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spk01: Hello, ladies and gentlemen. Thank you for standing by for the fourth quarter and fiscal year 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 Shear, head of investor relations of the company. Please go ahead, Alex.
spk13: Thank you. Hello, everyone, and welcome to Expo's fourth quarter and fiscal year 2023 earnings conference call. Our financial and operating results were issued via Newswire services earlier today and available online. You can also view the earnings press release by visiting the IR section of our website at ir.xiaopeng.com. Participants on today's call from our management team will include co-founder, chairman, and CEO, Mr. He Xiaopeng, vice chairman and president, Dr. Brian Gu, Vice President of Corporate Finance Investments, Mr. Charles Zhang, Vice President of Finance Accounting, Mr. James Wu, and myself. Management will begin with prepared remarks and the call will conclude with a Q&A session. A webcast replay of this conference call will be available on the IR section of our website. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private 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 obligations to update any forward-looking statements except as required under applicable law. Please also note that EXPON's earnings press release and this conference call includes the disclosure of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. EXPON's earnings press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. I will now turn the call over to our co-founder, chairman, and CEO, Mr. He Xiaopeng. Please go ahead.
spk12: Hello, everyone. In 2023, with our strategy and organization adjustment and the launch of new products, Xiaopeng's delivery volume has increased by a quarter. In the fourth quarter of 2023, it broke 60,000 units and grew by 171%. In 2023, the total delivery volume exceeded 140,000 units. Our parallelization, research and development, technology reduction and business improvement, initial performance, in the fourth quarter of 2023, the company's interest rate improved to 6.2%, and the whole car interest rate From the perspective of cash flow, in the second half of last year, the positive free cash flow exceeded 600 million yuan, and it was the first time to achieve a full year of cash flow transfer. At the end of 2023, our cash flow exceeded 451 yuan. The abundant cash flow of capital and positive circulation makes us more confident to achieve high-quality and high-speed growth in the middle of a fierce competition. I believe this is just the beginning of a change. I hope that in 2024, we will see a greater improvement and efficiency in business capabilities.
spk08: Hello, everyone. I am pleased to share that Xpeng experienced impressive growth in our delivery volume quarter by quarter in 2023, which exceeded 60,000 in Q4, up 171% year over year, thanks to our proactive change to business strategy and organizational structure, as well as the new product launches. In total, we delivered over 140,000 units in 2023. Our efforts to focus on platform-based R&D, technology-driven cost reduction and operational efficiency improvement have begun to yield positive results. In Q4, our growth margin improved to 6.2%, with vehicle margin expansion of 10 percentage points compared to the previous quarter. Our company achieved a positive free cash flow of more than RMB 6 billion for the second half of 2023 and achieved for the first time positive full-year operating cash flow. As of the end of 2023, we had over RMB45 billion in cash, which puts us in a strong financial position to deliver high-quality and rapid growth in a highly competitive environment. I believe this is just the beginning of the change, and I look forward to bringing more improvements and positive results in our capabilities and operations in 2024. 今年是小工汽车创立以来的第十年,也是中国...
spk12: In fact, I think the industry will enter the first year of high-intensity competition. Since the first quarter of this year, the price of the industry is getting stronger and stronger. A group of companies are out of the game, and well-known technology companies have stopped investing in cars. I believe this will mark the official start of China's smart electric vehicles in 2024-2027. For Xiaopeng, we have already foreseen and adjusted our strategy In order to welcome a larger scale growth wave and a more intense price-deficit competition, Xiaopeng firmly put his full effort into the following aspects, including the first comprehensive improvement of organizational capability and efficiency, the second large-scale improvement of the quality of operation and the customer experience of the full wall, and the comprehensive product technology of the competition, including supply chain and production and manufacturing. to restore the sales and service capabilities of domestic and global brands, promote the technological equality of all-automatic driver and unmanned driver, and accelerate the global layout. So from another perspective, we do not use the initial short-term and smaller-scale growth as the starting point for the layout of the future. In the face of the elimination of the strategic layout and the decoding of tactics, I have seen a very exciting strategic opportunity. Then the organization adjustment of Xiaofeng's car has now completed the framework and has been further improved. In addition, we will soon start a strong large product cycle on the product. In the next three years, more than ten new models will be launched. Then, with a globalized left-hand and right-hand models and upgraded modified models, the number of models of the entire SOP will reach nearly 30. But because of the improvement of the maturity and development efficiency of the entire Xiaofeng modularization ability, We have not increased the development cost too much. With the efforts of the large model and the autonomous driving team, we are promoting the rapid increase in autonomous driving capabilities and the large-scale decrease in cost. We will make the business model and customer experience go to more models. Including internationalization will bring a rapid growth plan to Xiaofeng.
spk08: In 2024, we will be celebrating the 10th anniversary of our founding, and it will also be the first year filled with intense competition in the Chinese automobile industry. Since the first quarter of the year, there has been an industry-wide price war, which has been growing increasingly fierce. Against this backdrop, several EV startups have been forced to wind down their operations, and certain renowned technology companies have terminated their investment in auto business. These dynamics suggest that the race for smart EVs for the larger wave of growth in intensified price competition, we have adjusted our strategies in a number of fields. We enhanced our organization and efficiency in an all-around manner. We made significant improvements in the quality of our operations and fully closed-loop customer experience. We built comprehensive competitiveness in products, technologies, technologies, and supply chain to support our planned larger scale. We upgraded our sales and service capabilities in China and overseas markets. We made a full scenario at us and autonomous driving more accessible and affordable. And we accelerated our global expansion. To put it differently, we are long-term oriented and never plan for the future based on the assumption of short-term or growth at small scale. As I formulated our strategies and tactics for the knockout round of EV competition, I am excited about the strategic opportunities underway. We have completed the framework of our organizational adjustment, which starts to deliver positive results. We are about to embark on a strong product cycle and launch more than 10 new vehicle models over the next three years. Together with the corresponding left-hand drive and right-hand drive models, for the international market as well as facelift versions. There will be nearly 30 projects SOP in the next three years. Thanks to our strong capabilities to leverage modules in platform and higher efficiency in R&D, incremental R&D expenses for these projects is limited. We are leveraging artificial intelligence to drive our autonomous driving technology forward, which enables us to lower cost and deploy extraordinary experience in more vehicle models with a new business model. Lastly, international expansion opens new avenues for our growth.
