XPeng Inc.

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 Shee, Head of Investor Relations of the company. Please go ahead, Alex.

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 ir.xpeng.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 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 US Private Securities Litigation Reform Act of 1995, forward-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 forward-looking statements except as required under applicable law. Please also note that EXPON's earnings press release and this conference call include disclosure of unaudited GAF financial measures as well as unaudited non-GAF financial measures. EXPON's earnings press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. I will now turn the call over to our co-founder, chairman, and CEO, Mr. He Xiaopeng. Please go ahead.

Some of them have completed the task of the previous stage with us from 0 to 1. They have left, and more of them have come up from the inside and the outside with a strong connection and full of entrepreneurial spirit. And in a very short time, about more than a quarter of an hour, they have completed the simulation period and achieved considerable changes. This is something that makes me very excited. I saw that all the students have changed themselves, started a second business, and started to be more passionate and determined. We will adjust the direction of innovation to the cost. And we believe that from the third quarter, Xiaopeng will re-enter the market 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 fit in well in a short amount of time and make remarkable changes. I'm also very encouraged to see the passion and determination of all XBank employees to change as if today were XBank'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 sales cycle, boost team morale, increase customer satisfaction, and raise our brand reputation from the third quarter of 2023.

In the past four months, in order to face the challenges of the macroeconomic economy and the more intense competition in the entire industry, we have a certain proportion of return on investment per month. In March, the high-end version of our new product, the PCI, exceeded our expectations due to the performance of the three-round version. As a result, the original product was not able to meet the demand. Compared to the original product, the SKU of the PCI is more sophisticated and the listing rhythm is more tight. From June this year, we will work with our supplier partners to greatly improve the production of the PCI. We will work hard to make this product outstanding.

In the face of macroeconomic challenges and more intense competition, we achieved month-on-month growth of new orders for the past four months. More excitingly, order intake for the higher-end MCM 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 P7 model, the P7i offers more streamlined SKU specifications with a more efficient go-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.

在我们首款采用SEPA 2.0的扶摇技术架构的新车型G6, 在今年4月份的上海车展首次亮相, 并且成为人气非常高的流量焦点。 G6 is not only stylish and stylish, but also has the best space in the same level, which is fully guaranteed for the experience of riding. At the same time, G6 is equipped with the most advanced 800V high-pressure and 3C fast charging battery in the industry. So in ultra-long battery life, I especially want to point out that G6's battery life is up to 755 kilometers, and it has the advantage of being unique in the same level on ultra-high fuel efficiency and ultra-fast charging. More importantly, G6 is the youngest XNGP in the delivery and support industry. I am very happy to share with you that G6's media market price has already started last week. The media generally returns to G6 in the self-driving market, with 800V high-pressure fast charge on the first-person platform and other electric vehicles in the market. This obviously opens up a gap in the generation, similar to the logic of replacing a 3G mobile phone with a 2G mobile phone. In the next month, that is, in June, G6 will officially launch. In July, we will start to scale up and quickly climb. 我们相信G6将会成为中国20到30万元新能源SUV市场最受瞩目的热销爆款, 带动小棚汽车的总交互量在三季度的同比和环比都取得远高于行业的震荡数, 形成我们在战略跟组织调整的第一个销量观点。 那么在四季度我们还计划推出一款7座纯电MPV, 我们内部命名为X9, 以及推出现有车型定义更清晰和更丰富的配置的款式, 那我们的销量再上一个台阶。

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, SEPA 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 designed and best-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 NEV 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 year-over-year and quarter-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.

The Max version of the car was fully delivered to the city's NGP and XNGP customers. Customer feedback makes us very excited. After the delivery, the first month's travel smoothness is more than 60%. So it's a price that users can use every day. I am also used to using XNGP every day for the first time. It gives me the feeling that the self-support driving is able to make driving easier. In these three cities' small and medium-sized stores, after we launched the test drive of the city's XNGP, In April, the order for the P7i and T9 Max versions of these three levels significantly increased by more than 50%. We plan to officially launch the NGP 2.0 in June, which is next month. The NGP 2.0 is rewritten using the X-NGP framework, which is five times more than the original version. We use the most complex city scene training algorithm to re-implement the high-speed scene to achieve a downward blow. We hope to make the high-speed NGP 2.0 very similar to L4, 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 our potential customers

to recognize value by 2024 to 2025. At the end of March this year, we rolled out our CDNGP 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, CDNGP's mileage penetration rate reached over 60% and has become an assisting driver for users' daily commute. For the first time, I personally have also gotten used to driving with X-NGP 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 P79 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 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.

