XPeng Inc.

Hello, ladies and gentlemen. Thank you for standing by for the second quarter 2024 earnings conference call for XPEN Inc. At this time, all participants are in listen-only mode. After management's prepared 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 V, Head of Investor Relations and Capital Markets of the company. Please go ahead, Alex.

Thank you. Hello, everyone, and welcome to EXPON's second quarter 2024 earnings conference call. Our financial and operating results were issued by our 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 our co-founder, chairman, and CEO, Mr. He Xiaopeng, vice chairman and president, Dr. Brian Gu, Vice President of Corporate Finance and VW Projects, Mr. Charles Chang, Vice President of Finance and 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 certainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and certainties 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 price release and this conference call include disclosure of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. EXPON's earnings price 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. Hello, everyone.

In the second quarter of 2024, the delivery volume of small and medium-sized vehicles was 30,207 units, with a return of 38% and a return of 30% at the same rate. With the technical downfall and continuous implementation of our comprehensive management, as well as the revenue from the technical transformation of cooperation with the public, our profit margin has been further increased to 14%. This is the most promising among the new forces in the car industry. The more important thing is that we have completed a new round of organizational ability upgrade and self-degradation. We have top talent in the field of marketing, styling, AI, and many other key fields joining us, and they are quickly starting to play an important role. We are constantly upgrading the short version and making the long version stronger, allowing Xiaopeng to become a multi-level competitor with comprehensive competitiveness. From the beginning of VOLA M03, Xiaopeng will enter a strong product cycle and a fast-growing cycle. From now until the end of the year 2026, we will have many competitive new products and reformed models. We will immediately start. Our plans for AI technology and product chain innovation, plus our presentation of technical balance and results, will be reflected in these products, and through Xiaohong will have a stronger marketing spirit in China and the global market. I believe this will bring profit for our sustainable and stable growth of resources. I am confident that Xiaohong will have a big growth in the third quarter and fourth quarter. And in the fourth quarter, it will create a growth in turnover.

Yes, I'm sorry.

Hello, everyone. In the second quarter of 2024, Xpeng delivered 30,207 smart EVs, up 38% quarter over quarter and up 30% year over year. Supported by technology-driven cost reduction, efficient operation and management, and revenues from strategic technical cooperation with Volkswagen, our gross margin has further improved to 14%, placing us at the forefront of Chinese EV makers. More importantly, we completed a new round of organizational upgrades and internal restructuring, bringing on top talents who are already adding value in marketing, style design, AI, and other key areas. We're consistently addressing gaps and solidifying our strengths to foster well-rounded competitiveness. With the market launch of Mona M03 in August, we're entering an intense product launch cycle and a period of rapid development, with a number of competitive new products and models to be introduced through the end of 2026. With our AI technology advancement, targeting product innovations, and technology-driven cost reductions, coupled with an enhanced global and domestic marketing and sales system, these new products will fuel our sustainable growth trajectory. We're confident of achieving substantial quarter-over-quarter delivery volume growth in Q3 and Q4, respectively, and of reaching a new delivery record in the fourth quarter.

Thank you. We have launched a pre-sale of the Mora M03 model. The feedback from the consumers has made us very excited. The pre-sale orders have exceeded the performance of the same period last year. The Mora M03 model, which has the most fashionable design in the market, with a level of 150,000 A-level power supply, is completely different from the intelligent boat and the intelligent driver. It has achieved more than 200,000 level of user experience in many aspects. I believe it will become the benchmark of the A-level power supply C-level market. On August 27, we will also hold a 10-year anniversary meeting with Mola M03, and launch a large-scale deal with the users. We have prepared with our supply chain partners to support Mola M03's fast-growing production. I hope this Mola deal can create a new record for Xiaopeng, and the taste and effect of good products will be exposed quickly, and the sales trend will be more stable.

On August the 8th, 2024, we began pre-selling MONA M03 and were thrilled by consumers' enthusiastic response. So far, its pre-sale orders have surpassed last year's G6 pre-sale orders in the comparable sales period. Priced in the 150,000 RMB segment among the 8-stock BUV sedans, MONA M03 stands out with its trendy stylish design and unique smart cockpit. Offering a best-in-class driving experience, which outperforms that of vehicles in the 200,000 RMB price range across many aspects, Mona M03 is setting benchmarks and emerging as a top competitor in the A-Class BV market segment. We'll be hosting our 10th Anniversary Gala Night and launching Mona M03 on August 27th, with mass deliveries set to begin shortly thereafter. Our supply chain partners have geared up to support MONA M03's fast production ramp-up alongside us. I'm hopeful that the delivery pace of MONA M03's fast production ramp-up will set new expiry records, which will help quickly enhance the reputation of this outstanding product through word of mouth and support a strong increase in sales.

We have officially launched a new product platform called PT-JIA. PT-JIA has the advantage of large space. In addition, it has the advantage of high-end quality. These two advantages are prominent. It is three meters long and more than five meters long. It will bring better choices for family use. At the same time, PT-JIA is also the first model of our new generation of automatic driving hardware platform. We have completed the automatic driving hardware chassis, the whole car, the BOM, In terms of technology innovation and cost, we believe that we will have an advantage that is more difficult for today's competitors. So after these two new models of delivery and delivery, it will significantly expand our market scope. At the same time, I am also focusing on promoting supply chain, production, manufacturing, marketing, sales, delivery and service. In these segments, we will build a more efficient horizontal system. to support our ability to deliver new products in the larger product cycle.

Next, we'll officially launch our next-generation sedan, the P7 Plus, in the fourth quarter. The P7 Plus features exquisite saddling and interior space with a 3-meter wheelbase and over 5-meter length, making it a superior choice for family customers. Furthermore, P7 Plus will be our first model based on our next-generation ADAS hardware platform. P7 Plus not only beats our cost reduction targets in both ADAS-related hardware and overall vehicle bomb, but also boasts technology innovations and cost advantages that outperform our competitors. With deliveries of two new models ramping up, we're optimistic about significantly expanding our market share. At the same time, I remain dedicated to bolstering our capabilities across supply chain, manufacturing, marketing, sales, and customer delivery. This will fuel a more efficient and scalable operational system, accelerating product launches and deliveries during our upcoming major product launch cycle.

