XPeng Q4 2023 Earnings Call Transcript

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Provided by Quartr
March 19, 2024

There are 10 speakers on the call.

Operator

Hello, ladies and gentlemen. Thank you for standing by for the 4th 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.

Operator

I will now turn the call over to your host, Mr. Alex Shear, Head of Investor Relations of the company. Please go ahead, Alex.

Speaker 1

Thank you. Hello, everyone, and welcome to Xfeng's 4th 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.shapeng.com. Participants on today's call from our management team will include Co Founder, Chairman and CEO, Mr.

Speaker 1

He Xiao Peng Vice Chairman and President, Doctor. 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 and A session.

Speaker 1

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.

Speaker 1

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.

Speaker 1

Please also note that Xtong's earnings press release and this conference call includes the disclosure of unaudited GAAP financial measures as well as unaudited non GAAP financial measures. Xfeng'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.

Speaker 2

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 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 and D, technology driven cost reduction and operational efficiency improvement has begun to yield positive results. In Q4, our gross margin improved to 6.2% with vehicle margin expansion of 10 percentage points compared to the previous quarter.

Speaker 2

Our company achieved a positive free cash flow of more than RMB6 1,000,000,000 for the second half of twenty twenty three and achieved for the first time positive full year operating cash flow. As of the end of 2023, we had over RMB 45,000,000,000 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. In 2024, we will be celebrating the 10th anniversary of our Changbin, and it will also be the 1st year filled with this intense competition in the Chinese automobile industry. Since the Q1 of the year, there has been an industry wide price war, which has been growing increasingly fierce.

Speaker 2

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 rate for smart EVs for the larger wave of growth and intensified price competition, we have adjusted our strategies in a number of fields. We enhanced our organization and efficiency in an all round manner. We made significant improvement in the quality of our operations and fully closed loop customer experience. We built comprehensive competitiveness in products, technologies and supply chain to support our planned larger scale.

Speaker 2

We upgraded our sales and service capabilities in China and overseas markets. We made a full scenario, others 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 ground 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.

Speaker 2

We are about to embark on a strong product cycle and launch more than 10 new vehicle models over the next 3 years, Together with the corresponding left hand drive and right hand drive models for the international market as well as facelifted versions, there will be nearly 30 projects SOP in the next 3 years. Thanks to our strong capabilities to leverage modules and platform and higher efficiency in R and D, incremental R and 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 move vehicle model in more vehicle models with a new business model. Lastly, international expansion opened new avenues for our growth. The upcoming competition isn't solely focused on gaining a larger market share in the short term.

Speaker 2

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, 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, XPeng must continue to make innovative breakthroughs and address any organizational shortcomings. In my view, in the past, we were neither very we never really showed very obvious shortcomings or advantages, but going forward, we will need to address these shortcomings definitely. By 2024, we are looking to take our marketing strategy to the next level by creating a new and potent marketing team. We will upgrade our marketing strategies to leverage advantages of mobile Internet platforms for the automobile sector.

Speaker 2

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.

Speaker 2

Through marketing innovation, we should not only achieve a substantial increase in word-of-mouth in sales leads, but also continuously strengthen XPON's brand recognition as a leader in autonomous driving technology. 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, which included closing over 130 low performing stores and adding over 160 strong franchise partners through our Jupiter projects. Even if these impacts, these are 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 of sales. And we believe that these changes not only improved our sales channel capabilities, but also will help us expand our presence in the 40 new low tier cities.

Speaker 2

In 2024, while we cultivate our new stores, we will continue to broaden our sales network coverage and accelerate the channel expansion in lower tiers markets such as in the 5th and the 6th cities. Our objective is to increase the number of sales of stores to 600 by the third quarter of 2024. Our sales network will continue to grow following the launch of our new brand product. Starting in the Q2 of this year, as our new sales stores are gradually open for business, we will roll out an innovative franchise model. We are asking our franchise partners to take inventory, which is equivalent to their sales in half a month.

Speaker 2

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 franchises sales model. We have brought together our smart technologies, powertrain and vehicle platforms onto a comprehensive intelligent platform to ensure maximum compatibility across various models. By adopting a platform based R and D approach and economies of scale, we can reduce costs in the supply chain and manufacturing processes, which can accelerate our goal of achieving over 25% cost reduction.