In the end of the third quarter of this year, we will continue to open XNGP without high-resolution maps in cities without high-resolution maps in China. This will be the first scale mass production of Chinese city without high-resolution maps. From our actual situation, the difficulty of mass production of XNGP without high-resolution maps is almost 100 times the difficulty of high-resolution maps in NGP. This is an important analysis of team technology and data ability. but it is worth it. Once the user's actual experience is completed, it will be greatly improved. At present, our XMGP has reached a new market level. Based on a large number of programming data and a strong training of behind-the-scenes data, we hope to upgrade OTAs once every quarter, and try to increase the experience of XMGP's annual price increase. We will continue to improve security and availability, and gradually increase the number of By the end of the third quarter this year, we'll 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 HD map in China. Based on our experience, the mass production of city NGP in cities without high definition map coverage is a hundred times more difficult than the mass production of highway NGP with high definition map. It sets a new benchmark for our R&D teams 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 ex-NGP has the driving abilities equivalent to a novice driver. Moving forward and supported by the large-scale data set 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 capability, and incorporate some capabilities of large language model, or LLM, 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 XMGP will grow significantly.

Good design really matters to young consumers.

So 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.

Since the first quarter, our marketing and service system has undergone a huge change under the leadership of President Wang Fengying and the team. The company has begun to use internal and external customers To move forward quickly in the logic of the center by increasing the user experience of sales and service all over the world and also increasing the response speed of the user demand One of the things that we are very happy to report is that one of the core indicators that we are concerned about is that NPS continues to stabilize and improve from the beginning of this year to April and has returned to the leading level of the industry in April of this year

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 consecutive improvement in our MPS one of our core customer satisfaction indicators. Now, as of April, our MPS 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'll 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. 技术的变革跟激烈竞争将会在未来三年。

In the next three years, we will maintain the lead in technology. At the same time, we are continuing to introduce new models that are more competitive in terms of cost and have the same use and operation experience. The number of new models in our industry will cover the price range of 150,000 to 350,000 yuan, and will share the power, electric motor, self-winding, and self-driving platform. We hope that the development cycle of our new models will continue to increase by 20% in the current situation. We hope that the total utilization rate of the structural part of the zero-by-zero can reach up to 80%.

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 power chain system, electronic and Electrical architecture, smart cabins, and ADAS will 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 BOM costs.

目前我們正在為明年底實現在MAX版本上實現25%降本的目標。 I believe that this time, amidst the intense change in the industry, I think that cost and efficiency, including hardware cost and software cost, including the efficiency of development and operation, We will improve the core competitiveness of China. Today, it is still a battle based on sales or scale, but in 2025, it will be a combination of scale, innovation, design, cost efficiency, quality, and even globalization.

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 benefits of cost reduction initiatives in product design and power chain 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.

From the perspective of cash flow, we have accumulated more than 3.4 billion yuan in cash in the first quarter. In the future, I will further reduce it and focus on investing in customers' approval of the R&D, and build long-term competitive advantages through the platformization of technology. At the same time, we will optimize our organization and flow management, and further increase the operational efficiency of the entire company's flow. From July of this year, I believe that G6 and other new products 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 a 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. 最后我们预期2023年第二季度

Our total payment volume is about 21,000 to 22,000. The return rate is 15% to 21%. The income is expected to be about 45 to 47 billion yuan. From the amount of payment, from 2022, which is the third quarter of last year, Xiaofeng will have a challenge period of four consecutive quarters. But I always think that the crisis and the crisis are parallel. This also led us to think earlier about how to win the elimination game in 2025 and how to advance to the final game in 2027. 我们将通过真正的自我变革,更强有力的新产品跟渠道的布局, 在今年的三季度和四季度都获得大幅度的销量的环比的成长。 Now, moving to our guidance. We expect our total vehicle deliveries to be between 21,000 and 22,000 units in the second quarter of 2023, representing 15 to 21% quarter-over-quarter growth.

in the 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. 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 first quarter of 2023.