In the next few years, I believe AI will redefine cars. The transformation of AI cars will bring a bigger impact on the automotive industry than the electric car industry. It will fundamentally change the user experience and rebuild the initial business model. The combination of end-to-end and large models will greatly break through the original automatic driving and show the system capabilities. and the speed of delivery will be much higher than in the past. It uses the core technology of Rubeis to make the entire automatic driving safety experience and range far and wide, and it will reduce the cost of the platform. This will accelerate the user's acceptance of the concept of automation. Of course, the large model combined with SNGP uses a high-definition map and has a strong AI technology that is easy to use.

Looking ahead to the upcoming years, I believe that the impact of AI on vehicles will be even more significant than that of electrification for automotive industry. AI will fundamentally change the driving and riding experience and will reshape the business models in the auto and mobility sector. The advancement of the end-to-end and AI models is going to break through the limitations of current ADAS technologies, and their iterations will happen much faster than traditional coding methods. AI will revolutionize ADAS safety and driving experience, lower the cost, and speed up the mass market adoption of ADAS. The combination of AI models with XMGP, which is non-HD map-reliant and has strong generalization capabilities, is the only path to developing ADAS technology that delivers a seamless experience anywhere, regardless of location or route, and can be scaled globally.

From July 30, we will fully promote the 5.2 version of the AI天机系统 to all children. This signifies that XMGP has entered the unlimited city, unlimited route, and a new stage that is easy to use all over the country. We first realized the application and ability of the large model on the road of full-chain users across the country. Then I would like to emphasize that the application of the large model in automatic driving is very difficult. One of its huge challenges is how to ensure safe avoidance, which is to have extremely high ability to go online, At the same time, we have to have a very good ability to go down to the bottom. Then Xiaopeng in the field of autonomous driving Data and experience that have been established for many years Then we have a stronger ability to embrace this new model And compared to the past, it will bring a more efficient and more smooth and safe experience. Then next we will start China's This ETC toll station and the traffic jam of the parking lot in the neighborhood, etc.

Since July the 30th, AI-powered XOS version 5.2 has been made available to all Xtang owners, taking XMGP to the next level by empowering a smooth experience anywhere regardless of city and route. We are the first to deploy AI model technology that offers access to ADAS on all public roads for all users nationwide. The application of end-to-end AI large models in autonomous driving is easier said than done. One of the challenges is how to ensure safe closed-loop texting with both an extremely high upper limit and a solid lower limit. Our extensive data sets and years of experience in urban ADAS driving give us an edge in integrating these end-to-end AI models, providing a safer, more human-like driving experience for our users. We're gearing up to tackle smart driving challenges such as ETC toll stations and parking gauge barriers with our XMGP capabilities. Our goal is to offer an unparalleled parking spot-to-parking spot ADAS experience and implement the N2NAI models to the next level as our second step.

will have the most competitive performance cost in the Chinese automotive industry in the future. In the near future, we will add this set of capabilities to more models, which means it will also become the world's first model that can achieve high-tech artificial intelligence in a model of 20,000 US dollars. I hope that more young people can easily buy and enjoy new AI technology, and at the same time, make the size of XMGP users and high-end data will be expanded rapidly. In order to support the overall ability of AI to further improve and further reduce costs. Our goal is that in the second half of next year, the car of XHP will be able to experience the software use of the first-rate Logotasy in China. In other words, in a city, only 100 to several hundred kilometers will need to be controlled once. This is a devastating experience for the user. At this time, the hardware and cost of the whole car is based on L2, but the software and experience have reached a level of L3+. Under the cost structure that can be burdened, I believe that consumers will be like the past five years, quickly switching from男友车 to新的原汽车, and quickly embrace AI vehicles. I will hold a 10-year brand launch event in the next week, and in this year, I'm going to share with you the breakthroughs we made on AI models, robots, and more.

Even more excitingly, our next-generation ADAS hardware platform will debut on the P7 Plus in the fourth quarter, offering high-level ADAS at the most competitive farm cost in China auto industry. In the near future, we'll offer XMGP on more EV models, making XPeng the world's first auto company to deploy high-level ADAS in a car model in the US$20,000 price range. optimistic that improved affordability will allow more younger users to buy and enjoy the latest AI technologies, expanding XMGP's active user base and high quality data pool. This in turn will create a positive cycle, strengthening our AI power ADAS capabilities and further reducing costs We aim to have our AI-powered XMGP-equipped mass-production smart EVs provide a driving experience equal to that of world-class Robotechs by the second half of 2025. This means just one manual takeover required per several hundred kilometers in urban areas, which is groundbreaking. In other words, we are going to offer level 3 plus autonomous software and user experience on level 2 ADAS hardware and at a level 2 ADAS price point. With an affordable cost structure, we believe consumers will quickly embrace AI-powered cars just as they quickly switch from traditional fuel vehicles to electric vehicles over the past five years. I'll share more details about our advancements in AI models, robotics, RoboTaxi, and other cutting-edge technologies at our 10th anniversary gala night next week in our annual Tech Day on October 24th.

From this year on, we are entering a faster development phase in international design and overseas market layout. This has become one of the key driving forces of our sales and revenue growth. In the second stage, small and medium-sized companies are in the middle-to-high-end export sales of Chinese pure electricity brands, which is a sales price of more than US$30,000. We are in the first place. Overseas sales have contributed more than 10% to our contribution. G9 has become the first middle-sized pure electricity SUV in Norway, Denmark, and Israel, and has also entered the top three in Sweden and the Netherlands. In our view, it is not only up to the creditors to make good high-quality power generation. More importantly, our latest version of AI, TendOS, also completed a full OTA for the overseas market on August 15th, bringing overseas users an unprecedented experience of Chinese speed OTA. With the advantage of product technology, we will be able to build a high-end technology brand for small and medium-sized companies, and gain even more approval from the global community. In the third quarter, small and medium-sized companies will be able to get strong orders after the first listing in the overseas market. We will launch the left-hand and right-hand version of G6 in August. By the end of July, we have entered more than 30 countries and regions through our partners in Xinjiang. And we have more than 70 small and medium-sized stores, including in Europe, the Middle East, and Latin America. In the second half of the year, we will enter more right-hand markets, including the United Kingdom, Australia, and Southeast Asian countries. At the same time, the number of small and medium-sized automobiles in the international market is expected to double in the second half of this year. In the next few years, we are looking forward to a stable but large-scale growth in overseas business. The international sales of high-end smart electric vehicles are leading and improving our global technology market.

