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Q1 2023 Earnings Conference Call
spk00: Gentlemen, thank you for standing by for the first quarter of 2023 earnings conference call for XPeng 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 will now turn the call over to your host, Mr. Alex Sheet, head of investor relations of the company. Please go ahead, Alex.
spk12: Thank you. Hello, everyone, and welcome to XPeng's first quarter 2023 earnings conference call. Our financial and operating results were issued by our newswire services early today and available online. You can also view the earnings press release by visiting the IR section of our website at .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 Lu, 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 webcast 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 four looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Four looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the relevant public filings of the company as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any four looking statements except as required under applicable law. Please also note that Xpeng's earnings press release and this conference call include disclosure of unaudited GAF financial measures as well as unaudited non-GAF financial measures. Xpeng's earnings press release contains a reconciliation of the unaudited non-GAF measures to the unaudited GAF measures. I will now turn the call over to our co-founder, chairman and CEO, Mr. He Xiaopeng. Please go ahead.
spk01: Hi everyone. Beginning in the first quarter of 2023, facing future competition, Xpeng has centered around change. With that in mind, I took action to make considerable changes to Xpeng's business plan, organizational structure and management team. As a result, some senior management who completed their mission on our journey from zero to one have stepped down. Nonetheless, more new talents full of energy and entrepreneurial passion have quickly stepped up and taken on leadership positions through both internal promotions and external recruitment. I'm excited to see these new team members have fitted in well in a short amount of time and made remarkable changes. I'm also very encouraged to see the passion and determination of all Xpeng employees to change as if today were Xpeng's day one as we shifted the focus about innovation towards cost, efficiency and customers. It is very hard for the manufacturing industry to reverse the declining trend and set off a virtuous cycle, but we managed to start the reform with ourselves and rebuild the fundamentals of the company. Compared with competitors in industry, such a reform makes me confident that we'll be able to perform well consistently in each battle and create a virtuous product-sale and raise our brand reputation from the third quarter of 2023. In the face of macroeconomic challenges and more intense competition, we achieved -on-month expectations. More excitingly, order intake for the higher-end NCM versions of our new P7i model, which was just launched in March, has exceeded our expectations. The original production capacity we planned was not enough to cover demand. Compared with the previous P7i model, the P7i offers more streamlined SKU specifications with a more efficient -to-market strategy. Starting from June, we'll work with supplier partners to significantly ramp up the production of P7i's components and aim to accelerate deliveries of this popular new model with its aesthetically pleasing style design and distinguishing smart features, further driving P7i's sales growth.
spk03: The new model of C-PAR 2.0, which we first used, is the first of its kind in the Shanghai car market in April and is a very popular car. Not only does it have a stylish feel, it also has the best space in the same class, which guarantees a full-fledged experience. At the same time, it is equipped with the most advanced 800V high-pressure and 3C fast charging In terms of battery life, I would like to point out that the battery life of C6 is up to 755 kilometers, and it has the same unique advantage over the super high performance and super fast charging. More importantly, C6 is the leading X-NGP in the delivery and support industry. I am very happy to share with you that C6's media market has already started last week. The media has generally returned to C6's smart driving and 800V high-pressure fast charging The C6 will be officially listed in June, and we will start to scale up in July. We believe that C6 will become the most popular and popular X-NGP in the Chinese market. The overall volume of the C6 will be higher than the industry's in the same and the same ratio in the third quarter. The overall volume of the C6 will be higher than the industry's in the same and the the industry's in the same ratio in the third quarter. In the fourth quarter, we plan to launch a 7-seat power-saving MPV, which we name X9, and to launch a more clear and rich configuration of the existing model. Let's move to the next step.
spk01: Our latest production model debuted at the Shanghai Auto Show in April, the G6, which was our first production model that is built on Xpeng's next-generation technology architecture platform, CEPA 2.0, or Fuyao in Chinese. Its debut was met with remarkable enthusiasm from attendees at the expo. The G6 features a stylish, aesthetic design and -in-class interior space, ensuring a comfortable ride. Fully equipped with a world-class 800-volt high-voltage SIC platform and a 3C fast charging battery, the G6 is uniquely positioned within its segment, boasting ultra-long range as high as 755 kilometers, ultra-high energy efficiency, and ultra-fast charging. More importantly, upon market delivery, the G6 will be equipped with XNGP, the industry's leading ADAS. I'm pleased to share with you that G6 test drives by media began last week. The feedback from media is that G6 is well ahead of other EV models by one generation in terms of ADAS capabilities, and its 800-volt platform with faster charging and lower energy consumption, which is in analogy to the 3G technology replacing 2G in mobile phones. The G6 will be officially launched in June and begin mass deliveries in July, accompanied by a fast ramp-up. We believe the G6 will emerge as one of the best-selling models in China's N-EV SUV market segment within the 200,000 RMB to 300,000 RMB price range. We expect this model to drive substantial growth in XPeng's third quarter delivery volume and significantly outperform the industry's growth in both -over-year and -over-quarter terms. This will mark the first inflection point in our sales growth following our strategic and organizational adjustment. Additionally, in the fourth quarter, we plan to launch a seven-seat electric MPV model, which we call X9 internally, and roll out more clearly defined configurations for existing models in order to further boost our sales growth.