spk12: In order to grasp the international strategic opportunity, Xiaofeng has to do more like S9, subversive product innovation, and make up for all shortcomings in the organization.
spk08: The upcoming competition isn't solely focused on gaining a larger market share in the short term. It is also about demonstrating the automaker's capacity to maintain its leadership position by achieving high-quality and efficient growth, showcasing expertise in smart technology and expanding globally and creating competitive advantages through innovative products and business models. From my perspective, in order to capitalize on the strategic opportunities from smart technology and global markets, Expo must continue to make innovative breakthroughs and address any organizational shortcomings. In my view, in the past, we never really showed very obvious shortcomings or shortcomings but going forward, we will need to address these shortcomings, definitely.
spk12: In 2024, we will take a deeper look at the changes in marketing. We will build a powerful new marketing team. We will upgrade from the original car and Internet way to the car and mobile Internet way. In the past, car marketing was centered on the PTC platform. Now, more focused and decentralized head-to-head social media are fully utilizing the UGC of radio users. Let me give you an example. During our Spring Festival, the self-driving video activities of car owners in the spring season attracted more than 20,000 users. This will expand Xiaopeng's self-driving reputation from the first-tier cities to the villages in the north and south. From the data of the past month, we can see that more than 100% of the data of our front-end factories have increased. By 2024, we are looking to take our marketing strategy to the next level by creating a new and potent marketing team.
spk08: We will upgrade our marketing strategies to leverage advantages of mobile Internet platforms for the automobile sector. In the past, automobile marketing was primarily dominated by PGC on centralized platforms. Now, we will focus more on decentralized social media platforms and make full use of the UGC from a broad base of customers. For example, we launched a campaign during the Chinese New Year to call for videos sharing of ADAS experience by Xpeng customers. Over 20,000 customers participated in the event, spreading the reputation of Xpeng ADAS from Tier 1 cities to hundreds of cities across the nation. In the past months, customer interest grew by over 100% in key social platforms. Through marketing innovation, we should not only achieve a substantial increase in word-of-mouth in sales leads, but also continuously strengthen Xpeng's brand recognition as a leader in autonomous driving technology.
spk12: At the same time, we have introduced 160 excellent new business partners through the Muxin Project. Although these adjustments will affect part of our sales ability in the fourth quarter and the first quarter of last year, it effectively improved our channel's ability and added 40 more three-line or even lower-line cities. This year, we will further expand the channel's coverage while cultivating new stores. As part of our 2024 sales growth strategy, we need to expand and transform our sales channel network. In 2023, we accomplished a series of upgrades and optimizations to our sales channels,
spk08: which included closing over 130 low-performing stores and adding over 160 strong franchise partners through our Jupyter projects. Even if these impacts, these closing down of the stores and the reorganization actions that we have taken had some impact on our Q4 last year and Q1 this year's sales, and we believe that these changes not only improved our sales channel, capabilities, but also will help us expand our presence in the 14 new low tier cities. In 2024, while we cultivate our new stores, we will continue to broaden our sales network coverage and accelerate channel expansion in lower tier markets, such as in the fifth and sixth cities. Our objective is to increase the number of sales stores to 600 by the third quarter of 2024. Our sales network will continue to grow following the launch of our new brand product.
spk12: Starting in the second quarter of this year, as our new sales stores gradually open for business, we will roll out an innovative franchise model. We are asking our franchise partners
spk08: to take inventory, which is equivalent to their sales in half a month. We expect the new model will significantly speed up deliveries and incentivize the franchisees to drive more sales. We'll use our systems and monitoring mechanism to manage inventory closely and ensure consistency in customer experience no matter where they are. This will also allow us to overcome issues in the traditional franchise sales model.
spk12: In the past year, we have integrated the smart power and control platform into a large smart platform. Through the design of modularization and the integration of supply chain partners, we have achieved greater communication and shared use between each type of vehicle. Platform-based research and scale-based response not only help us reduce the cost of supply chain and the cost of manufacturing, but also can speed up the realization of the 25% reduction target mentioned in the second quarter last year. At the same time, this has greatly increased the efficiency of our R&D units and increased our supply and supply chain. From the perspective of product planning, Feng Yi and I will insist on doing good product innovation, because product innovation is the most valuable innovation. The advantage of differentiating new products will be far greater than We have brought together our smart technologies
spk08: powertrain and vehicle platforms onto a comprehensive intelligent platform to ensure maximum compatibility across the various models. By adopting a platform-based R&D approach and economies of scale, we can reduce costs in the supply chain and manufacturing processes, which can accelerate our goal of achieving an over 25% cost reduction. Additionally, this approach significantly improves the technology iteration efficiency. From a product planning perspective, both Feng Ying and I will continue to drive product innovation as we believe that it is the best way to maximize value creation. We understand that the differentiation factor brought by innovative products is a far greater advantage than any competitive advantage among homogenous products that could ever be. For example, With the X9, we have created a new category that suits both four- and seven-seater vehicles, which appeals to customers who are looking for MPVs and large SUVs. X9 became the best-selling model of a BEV with three rows of seats in just the first two months of delivery. We expect that the delivery of X9 in March and April will continue to increase significantly month on month.