Starting from this year, our long-term strategy for international models and overseas markets is entering a period of faster growth and is playing a more significant role in driving both sales and profit growth. In the second quarter, S-Bank ranked first in export sales of mid- to high-end all-electric vehicles, or BUVs, priced above US$30,000 among all Chinese BUV brands. For the first time in our history, overseas sales accounted for more than 10% of our total sales, Xpeng G9 has become the number one need-to-large-size all-electric SUV in Norway, Denmark, and Israel, and ranked in the top three in the same class in Sweden and the Netherlands. We believe that in addition to new energy, AI is crucial for us to achieve high-quality globalization. As of August the 15th, we completed our over-the-air or OTA rollout of the latest AI-powered XOS for all of our international customers, offering an unprecedented China-made OTA experience for overseas markets. Our unique and premium tech brand has gained worldwide consumer recognition by leveraging our product strengths, As we entered the third quarter, we saw a very, very strong momentum in the initial overseas orders for the international version of X-Pen G6. Starting from August, we expect to begin deliveries of the left-hand drive and right-hand drive versions of G6. As of July, we have expanded our presence to 30 countries and regions via dealer partners and established over 70 overseas sales stores, including in Europe, the Middle East, and Latin America. We plan to enter more right-hand drive markets in the second half of 2024, including the UK, Australia, and several countries in Southeast Asia. Also, we expect to double the number of Xpeng-branded international sales stores in the second half of 2024. Over the next couple of years, I anticipate our overseas business will maintain its strong growth momentum, leading global sales of new to high-end smart EVs and enhancing our reputation as a global tech brand.

The long-term strategic cooperation of the automotive group has reached several important milestones in the past year, and the cooperation process is still in progress. In July this year, Xiaopeng signed a joint development agreement with the Dazhong Automotive Group to continue the joint development of electronic and electrical architecture technology. This will jointly develop the CMP and MEB platforms produced by Dazhong in China, leading the electronic and electrical architecture industry. Since 2016, based on the CMP and MEB platforms, and domestic mass-produced products will all be equipped with a new electric battery. With the support of both parties, the first electric battery with joint development will be launched within 24 months. I am looking forward to expanding the range of our mass-produced technologies and further enhancing the strategic relationship between the two countries. I also believe that China's speed and small and medium-sized technologies will help us and our partners in the global automotive industry to create greater strategic and collaborative values.

We have achieved multiple significant milestones in our long-term strategic cooperation with Volkswagen over the past year as we steadily expanded our corporation's goal. In July of this year, we signed a master agreement of EE Architecture technical collaboration with Volkswagen Group to jointly develop industry-leading EE Architecture for all locally produced vehicles built on Volkswagen's China-Made Platform, or CNP, and MEV platform. Beginning in 2026, all locally produced vehicles built on the CMP and the NDB platform will be equipped with this jointly developed EE architecture. Thanks to deep mutual trust and collaboration between the two teams, the first model equipped with the jointly developed EE architecture is expected to go into mass production within 24 months. I'm very much looking forward to expanding the scope of our technical cooperation and further strengthening our win-win strategic partnership. I believe that the combination of China's speed and technology will create greater synergies and strategic value for us and our partners in this era of profound changes in the global automotive industry.

Fortunately, my children and I didn't waste any crisis. After the long-awaited press conference in September 2022 and the ups and downs of the past two years, we have firmly pushed forward the strategic changes in organization and planning, and the comprehensive competitiveness of Xiaohong has been fully improved. It has been fully prepared for the rapid growth of the back-end, as well as the realization of security resources in the new era of AI. With the opening of the new product cycle of Xiaohong, We expect the total turnover in the third quarter of 2024 to be about 41,000 to 45,000 taels, which is 35.7% to 49%. The revenue is expected to be 91 to 98 billion yuan, which is 12.2% to 20.8%.

I'm glad that we didn't let every crisis go to waste and that we learned from them rising above each one. After launching the G9 in September 2022 and experiencing self-fluctuations over the past two years, we have made significant strategic changes to our organization and planning. This has greatly improved XPang's competitiveness and positioned us for rapid growth. We're now fully prepared to navigate the next decade of AI with steady progress. As we enter our major production launch cycle, we anticipate that our total delivery volume will range from 41,000 to 45,000 in the third quarter of 2024, representing a quarter-over-quarter increase of 35.7% to 49%. Furthermore, we project that our third quarter total revenue will fall within the range of 9.1 billion RMB to 9.8 billion RMB, representing a quarter-over-quarter increase of 12.2% to 20.8%. Thank you, everyone.

Next, we will have our Finance VP, James, to introduce our Finance Director for the second quarter of 2024.

Thank you, everyone. With that, I'll now turn the call over to our VP of Finance, Mr. James Wu, to discuss our financial performance for the second quarter of 2024. Thank you, Xiaofeng.

Now let me provide a brief overview of our financial results for the second quarter of 2024. I'll reference RMB only in my discussion today, unless otherwise stated. Our total revenues were $8.11 billion for the second quarter of 2024. an increase of 60.2% year-over-year and an increase of 23.9% quarter-over-quarter. Revenues from vehicle sales were $6.82 billion for the second quarter of 2024, representing an increase of 54.1% year-over-year and an increase of 23% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly attributable to higher deliveries. Revenues from services and others were 1.29 billion for the second quarter of 2024, representing an increase of 102.5% year-over-year and an increase of 28.8% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly due to higher sales from maintenance services and increased revenues from technical R&D services related to the platform and software strategic technical collaboration with the Volkswagen Group. Gross margin was 14% for the second quarter of 2024 compared with negative 3.9% for the same period of 2023 and 12.9% for the first quarter of 2024. Vehicle margin was 6.4% for the second quarter of 2024 compared with negative 8.6% for the same period of 2023 and 5.5% for the first quarter of 2024. The year-over-year increase was primarily attributable to the cost reduction and the improvements in product mix. The quarter-over-quarter increase was primarily attributable to the cost reduction. R&D expenses were $1.47 billion for the second quarter of 2024, representing an increase of 7.3% year-over-year and an increase of 8.6% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly due to higher expenses related to the development of new vehicle models as the company expanded its product portfolio to support future growth. SG&A expenses were $1.57 billion for the second quarter of 2024, representing an increase of 1.9% year-over-year and an increase of 13.3% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly due to higher commission to the franchise stores and higher marketing and advertising expenses. As a result of the foregoing, loss from operations was $1.61 billion for the second quarter of 2024, compared with $3.09 billion for the same period of 2023 and $1.65 billion for the first quarter of 2024. That loss was $1.28 billion for the second quarter of 2024, compared with $2.8 billion for the same period of 2023, and $1.37 billion for the first quarter of 2024. As of June 30, 2024, our company had cash and cash equivalents, restricted cash, short-term investments, and time deposits in total of $37.33 billion. 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 second quarter 2024 financial results. This concludes our prepared remarks. We'll 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'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 questions 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 Sa with Morgan Stanley.