Speaker 2

Additionally, this approach significantly improves technology iteration efficiency. From a product planning perspective, both Feng Yin 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 4 and 7 seater vehicles, which appeals to customers who are looking for MPVs and large SUVs. X9 became the best selling model of a BEV with 3 rows of seats in just the 1st 2 months of delivery.

Speaker 2

We expect that the delivery of X9 in March April will continue to increase significantly month on month. Furthermore, we are officially launching a new brand targeting the RMB 100,000 to RMB 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 around competitiveness, including high level adders 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 adult experience at this range.

Speaker 2

After 10 years of preparation, today, we are finally ready. Our new brand is committed to building the 1st 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 Q3, we are confident that it will be the most striking and sought after A Class BEV model in this segment. Furthermore, we will introduce multiple models on this platform in China and overseas markets in the coming future.

Speaker 2

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 that we launched this year to 3 and will unveil more new products. 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 and 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.

Speaker 2

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 Q2 of this year, we will achieve the mass production of AI enabled ADAS with large model capabilities. This will be the 1st 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.

Speaker 2

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. Earlier this year, we introduced the X NGP add us to all our users across 200 of cities nationwide. XNGP Addus enables intelligent driving on urban roads. In February, XNGP's monthly active user penetration rate reached an impressive 83%.

Speaker 2

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, X NGP helped our car owners drive over 70,000,000 kilometers. The average daily utilization rate of XNGP on highways and in urban areas reached 67% 49%, respectively. To take our XNGP 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 the Weymouth robotaxi experience in San Francisco.

Speaker 2

As our adults 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 ex NGP related hardware costs by 50%, starting with the 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. 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 twenty twenty three, we launched the G9 into the Northern European market, and we were thrilled to receive a tremendous response.

Speaker 2

Within just 2 months of its launch in Norway, Denmark, the XPeng G9 became the best setting 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 Q2 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 best seller 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. We have achieved significant milestones in our strategic cooperation with Volkswagen Group.

Speaker 2

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 gross margin. We have created an innovative business model in the automotive industry, generating excellent returns on our R and D investment in electrification, intelligent driving and AI technology. XPeng and Volkswagen have formed a long term strategic alliance with complementary strength and mutual benefits.

Speaker 2

Going forward, we will work together to unleash greater strategic synergies and address industry shifts and challenges. We have proactively started a new round of transformation to strengthen our competitiveness since the Q4 of 2023. We focus more on marketing on short video platforms, while cutting inefficient marketing spending on sales leads. We phased out a number of underperforming sales stores, and we adapt our supply chain and production to an intensive 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 Q1, Taking challenges both internally and externally into consideration, we now expect our total vehicle deliveries to be between 21,022,500 units in the Q1 of 2024, up 15.2% to 23.4% year over year.

Speaker 2

We expect our first quarter revenue to be between RMB5.8 and RMB6.2 billion, up 43.8 percent to 53.7 percent 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 Q2 and second half of the year. We expect the growth in deliveries in Q2 of 2024 will increase significantly on both the quarter on quarter and year on year terms. Thank you, everyone.

Speaker 2

With that, I will now turn the call over to our VP of Finance, Mr. James Wu, to discuss our financial performance for the 4th quarter of 2023.

Speaker 3

Thank you, Xiaofeng. Now let me provide a brief overview of our financial results for the Q4 of 2020 3. I'll reference RMB only in my discussion today unless otherwise stated. Our total revenues were RMB 13,050,000,000 for the Q4 of 2023, an increase of 153.9% year over year and an increase of 53% quarter over quarter. Revenues from vehicle sales were RMB 12,230,000,000 for the Q4 of 2023, representing an increase of 162.3 percent year over year and an increase of 55.9% quarter over quarter.

Speaker 3

The year over year and quarter over quarter increases were mainly attributable to the accelerating sales growth of the G6 and G9 in the Q4 of 2023. Gross margin was 6.2% for the Q4 of 2023 compared with 8.7% for the same period of 2022 and negative 2.7% for the Q3 of 2023. Vehicle margin was 4.1% for the Q4 of 2023 compared with 5.7% for the same period of 2022 and negative 6.1% for the Q3 of 2023. The year over year decrease was explained by, 1st, 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.