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 IMB only in my discussion tonight unless otherwise stated. Our total revenues were IMB 4.03 billion for the first quarter of 2023, a decrease of 45.9% year-over-year, and a decrease of 21.5 percent quarter-over-quarter. Revenues from vehicle sales were RMB 3.5 billion for the first quarter of 2023, a decrease of 49.8 percent year-over-year, and a decrease of 24.6 percent 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 1.7 percent for the first quarter of 2023 compared with 12.2 percent for the same period of 2022 and 8.7 percent for the first quarter of 2022. Vehicle margin was minus 2.5 percent for the first quarter of 2023 compared with 10.4 percent for the same period of 2022 and 5.7 percent 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 for RMB 1.3 billion for the first quarter of 2023, representing an increase of 6.1% from RMB 1.2 billion for the same period of 2022 and an increase of 5.3% 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 15.5 percent from RMB 1.6 billion for the same period of 2022 and a decrease of 21 percent 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 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. Land 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 score, 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.

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.

首先感谢管理层接受我的提问。 我这边有两个问题。 第一个是有关于这个价格策略。 因为我们也看到现在市场的这个价格竞争非常的激烈。 那竞争对手的定价也非常灵活。 所以我们应该怎么去考虑包含 G6以及后续车型的一个定价策略。 那也就有鉴于刚才小朋友也提到了嘛,就是... My first question is about the pricing strategy. How should we think about XFIN's price strategy for G6 and the upcoming models? Given the severe pricing competition, will XFIN tend 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, the group will happily focus on evolving 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 near-term profitability? So that's my first question.

Thank you. Thank you.

This is a very good question. You just mentioned two combinations. In fact, we have considered both in our discussion. From the overall strategy of Xiaohong, we definitely hope that in such a competitive situation, we will adopt a balanced pricing method with a priority on scale. We have seen changes and fluctuations in the cost of carbon dioxide materials, and we have seen that In the case of a relatively controllable cost, we will place the price, including this year's G6, including some of the models behind us this year. So from a public perspective, we consider these points plus the logic of competition. In the end, we hope to achieve competitive pricing and be able to set this price for a considerable amount of time. Alright, thank you for your

All right, thank you for your question. You know, we've considered internally these two possibilities. First of all, we'll prioritize the scale before considering pricing, and we definitely expect to have a long-term stable pricing. Now, also, we will take into consideration the cost structure of our products, including the inflation of, for example, the LFP batteries and other parts. Taking 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.

Tim, let me just add here. Tim, let me just add here to 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. And also, as you heard in our previous description, is that we aim to significantly lower the overall cost and bond for our vehicles in the coming months or the coming year. So with better scale and our aim of achieving better cost savings on these products, I think the probability will naturally return. So that's how we build the sequence of events in our strategy.

Good, that's super clear. Thank you, Brian. 也谢谢小鹏总的分享。 那我第二个问题是有关于供应链的问题。 因为刚才提到P7供应链的瓶颈,我们是6月份预期解决。 那想问一下相同的问题是否也会发生在G6身上? My second question is about the supply risk, because the P7i supply bottleneck will be resolved in June, but is if there's any negative re-across to the supply ramp-up to G6. In the meantime, G6 will be the first model built on the new architecture with unibody aluminum die casting. Will that result in slower pace of production ramp-up after June launch? So should we take that into consideration? Thank you.

Thank you. Different from G9, G6 is different from SOP. to the last delivery, we have reserved about two months of time. So, from June, G6 will be released and will be delivered in July. So, in fact, it means that we have been doing a two-month delay. We expect that in the third quarter, the delivery amount will be much faster than G9 and PCI. This is certain. So, the second point, compared to PCI, G6's supply chain is full. We hope that through marketing, sales, and delivery, we will be able to quickly reach the top. In the past, in different manufacturers, we have heard that there is a problem that the yield rate is not high. We have undergone more than a year of trial and error testing on the solid-state press. The progress is very smooth. At present, the yield rate has reached our expectations. So, at present, the solid-state press is not a precondition for us to continue. Thank you.

Thank you for your question. Now G6 is different from G9 in a 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 make the announcement in June and we expect to have the deliveries in July. And so in Q3 definitely we expect a much faster ramp up for the delivery of G6 compared to P7 or G9 in the past. And also, G6 is different from P7i in the sense that we have a really well-prepared supply chain to support the future delivery. And in terms of the technology application, you know, for the integrated aluminum die casting technology, definitely it's been a challenge for the whole industry, you know, 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.

Thank you. And our next question today comes from Bin Wong with Credit Suisse.

Please go ahead. Thank you. My first question is about the battery. Recently, the lithium copper price has declined. So what's the impact for your battery sourcing and the margin in the second quarter? Thank you.

I've been listening. Thank you for the question. Actually, in the first quarter, we see the battery cost reduction compared with quarter four last year. We have about 5% reduction. And then in the second quarter, we see further reduction, about 10% to 12% over the quarter four last year. So that's about 5% to 7% increase compared with quarter one. Having said that, we also have the, you know, the marketing spending, variable 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 percent of the So seven percentage points would translate into three to four percentage 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 a brief answer to your questions.