spk03: We are very excited about the feedback from our customers. After the launch, the first month's sales growth was over 60%. This is a price that users can use on a daily basis. This is the first time I have used X9 to go to work on a daily basis. I feel that smart service is able to make driving easier. After we launched the X9 X9B market price in the three-stage small-time stores, the P7RI and P9 Max orders in these three-stage stores in April have significantly increased by over 50%. We plan to launch the high-speed NGP 2.0 in June, which is next month. High-speed NGP 2.0 is rewritten using XNGP frame, which is five times more than the original code. We use the most complex city scene training algorithm to re-signalize the high-speed scene.
spk01: We also firmly believe that 2023 will mark an inflection point in the development of smart technologies for EV and a starting point of smart technologies' widespread user adoption. We expect most of the market to be able to see the high-speed NGP 2.0 in the near future. We are also looking at the growth of our potential customer to recognize value by 2024 to 2025. At the end of March this year, we rolled out our City NGP on Max stream of multiple models for customers in Guangzhou, Shenzhen, and Shanghai via OTA update. The customer feedback we received has been inspiring. In the first month following the OTA rollout, City NGP's mileage penetration rate reached over 60% and has become assisting driver for users' daily commute. For the first time, I personally have also gotten used to driving with XNGP every day. It made me feel much more relaxed to drive. City NGP test drives are already available at all Xpeng stores in Guangzhou, Shenzhen, and Shanghai. In April, the percentage of order of the Max stream of our P7i and G9 models in a total order of P7i and G9 increased substantially to more than 50%. We also plan to start the rollout of Highway NGP 2.0 in June. Highway NGP 2.0 was developed based on the framework of XNGP, so its code increased by five times compared to the original version. Equipped with algorithms trained in complex urban driving scenarios, Highway NGP 2.0 is able to offer a highway driver assistance experience close to that of L4, meaning high efficiency, consistent performance, no getting stuck, no disturbance, and also no intention to take over. By the end of 2023, the number of manual takeovers per 1,000 kilometers when using our Highway NGP is expected to be reduced to one or fewer.
spk03: At the end of this year's 3G map, we will gradually open the XNGP map that does not rely on high-end maps in China. This will be China's first-ever scale-based model for smart driving in high-end maps. From our actual situation, the difficulty of the high-end map without XNGP is almost 100 times the difficulty of high-end maps with high speed in NGP. This is an important distinction between testing the team's technology and data capabilities. But it is worth it. Once the user's actual experience is completed, it will be greatly improved. Currently, our XNGP has reached a new-hand driving level. Based on the high-end urban data and the powerful background data, we hope to upgrade OTA every season and work hard to increase the experience of XNGP's 1-year driving experience. We will continue to improve safety and improve the driving capabilities of LLM to the middle of XNGP. I believe that with the experience of XNGP, the coverage and cost-effectiveness of the data and the data from the three cities that have been released so far, the sales of XNGP's mass version will be greatly improved
spk01: in the 4th quarter of this year. By the end of the 3rd quarter this year, we will begin nationwide rollout of our XNGP across more cities with our high-definition map coverage. This will be the first time for the mass production of city NGP or equivalent without HDMAP in China. Based on our experience, the mass production of city NGP in cities without high-definition map coverage is 100 times more difficult than the mass production of highway NGP with HDMAP. It sets a new benchmark for our R&D team's technologies and data capabilities. However, it's well worth it because it will considerably enhance our user experience once we achieve it. At present, our XNGP has the driving abilities equivalent to a novice driver, moving forward and supported by the large-scale dataset generated in urban driving environment and strong back-end closed-loop data training systems, we expect to introduce quarterly OTA updates for XNGP, which we expect to enrich its driving experience by one year each time, offering increased safety and generalization ability, and incorporate some capabilities of large-language model or LAM into XNGP. I firmly believe that as we continue to make breakthroughs in XNGP's experience, scenario coverage and ownership costs based on data in the three cities we have launched, sales of the max stream of our models with XNGP will grow significantly.
spk03: We have been able to manage XNGP's design team from the beginning of last year, which has been a great effort to enhance the design and design team's capabilities. We have recently introduced several designers with excellent design experience and talent. At the same time, we will also engage in creative competition with internal and external teams At the same time, we have seen that LLM is now very helpful in design. I believe that this series of adjustments will allow XNGP's new models and the internal and external designs of the modified products will reach the highest level
spk01: of the industry. Good design really matters to young consumers. Since the end of last year, I have been directly managing the styling and design department and put more efforts and resources into improving our design capabilities. Recently, we invited several talented designers with experience in designing top-selling models to join XPeng. We also created healthy competition between excellent external design teams and our in-house design teams to generate even more creative design ideas for new models. In addition to that, the LLM also is very helpful to our design improvement. I believe these changes will enable our new models and future facelift versions to be equipped with market-leading interior and exterior styling and design.