spk12: During the Beijing exhibition next month, Xiaofeng will officially launch a new brand with a price range of 100,000 to 150,000 yuan. We all know that the price range of 100,000 to 150,000 yuan has a huge market potential. But to make a good car in this area, in every aspect, and equipped with a good car with automatic driving capability, and also able to achieve profit, is a very difficult thing. So this requires companies to have the ability to scale and systematize. We see that many friends are also at this price range. We are confident that this year's A-level pure electric market will be the brightest So after this, we have several models based on this platform that will be launched and will be delivered to China and even the global market So in the second half of this year, Xiaopeng will also deliver a new model of Xiaopeng's main brand. We have released three new products this year and we will also pre-release more new products this year
spk08: Furthermore, we are officially launching a new brand targeting the RMB 100,000 to 150,000 price range during the Beijing Auto Show next month. The market of the RMB 100,000 to 150,000 price range has huge market potential, but it is extremely difficult to provide great products with all-round competitiveness, including high-level ADAS, in this price range and even more difficult to achieve a probability at the same time. It takes comprehensive capabilities at scale to realize this goal. Many of our peers are also exploring this price range, but still none can provide excellent ADAS experience at this range. After 10 years of preparation, today we are finally ready. Our new brand is committed to building the first AI-powered smart car for the young generation. This brand will be a new species of innovation. The first vehicle model under this new brand will officially launch and commence deliveries in the third quarter. We are confident that it will be the most striking and sought-after A-class BEV model in its segment. Furthermore, we will introduce multiple models on this platform in China and overseas markets in the coming future. In addition to this new brand, the second half of this year, we will deliver a new Xpeng branded model, bringing the number of new products we launched this year to three, and will unveil more new products. 那么我们都知道上一个十年在中国是新来源的十年,
spk12: and the next 10 years will be the 10 years of AI. Xiaopeng Motors has always been working hard to use autonomous driving as the core of AI-driven vehicles. Xiaopeng's research and product experience will determine how smart electric vehicles will accelerate and subvert traditional men's and women's vehicles. This means a huge opportunity. In 2020, Xiaopeng will continue to increase its long-term investment in AI and attract many AI-oriented people with internationalized interests. At the same time, in the second quarter of this year, we will first realize the AI self-driving large model of mass production. This may be the first mass production engine in the Chinese automotive industry. It makes the self-driving more smart. We will firmly lead the high-speed automatic driving technology. Surround the mainstream user market and go global. Continuously expand our scale advantages and technical advantages. And accelerate commercialization.
spk08: We all know that the last decade was the decade of new energy, and the next decade would be the decade of smart technology. AI-powered smart EV technology and architecture are no longer just a mid- to long-term goal. At Xpeng, we have already begun the process of AI-defined cars that are centered on autonomous driving. The vast differentiation edges stemming from AI R&D capabilities and AI product experiences will determine how quickly the transition from traditional ICE to smart EVs occurs and shape the auto industry's long-term competitive landscape. This presents a tremendous opportunity for us. That is why we have been increasing our long-term investment in AI and recruited a number of top talents for AI with international vision. In the second quarter of this year, we will achieve the mass production of AI-enabled ADAS with large model capabilities. This will be the first mass-produced automotive artificial intelligence and automotive cognitive engine in the China automobile industry, making our software smarter. Furthermore, we are firmly committed to promoting equity and inclusion in the advanced autonomous driving. We will continue to lead the innovation of autonomous driving technology, making it affordable and accessible to a much broader customer base, and enter into the international markets. We will continue to expand our scale and strengthen our technology leadership, as well as accelerate the commercialization of our industry-leading technologies. 从今年年初开始,我们向
spk12: Max version of the users in more than 200 cities across the country. In February, the activity productivity of the users reached 83%. Xiaohong, XNGP, and the activity size and user experience of the users in the city and area reached the highest historical data of our data. During the spring transport, XNGP helped our users to drive close to 70 million kilometers. The daily use rate reached 67%, and the daily use rate reached 19% in the city and area. In the next step, I have set a very challenging goal for the team. I hope that XMDB will experience a re-experience of the key market in the core area. In the future, it will be able to compete with Wemo in the robotization of the old market. I hope that while experiencing the change from the bright side to the bright side, we will be able to do one thing well, which is to let the cost of automatic driving drop significantly. I believe that the increase in the ability and the decrease in the cost will add up. will become a key driving force to accelerate self-publishing. In the second half of this year, we have launched a new type of X-NGB vehicle. We will use a new infrastructure to reduce the overall hardware cost by 50% to greatly increase the cost-efficiency of smart vehicles, so that we can promote high-speed and large-scale self-publishing.
spk08: Earlier this year, we introduced XMGP ADAS to all our UX users across 200 of cities nationwide. XMGP ADAS enables intelligent driving on urban roads. In February, XMGP's monthly active user penetration rate reached an impressive 83%. We are proud to be the industry leader in terms of active user scale, user experience, and mileage penetration rate. During the Chinese New Year travel rush, XMGP helped our car owners drive over 70 million kilometers. The average daily utilization rate of XMGP on highways and in urban areas reached 67% and 49% respectively. To take our XMGP-assisted driving experience to the next level, we have set a challenging goal for ourselves – we want to benchmark our ex-NGP assisted driving experience in core cities such as Beijing, Shanghai, Guangzhou, and Shenzhen against Waymo's Robotaxi experience in San Francisco. As our ADAS approaches the inflection point of experience, significant cost reduction will emerge as another key driver to accelerate its further penetration. we plan to employ innovative technology solutions to reduce XMGP-related hardware costs by 50%, starting with a new model to be launched in the second half of this year. Our aim is to significantly boost our smart EVs competitiveness in terms of cost, accelerating the widespread adoption of advanced smart technologies.
spk12: In addition to the Chinese market, we will also accelerate I think this fully explains it. The smart electric car led by Xiao Fengqi is also very attractive to overseas customers. We plan to launch the G6 international left-hand version in the second quarter of this year, and the right-hand version of G6 in the second half of the year. I believe that the G6 will be even bigger than the G9 in the global market and become a global product. In terms of sales channels, we will cooperate with more high-quality commercial companies this year.