Speaker 3

R and D expenses were RMB 1,310,000,000 for the Q4 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 and A expenses were RMB 1,940,000,000 for the Q4 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. Furthermore, the quarter over quarter increase was also due to higher marketing, promotional and advertising expenses to support vehicle sales.

Speaker 3

As a result of the foregoing, loss from operations was RMB 2,050,000,000 for the Q4 of 2023 compared with RMB 2,520,000,000 for the same period of 2022 and RMB 3,160,000,000 for the Q3 of 2023. Fair value gain on derivative liability was RMB 0,560,000,000 for the Q4 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 and loss, resulting in a noncash gain of RMB 0,560,000,000 in this quarter. On December 6, 2023, the transaction was successfully completed.

Speaker 3

Net loss was RMB 1,350,000,000 for the Q4 of 2023 compared with RMB 2,360,000,000 for the same period of 2022 and RMB 3,89,000,000 for the Q3 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 cash had our company had cash and cash equivalents, restricted cash, short term investments and time deposits in total of RMB 45,700,000,000. This will be a strong foundation to support our growth strategy in the years to come.

Speaker 3

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 Q4 and full year 2023 financial results. This concludes our prepared remarks. We'll now open the call to questions. Operator, please go ahead.

Operator

Thank Your first question comes from Tim Zhao with Morgan Stanley. Please go ahead.

Speaker 4

So my first question is about the product strategy, because XGen plans to launch about 13 new models and facelifts in the next 3 years, which implies the company will have new model coming in the market basically every quarter starting from the second half 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 lineup? As over the past few years, we noticed that whenever Xtra launched the new cars, the sales of the old model always decline. So how should we avoid that? That's my first question.

Speaker 4

Thank you.

Speaker 2

Thank you very much for your question and that is a great question. So exactly in 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 the planning and that involves the planning for products, the technology, supply chain, as well as the manufacturing and the launches of the products. And if one would like to do this, usually the preparation should really start 2 to 3 years beforehand. And this would involve, for instance, looking at the price range, the size of different cars, the capabilities and as well as time lines.

Speaker 2

So especially with our brand new products and these products and for instance, certain products that 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 we organized the team 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 1 architecture, 2 powertrain and 2 autonomous driving system, 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 demand 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 digital process in place to make sure that all the processes are done and followed exactly the same to ensure quality improvement, production improvements, efficiency improvement as well as cost reduction. You will be able to see after Q3 of this year and we will have different launches.

Speaker 2

And this is something that we have done for the past 12 to 18 months. And as I have said, this would be, 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. In my financial report and the 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.

Speaker 2

And to respond to the second part of your question and which was about from a marketing perspective and how to avoid cannibalization. And basically, starting from end of last year, and we have already put in together this ex NGP 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.

Speaker 4

So my second question is about the competition. As we noticed that competition on the vehicle prices and new products has been getting fiercer year to date. In addition to the increase in new models in the second half of this year, how will you expand react to the price wall and in the meantime effectively increase sales of existing models? That's my second question. Thank you.

Speaker 2

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 the competition. And for us, really, to answer your question from 2 perspective, and the first one is from a macro perspective,

Operator

and I

Speaker 2

think it's really important about building up the systematically 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.

Speaker 2

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 the service capability. As I talked earlier, last quarter of 2023, we had terminated 130 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 3rd and the 4th tier cities.

Speaker 2

And thirdly, it is about the functionality and the capability your product. And so from the micro level, it is all about marketing plus sales plus service and plus your product.

Speaker 4

Thanks for sharing all the details. Thank you.

Operator

Your next question comes from Ming Sun Lee with Bank of America. Please go ahead.

Speaker 5

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?

Speaker 6

Ming, this 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're also entering into the joint procurement program that we will jointly procure the components for both our models on top of the G9 platform and also the Volkswagen's models building on our GM G9 platform. I will say that that's a very high degree of the platform and the component sharing.

Speaker 6

And through the joint procurement program also leveraging Volkswagen's world class supply chain capabilities, we have seen the initial good results coming out of 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 last point is that, as Xiaopeng mentioned in his remark, the revenue generating from the platform software services will start to kick in from 2024. And it is the recurring once it started to recording our P and L, it will be a recurring revenue and will have meaningful impact meaningfully positive impact to our GP margin. And so it will continue to give us the positive contribution to our profitability.