spk03: Since the first quarter, our marketing and service system has changed a lot under the leadership of our CEO Wang Fengying. The company has started to move forward quickly in terms of the logic of internal and external customers. Through the improvement of sales and customer experience, we have also increased the response speed of customer needs. We are very happy to report that NPS has continued to improve from the beginning of this year to April. And in April, it has returned to the top of
spk01: the industry. Since the first quarter, our sales, marketing and service capabilities have been upgraded in a concerted effort under the leadership of our President Wang Fengying. And also the whole company is making external and internal customer-centric transformation quickly by enhancing our customer experience throughout the entire sales and service process and speeding up our response to customer demand. Since early this year through April, we have achieved considerable improvement in our NPS, one of our core customer satisfaction indicators. Now as of April, our NPS has rebounded to Tier 1 level in the industry. Looking ahead into the next quarter, our top priority will remain cleanly focused on rapid acceleration of our sales and EV market share growth. We have already implemented measures to flatten the management structure across our sales organization and establish a middle office that is more efficient and can more quickly respond to requests that come from the front line. The next step will be to take a more selective approach on our existing sales network in order to strengthen the competitiveness of our channels as a whole. In addition to increasing operational efficiency across our Tier 1 and Tier 2 cities sales network, we will also introduce more high-quality dealers in Tier 3 and Tier 4 cities to bolster our product roadmap and sales targets over the next few years in the 150,000 RMB to 350,000 RMB price range market segment.
spk03: The new generation of NPS infrastructure has already developed a strong competitiveness in terms of its development efficiency and technical innovation. Starting from the 6th mass production, the NPS infrastructure has been established in the past five years and has been able to adhere to high-level technology development and technical platform capabilities. We will maintain a leading base in the next three years. At the same time, we are working on a new model that is based on the cost-efficiency ratio of the sub-culture infrastructure and is consistent with the operational experience. Our new model will cover a price range of 150,000 to 350,000 RMB. It will provide power, power supply, smart storage, and a smart value platform. We hope that our new model will continue to reach 20% in the current situation. We hope that the cost-efficiency ratio of the sub-culture infrastructure can reach 80% at the highest and that the cost of the sub-culture infrastructure will be reduced significantly.
spk01: We believe the automotive industry landscape will be transformed by technology innovations and fierce competitions over the next three years. In addition to great product proposition and new technology, the key to success also lies in cost reduction to the greatest extent and efficient involvement in R&D and operations. Our next-generation technology architecture, SEPA 2.0, boasts powerful competitive strengths in R&D efficiency and technology innovation. With G6 mass production, the SEPA 2.0 architecture represents platform-based technology capabilities that we've built through consistent, intensive R&D efforts over the past five years, which will strengthen our leadership in technology over the next three years. We are rolling out new products that offer more competitive cost and consistent customer experience based on SEPA 2.0. The new models in our R&D pipeline, which covers the 150,000 RMB to 350,000 RMB price segment and a variety of new car types, will be built on a suite of shared technology platforms spanning powertrain systems, electronic and electrical architecture, smart cabins, and ADAS. We'll shorten future models' R&D cycle by 20%, and up to 80% of architectural components will be compatible between different models, both of which enable XPeng to substantially reduce R&D spending on new models and bomb costs. Over the second half of 2023 through 2024, we are planning to map out a clear and practical plan to achieve our target of a 25% cost reduction by the end of 2024, and we expect to realize some benefit of cost reduction initiatives in product design, powertrain, and vehicle hardware as soon as this year. In this round of industry revolution, I believe that cost control both for hardware and software and efficiency enhancement for both operation and products will be among the core competitive edges to win the ultimate competition. Nowadays, the competition is mainly around volume or scale, but the next round of competition requires comprehensive competitiveness in scale, innovation, design, cost, efficiency, quality, and global markets, all of which are indispensable.
spk03: We are also planning to invest in the development of the new products, and we are also planning to use the technology to create long-term competitive advantages. At the same time, we are also planning to optimize our organization and process management to further increase the overall efficiency of the company's process. Starting from July of this year, I believe that the growth of G6 and other new products will lead to rapid growth of small and medium-sized sales and the environment. I believe that in the third quarter, the environment of the monthly pay will be greatly improved, and in the fourth quarter, our monthly pay will be more than 20,000 yuan. At that time, our cash flow will also be relatively better.
spk01: In terms of our cash flow, our cash on hand at the end of the first quarter of 2023 amounted to over 34 billion RMB. I'll further simplify our operations, concentrate our R&D investment on what customers recognize, and build our long-term competitive position by advancing our platform-based technology approach. At the same time, we'll continue to optimize our organizational structure and management process significantly to further improve our operating efficiency across the company. Beginning in July, with the mass delivery of G6, along with other new product launches that will feel rapid sales growth, I expect our monthly deliveries to increase significantly in the third quarter compared with that in the second quarter. Furthermore, as our monthly delivery targets exceed 20,000 vehicles in the fourth quarter of 2023, I expect our cash flow generated from operations to turn positive accordingly.
spk03: In terms of revenue, we expect to receive around RMB45 to RMB47 billion. In terms of the amount of cash, starting from the third quarter of 2022, we'll have challenges for four consecutive quarters. However, I always think that the balance between the two is weak, which also makes us think about how to win the 2025 elimination and how to advance to the 2027 final. We will achieve a significant sales growth through the real self-change, stronger new products and channel layout in the third quarter and fourth quarter of this year.