spk08: We have ambitious plans to expand our business globally by taking advantage of the increasing adoption of electric vehicle in international markets, and we plan to significantly accelerate the expansion of overseas business in 2024. In the second half of 2023, we launched the G9 into the northern European market, and we were thrilled to receive a tremendous response. Within just two months of its launch in Norway, Denmark, the Expo G9 became the best-selling mid- to large-bev SUV in this category, which clearly shows that our smart EVs with advanced technology offer exceptional value to customers worldwide. In the second quarter of 2024, we plan to introduce an international left-hand drive G6 model, which will be followed by the right-hand drive version in the second half of the year. We believe that the G6 will be even more successful than the G9 in terms of global sales potential and will become a bestseller worldwide. To expand our sales channels, we will concentrate on collaborating with high-quality dealers to efficiently enter key global markets, including Western Europe, Middle East, Southeast Asia, and Commonwealth nations.
spk12: We are very happy that our strategic cooperation with Dazhong Motors has achieved a major accomplishment. We have not only signed a joint development agreement for platform and software strategic technology cooperation, but also a comprehensive joint purchase agreement. So the strategic co-efficiency has begun. Starting from 2024, the revenue from platform and software services will begin to contribute significantly and continuously to our financial performance, especially the interest rate. We have launched a new business model in the automotive industry, so that we have obtained a better investment return in the development investment related to electrification, intelligentization and AI technology. Xiaopeng and Dazhong have already formed an energy-saving, mutually beneficial
spk08: We have achieved significant milestones in our strategic cooperation with the Volkswagen Group. Recently, we entered into a master agreement with them for platform and software strategic technical collaboration, and the joint sourcing program has also been launched. We are happy to see that strategic synergies have started to materialize. By 2024, we expect revenue generated from platform and software services to become a meaningful and ongoing contributor to our financial results, especially to growth margin. We have created an innovative business model in the automotive industry, generating excellent returns on our R&D investment in electrification, intelligent driving, and AI technology. Xpeng and Volkswagen have formed a long-term strategic alliance with complementary strengths and mutual benefits. Going forward, we will work together to unleash greater strategic synergies and address industry shifts and challenges. 从2023年四季度起,我们主动开启了新的一轮能力变革,包括更重视
spk12: short-term sales, and reduce low-efficiency limited-time purchase, actively reduce the number of sales centers, and in the future, more vehicles will be listed for supply chain, production insurance, etc. Since we are facing intense market competition in the first quarter, as well as changes in the channel of top-level sales channels and other challenges, we expect that in the first quarter of 2024, the total delivery volume will be about 21,000 to 22,500 taels. Then the revenue is expected to be 58 to 6.2 billion yuan. Then the exchange rate rises 15.2% to 23.4%. The revenue rise is 43.8% to 53.7%. Although the change will bring a decline in data penetration. But from March, we will see that the initial results of the change are taking effect. I believe that the effect of these changes will start in the second quarter of this year and the second half of the year.
spk08: We have proactively started a new round of transformation to strengthen our competitiveness since the fourth quarter of 2023. We focused more on marketing on short video platforms while cutting inefficient marketing spending on sales leads. We faced out a number of underperforming sales stores, and we adapt our supply chain and production to an intense product launch cycle for a large number of models. We faced intensified competition and the above-mentioned adjustments in marketing and sales channel in the first quarter, taking challenges both internally and externally into consideration. We now expect our total vehicle deliveries to be between $21,000 and $22,000 500 units in the first quarter of 2024, up 15.2 to 23.4% year-over-year. We expect our first quarter revenue to be between RMB 5.8 and RMB 6.2 billion, up 43.8 to 53.7% year-over-year. Although there would be challenges due to transformation in the near term, I have seen the initial positive results in March. I believe that the positive effects of these changes will be evident starting from the second quarter and second half of the year. We expect the growth in deliveries in second quarter of 2024 will increase significantly on both quarter-on-quarter and year-on-year terms.
spk12: Thank you, everyone. Next, we have our Finance VP, James. Thank you, everyone.
spk08: With that, I will now turn the call over to our VP of Finance, Mr. James Wu, to discuss our financial performance for the fourth quarter of 2023. Thank you, Xiaofeng.
spk05: Now, let me provide a brief overview of our financial results for the fourth quarter of 2023. I'll reference RMB only in my discussion today, unless otherwise stated. Our total revenues were $13.05 billion for the fourth quarter of 2023, an increase of 153.9% year-over-year and an increase of 53% quarter-over-quarter. Revenues from vehicle sales were $12.23 billion for the fourth quarter of 2023, representing an increase of 162.3% year-over-year and an increase of 55.9% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly attributable to the accelerating sales growth of the G6 and G9 in the fourth quarter of 2023. Growth margin was 6.2% for the fourth quarter of 2023 compared with 8.7% for the same period of 2022 and negative 2.7% for the third quarter of 2023. Vehicle margin was 4.1% for the fourth quarter of 2023 compared with 5.7% for the same period of 2022 and negative 6.1% for the third quarter of 2023. The year-over-year decrease was explained by, first, the inventory provisions and losses on purchase commitments as a result of upgrades of existing models with a negative impact of 1.9 percentage points, and secondly, increased sales promotions and the expiry of new energy vehicle subsidies. offset partially by cost reduction and improvement in product mix. The quarter over quarter increase was primarily attributable to the cost reduction and better product mix. R&D expenses were $1.31 billion for the fourth quarter of 2023, representing an increase of 6.3% year over year and an increase of 0.1% quarter over quarter. The year over year increase was mainly in line with the development timing and progress of new vehicle programs. SG&A expenses were $1.94 billion for the fourth quarter of 2023, representing an increase of 10.3% year-over-year and an increase of 14.4% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were primarily attributable to the higher commissions paid to the franchise stores, driven by higher sales volume. The quarter-over-quarter increase was also due to higher marketing, promotional, and advertising expenses to support vehicle sales. As a result of the foregoing, loss from operations was $2.05 billion for the fourth quarter of 2023, compared with $2.52 billion for the same period of 2022 and $3.16 billion for the third quarter of 2023. Fair value gain on derivative liability was $0.56 billion for the fourth quarter of 2023. This is due to our share purchase agreement with Volkswagen Group entered in Q3. Until the transaction closes, the fluctuations in the fair value of the forward share purchase agreement were measured through profit or loss, resulting in a non-cash gain of $0.56 billion in this quarter. On December 6, 2023, the transaction was successfully completed. Net loss was $1.35 for the fourth quarter of 2023, compared with $2.36 billion for the same period of 2022 and $3.89 billion for the third quarter of 2023. On the cash front, we've achieved an important milestone of operating cash flow positive for the full year of 2023. This, together with the strategic investment from Volkswagen, helped bolster our liquidity. As of December 31, 2023, Our company had cash and cash equivalents, restricted cash, short-term investments, and time deposits in total of $45.7 billion. This will be a strong foundation to support our growth strategy in the years to come. To be mindful of the length of our earnings call, I would encourage listeners to refer to our earnings press release for more details on our fourth quarter and full year 2023 financial results. This concludes our prepared remarks. We'll now open the call to questions. Operator, please go ahead.