Hello, Mr. Manager. Thank you for accepting my question. Congratulations to 3G-DOO on a strong growth of jobs under the value of new cars. I have two questions. The first question is about the new car sales. Because of the guidance of 3G-DOO, Xiaobang Motors in September, due to the contribution of M03 and the increase in exports, I hope this job can go back to the top. I also consider the added value of PT. The unit of 4G-DOO is even likely to challenge the level of 30,000. But we see that while the new and old platforms are exchanging, how does the management think about how to consolidate the next new car type and delivery volume compared to the previous models? Can there be a longer period of growth? And like last year, maybe the new car will have a more obvious slowdown in sales after the honeymoon period. Or is it a slowdown in sales as a result? This is my first question. So my first question is about the sales momentum of the new models. Because I experienced the third quarter volume guidance of 41 to 45K, I suggest the September delivery could be back to previous peak. This together with the upcoming P7 plus could easily send the company's year end market sales to a new high of around like 30,000. However, in light of relatively short life momentum of the new models, of the models launched last year. How could X-Pen 4.5 substantial sales momentum this time offer the new models like M03 and the upcoming P7 Plus? So that's my first question.

Okay, thank you. This question is one of the most important questions for us. So in my office, there is a word, four words, called stability and resource. So these four words are for Xiaohong, starting from the second half of this year, to ask for his own will. So if we want to make a lot of financial resources, in a market environment that is changing dramatically, it is very difficult, to be honest. From a certain point of view, I think the impact of next year, including the impact of gasoline cars, will be even greater than this year. So in this, we have done a lot of things, including the management of the supply chain, and the overall platforming of the entire company, including our production quality requirements. Whether it is MOLA or PTJ, we have increased the production quality requirements to a very high level. For our monthly OTA, for the continuous change over a short period of time, according to the micro-experience of the customer, as well as the annual year, and the entire marketing system, channel system, we are all doing our best to support this news. At the same time, all of our rolling 12-month industrial and commercial projects are considering competition, considering our new car, and our new car, and our new car, and our new car, and our new car, and our new car, So in the current situation, we will definitely have more confidence than last year and the year before. We hope that in each quarter, according to our plan, we will be able to achieve a more accurate level of the whole plan, and achieve the logic of the overall news resource. Thank you.

Thank you. Thank you so much for the question. Now, this is actually one of the biggest challenges facing ourselves as well. For Xpeng, I mean, for myself in my office, I actually have these four words, and hang up on the wall of my office, meaning that we are aiming for steady growth going forward. Now, it's honestly easier said than done, and it's very challenging to do that and achieve those kind of goals in such a competitive environment. Going into next year, we actually expect the market competition to be even more brutal than what we have seen recently. And we have done a lot when it comes to the transformation of our organization. For example, the management of the supply chain, adopting the platform-based manufacturing, and also enhancing the target and aims for our manufacturing quality for M03 and P7+. Also, when it comes to the monthly OTA and the reform of our customer experience regarding new models and basic versions and everything, we also did an overhaul on our sales and marketing system. All of those are aiming to achieve a very long-term steady growth going forward. When we give out guidance and do preparations for the future development and sales, we are doing not only a rolling 12-month forecast, uh facing you know taking into consideration the future competitive landscape we also take into consideration the iteration of our new models and faces versions and how to accommodate them in the competitive environment so relative to uh the year before and two years beforehand right now we are definitely much more confident about our quarterly forecast and how to meet those targets and how to really implement our plans in order to achieve the maximum outcome thinking

Hey, Tim, this is Brian. Let me just add a couple points here. First of all, I think you're right. When we give the third quarter guidance, at high end of the guidance, we do assume that we will hit likely the 20,000 per month sort of volume delivery, which is going to be the high point of our delivery record historically. To achieve that, there are actually a number of other catalysts I think you should probably be aware. One is that we are very encouraged by the MONAS debut and also the reception. We think given what we see in terms of the addictive order momentum, as well as the preparation that Xiaofeng just mentioned, We're very confident that Mona delivery in the first month starting in September will likely achieve the fastest delivery record for all EV models made by EV startups. I think we will hopefully set the record for Mona. Secondly, I think I want to also emphasize that the delivery number includes also significant growth of our overseas delivery volume as well. As you can see, the overseas delivery volume in the second quarter exceeded 10%. We anticipate the delivery from overseas will probably be above 15% in the third quarter, which also diversifies our overall order intake. that give us further confidence that, you know, the delivery objectives that we set for third quarter and also fourth quarter will be achievable.

I understand. Thank you, Mr. Xiaofeng.

Thank you, Mr. Brian, for your comments. My second question is about the frame. Mr. Xiaofeng, you mentioned the frame of the AI 3D model. Let the group be able to drive and the national volume of opening up The past period of time has shown a very bright result But if we look at it from the perspective of commercial return, I think it's a question of when Ah, the upline of small and medium-sized cars can become a threshold for the same industry And then we can speed up the transformation of small and medium-sized cars into a new car sales improvement In addition, is there any My second question is about the XMGP or high-level edX. The constant investment in MTN large models has a further enhanced expense of systematic capabilities and AI smart driving technology. and much faster than national wide rollout of XMGP. However, when it comes to return of investments, when do we expect such a massive and constant investment to translate into a real barrier to peer competitors and translate into a meaningful upside to expense new car sales? Will there be any side posts or metrics we can monitor in the following quarters? So that's my second question. Thank you.

