is that you can see that our delivery timetable has now been extended to later in first quarter. That shows our orders at hand. and we will be also delivering significant number in December of G9, so that's one indication. Secondly is that we also are confident that with our sales momentum, we see G9 become one of the top three, if not the top two, battery electric SUV models over 300,000 RMB price, and that's also an indication of the level of demand that we see.

I have a question about the accuracy of the waiting time on the company's website. Because if we go to the website to set a date, it is said that we will have to wait until January or February next year. There are different versions. Is this number updated or is it always the case? Why do I ask this? Because many investors are Actually, I just want to check, because on your official website, when we tried to book China online, actually they showed an unexpected delivery time. I want to know whether this knife changes. according to your auto backlog. Because some of the tests actually, if you go to the China website, it actually can show the Model 3, Model Y waiting time. Sometimes it was one to four weeks. Sometimes it's 12 weeks. It actually indicates the waiting time is changing according to the auto backlog. So I just want to know whether G9 waiting time in your website is changing according to your auto backlog on real-time basis. Thank you.

Yes, Bing, I think you're right. The wait time is correlated to the real-time demand and also our production ramp-up capabilities. So what you see in the retail store reflects the various models' real-time delivery timetable.

Okay, thank you.

Thank you. We have next question from the line of Pingel Wu with CIDIC Securities. Please go ahead.

Thank you, Mr. Guan. I actually want to open up a question about the direction of demand that Mr. He mentioned before. Because in fact, there may be a lot of thinking behind the discovery of demand. I want to ask Mr. He, because we have done a lot of internal discussions recently, how do we think about Then I will translate my question. And my question is about how to be demand-oriented. And specifically, the first one is what is the real customer's demand? And secondly, how do we find them? and what will we do in terms of our structure?

Yes, that's another question. Thank you, Mr. He. Thank you.

I believe that in the automotive manufacturing industry, we have two kinds of logic. The first one is that it is a logistic logic. In the past, all the new companies that we created needed to complete different theoretical versions of the short version, including safety, quality, service, and basic cost. These are all short versions that we are going to make. At the same time, what we are seeing now will continue to be completed, including design, interior design, space, and so on. But every company has to find its own long version. Is this long-term plan to meet the needs of current customers or the needs of future customers? This is one of the thinking logic. I believe the second thinking logic I want to talk about is whether you are satisfied with which group of customers you are positioning and which area you are positioning. This has been done a lot of thinking in Xiaohong's recent strategic plan. We more expect to be able to get longer-term global-scale customers. So in these two theories, we can find our future plans and ideas to do the three-year layout in the future. This is the method we are talking about now. I'm sorry, I won't talk about the clear demand for Xiaobeng's future three-year model in detail. But we still want to say that we believe that self-driving will become a standard in all models in the future. Thank you.

Thank you for your question. Now there are two basic logics behind the industry of automaking especially for our OEMs. The first one is to adopt the theory of buckets which means that you have to identify your weakest links and also identify your strengths as well. Now in the past several years I think not just ourselves but a lot of our peers have been doing their best to actually identify and also improve their weak links in terms of, for example, safety, product quality, service quality, and also cost control as well. We are also doing our best. We're striving to further perfect our service quality as well as the design of our products, interior design, as well as smart carpet and other space design as well. So in the long term, one of the key competitive strengths is to really identify your goal. I'm talking about short-term as well as the long-term goal as well. You have to make sure that you understand the current focus, whether you aim for the short-term or the long run. And the second logic behind our automaking industry is to define your customer portfolio or your targeted customer group as well as your regional target as well. Now for the past two to three years, Xpeng has identified ourselves as a global company in the long run and we really want to build scale as well that is why in the coming three years well that based on which we have made our three-year plan in the future And I apologize that today I won't be able to disclose further information regarding our future lineup or the market demand in regards to specific car models. However, what I would like to mention is that in the future, autonomous driving or ADAS technology will be a standard configuration in our future product lineup with very consistent performance and very high quality capabilities across our products. And also, that's, you know, our long-term goal to, you know, based on which we will further enhance our technological capability and also do better in cost control so that we can deliver truly cost-competitive, high-quality products to our customers. And that will be something that we embody in our next generations of products. Thank you. 那么关于您刚刚所问到的在组织结构上,我们在组织结构上做了

Two directions of change to adapt. The first is that we go from planning to product to technology. How do we really put what we think of? This demand can be done well and control the unvaluable demand. Don't realize it. I think this is the first one. Focus on making a new three-electric engine. Power engine, this whole car platform and intelligent platform. The second one, we go through the car's large-scale products. Regarding the second part of your question, now our current organizational changes is mainly conducted to fulfill two goals or mainly focus on two areas. The first one is

To do changes in terms of our product planning, product development, and also to have a higher efficiency and effectiveness in implementing our technology and our future products. And also to control, well, first of all, to be able to identify true demand and to control our investment in, you know, demands that have less values. And that is why we have been invested so heavily in perfecting our, for example, electrical and electronic architecture, our whole vehicle architecture, as well as our powertrain and other systems. With those systems and those integration, we will be able to truly offer end-to-end solutions that are able to deliver high-quality products to our customers. Thank you.

Thank you. I have a second question. It's about the P7 change next year. Because the P7 change will add some new configuration and increase its competitiveness. I want to confirm if it will increase at the cost end. But do we need to adjust the price accordingly and get a relatively stable profit? Or is the positioning of P7 next year to maintain the profit? Or is it possible that My second question is about P7. In 2023, we will launch a new P7 with better configurations, and I think it would cause a rise in the bond cost, and will we maintain a relatively stable GP margin and rise our MSRP or we want to boost our sales and maybe maintain our price or even lower our price. Thank you.

Yes, it's Brian again. On P7 next year, yes, we aim to launch the upgraded model to reflect the technology advancements, particularly the ones that you saw already on G9. So the P7 will have the equally advanced autonomous driving architecture. We'll also have the faster charging capabilities and higher voltage capabilities. as well as a number of other upgrades and fixes that will address some of the shortcomings people have received the feedback on. Benefiting from the platform development, actually since a lot of these advancements are sharing the modular and platform development, We actually are able to control the cost of the new P7 so to maintain the similar margins of the current version. And also, some models of the current version P7 will continue to be selling along with the updated P7. So it's actually, I would say, the high-end or upgraded version of the P7. So with that, I think we believe we can introduce a much more competitive P7 reflecting the top-of-the-line capabilities that we have. in technology while maintaining the segment price and probability on this series, the P7 series.

Thank you, Brent. Very clear. Thank you. Thank you.

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

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

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