spk01: 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're on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. For the sake of clarity and order, please ask one question at a time. Management will respond, and then feel free to follow up with your next question. Your first question comes from Tim Dow with Morgan Stanley. Please go ahead.
spk11: So my first question is about the product strategy. because Xtreme plans to launch about 13 new models in facelift in the next three years, which implies the company will have new models coming in the market basically every quarter, starting from the second half of this year. So with such an intense launch schedule, what would you do to avoid the capitalization from the new product and keep the sales momentum of the whole line up? So over the past few years, we noticed that whenever X for launching the new cars, the sales of the old model always decline. So how should we avoid that? That's my first question. Thank you.
spk12: Yes, this question is very good. From the beginning of last year, when we joined the small business, the first thing we did was this. Because planning includes the production of products, technology, and spare parts, as well as corresponding brands, This new type of innovation should be as few as possible. Similarly, for example, especially for teaching, our teaching number will be relatively small. So in such a plan, we rebuilt our entire product team in the first half of last year. So in fact, what we are seeing now is that after planning the product, we technically use a floating structure There are two types of power and two types of autonomous platforms, which can support all these vehicles. In fact, these are all in our planning system, including the supply chain that we encountered in the past. There is no way to support this volume enough. And in the last period of time, the supply chain may also exceed the production capacity of this series of problems. We all discussed how to solve and avoid it. So therefore, In the last year, you also saw Xiaotong in purchasing, in supply chain management, in manufacturing, we have made major adjustments, and we are now online. This year, we will fully launch all digitalized products to ensure that all processes are firmly executed, ensure that all checks and audits are consistent, and we will try to use as much as possible in multiple products to increase quality, reduce costs, and increase the use rate of this product. Then, So, in fact, starting from the third quarter of this year, you will see what we just said, that is, there are so many products that will be launched in different quarters. In fact, our current plan is to do it earlier than before, between 12 months and 18 months, including what prices, what time, different models and different sizes in China, and even some of them on the global market, including This is what we have been doing for the past three hundred years to this year. Because the competition in the entire market is changing, our brand names are also constantly changing, including their configuration, their price range is also being adjusted in every quarter or even every two quarters. So this series is what I just said in the whole report. If you want to face this competition, Thank you very much for your question, and that is a great question.
spk08: So exactly in the beginning of this year, and this is what Feng Ying and I, myself, we have done, and this was our number one task. And it is very important to carry out planning, and that involves planning for products, technology, supply chain, as well as the manufacturing and the launches of products. And if one would like to do this, usually the preparation should really start two to three years beforehand. And this would involve, for instance, looking at the price range, the size of different cars, the capabilities, and as well as timelines. So especially with our brand new products, and these products, and for instance, certain products, we did not really have a lot of volume in the past. And for our product team, and starting from Q1 of last year, and we had reorganized the teams And in order to be able to come up with a product that is suitable for the new technology, and at the moment we simply would only need one architecture, two powertrains, and two autonomous driving systems, and this would be able to support our product. And in the past, we have had situations whereby once a product has been launched into market, however, the supply chain wasn't strong enough to cope with the demands for delivery and this time around we had also looked at and discussed very comprehensively regarding this issue in terms of supply chain management, manufacturing and we will also have a digital process in place to make sure that all the processes are done and followed exactly the same to ensure quality improvement, production improvement, efficiency improvement as well as cost reduction. you will be able to see after Q3 of this year, and we will have different launches. And this is something that we have done for the past 12 to 18 months. And as I have said, this would be, for instance, in terms of the price range, the models of different vehicles, and not only just for China, but also globally for our procurement as well. And in the market, you can also see that as the market changes, and we'll also see our peers and competitors, they will also be playing their cards very quickly. And often, these days, changes and adjustments will be made on a quarterly basis or every two quarters. And as I have mentioned earlier, In my financial report and statements, it is not only enough to focus on the short term, but also on the long term. And in the meantime, staying flexible and to be able to adapt to the changes. And what is core of being able to achieve that is really to put together a very strong team.
spk12: So what you just asked about the marketing system, how to avoid these products. I'll just talk about two important points. The first one is that when we started at the end of 2023, the whole product market process of Xiaodong's XPD was complete. We have to use this process to determine whether ordinary products in Xiaodong's system are firmly executed. Secondly, And to respond to the second part of your question, which was about from a marketing perspective and how to avoid
spk08: cannibalization and basically starting from end of last year and we have already put in together this XMGP process and to ensure that everything is complied and the process are followed exactly the same and secondly and when we look at different prices and different capabilities of our products and we also ensure that there is differentiation in these regards so those are the two main points that we would be adopting to avoid cannibalization
spk11: So my second question is about the competition, as we noticed that Competition on the vehicle prices and new products has been getting fiercer here today. In addition to the increase in new models in the second half of this year, how will X-Pen react to the price war and, in the meantime, effectively increase sales of existing models? That's my second question. Thank you.