spk01: We expect our revenue to be between 4.5 and 4.7 billion RMB. From the third quarter of 2022, even though we underwent four consecutive quarters of pain in terms of deliveries, I always believed that in every challenge lies an opportunity. It prompted us to reflect earlier on how to win the knockout phase in 2025 and how to get into the semifinals in 2027. Drawing on our more competitive new products and more effective sales channels, we will achieve substantial sales volume growth on a sequential quarterly basis in the third and fourth quarters of 2023.
spk03: Thank you everyone. Next, we have Finance VP Dennis Wu to introduce the Finance Directorate
spk01: of the first quarter of 2023. Thank you everyone. With that, I'll now turn the call over to our VP of Finance, Mr. Dennis Wu, to discuss our financial performance for the first quarter of 2023.
spk07: Thank you Mr. He and hello everyone. Now I would like to provide a brief overview of our financial results for the first quarter of 2023. I will reference RMB only in my discussion tonight, unless otherwise stated. Our total revenues were RMB 4.03 billion for the first quarter of 2023, a decrease of .9% year over year and a decrease of .5% quarter over quarter. Revenues from vehicle sales were RMB 3.5 billion for the first quarter of 2023, a decrease of .8% year over year and a decrease of .6% from the last quarter. The year over year and quarter over quarter decreases were mainly attributable to lower vehicle deliveries and discontinuation of new energy vehicle subsidies. Growth margin was .7% for the first quarter of 2023 compared with .2% for the same period of 2022 and .7% for the first quarter of 2022. Vehicle margin was minus .5% for the first quarter of 2023 compared with .4% for the same period of 2022 and .7% for the first quarter of 2022. The year over year and quarter over quarter decreases were mainly explained by increased sales promotions and the expiry of new energy vehicle subsidies mentioned above. R&D expenses were RMB 1.3 billion for the first quarter of 2023, representing an increase of .1% from RMB 1.2 billion for the same period of 2022 and an increase of .3% from RMB 1.2 billion for the first quarter of 2022. The year over year and quarter over quarter increases were mainly due to higher expenses relating to the development of new vehicle models. SG&A expenses were RMB 1.4 billion for the first quarter of 2023, representing a decrease of .5% from RMB 1.6 billion for the same period of 2022 and a decrease of 21% from RMB 1.8 billion for the first quarter of 2022. The year over year and quarter over quarter decreases were mainly due to lower commission paid to franchise data stores and lower marketing and advertising expenses. As a result of foregoing, loss from operations was RMB 2.6 billion for the first quarter of 2023 compared with RMB 1.9 billion for the same period of 2022 and RMB 2.5 billion for the last quarter. Net loss was RMB 2.3 billion for the first quarter of 2023 compared with RMB 1.7 billion for the same period a year ago and RMB 2.4 billion for the last quarter. As of March 31, 2023, our company had cash, cash equivalent, restricted cash, short-term investment and time deposit in total of RMB 34.1 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 first quarter financial results. This concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead.
spk00: Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you are on a speakerphone, please pick up the handset to ask your questions. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. For the sake of clarity and order, please ask one question at a time. Management will respond and then feel free to follow up with your next questions. Today's first question comes from Tim South with Morgan Stanley. Please go ahead.
spk11: First of all, thank you for accepting my question. I have two questions. The first is about the price strategy. We can see that the market is now facing a very intense price competition. The pricing of competitors is also very flexible. So how should we consider the pricing strategy of G6 and subsequent models? As Morgan Stanley mentioned, the whole group has set a goal of reducing the cost and increasing the efficiency. Will we also use a more intensive price strategy to sacrifice short-term profits to ensure that the price ratio can be fully extended when the new car is released? Or will we consider to launch a low-cost model after the subsequent scale discussion to apply for competition and the price adjustment of the product? My first question is about the pricing strategy. How should we think about the expense price strategy for G6 and the upcoming models? Given the severe pricing competition, will Xfin intend to price the model more aggressively when bringing the model to the market to ensure the company can stay much ahead of peers in terms of price-performance ratio? Especially, I think Mr. Ho just mentioned that the group will happily focus on the volume growth. Or the company would prefer to leave some room for a cheaper version to follow on after the volume has taken off in order to effectively respond to peers' pricing adjustment and better balance our new-term profitability? So that's my first question. Thank you.
spk03: That's a very good question. You mentioned two groups. We have considered them in the discussion. Given the overall strategy of the small red stock market, we certainly hope to use a scale-precise balance pricing strategy in such a competitive situation. We have seen the change in the cost of carbon dioxide and we have seen the price adjustment in a relatively controllable situation, including G6 and the following models. So, from a macro perspective, we have considered these points and the logic of competition. Ultimately, we hope to achieve a price that is competitive and can be set at a relatively long time. So, in response to your question, logically, we say that the price should be prioritized.
spk01: Thank you for your question. We have considered internally these two possibilities. First of all, we will prioritize the scale before considering pricing. We definitely expect to have a long-term stable pricing. Also, we will take into consideration the cost structure of our products, including the inflation of, for example, the LFP batteries and other parts. Taken into consideration those factors together with our cost control measures, we definitely consider long-term stable pricing at a more competitive level for G6 and also other upcoming models. But in a nutshell, we will prioritize scale.