Thank you. My second and last question is about the two-year volume guidance. Previously, you actually guided this year you target more than 30% growth. And did you maintain the same target? If you maintain in prior in the second half of this year, the average monthly volume will be 20K. So just want to know the full year volume target change or not. Thank you.

Bing, do you want to ask again in Chinese?

Okay, no problem. Before the company, we have guided that the annual target is to increase by 30%. In this case, the average is about 20,000 units per month in the second half of the year.

Hey, Ben, regarding the volume growth, we still expect we're 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. And 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.

Thank you so much. Thank you. That's all my questions.

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

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. So my first question is regarding the P7I, the orders versus our preparation on the supply chain. Can you quantify a little bit what was the order implied, like monthly level? What is our production preparation for that? and why we have overestimated the G9 demand while underestimated the P7I demand. Thank you.

In May, especially in June, the production of our batteries gradually came up. So in the back, it can meet the demand of 3 yuan of PGI. So what you just asked about the estimate of demand on G9 and PGI, In fact, in the recent several seasons, the entire industry has been very unstable with regards to the demand for this part. In fact, there is a fluctuation in the price of raw materials, and there is a change in the entire market environment competition. So, in terms of the new model of Xiaopeng, we actually want to adjust the four seasons last year and the first season this year to a stable estimate. So, according to a relatively more stable logic, to drink with the supply, in such a way to ensure that in the future, even if we are developing very smoothly, we will not have such a big difference in speed. This is one of the things we are focusing on right now, which is to match the dynamic action of the entire industrial and commercial sector with the estimate. I will briefly explain this.

All right, thank you for your question. Now, regarding our supply chain preparation for P7i, definitely we experienced some challenges due to, for example, the supply chain and also, for example, 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 prepare for our deliveries of P7i in the future. Now, 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 to 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 our, you know, the matching with the future delivery estimates with our suppliers in terms of and also our production capacity overall so that we can actually do better in integrated these several aspects. Thank you.

Hey, Paul, just to, you know, 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, it will alleviate some of these wait time pressures, which also in turn will help generate further momentum for the sales. So that's what we see today.

My second question is about Xiaopeng's overall consumer group. We understand that Xiaopeng's brand image, including design, is actually very popular among young people. I have two detailed questions here. The first is that now we also read that young people have more than 20% of the market share. I don't know if the young people's unemployment situation has affected our needs. Another thing is when MPVs are going to be released at the end of the year. Because MPVs can be used by a family of middle-aged people with children, or commercial use. So my second question is regarding the brand image. We understand XPeng 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 end of this year, normally NPV are either for the commercial use or for the older families, more mature families. So how shall we match the young brand image of Expo versus the NPV launch? Thank you.

Thank you. Xiao Peng's user group is young technology. From what we can see now, the main user group is between 25 and 35 years old. Your question just now is about the graduation rate of university graduates. Its graduation rate is 20%. I don't see that the graduation rate of young people is 20%. In fact, between 25 and 35 years old, from what we can see now, Thank you.

All right, thank you for your question. Now, XPeng's positioning is to really target young consumers, which is tech, who is also tech-oriented. And our SwissBot is really consumers between 25 years old to 35 years old. And right now, I mean, 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 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, 25 to 35 years old, we really don't see a lot of impact on ourselves towards this particular consumer group regarding the overall market environment. The second part of your question, how do we really connect the seven-seater MPV with younger consumers? This is a very good question. We have done a lot of thinking and discussion internally. 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.

Thank you very much. Thank you.

Thank you. And our next question comes from Nick Lay with JP Morgan. Please go ahead.

The first is, as mentioned, after Mr. Wang joined, there are more plans for product sales and so on. Can you give us some more important guidelines? Because in the second half of the year, we have the GLE new product, the new top-of-the-line, and the four-season NPV. This is from the product side. From the channel side, Mr. Wang, there are some new guidelines here that we can refer to. This is the first question. The second question is about margin. Mr. Peng just mentioned that the main strategic axis this year Margin level is more reasonable and acceptable in the second half of this year. The first question is really about the self-marketing and the channel strategy. Given we have the new model G3 in the fourth quarter ramping up and also new MPVs starting to ramp up in 4Q. 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 should we think about the margin level in second half given the competition and given the outpricing and falling strategy? Thank you.