spk12: This is a very simple way of thinking. I think the most important thing to face this kind of competition is to build your own system capabilities. This is the first thing I want to say. The second is to have a clear product plan and be able to find your own product innovation. The more innovative the product is, the more it can avoid competition. The third is to be sure. is to pursue quality in terms of size. It's not about the size first, then the quality. Because after the size, the more you want to improve the quality, the more difficult it is. So in the past year, we have been pursuing quality in terms of size. Ensure quality first. So these are three perspectives from a macro perspective. So from a short-term perspective, we have done three things. First, the ability to significantly change and win, which is the ability to market the brand. We believe that we can use less money to achieve several times the increase in the influence, which is our expected goal. The second one is the ability to tame. In the past, I just said that since the 4th quarter of last year, we have reduced the sales of 130 businesses that are not doing well or have poor business quality. So we look forward to starting a new business in the second quarter of this year. Thank you.
spk08: Thank you for your question, and to be honest, this is really quite a tough question, and I believe that different automotive companies will have different ways to deal with competitions. And for us, really, to answer your question from two perspectives, and the first one is from a macro perspective, and I think it's really important about building up a systematically a very strong foundation and the second one is all about innovation and the innovation having innovative product is the only possible way to avoid competition and thirdly we are always pursuing quality first and then to scale if you do it the other way around if you start with scale first and it would be very difficult to improve the quality and secondly If we talk about on the short-term micro level, and I think that it would have the following areas, and the first one would be marketing. And we are always looking at how to spend less money to improve the marketing results. And secondly, it's all about the sales and service capability. As I talked earlier, last quarter of 2023, we had terminated 130 businesses dealers, and those were the underperforming ones. And by Q2 this year, once we have built up our new dealer partners and matured and nurtured all these dealers, and we believe that this is the dealers who would help us to be able to further promote our vehicles in the third and fourth tier cities. And thirdly, it is about the functionality and capability of your product. And so from the micro level, it is all about marketing plus sales plus service and plus your product.
spk11: Thanks for sharing all the details. Thank you.
spk01: Your next question comes from Ming Sun Li with Bank of America. Please go ahead.
spk03: Thank you, President Chen and leaders. I have two questions. The first question is about our cooperation with the public. Last year, the public became our shareholder. I would like to know more about the cooperation with the public. In addition to car cooperation, So my first question is regarding your cooperation with Volkswagen. Could you give more quantified answer regarding your cooperation? For example, how many components you are able to co-purchase along with Volkswagen, and how much cost do you expect to save? Thank you. This is my first question.
spk09: Hi, my name is Charles. I think a few weeks ago, we announced that we have entered into the master agreement for the platform and the software services. That is a major development milestone for the projects we're working together based on our G9 platform. In the meantime, we also enter into the joint procurement program that we will join to procure the components for both our models on top of the G9 platform and also the Volkswagen's models building on our G9 platform. I will say that that's a very high degree of the platform and the component sharing. And through the joint procurement program, also leveraging Volkswagen's world-class supply chain capabilities we have seen the initial good results coming out from the joint sourcing program. And we believe that such joint sourcing program will continue to allow us to optimize our cost structure and also quickly bring our BOM cost structure to the competitive level in the market. Also, I think the last point is that, as Xiaopeng mentioned in his remark, the revenue generated from the platform software services will start to kick in from 2024. And it is the recurring, once you started to recording our P&L, it will be a recurring revenue and will have meaningful impact, meaningfully positive impact to our TP margin. And so it will continue to give us the positive contribution to our profitability.
spk03: Thank you, Charles. 我繼續我的第二個問題。 我第二個問題呢, 這是我們下個月預計要亮相的 Mona Project 的產品。 但我知道就是說, 因為下個月才要正式亮相, 所以現在可能還沒有辦法說太多, 但是可不可以請幫你接程這邊, 稍微可以透露一下, 就是說這款產品的話, 具體下半年它是先土B, 然後再土C。 My second question is related to your Mona project product. So How do you think about your integration level between EXPON brand as well as the MONA project brand? And could you also give us more details about the progress for you to launch the 2B model and also a 2C model? And also lastly, is the autonomous driving functions provided by MONA similar to XPilot 3.5. Thank you.
spk10: Hey, Ming, it's Brian. Let me address your question on this Mona project. Yes, we're very excited that we'll be launching the Mona sub-brand in a very short time. And also, we think it will be, I would say, one of the blockbuster products in this category. The reason we think there's a potential is because, one, we think it's a very well-designed product has I would say best-in-class design as well as in some of the functions, especially as related to smart functions. We think it will have differentiations compared to similar products in this category. At the same time, we have done a lot of effort trying to make sure the product is also very competitive from both cost as well as competitiveness in terms of focusing on both 2C and 2B channels. Needless to say, we have high hopes for this Mona product. In terms of strategy, we think it will have actually the dual-pronged channels. I think it will start from the 2C channel first to make sure it will be received as a premium product, and then followed by, I think, 2B channel sales. So that's likely to be the sequence of our marketing. From the specific product functions and capabilities, I will probably leave that to the launch event to give the full details. But needless to say, again, we think it's a very competitive product. We also have plans to steadily improve on this product based on additional, I would say, development plans. planned for later this year as well as early next year. So this is also going to be improving as a platform in this A-class. So, again, I mean, I think this is a lot to expect for, and I think I would love all of you to wait until our launch event, which will happen probably very soon.
spk03: Thank you, Brian.
spk01: Your next question comes from Ben Wang with Deutsche Bank. Please go ahead.
spk04: Thank you. My question is about the full year 2024 volume target. Some of the media reported that your target is 260,000 to 280,000 units. Is that in the wide range you are thinking about? If that's the case, which means in each quarter, you actually need to sell about 75,000 units in product monthly, 25,000. So if you, when you can achieve this 25,000, if it's true. Separately, do you actually got some commitments from DD to have a certain 2B from Mola, and how much volume from the export? Thank you.