spk04: Tim, let me just add here, this is Brian. I think, first of all, the scale we believe will lead to a better profitability, ultimately, because obviously a number of costs can be amortized and reduced in a more efficient manner. Also, as you heard in our previous description, we aim to significantly lower the overall cost and bond for our vehicles in the coming month or the coming year. So, with better scale and our aim of achieving better cost savings on these products, I think the profitability will naturally return. So, that's how we build the sequence events in our strategy.
spk11: Got it. Super clear. Thank you, Brian. So, my second question is about the supply risk, because the P7i supply bottleneck will be resolved in June. But if there's any negative recross to the supply ramp up to G6, in the meantime, G6 will be the first model built on the new architecture with the unibody aluminum die casting. Would that result in slower pace of production ramp up after June launch? So, should we take that into consideration? Thank you.
spk03: So, the supply of G6 supply will be delayed by two months. So, G6 will be released in June and will be delivered in July. So, we're actually already two months behind schedule. We expect that the supply will be faster in the third quarter than the G9 and P7i. So, the second point is that the supply of G6 is well prepared compared to P7i. We hope to quickly reach the ramp up by the joint cooperation between sales and distribution. In the past, the unibody aluminum die casting has been heard in different manufacturers that the supply is not high. So, we've actually been doing the test for more than a year on the unibody aluminum die casting.
spk01: Thank you for your question. Now G6 is different from G9 in the sense that we actually are well prepared for its delivery. We've given it two months between the SOP to the final delivery. So, we made the announcement in June and we expect to have the deliveries in July. So, in Q3, definitely we expect a much faster ramp up for the delivery of G6 compared to P7 or G9 in the past. Also, G6 is different from P7i in the sense that we have a really well prepared supply chain to support the future delivery. In terms of the technology application for the integrated aluminum die casting technology, definitely it's been a challenge for the whole industry facing the low yield rate of that particular technology. However, we've been using this technology for over a year and right now the development has been very satisfactory. And we expect to have no severe challenge in using this technology on G6. Thank you.
spk00: Thank you. And our next question today comes from Bin Wang with Credit Suisse. Please go ahead.
spk02: My first question is about the battery. I want to ask about the battery price drop and the battery price fluctuation and the increase in the second degree of power. My first question is about the battery. Recently the VCO carbon pricing has declined. So, what's the impact for your battery sourcing and the margin in the second quarter? Thank you.
spk07: Hey, I've been... This is Dennis. Thank you for the question. Actually, in the first quarter, we see the battery cost reduction compared with quarter for last year. We have about 5% reduction. And then in the second quarter, we see further reduction, about 10% to 12% over the quarter for last year. So that's about 5% to 7% increase compared with the quarter one. Having said that, we also have the marketing spending, available marketing spending. So in terms of material cost, especially for the battery cost, we'll improve the margin by, for example, the battery cost will account for about 40% of the total cost. So 7 percentage points would translate into 3% to 4% margin improvement. That's from the material side. But the other big chunk would be the revenue side. That will also impact the margin as well. So this is the brief answer to your questions.
spk02: Thank you. My second and last question is about the full year volume guidance. Previously, you actually guided this year you target more than 30% growth. Did you maintain the same target if you maintained in prior in the second half of this year? The average monthly volume would be 20K. So I want to know the full year volume target change or not.
spk11: Thank you.
spk04: Bing, do you want to ask again?
spk02: No problem. Before the announcement, we have guided the target to increase by 30%. So that means that the average volume would be 20K in the second half of the year. We are still maintaining the 30% growth target. Thank you.
spk04: Hey Bing. Regarding the volume growth, we still expect we are going to be growing faster than market this year. Obviously the market growth this year is going to be tempered given what's going on in the industry. But what we see most importantly is that the third and fourth quarter, we expect our growth will be significantly higher than the market growth. Also, we believe that with the G6 volume delivery starting in the third quarter, we would like to aim to achieve monthly delivery over 15,000 vehicles per month in the third quarter as one of the targets. And then the fourth quarter, given the continuous growth and also additional model sort of mixed favorable changes, we think we can actually also target over 20,000 per month in the fourth quarter as our peak sales. So these are our goals in the second half.
spk02: Thank you so much. Thank you. That's all my questions.
spk00: Thank you. Thank you. And our next question comes from Paul Gong with UBS. Please go ahead.
spk09: Thanks for taking my questions. Two questions as well. The first question is regarding the new orders in take on the P7I as well as our preparation. I would like to ask you a question in Chinese. As we mentioned earlier, the order in the P7I is actually better than we thought. But we didn't make any preparation on the supply chain. Can you just briefly explain how many units we are going to deliver per month? But we only prepared how many units per month on the supply chain. So my first question is regarding the P7I, the orders was our preparation on the supply chain. Can you quantify a little bit what was the order implied? What is our production preparation for that? And why we have overestimated the G9 demand while underestimated the P7I demand? Thank you.
spk03: The supply chain of the P7I is mainly related to the battery. In May, especially June, the battery production is gradually increasing. So we can meet the demand of the P7I on the supply chain. The G9 and P7I demand are very unstable in the recent few seasons. The price of the battery has been fluctuating and the market environment has been competing. So for the new model of the P7I, we want to adjust the capacity of the battery to be stable. So we are working with the supply chain in a relatively stable way.