We combined XiaoPeng's marketing and sales departments into one. Then we put a large number of mid-tier companies into the front-tier. We turned the big mid-tier into a fast, small front-tier. This is one of the things we did. The second thing we did was to integrate services from the original cross-border line. Now we have to unite services to manage cross-border services. So in the past three months, our NPS every month. Thirdly, we are spending a lot of effort on the efficiency of the marketing service, including the use of tools, including the use of this project, including the implementation of the internal evaluation management. Fourthly, we are spending a lot of effort on the sales section. In the past, our sales section How to train, how to guide, how to lower the SKU This is what we have been working on recently. In addition, there are channels, including channels in China and channels around the world. We will have I just shared in the report that we will have quite a big change in the third quarter of this year. At the back, we also have a very important point. We will put a series of characteristics such as brand vitality and warmth. We will put it in. So All right, thank you for your question. Let me take the first one. Regarding the changes that have been brought about by President Wang,

since end of January. I mean, it has been really tremendous. She joined us as of 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 kind of smaller front office that allow us to be more agile. And the second change is that we used to have multiple lines running different operations. And right now, we have one big line of business operational team that actually coordinates different projects and different lines of business that allow us to actually improve our Net Promoter Score, or NPS, for several months in a row. And 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 neural tools, doing different project-based operation, and also flattening our organizational 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 variation of our models in the market. Another big change also happened in the, or to be expected, is on our sales channel and distribution, both in China and also in the overseas market. And in Q3, you could expect to hear more about those big changes to come. And also in terms of our branding as well, you know, we are going to actually instill more of the warmth and also the youth into our brand so that you can hear more about, you know, XPeng and, you know, be more clear about our positioning. So overall, I would say that, you know, definitely we have done a lot of changes overall, and it all originated from our DNA of XPeng. But at the same time, you know, you are seeing a new sort of a facelift version of our brand as well.

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 mix continue to be selling, I think there's 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 MPB by the end of this year, we think the overall gross margin will improve gradually with, obviously, changing of these product mixes. But the most significant margin increase will happen, I think, next year, given all these cost reduction measures, as well as the further volume and scalability coming into play. That's where we see the trends.

Yes, thank you. Thank you. And our next question comes from Ming Li with B of A. Please go ahead.

Hi, Ming. I cannot hear you. Can you speak louder, please?

Okay. Okay. Thank you. I will ask a question in Chinese. First of all, I would like to ask the leader about the future, including the supply and demand situation, and the level of the price in the future. Currently, Thank you. My first question is regarding your expectation on the reasonable lithium carbonate price in 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 the spot raw material price? And also, what is your current volume sales breakdown by LFP and NCM battery? Do you think that the LFP battery sales cars will continue to increase?

This is my first question. Thank you.

It's hard for me to judge the trend of the price. But in the short term, I think the trend of the price going up is temporary. I think it will go down in the second half of the year. But what price will go down is the most appropriate. Today, I can't give a good judgment. But I think it should be relatively reasonable within 200,000 yuan. Xiaopeng is now using a very flexible market price with our partners. So we will see this price in a very flexible way. From the future, one of the most important technologies of Xiaopeng is how to run the longest real battery life with the least battery. Of course, there are a lot of technical innovations in this. So from the perspective of the future, in the next few years, the number of electric motors in Xiaopeng's car will increase significantly. This will also lead to a decrease in the cost of the whole car, and the safety of the whole car will also be improved. We are also very confident that we can maintain a customer-satisfied battery life experience. Thank you.

Thank 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 price range for this material, it's very hard to say. But personally, I believe that within 200,000 RMB 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 actually take into consideration the inflation or the fluctuation of raw material pricing at a 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, but supporting a wider or longer driving range which means that we're going to use more of LFP or other similar battery 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 you.

我的第二個問題是關於XMGP,想了解一下,比如說從咱們門店銷售,他們接單或者是客流來講的話, 大概我們從推出了這個XMGP之後 大概有比如說多少的百分比的客戶 是特別為了這個新的一個功能 更強大的一個在城市內的 自動輔助駕駛的功能 來門市看車 或者是說對訂單的幫助 那也想了解一下就是說 因為下半年我們會 uh uh My second question is regarding your new software, the XMGP. How does it help to increase more orders or more food traffic to your stores? And besides that, since you mentioned that you will roll out the XMGV service to more than 10 cities in 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?