spk10: Hey, Bing, it's Brian again. I think good try, but I think, as usual, we do not give specific annual guidances on delivery numbers, our policy. But what I can say, at least for our perspective, is we are very optimistic about this year, given the product lineup and the launch schedule. We think we can achieve, on a full-year basis, a much greater than marketed you know, sort of growth rate, and I think we will be gaining significant market share increases. That's our expectation. We also think this year will be similar to last year in terms of, you know, first half will be light, given, obviously, the industry dynamic as well as our product launch schedules. But we think we will start to pick up steam towards the second quarter as well as the second half based on the changes we're making in our sales and marketing channels. as well as our product launch in the third and fourth quarter. For Mona, I think, like I said, it's a very exciting product. We'll be launching the 2C channel first, which we think will likely happen in the third quarter in terms of delivery, and also for the 2B channel will probably be a few months behind. We do not have a specific number to give you in terms of what the Mona expectation is, But I think, as you can tell, to be a successful product in the A-class category, I think you will have to deliver on a sort of range around about 10,000-month type of scale to be successful. So, you know, obviously at a steady state, we think Mona should be achieving that level of sales. So, again, I think I don't have specific numbers, but you can tell that this is how we envision the four-year delivery will look like for us.
spk00: All right.
spk10: Let me just comment on that. Again, this year we will be making significant expansion efforts into many new markets. I think that we will start to see the delivery results from those efforts. And I think from the volume perspective, we think we will be generating tens of thousands of sort of delivery from international sales.
spk04: I'll translate it. In the recent conference over the weekend, Huawei said that Xpeng is the absolute leader in the top striving. However, Huawei wants to make the situation change. Can you describe what's the technology differentiation between Xpeng technology and Huawei and how you maintain the leadership? Thank you.
spk12: Yes. At that time, Yu Tendong was sharing at the panel, and I was just sitting down. Thank you for your question. I think it's very obvious that we and Huawei are working together on the same track. I think Huawei is a very, very good technology company in China. We respect Huawei very much. They did a great job. From my point of view, in the field of autonomous driving, we have a lot of potential. In different fields, we have our own long-term ability. For us, I think the most important thing for Xiaopeng is to improve our brand and marketing capabilities. This is what we have been doing since the end of last year. I think autonomous driving needs to pay attention to several things. I think the first is ability. The second is safety. The third is cost. Fourth, from my point of view, can we make it more comprehensive and get more profits? Today, we see that China has a lot of people who like autonomous driving, but the demand for public users, for autonomous driving, has not been fully realized. I think this is because we don't have anyone China China China China China China China really can help the autonomous driving industry to greatly improve. And since last year, the high-level autonomous driving industry has seen a global drop in cost and overall impact. This is what we are doing now. I hope that in the future, we will do the same as Huawei. Of course, I think that the autonomous driving industry should be on top of its own and a few other partners. It should be more focused than Huawei. I think that more focus will create more capabilities.
spk08: Thank you very much for your question. Actually, when Mr. Yu Chengdong from Huawei was making this statement, I happened to be among the audience, and I was sitting downstairs in the audience. And I would say that for Huawei and Xpeng and both companies, we are working together and putting in our efforts into something that we both truly believe. And Huawei obviously is an excellent Chinese technology company, and we have a lot of respect for them. I would say that both companies have our... unique advantages. And for Xpeng, in terms of what we have done, we really started working more on our brand as well as our marketing from end of last year. And in terms of autonomous driving, and I believe that there are four areas that would really be very important. And number one would be the capability or functionality of your car. Second would be safety, and thirdly would be the cost of the vehicle, and fourthly would be how international that you can expand into for your product and to obtain more revenue and profit. In China, obviously, we can see that Autonomous driving is something that everybody loves. However, in terms of the general public demand, it is not quite yet met. This is something that we need to work hard on in the next 18 months. We can see that, for instance, in terms of the application in all areas, an all-round application and the cost-reducting application, as well as more marketing work to be carried out. And in the next 18 months, in addition, I do believe that huge changes will be brought by with the large model being applied to autonomous driving. And this is something that we should watch out for. And we believe that this will bring great benefits to the industry And since the first quarter of last year, we have also worked hard in bringing down the cost as well as working more on our marketing. And the same as Huawei, and what we want to do is that we want to become an excellent company, but then coming back to autonomous driving, I would still say that we are a company that is more specialized in vehicle, and autonomous driving is really our strength, and this is our uniqueness. Thank you.
spk04: Thank you very much. Thank you.
spk01: Your next question comes from Tina Hu with Goldman Sachs. Please go ahead.
spk06: Thank you for your time. My first question is about our new brand. Because the price range is quite different from Xiaopeng's brand. There is no overlap. I would like to ask about our sales channel network. Thanks management for taking my question. So the first question is about our new brand. since in terms of the pricing segment, it's actually quite separate from the Xiaopeng brand. So wondering, would our sales channel share the current sales channel or have a separate sales channel, considering the target customer segment would be differentiated? And then the second, also related, is that considering we are at a lower price range for the new brand, wondering the designed gross margin level, would it be also lower than the Xpeng brand? Thanks.
spk08: Thank you very much for your question with respect to the new brand. For the new brand, we will be launching them into our existing stores and we will have independent exhibition halls for the new brand. In the future, we are also looking at building more dealerships and more independent stores dedicated to these new brands, and we hope that there will be hundreds of these new independent stores for the new brands dedicated to them. And with respect to your other question, I will invite our finance VP and Mr. James Wu to take your question.
spk05: Yeah, on the margin front for Mona, Typically, we won't give specific margin for a particular car line. As Brian and Xiaopeng mentioned, Mona will be focusing on the A-class segment. Obviously, we won't imagine that A-segment product to make the highest profit in our portfolio. But overall, our expectation is Mona will achieve healthy, positive margin for this brand overall. And as Brian mentioned, Mona that will be launched in the Beijing Auto Show will just be the first model. There will be additional models that's coming through the platform. The other thing that over the long term we might be thinking about is a different commercialization strategy in terms of our software. And we'll give more guidance and information in the next couple of quarters. And the other thing I want to mention is in terms of Mona, because it's large-scale, the target customer base, and our partnership with DD, so they will help us to market the product. Eventually, we expect relatively lower associated sales costs for Mona compared to Shell Pembrand overall.