Right. After the 5.2 version is launched, we can see some very good data changes. The first one is that the core indicators including the penetration rate of all users and the latency penetration rate have increased by at least 2%. This is the first one. The second one is that In the past, there were some stores that couldn't sell XNGP in the market. Now, we can sell all the stores in the market, and we can understand the advantage of the difference. From my point of view, there is only a small number of small companies in China today. The rest of them are still claiming to support us. In fact, there are two challenges in what I just said. The first challenge, as I just said, is to raise the upper line, but how to keep the lower line. This requires a lot of work. This time, it caused Xiao Peng to make quite a lot of adjustments to ensure that the lower line is high enough. Secondly, in fact, he will For example, if you do something bad, for example, for every place, you have to go to test. Now, in the end, you can look at it from the perspective that you can make every place drive like the local driver, just like the local driver to drive. But it will also bring challenges. The original logic of Rubik's Cube plus AF is that you will do better in some areas. So today, in some areas, the ability will even have a certain return. But from the perspective, 我還是很堅信今年是轉折 到明年的某個時候 小鵬的自動儲蓄價值 我覺得會比現在大概有 數倍到十幾倍的提高的時候 我覺得有一個版本 我覺得那個時候會帶來商業化的 我覺得巨大的銷量的這個變化 同時結合我們在今年年底 PC加首發的全新一代硬件平台的成本競爭優勢 就讓更多的客戶用 Thank you.

Thank you for your question. Since the rollout of our version 5.0, we've collected a lot of very exciting and encouraging data, including two aspects. The first one is the option rate and also penetration rate of using our high-level ADAS capabilities, at least 20% increase from before the rollout of 5.2. And the second thing is that we used to encounter challenges in text driving in some stores, in some areas and regions. And right now, across all of our dealer jobs, you can freely use the XNDP, and this is made available to all of our dealerships right now, which will allow our consumers to have first-hand experience of how capable our ADAS availability is. And right now, among all Chinese EV makers, Xpeng is the only actual end-to-end AI model instrument. Although other competitors or peers of ours also claim that they're moving towards that end goal. But we do face multiple challenges. The first one is that as we increase the upper limit of our ADAS capabilities with the adoption of the end-to-end AI models, we also need to secure a solid bottom limit of that capability as well. That requires a lot of changes and reform. which we have implemented in our technology and architecture and the other challenge is that you know previously we might not be able to roll out our capability across different locations around the country and right now even though we are able to do it and also provide a human-like driving experience for multiple locations and in a wider range of areas We do experience some setbacks in a small range of cities or routes where rule-based and also small model kind of technological routes may produce a better outcome for now. But we believe the trend is that, first of all, this year is definitely a turning point for adopting these end-to-end AI models to implement and also to enhance our ADAS driving capability and going forward in the near future we believe that when we are able to upgrade to a more comprehensive version we can expect to see a great outcome when it comes to commercialization and that means that starting from P7 plus which is really a great outcome of the technologically driven cost reduction on this platform using this technological architecture will allow us to offer affordable high-end ADAS capability to a wider range of consumer, which can improve our industry-leading ADAS capability.

Thank you.

Great. Thanks a lot for sharing those details. I'm looking forward to the meaningful sales takeoff throughout the rest of the year. Thank you.

Your next question comes from Ming Sun Li with Bank of America.

Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan is more space for this kind of business. Because we are now in a joint purchase with Dazhong Group, including the future of Qigong, this type of vehicle will also be gradually reduced. So I would like to know if you think that in the future, our company or the industry will have a bigger opportunity in technology. By the way, I would like to ask a simple question, that is, our 3G point, because the positive factor is that the export value has also increased, My first question is related to your cost reduction strategy. So right now you have joined Procurement with Volkswagen. You will reduce the usage of LiDAR in the future. So in what area do you think you can achieve more cost reduction going forward? And a shorter question related to your third quarter gross margin trend. So positive factor include more export and also growing sales grow a lot. But the negative factor is more sales from Mona. So how do we expect the trend of the third quarter gross margin? Thank you.

Yes, thank you for this question. I will answer a part of it first. In the past, Xiaopeng has been a relatively biased person from a technical point of view. So, step by step, technology has been added to products. So, starting from the second half of this year, I will focus on commercial capabilities as one of Xiaopeng's key points. So, what you have just said is a part of the business. What you have seen today, including technology, design, supply chain, and our cooperation with the public, which led to the overall business improvement, including the improvement of the capital. In the second half of this year, and even next year, we will see that there will be a deliver every quarter. I hope that Xiaopeng will have a better profit than most market companies in the future. All right, thank you for your question.

Now, Expo needs to prioritize technology without really considering the development of other aspects, which are also very crucial for our company's success. Now, starting from the second half of this year, we're going to focus more on our commercialization capability. Right now, we have both technology and our products that are doing great. But starting from the second half of this year, we're going to see more translation of our reform and restructuring of the whole business model in order to meet the market demand and also the market competition as well. Cost reduction is a big aspect of it. On top of that, we also have cost reductions that are driven by our technology, by our supply chain reform, and also by our strategic partnership with Volkswagen as well. So in the second half of this year and also going to 2025 and 2026, you can expect to actually see a lot of good news when it comes to our quarter-over-quarter improvement as well. So overall, at the end of the day, we are confident that XPeng can become a company that has a more superior GP margin than the rest of its peers.

Thank you. So Ming, on your second question regarding the margin trend, instead of being specific on Q3, I'll just speak generally about the second half. So you're right, there are a couple of things that's going to take place in the second half. As you mentioned, the export volume and percentage is going to likely go up. Starting Q3, most likely we will start to recognize some revenues from the EA collaboration with Volkswagen. In the meantime, we also will see significant growth in terms of volume, which will help to thin out the manufacturing DNA allocations as well as improving manufacturing costs. On the other side, as you mentioned, there's incremental volume coming from MONA, which we expect to be a high-volume model. And the other thing, into Q4, as we introduced P7 Plus, which will be the first model that comes out of our new platform to achieve the cost reduction that we have communicated earlier. We do expect the P7 Plus margin to be very healthy into the double digits. So all in all, I'd say from a trend perspective, we expect the overall margin to be stable and maintained at mid to low teens, as you see in the second quarter. Thanks.

Thanks. to use the pure third region solution. So in your view, what would be the progress for you to improve your capability in autophagylin through this PO region technology. Thank you.

Yes. Because more things, I will share more in the future brand conference and 1024. So more specific information is welcome at that time. But I would like to add one more thing. Based on the reduction of sensors, reduction of high-definition maps, not only can achieve a certain degree, a considerable degree of reduction, but also our new end-to-end model will bring the ability of the next generation of pure vision, will bring a new, stronger, overall value. This specific part is still to be shared with you in the future. Thank you.