Hi, Ming. This is Charles here. I'll address the question. First of all, I think as you know that we launched the CDNGP 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 XNGP, and also we heard that also customers actually requested to test drive the XNGP, which drive up the penetration rate of the max trim of our P7 Island G9 to more than 50% 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 our new models. To answer your second half of 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 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, et cetera. So therefore, I think we are expecting that towards the end of the year, we can offer XMGP services probably in a few thousand cities in China. and most of these over the next couple of quarters.

Thank you, Charles.

Thank you. And our next question comes from Pingyu Wu with CTIC Securities. Please go ahead.

Thank you for the opportunity. I have a question about the infrastructure. Thank you for that question. And I have a question for autonomous driving. And a lot of Chinese and foreign OEMs are doing the research and produce autonomous driving. How do we see the leadership of XCOMP? And also we know that data is very important. And while the short-term sales pressure aborted our technology improvement. Thank you.

首先我想明確的是就是說 XMGP如果一旦當它到達到城市內部 並且不用使用地圖 它的整個的架構跟原來 similar to the entire price system of NGP in the high-end market. Therefore, it is difficult to describe the progress of a company and another company. From my point of view, in the industry, we have not seen anyone who can achieve our current standards in an unpublished environment. Some manufacturers in urban areas with high-end maps, in small-scale environments, It can do a good job, but can it be in 50 or 200 cities without a map? This needs to be settled in the end. From our own internal data in the past, when you are in a city, you can come to test the gray area, and it is possible to really be able to scale down. It may take 12 to 18 months. But this also depends on the whole of your bottom structure. many self-circulations, including data self-circulation and so on. So this is very difficult to see. But I am still very confident that I think Xiaohong is more than 12 months old in terms of mass production in the self-driving market in China. So how much value does data have in the self-driving market? First, it must be very valuable. But in Xiaohong's current sales situation and its coverage, it is not a Thank you.

Thank you for your question. One thing that I would like to make clear is that for ex-NGP, 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's high definition maps available. Whereas for Xpeng, we are actually able to roll out our NGP software in areas without high definition maps. And, you know, we also have the capability to actually roll out it further to 50 to 200, you know, 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 X-NGP stimulus 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. And so I believe that definitely for Xpeng, we have very solid technology, you know, in our architecture that actually support multiple, you know, self cycle, including data cycle within the XNGP software itself. And so I would say, you know, XNGP 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, you know, data will really mean more, you know, 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.

Thank you.

Thank you. And our next question today comes from Jing Chang with CICC. Please go ahead.

好的,非常感谢关于我们的分享。 我这边给你两个小问题。 首先第一个就是刚刚小黄总这边提到就是四季度的话, 我们希望月销可以重新回到两万台。 那能否帮我们稍微拆解一下主要的车型的贡献的结构, 包括像其中主要的G6, P7, i, G9的销量占比。 And how much do we think G6 has achieved in terms of sales? And how can we improve the sales performance of P7i and G9 in the future? The second question is, can you explain to us how many models will be planned for the entire product in 2025? And how many models will be planned for the entire product in 2025? And how many models will be planned for the entire product in 2025? So my first question is about, as Mr. He Xiaodong has just mentioned, 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 a sales percentage of G6, P7, and G9. So what do we think is the successful sales volume of G6 and how to further improve the sales performance of P7 and P9? And my second question is about can you help us to further explain the overall product planning by 2025? So how many models are planned in our strategy and the main focus price range and what our new ideas about the premium market about 300,000 RMB and the market below 150,000 RMB. Thank you. Thank you for your question.

But it's very difficult for me to give a very clear answer because it depends on our entire plan. In the fourth quarter, I can only explain that we hope that 那我觉得是相对满意的是 G6 的销量达到了 P7 全部的这个销量的两倍或以上 我认为这才是 G6 的一个比较合格的 同时这个 G9 的销量比 相比现在也有一个比较大的提高 那么具体在两万里面该怎么拆解的话 我就不会在这里再详细跟你解答 那么我们现在已经完成了 到 2025 年的矩阵 我唯一能够跟您所分享的 It includes the first one, which is to think on the same platform in 2023 to 2025. On this platform, we will produce about... This is the product of Xiaopeng in 2025. We have about 10 models. At the same time, we hope to control it with very good cost and modularity. The main price is still focused on 200,000 to 300,000 yuan. We will have a small layout of below 200,000 yuan and above 300,000 yuan. But our main target group will do well between 200,000 and 300,000 yuan. This is our core goal. Thank you.

Thank you for your question. But it's really hard to provide a very 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 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. Thank you.

This concludes our question and answer session. I'd now 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 PSM Financial Communications.

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