spk01: Thank you for your question. Regarding our supply chain preparation for P7I, definitely we experienced some challenges due to the supply chain and also the ups and downs of the pricing for NCM batteries. But right now we have well prepared because for May and June we already expect ramp up in battery production capacity to supply and prepare for our deliveries of P7I in the future. Looking back for the past several quarters, basically the whole industry experienced challenges in terms of estimating their deliveries and preparing for that kind of market demand due to a number of factors including the supply of different parts, the cost of different parts, and also the overall environment of the industry. As a result, starting from Q4 going into Q1 this year, we have actually started a series of policies in our guidance and also estimates that is more cautious and reserved in order to work better with our suppliers to reduce the gap in between the estimate of the deliveries and the actual preparation of the capacity. Going forward, we also will do better in optimizing the matching with the future delivery estimates with our suppliers in terms of also our production capacity overall so that we can actually do better in integrating these several aspects. Thank you.
spk04: Hey Paul, just to obviously your question on the color of P7I, clearly our order momentum far exceeds our capacity increases in the last couple of months. We think you can actually tell by the average wait time for the product in our stores is stretched to over six weeks or even longer. We actually think with now hopefully the supply chain ramping up by June, they will alleviate some of these wait time pressure which also in turn will help generate further momentum for the sales. So that's what we see today.
spk09: Okay. My second question is about the overall consumer group of P7I. Because we understand that P7I's brand image and design are actually very popular among young people. Here I may have two questions. The first is that now we have read that the unemployment rate of young people is over 20%. So we don't know if this positioning, including the unemployment rate of young people, has affected our demand. The other one is that at the end of the year, when we want to release NPV, because NPV is either used by a family of children who are relatively middle-aged, or by commercial users. So how do we match this NPV with a brand image of children who are relatively young? So my second question is regarding the brand image. We understand XPong is pretty popular among young people. And right now we are facing the young people with unemployment rates over 20%. Does that impact our demand? And also when you come out with NPV at the end of this year, normally NPV is either for commercial use or for older families, more mature families. So how shall we match the young brand image of XPong versus the NPV launch? Thank you.
spk03: Thank you. So the position of XPong's user group is young technology. From what we see now, the main user group is between 25 and 35 years old. The question you just asked is about the unemployment rate of graduates of modern universities. I don't see the unemployment rate of young people as being over 20%. So actually, between 25 and 35 years old, from what we see now, it has not had a significant impact on our sales. This is my first question. How do young people relate to NPV? This is a very good question. This is something we discussed when we first defined the -year-old NPV. When we launch the NPV at the end of the year, we will tell you how we think about how to make young people willing to buy NPV. Thank you.
spk01: All right. Thank you for your question. Now, XPong's positioning is to really target young consumers who are also tech-oriented. And our SwissBot is really consumers between 25 years old to 35 years old. And right now, if I remember this correctly, the unemployment rate is really talking about fresh graduates from colleges that is over 20%. I don't recall reading anywhere that it's a 20% unemployment rate for young people. So that is the differentiation here I would like to point out. Another thing is that right now, among the targeted group of 25 to 35 years old, we really don't see a lot of impact on our sales towards this particular consumer group regarding the overall market environment. The second part of your question, how do we really connect the 7-seater NPV with younger consumers? This is a very good question. We have done a lot of thinking and discussion internally. And by the end of this year, when we roll out this new model, you can expect to hear about our answer by that time. Thank you.
spk09: Thank you very much. Thank you.
spk00: Thank you. And our next question comes from Nick Lay with JP Morgan. Please go
spk02: ahead. Thank you, Mr. Kuan. I have two simple questions. First, Mr. Wang mentioned that after joining, he has made a lot of plans for product sales and other things. Can you give us some more important ideas? Because in the second half of the year, we have this new product, the new NPV from 4G, which can be obtained from the product end. Mr. Wang has some new ideas for us to use as reference. This is the first question. And the second question is about margin. Mr. Wang mentioned that the main strategy of this year is to prioritize sales. After the product is launched in the second half of this year, what do we think about the margin? What kind of margin level management is more reasonable to accept in the second half of this year? I will quickly answer my question. The first question is really about self-marketing and channel strategy, given we have the new model G3 in the fourth quarter of the NPV up, and also new NPV starting to ramp up in 4G. We talk about the new product strategy as in GP and so on. Can you elaborate a bit more on our self-channel strategy? And the second question is really about GP margin trend and outlook in the second half. I understand we do not provide any guidance, but how do you think about the margin level in the second half, given the competition and given our pricing and following strategy? Thank you.
spk03: I will answer the first question. Regarding the big changes in the sales of Xiao Peng's company, Mr. Wang Feng always recorded the video in January this year, and now it has been about four months. In fact, we have done a lot of things in these four months. I want to say that first of all, we have combined Xiao Peng's air quality and our sales in two departments. We have put a lot of mid-range to the front-end, and turned the original big mid-range into a fast small front-end. This is one of the things we have done. Second, we have integrated the service of the original -the-top service line. Now we have to unify a service to manage the service of the -the-top service. So in the past three months, our NPS has been significantly rising every month. Third, we are putting a lot of effort into the efficiency of our sales service, including the use of tools, including the use of the project, including the internal flat-screen management. Fourth, we are putting effort into the sales section. In the past, we have been putting effort into how to train the sales section, how to guide, how to reduce SKU. This is what we have been putting effort into. Also, we have channels, including China and the global channels. I have just shared in the press release that we have made a big change in the three-season. Another important point is that we will put in a series of features such as the brand's active, warm, etc. So, in fact, the changes we have made in the sales department, we have made a big change. Thank you.