Well, actually, regarding your question, I would say that more details to be disclosed on the future product launch conferences and also on our 1024 Tech Day, please stay tuned. But what I can say for now is that, first of all, without relying on sensors and high-definition maps, that already in and of itself allows us to reduce our cost significantly. And on the other hand, with the adoption of the end-to-end AI models using the vision-based technologies, technological approach allow us to greatly enhance our ADAS capability as well.

Again, if you're interested, please stay tuned for more details in our future events.

So our next question comes from Bin Wang with Deutsche Bank.

Hello, everyone. My question is more about the details of this support. If we implement a 45,000-year-old 30-year-old support, which means that we will implement 20,000 in September, what will be the structure of this 20,000-year-old product? Hey, Bain. This is Brian. At the moment, we do not provide a breakdown of the specific model mix for the delivery of coming months.

But I would say, as I said before, we anticipate very strong delivery for Mona in September. We'd likely achieve the record for EV delivery by EV startup or new players, as you can imagine. So we hope to achieve that record. Secondly is that it also will consist of a significant percentage from overseas, which will be mostly G9 and G6. As you know, that G6 starting delivery this month and next month. So that will also mean there's contribution from these mainstream models from our lineup. So other than that, I don't think we will probably provide any more details on the mix.

Okay. Okay. My question is a second one for our new product. You mentioned motorcycle. Can you elaborate a little bit about our product for next year?

Thank you.

Ben, again, on this call, we are not able to provide specific guidance on model launches next year or number of new as well as updated models. I think we will provide that information probably in a later stage. But what we can say, as we said before as well, is that we anticipate this fourth quarter will start a very strong product cycle. So it will be MINI. I would say MINI is more than what we current this year, that has launched this year. So more than this year, definitely, as a number of vehicles for the new models and revised or updated models for next two years.

Okay, thank you very much. Thank you.

Your next question comes from Paul Gong with UBS.

So my first question is regarding the export outlook. At this stage, we are glad to see the company is pushing for the export. However, we are seeing the rising protectionism in the DEMs, including the upcoming extra tariff. And we are also seeing in other markets the rising competition even among the Chinese EV makers is escalating. How do you foresee these challenges? How do you overcome it?

Hey, Paul. This is Brian again. Very good question. I think you're right. Obviously, global opportunity is immense, but also there's a lot of challenges along the way. We also noticed the tariff updates in the European market, etc. But what I would say, a few points. One is that we so far have been very successfully launching our product in Europe as well as other global markets, positioning those products as premium EV brands. If you look at our sell price, of G6 as well as G9 in global markets, which is available today already, you can see that we actually are priced higher than some of the comparable competitors we actually faced in China, which means that we actually can achieve a better and more premium position for global markets. Secondly is that in Europe specifically, we obviously have to deal with the tariff. But I think given the efforts by our team, the pricing, as I mentioned, as well as using a collaborative relationship with local partners, we still can achieve, I would say, good marginal contribution from those sales. So we're actually dealing with that at the moment, which already started, I think, the regime back in July. So we have been doing this in the last month and a half already. And then looking... Outside of Europe, I think we actually also see huge opportunities for Middle East, including Israel, Southeast Asia, which is the market that we will be launching our right-hand driving models as we speak this month and next month. And also we see significant growth opportunities in other parts of the world. So with additional sort of product launch as well as better, I would say more premium positioning of our product globally as well as building extensive relationship and distribution channels around the world, we are confident that we can achieve the volume as well as some of the profit contributions we anticipate from global operations.

Thank you very much. My second question is about RoboTaxi. I remember a few years ago, Xiaopeng once mentioned that it was planning to launch RoboTaxi, but due to some changes in the plan, it was not promoted further. We also pay attention to what I just mentioned. We hope that mass production vehicles will achieve such an effect as RoboTaxi in the second half of next year. So my second question is regarding the robot taxi. I recall a few years ago, once there was a moment that Exxon also had a little bit plan for the robot taxi, but subsequently it has been modified. I understand just now you mentioned that you hope your volume produced models to achieve the similar effect versus Robotaxi operation in overseas markets in second half of 2025. But just want to listen to you guys, why as an industry leader in the autonomous driving, you are not a big fan of Robotaxi operation?

This is a very good question. In fact, in China and around the world, the technical route of low-potensity technology is very different from the large-model route that we are using now. They are more concerned about being able to make the experience of safety better in a small area. We may be more concerned about being able to It's a better experience. So there is a difference in direction. Secondly, for Xiao Feng, we think, because Xiao Feng used to operate certain travel tools, we think in the field of local taxi, he is very concerned about the cost and operation effect. In addition to political rules, in addition to the opinion of the boss's public opinion, we also think that most of the robotic companies today have not achieved low cost and good experience in the hardware field.

Thank you. This is a very good question. Actually, when it comes to Robotaxi development, not only in China, but globally speaking, the technological approach is quite different from what we adopt right now, which is the end-to-end AI models architecture. Now, the focus of Robotaxi right now in the market is to focus on offering safe and good customer experience within a small area or region, whereas our target is to offer a whole domain or all domain kind of human-wide driving experience. But that is definitely defined the differences between, you know, our focus right now versus RoboTaxi. And the other thing is that, you know, based on our previous experience of operating on medical vehicles, we understand that right now, you know, when it comes to the industry target for RoboTaxi, it costs still is the number one priority, you know, apart from regulation and also the mass, you know, adoption rate and penetration of this technology. You know, the majority of Robotech developers right now do not really balance these two aspects really well, namely cost and customer experience.

Then, we can talk about a few additional points later. I think the first one is that Xiaopeng They are planning their own RoboTaxi. But we think that the difference between the RoboTaxi and the L4 is huge. This is the first point. The second point is that Xiaohong does not want to get involved in the heavy transportation of the RoboTaxi. We would like Xiaohong to just do the car well, so that we can cooperate with the global transportation industry. This is the second point. The third point is that the RoboTaxi may be a Thank you.