spk06: Thank you for your answer. My second question is, in the delivery report in February, I saw that X9 may have some supply chain bottlenecks before the Spring Festival. This bottleneck should be solved by the Spring Festival, and the delivery volume of X9 will also significantly increase. I would like to ask what kind of supply chain bottleneck it is, and what kind of supply chain bottlenecks So my second question is regarding, I think in the February delivery report, we mentioned that there were some supply chain bottleneck regarding to X9 before the Chinese New Year. And the company expect after Chinese New Year, these bottlenecks would be resolved and the delivery volume of X9 should increase. So just wondering what kind of bottleneck were we facing? And also going forward, how shall we, how do we plan to prevent these similar situations from happening again? Thanks.
spk12: 非常棒的,非常棒的问题,这个感谢。 这个,首先我们X9的供应链的挑战,我们在2月底分期后已经得到解决。 In the past few models, we have encountered the problem you just mentioned. In fact, for us, we have been thinking about it. We will make changes in several aspects. Since October last year, after I came to manage the entire supply chain myself, I started to reduce the number of our supply chain partners. We will prioritize private listed enterprises in China. is to pursue high-quality and flexible partner to do our core construction. In the past few months, we have made a lot of changes. I believe, first, in the future, we have a long-term strategic partner on many core components to solve. I think the second point is that we actually from the new price platform, as I just said, use the modularization to set the point. Many modules only have one or two It maintains and guarantees our entire system capability. In different cars, we use the same module. So the quality is higher, the cost is lower, and the supply chain is more flexible. Secondly, in the past, we have adjusted the quality management of the supply chain. We started to work with the entire purchasing team on organization and tools. We can make sure that each of the following models, we hope to make sure that each model That is an excellent question and thank you for putting this forward.
spk08: So in terms of the supply chain issue that you had mentioned encountered by X9, end of February after Chinese New Year, this problem has already been resolved. And yes, indeed, in the past, we have also encountered similar issues Internally, we have also been reflecting how to resolve this problem, and since taking over the supply chain myself personally last October, we have combed through a new management system, and we are now reducing the number of suppliers, and we mainly focus on these high-quality suppliers. private Chinese companies which are listed, and those are the ones who can also provide us with certain flexibilities. So in the future, I don't think that we need to worry about this issue because we do now have long-term strategic partners in place. And second, in terms of our products, we now have standardized modules, and generally speaking, we have about one to two partners will provide us with these modules that can be used in quite a broad spectrum of different models of cars. And this will improve the efficiency and bring down the cost as well as ensure the quality. And they are very flexible partners to work with. And thirdly, in terms of supply chain management team, we have also done work to adjust our existing supply chain management team in terms of the organizational structure, and we now have a new system in place, and internally our company has the determination that we are ready for all of these products to be launched for the first three months, and we want to make sure that we will achieve a very good scale of sales. 好的,感谢小鹏总的回答,谢谢。
spk01: Your next question comes from Shin Chi Yin with CDC Securities. Please go ahead.
spk02: Hello, Mr. Peng. Hello, Mr. Wang. I have a quick question about the price. At the G6 press conference last year, you mentioned that you think that the price will be relatively mature in 2027. You will see that the price will reach 30% or more in China in 2027. After more than half a year, you mentioned that 2027 will be a critical year for full autonomous driving in China, where we will probably witness 30% of cars in China will adopt full autonomous driving. I was wondering what is your latest view on that, and could you possibly share the theory behind your estimation. Thank you.
spk12: Yes, I think it will be a certain time earlier than what I said last year. I think there are several changes. I think the first one is that the big model is in our new self-driving field. Originally, Basically, it is very difficult to solve some of the capabilities of the built-in intelligence to get a faster improvement. We started to develop this last year. This year, we are already in the middle of testing and have a deeper understanding. This is the first. Sorry, on this capability, we will continue to stack the capabilities of the large model to make it smarter. This is the first. You can translate it first. Thank you.
spk08: Thank you very much for your question. And yes, indeed, for this year, and I do believe that we would be able to complete the task a little bit ahead of time, ahead of schedule, as what I have mentioned last year. And first of all, in terms of the large model and being adopted in other systems and through our testing, we had already been able to discover that the large model could really help with the speeding up and the realization of the generic intelligence and smart autonomous driving. So it is definitely an advantage, and we have already done the testing, and it has already approved this.
spk12: So we can see that the first one is that now in the market, Xiaopeng is constantly trying to reduce the cost of self-driving cars, but there are also cost-effective self-driving cars that are cheaper than Xiaopeng. But the launch of the large model allows for a greater success and a greater solution for the needs of the industry to achieve greater success. Secondly, and we know that in terms of
spk08: hardware cost. And for Xpeng, obviously, we would like to bring it down, and we also would like to see that providing support to our systems by a large scale. And not only just that, for others, you know, Xpeng believes that and would like to see the cost to come down. And we also see out there in the market, there are other people providing even cheaper solutions. And what we have discovered is that with the large model, it definitely would be able to provide more computing power and more CPU, and this would be able to help and push for the faster and better achievement in our vehicles and to bring the success faster to the market. And another point I would like to mention is that in certain restricted scenarios or in certain situations, scenarios whereby there are a lot of limitations, and we can see that the large model has actually helped with the speeding up of realizing fully autonomous driving, and this is something that we are focusing on, and we have a lot of confidence in this.
spk12: Apologies, and I have one last point to add, which is that in terms of the non-HD map,
spk08: And we, in the beginning, and when we looked at this and we thought that, yes, we'll speed up the process in a linear process. However, it wasn't linear. It was actually extremely fast in terms of how it has ramped up. And we do believe that having this data in our hand and having witnessed the non-HD map, how it's working in reality, and we do think that this is something that will help again with the large model and its adoption and helping further advancing the ADAS and autonomous driving. Thank you.
spk01: Thank you. That is all the time we have for questions. Now I'd like to turn the call back over to the company for closing remarks.
spk13: 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 Pearson Financial Communications.
spk01: This concludes today's conference call. You may now disconnect your line. Thank you.
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