spk01: Thank you for your question. Let me take the first one. Regarding the changes that have been brought about by President Wang since the end of January, it has been really tremendous. She joined us at the end of January, and it's been about four months now, and she's done a lot of changes. For example, starting from the organization, we've grouped together the trading team and also the sales team together, and we have also changed our big middle office into a more swift and adaptable smaller front office that allows us to be more agile. The second change is that we used to have multiple lines running different operations. Right now, we have one big line of business operational teams that actually coordinates different projects and different lines of business that allow us to actually improve our net promoter score, or MPS, for several months in a row. Another big change happened actually to our marketing team. We have been doing a lot of things to improve the overall efficiency by using multiple newer tools, doing different project base operations, and also flatten our organizational structure overall. Now also in our sales end, we have done a lot of training to really improve the skill of our salespeople, especially in terms of introducing different SKUs and different variations of our models in the market. Another big change also happened, or to be expected, is on our sales channel and distribution, both in China and also in the overseas market. And in Q3, you can expect to hear more about those big changes to come. And also in terms of our branding as well, we are going to actually instill more of the warmth and also the youth into our brand so that you can hear more about XPeng and be more clear about our positioning. So overall I would say that definitely we have done a lot of changes overall, and it all originated from our DNA of XPeng, but at the same time you are seeing a new, sort of a facelift version of our brand as well.
spk04: And Dick, this is Brian. For your question on the margin, so for the second quarter we think given the modest volume increase, as well as the older product, ModMix continue to be selling, I think there is still going to be margin pressure despite some of the battery cost savings that Dennis mentioned. But with the second half, the increased delivery volume increase with P7i, G6, as well as the new MPV by the end of this year, we think the overall gross margin will improve gradually with the changing of these product mixes. But the most significant margin increase will happen I think next year given all these costs reduction measures, as well as further volume and scalability coming into play. That is where we see the trend.
spk02: Yes, thank you.
spk00: Thank you. And our next question comes from Ming Li with B of A. Please go ahead.
spk08: I cannot hear you. Can you speak louder please?
spk10: Okay. Okay. My first question is regarding the new MPV. Your expectation on the reasonable lithium company price in the next one to two years if supply is more than a demand, and will you consider to change your battery repricing frequency to follow closely to a spot raw material price? And also, what is your current volume sales breakdown by LFP and NCM battery? Do you think that LFP battery sales cars will continue to increase? This is my first question. Thank you.
spk03: I cannot judge the current price of Li. But I think the current price of Li will continue to rise. I think it will continue to go down in the next half year. But I cannot give a good judgment on the price of the next down. But I think it will be reasonable to change the price to less than 200,000. LFP and NCM are now using a flexible and flexible way to set the price. So we will see the price very flexibly. In the future, one of the most important innovations of LFP is how to use the least battery to run the longest real battery life. In fact, there are many technological innovations in this. So in the future, LFP's battery life will increase significantly. This will also cause the cost of the car to go down, and the safety will increase. And the battery life will also be very confident to keep the customer satisfied. Thank
spk01: you for your question. It's really hard to estimate the future ups and downs of the lithium pricing. But in the short term, I believe that the inflation of the lithium pricing should be temporary. And by the second half of the year, we expect to have a lower pricing for this material. But what is going to be the targeted or the right range, price range for this material, it's very hard to say. But personally, I believe that within 200,000 R&B should be a reasonable range for it. Now, right now, we are working with our supplier partners in a very flexible manner, meaning that we are actually taking into consideration the inflation or fluctuation of raw material pricing in the market before determining the sourcing price of our products, which can really help us to optimize our cost structure. Now, going into the future, definitely we will launch a series of technological innovations to actually reduce the use of batteries by supporting a wider or longer driving range, which means that we are going to use more of LFP or other similar batteries technologies in order to reduce our overall raw material costs while increasing or enhancing the safety of our products and driving up the driving range of our products to a satisfactory level of our customers. Thank
spk10: you. Thank you. My second question is regarding your new software, XMGP. How it helps to increase your more orders or more traffic to your stores? And besides that, since you mentioned that you will roll out the XMGP service to more than 10 cities in the second half this year, so do you think you can also get approval from each city government very quickly or there still could be some potential bottleneck?
spk08: Hi, I mean, this is Charles here. I will address the question. First of all, I think as you know that we launched the XMGP in three cities in China at the end of March, namely Shenzhen, Guangzhou, and Shanghai. So I think that's why I think if you visit our stores in those cities, right now our customers can all drive the XMGP. And also we heard that also customers actually requested to test drive the XMGP, which drive up the penetration rate of the of the max trim of our P7 island G9 to more than 50 percent in those three cities in April. And we believe that as we're rolling out XMGP to more cities and also we continue to improve our XMGP customer experience every quarter, and we continue to see the upside of the penetration rate of the max trim of the new models. To also second half your question, I think our plan is to decouple our XMGP from HDMAP starting from the end of Q3. So therefore, I think that because we our ability to decouple our XMGP from HDMAP, so therefore I think that we are able to roll out our XMGP without the requirement of the government approval, etc. So therefore, I think we're expecting that towards the end of the year we can offer XMGP services probably in a few thousand cities in China and more cities over the next couple of quarters.