Now, there are several things that we can comment on when it comes to RoboTaxi. First of all, we are definitely considering the future for developing RoboTaxi, but this is very, very different from the L4 ADAS capability or experience. The second thing is that we're not considering involving ourselves in the operation of RoboTaxi, but rather focusing on producing high-quality products or vehicles, RoboTaxi vehicles, with the partnership with vehicle mobility operators in the future, globally speaking. And another thing that I want to compliment here is that, you know, Robotex, when it comes to the development of Robotexy, Xpeng definitely has our unique kind of differentiation and consideration as well. We've put in a lot of thought into the future of Robotexy. And it's actually quite different from, you know, the pure ADAS for everyday use. And it's a different way, a different kind of mobility. And in the future, when time allows, we're going to share more of our thoughts in this regard. Thank you.

Thank you very much. That's quite helpful. Thank you.

Your next question comes from Tina Howe with Goldman Sachs.

Thank you for answering my question. I also have two questions. The first one is about our Mona M03. I would like to ask what is the current situation of our production capacity? And then because of the previous one, maybe including G6, we mainly because of this supply chain, for example, like laser radars, it has some bottlenecks, so it affects some delivery progress. But M03 should not have laser radars, so if we ramp up this, it should be very fast, so I want to ask about our production capacity. Then the second question is about our development costs. The previous guidance was about 7 to 7.5 billion, but if we look at this year's tracking in the first half of the year, and then look at last year's whole year's seasonality, it may be less than 6 billion this year. So I want to ask if there will be more development expenses in the second half of the year. These are the two questions. So thanks management for taking my question. My first question is regarding our production preparation for MONA M03, because previously with G6, I think the supply bottleneck was mainly related to the LIDAR. However, with M03, we don't have LIDAR, so this should have much faster ramp up. So just wondering how much are we preparing for in the next few months? Second question is regarding our R&D expense. So we got it for 3 to 3, sorry, 7 to 7.5 billion previously. But looking at our first half tracking and looking at last year's first half, second half seasonality, it seems like it's tracking just below 6 billion RMB. So wondering whether we have any like added R&D spending into the second half. Thank you.

Hey Tina, this is James. I'll try to answer both of your questions. On MONA production capacity, obviously we've seen what we have experienced in the past, launches with regard to G6 and X9. These are great lessons we've learned. So what we have done is we have started preparing the MONA production preparation way ahead of time versus the previous cases. So we've anticipated the supply constraints from some of the key components and we have set sufficient plans to prepare solutions for those issues that we have experienced in the past. So far we haven't seen any signs of issues with regard to our supply chain and production capacity so we continue to expect They will achieve the planned production and delivery as we have communicated earlier. Your second question about the engineering expense. Yes, from the first half, if you look at our engineering expenses, it's relatively flat and comparable to last year, but as we mentioned earlier, we are entering into a pretty heavy product cycle, and a lot of the engineering expenses with regard to design and product development has already kicked in. So we expect the engineering expenses to ramp up in the second half of the year. For the full year, we still remain our earlier guidance of about $7 billion for the full year in terms of engineering expense. Thank you.

Thank you. That's very clear.

Your next question comes from Ping Yu Wu with Scitec Securities.

Hello, everyone. Thank you for this opportunity. I have two questions. The first one is about Mona. Because I was the first to see Mona's real car. This car is actually very good looking and has a lot of texture. But my overall feeling is that So my first question is, I actually went to see Mona in the first time, and it was of very good quality, but people will only feel the quality when they see the car in person. So do we have some self-action to make more people to see the car in a partner. Yes.

The effect of static and dynamic perception is better than that of the same party. The effect of static and dynamic perception is better than that of the same party. The effect of static and dynamic perception is better than that of the same party. The effect of static and dynamic perception is better than that of the same party. The effect of static and dynamic perception is better than that of the same party. The effect of static and dynamic perception is better than that of the same party. The effect of static and dynamic perception is better than that of the same party. I believe that MOLAR-M03 will be more effective than G6.

Yes, indeed. Well, when it comes to sales and marketing technical approaches, it is quite different between functional or performance-oriented cars versus affordable cars. Now, when it comes to Mona, definitely its capability is more superior to most of the other comparable cars of this class. especially when it comes to static and dynamic perception capabilities. Since our rollout of the car across our different stores since the beginning of August this year, we've received a very unprecedented and very encouraging reception and responses from the consumers, which, again, resonates with what you mentioned in your question. You have to see and feel it to know how good a car it is. So after our official product launch later this month, we plan to not only do a lot of offline sales and promotional activities, but we're also going to do a lot of seeding online as well in order to encourage more customers to test drive it for themselves. And we believe that M03's sales performance will be even more superior than G6 of the same comparable sales periods.

OK, thank you very much. OK, let me add one more thing.

The quality of M03's current static and dynamic experience is very good. After a quick exchange, I believe that the reputation will also promote more people to enter the store to test drive and test drive. I think this is also a very valuable thing. So in economic vehicles,

And also, one thing that I would like to add is that because we are very confident of the performance and capabilities of MLP when it comes to static and dynamic production capability, we believe that once it's launched and officially delivered, word of mouth will serve to our favor, which will also allow more people to become interested in this car and actually test drive it in our dealer shop across the country. and again you know there are a lot of thousand marketing possibilities when it comes to promoting this kind of affordable uh vehicles for the market thank you uh

My second question is, we actually do a lot of inner reform from 2022. And after two years, how do we evaluate our ability in sales and marketing right now? Thank you.

Yes. In the past two years, we have actually changed our planning from product planning to the whole enterprise's production and sales planning and series planning. Then, we have changed the technology in the marketing department. I think today, the marketing department of Xiaofeng has received more testing And in this new competition, I think we have reached a preliminary stage of this transformation, and we are gradually discussing it. In fact, you will see that, including this year's third quarter and fourth quarter, we have a lot of capabilities, not just from the release of new products. New products are just one step away. I think more will come from us as a whole. We have a new strategy and we are in the middle of it. We are making adjustments to the entire logistics and service and insurance logic strategy. We are greatly enhancing the training and training of sales to improve the efficiency and tool ability of the sales personnel in the sales department. So I am very confident that what I just said is just the Chinese domestic sales department system. I think that as we enter the new cycle of Shunfeng in the future, the sales department will continue to strengthen and make it the top level of Chinese cars. This is my goal. Thank you.

Thank you for the question. Two years ago, when we started our reform, we started with our planning, not only when it comes to product launch, but also the planning for the whole business, especially in sales and marketing system as well. And then we break it down to our technological development, our sales and marketing system, our customer services. And right now, I think we've achieved the first stage of success where we actually have different aspects of improvement when it comes to our products and also our competitiveness. And by Q3, Q4 this year, you'll begin to see how it translates into our sales performance. And it's driven not only by our product launch, which we prioritize, but also from a comprehensive development of our all-rounded capabilities, including what we mentioned previously, sales and marketing and also customer services as well. Now, right now across the management capabilities, we also focus on developing our store management across tier 2, tier 3, tier 4 cities. We have implemented some new strategies to better serve our customers after sales and also when it comes to car insurance, etc. We also focus on training our sales staff to improve their overall capability and working efficiency as well. So we're very confident of our future development, not only in China, but also globally speaking. We believe that, you know, this is a midterm. Our target has become, you know, one of the top players in the China auto making industry when it comes to our sales and marketing capability.

Thank you. Your next question comes from Yuken Ding with HSBC.

Hello, Manager Chen. I have two questions. First, I'd like to ask about the foreign exchange rate. Can you tell us about the foreign exchange rate, including the domestic PIPA part, the sales and profit day, in general, and the middle position of our group? And I'd also like to confirm what Brian said earlier. In the first half of this year, the mid-to-low-teen So my first question is about the gross profit margin. So can management help us to break down the overseas margin and also domestic part, especially the wholesale bit? What's the impact of the profitability over there? It's not specific. At least could they give us a little bit reference versus the group average gross paper margin. And also to clarify, Brian shared in the second half of the year, roughly the margin level would be mid to low 10% stay relatively stable. Does that mean the positive benefit of the margin support coming from the software part will largely absorbed by the product mix coming down and also increasing channel discounts?

Yes, this is James. I'll try to answer your question. First, as Brian mentioned, we are expanding on a global basis pretty rapidly, so we would expect the overseas sales both in terms of absolute volume as well as percentage of total volume increasing in the second half compared to the first half. With regard to origin overseas, in conclusion, it is healthy. good margin. When you look at overseas markets, it's quite different when it comes to different countries. And we have different business models in different countries including direct sales model, dealership model, as well as distribution model. So the way to understand margin and income and impact to the bottom line is quite different across these different models. But in sum, I would say from a variable profit or contribution margin perspective for our overseas business, it is quite good and it's helping us to improve the overall profitability of the company. All right. Then your second question regarding the margin trend in the second half, I just wanted to clarify that we didn't really refer to the software margin for the second half, what we were talking about. earlier was a variety of different components that will come into play in the second half, including higher volume, mixed changes in terms of overseas and domestic. Income from the VW collaboration will likely to increase, as well as additional new vehicle models with regard to Mona and P7 Plus. So overall, as I mentioned, the margin will maintain and stable in mid to low tens, but from a vehicle margin perspective, we are anticipating moderate growth compared to what we've seen in the first half. Thank you.

Got it. Thank you. The second question I would like to ask is about the difference between smart drivers. There is a possibility that everyone is brushing up on big data, algorithmic and engineering capabilities. Will the technical function enter a relatively smooth stage? It can be turned on, but it may not be easy to turn it on without thinking about it. If I say that next year is the iPhone time, what will happen to the real point of impact and the way the wave burst? So the second question is really about the autonomous driving differentiation. So autonomous driving technology, everyone is developing that. Everyone is talking about leveraging the big data loop engineering capability and processing powers to get it down. But the industry running into the stage that the technology development curve is running flattish in terms of the development slope. So everyone can do the autonomous driving service, but no one is really sticking out. So if we're talking about next year, it's the iPhone moment, ChatGP moment. So could you help us to envision how the singularity and the breakout could happen Does that mean because we're getting mature in technology, so we're selling more vehicles? Or because of the technology is getting better, we are finding diversified revenue model? Thank you.

It's quite difficult to use non-technological logic. I'll give it a try. In the past, you can think of this driver as a guide with a God-oriented high-definition map to simply use rules to achieve results. The biggest problem is that it has too many unusual scenarios, which is what we call color case, which cannot be solved well. At the same time, the client experience, for example, if you go to make a Chinese drone driver today, many times, The speed is 40 to 50 kilometers per hour. And the cutting and turning is very mechanical. If you look at it with your eyes, it doesn't look like a person. And the logic of the end-to-end is to study the local driver in each area. Remember to be an excellent driver. to drive or to learn how to drive your own car form a very smooth and safe experience. However, it may not be solved in a special scene. For example, a corner may have a lot of stray cats. In this kind of scene, it may not be like In the original automatic driving, he may have set a rule that says that there should be a turn here because there are a lot of stray cats. But in the end, we think that Donald Dunn, in our view now, his speed of progress will quickly defeat the original L3, the Chinese L3 or L4 automatic driving. This is a simple analogy. Thank you.

Well, it would be very challenging for me to try to respond to your questions without involving, you know, technical terms or language, but I'll do my best. First of all, the previous model or technological approach that was widely adopted in industry for ADEF is the so-called all-knowing perspective, relying on high-definition maps and also rule-based architecture to develop their ADEF autonomous driving capabilities. Now, the main challenge for that approach is that you have actually numerous corner cases where you actually have to examine them one by one. And the customer experience, the driving experience itself is not perfect. For example, most of the ADAS vehicles on the market available right now is driving at about 40 to 50 kilometers per hour, and also their lane changes and turn making. it looks very very robotic it's not a human-like kind of driving experience whereas the ai approach our end-to-end ai models approach allow us to actually learn from excellent and i want to focus on the executive here excellent or high quality experienced driver or human-like driver uh someone like yourself you know when it comes to the driving habit and the performance across different areas of the country But obviously, they also encountered a challenge of serving different corner cases because it's not rule-based. For example, if we encounter stray animals, for example, a stray cat in the world, you know, on the road, it's not going to try to avoid it because it's not something that they've learned before. Whereas in a rule-based approach, maybe there is a rule there that states that you have to avoid eating those animals. So there are pros and cons to different approaches, but I believe the development of the capabilities based on these AI end-to-end models is going to be a lot more significant and a lot quicker than the previous rule-based approach. I hope I answered your question.

Thank you.

That does conclude our question and answer session. I'd like to turn the call back over to the company for closing remarks.

Thank you once again for joining us today. If you have further questions, Please feel free to contact Exxon's investor relations team via the contact information provided on our website for the Pearson Financial Communications. Thank you.

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