spk10: Thank you,
spk00: Charles. Thank you. And our next question comes from Ping Yu Wu with CPIC Securities. Please go ahead.
spk05: Thank you for that question. And I have a question for Thomas driving. A lot of Chinese and foreign OEMs are doing the research and produce autonomous driving. How do we see the leadership of XPLUMP? And also we know that data is very important. And will the short-term sales pressure abhor on our technology improvement? Thank you.
spk03: First of all, I think that once XMGP reaches the city and doesn't use maps, its structure is completely different from the original high-speed NGP structure. So it's hard to describe the leadership of one company and another company. From my perspective, we haven't seen anyone in the industry who can do as much as we do today in a small-scale environment. But it's not easy to do it in 50 or 200 cities. It needs to be done in the end. From our own data, when you can do a data analysis, you can see that the data is already enough. But the most important thing is whether the data will be improved because more cars are running.
spk01: Thank you for your question. One thing that I would like to make clear is that for XMGP, when it's used within a city in urban scenario, it's actually quite different than highway NGP when it's used on a highway setting, especially within the cities. We're talking about areas without high-definition maps. So it's very hard to really judge how much ahead in a competition we are compared to our peers. Because right now within the industry, we only see a couple of companies that are able to claim that they have similar technologies. But they're really limited to scenarios where there are high-definition maps available. Whereas for XPeng, we are actually able to roll out XMGP software in areas without high-definition maps. We also have the capability to actually roll out it further to 50 to 200 cities. So that is definitely very, very advanced. That's the only thing I can say. And typically it takes about 12 to 18 months to be able to use the XMGP-similar functionality from the testing phase of the grayscale testing to the actual rollout. So it's quite challenging to reach that milestone of the actual rollout. So I believe that definitely for XPeng, we have very solid technology in our architecture that actually supports multiple self-cycles, including data cycles within the XMGP software itself. So I would say XMGP on average is leading ahead the competition by about 12 months' time. And the second part of your question is about the significance of data to the actual performance of the technology. Now I would say data definitely means a lot, and it's very valuable to autonomous driving. However, right now based on our current sales scale and adoption rate, and also the deliveries in the near term, we believe that data here is not going to cause a big issue, or really pose a lot of difference because right now we are still doing vision-based or vision-centric kind of data gathering. And in the future we expect to have actually more data coming from, for example, language processing and language input. And that will also help us to actually have better performance in the software execution. And I think that right now our capabilities to support that kind of data processing is sufficient. Definitely in a longer term, data really means more when you have more autonomous driving cars on the road that can actually contribute to your data set, but it's in a much longer future. And so right now it's very hard to say where or when the inflection point will be. Thank you.
spk00: Thank you. Our next question today comes from Jing Chang with CICC. Please go ahead.
spk06: Thank you. So my first question is about, as Mr. He Xiaodong has just mentioned, that we hope to sell more than 20,000 units per month in the first quarter. So can you help us to break down our major model structure, including sales percentage of G6, G7, and G9? So what do we think is the successful sales volume of G6 and how to further improve the sales performance of G7 and G9? And my second question is about, can you help us to further explain the overall product planning by 2025? So how many models have been in our strategy and the main focus price range, and what are our new ideas about the premium market above 300,000 RMB and the market below 150,000 RMB? Thank you.
spk03: Thank you for your question. But I can't give you a clear answer because it depends on our overall plan. In this quarter, I can only say that we hope to sell G6 at a relatively satisfactory price. So I can't give you a clear answer because it depends on our overall plan. So we have completed the 2025 budget. The only thing I can share with you is that we are thinking about a target price of 200,000 RMB. But it is not an easy question. So we are thinking about a target price of 200,000 RMB. But the main target price range is about 200,000 RMB. Thank you for your question.
spk01: But it is really hard to provide a definitive or clear answer since it has something to do with our future planning. What I can only say about Q4 is that I think I would only be satisfied if we can achieve, for example, for G6 deliveries, we expect it to be two times of P7s. And also we expect to wrap up our G9 deliveries as well. So right now we really cannot provide a clear sales breakdown for the monthly sales target of 20,000. Now going forward into 2025, we definitely already have the pipeline in place. We have very clear plans for our future portfolio. What I can only say for now is that we are going to optimize our cost structure, and also we are going to launch a lot of modularized development on the same platform. We expect to have about 10 models in our 2025 lineup. And we will still really prioritize the 200,000 to 300,000 RMB price range. That will be our main market segment. We will have very limited number of offerings in below 200,000 and also above 300,000 RMB price segment. Thank you.
spk06: Oder, thank you.
spk00: Thank you. This concludes our question and answer session. I would now like to turn the call back over to the company for closing remarks.
spk12: Thank you once again for joining us today. If you have further questions, please feel free to contact Expense Investor Relations through the contact information provided on our website or the PSM Financial Communications.
spk00: Thank you. This concludes today's conference call. You may now disconnect your lines. Thank you.