Speaker 5

My second question is related to your Mona project product. So how do you think about your integration level between Xpone 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 2C model? And also lastly, is the autonomous driving functions provided by Mona similar to X Pilots 3.5?

Speaker 7

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, 1, we think it's a very well designed product, has, I think, I would say, best in class design as well as in some of the functions, especially as related to smart functions.

Speaker 7

We think it will have differentiation compared to similar products in this category. At the same time, we have done a lot of effort, try to make sure the product is also very competitive from both cost as well as competitiveness in terms of the focusing on both 2C and 2B channels. So needless to say, we have high hopes for this mona product. And also, in terms of strategy, we think it will have actually the dual prong 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.

Speaker 7

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 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.

Speaker 7

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.

Speaker 5

Thank you, Brian.

Operator

Your next question comes from Bin Wang with Deutsche Bank. Please go ahead.

Speaker 8

My question is about the full year 2024 volume target. So the media report that your target is 260,000 to 280,000 units. Is that in the lower 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 prior monthly 25,000. So if you where you can achieve 25,000 units is true.

Speaker 8

Secondly, do you actually got some commitments from Didi to ascertain to be from MOLA and how much volume from the export? Thank you.

Speaker 7

Bing, it's Brian again. I think good try, but I think as usual, we do not give specific annual guidances on delivery numbers as 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 market in our sort of growth rate, and I think we will be gaining significant market share increases. That's our expectation.

Speaker 7

We also think this year will be similar to last year in terms of 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 speed 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 3rd Q4. For Mona, I think it's 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 Q3 in terms of delivery. And also for the 2B channel, we'll probably be a few months behind.

Speaker 7

We do not have 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 months type of scale to be successful. So obviously, at a steady state, we think Mona should be achieving that level of sales. So again, I think I don't have a specific numbers, but you can tell that this is how we envision the full year delivery will look like what? Let me just comment on that.

Speaker 7

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 1,000 of sort of delivery from an international sales.

Speaker 8

In the recent conference over the weekend, while we said that Exane is the distributor leader in the thumb striping, however, while we want to make a situation change, Can you describe what's the technology differentiation between the XBAN technology and Huawei and how you maintain the leadership? Thank you.

Speaker 2

Thank you very much for your question. Actually, when Mr. Yu Zhengdong from Huawei was making this statement, I happened to be among the audience, and I was sitting down, stairs 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.

Speaker 2

I would say that both companies have our unique advantages. And for XPeng, and in terms of what we have done and 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 4 areas that would really be very important. And number 1 would be the capability or functionality of your car. 2nd would be safety.

Speaker 2

And thirdly would be the cost of the vehicle. And the 4thly 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. And however, in terms of the general public demand, it is not quite yet met. And this is something that we need to work hard on in the next 18 months.

Speaker 2

And we can see that, for instance, in terms of the application in all areas, and all round application and the cost reduction, as well as more marketing work started 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 become bring great benefits to the industry. And since the Q1 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.

Speaker 2

Thank you.

Speaker 8

Thank you very much.

Operator

Your next question comes from Tina Hu with Goldman Sachs. Please go ahead.

Speaker 9

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 be 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?

Speaker 2

Thank you very much for your question. With respect to the new brand and for the new brand, we will be launching them into our existing stores and we will have independent exhibition halls for the new brands. And in the future, we are also looking at building more dealerships and more 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.

Speaker 3

Yes. 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.

Speaker 3

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.

Speaker 3

Eventually, we expect relatively lower sales associated sales cost for Mona compared to Shelton brand overall.

Speaker 9

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 expects 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.

Speaker 2

That is an excellent question and thank you for putting this forward. 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 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 and 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, privately private Chinese companies which are listed and those are the ones who can also provide us with certain flexibilities.

Speaker 2

And 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, and we now have standardized modules. And generally speaking, we have about 1 to 2 partners who provide us with these modules that can be used in quite a broad spectrum of different models of cars. And this will improve the a in terms of supply chain management team, we have also done work to adjust our existing supply chain management team and in terms of the organizational structure and we now have a new system in place and internally our company have the determination that we are ready and for all of these products to be launched and for the 1st 3 months, and we want to make sure that we will achieve a very good scale of sales.

Operator

Your next question comes from Xinqi Yin with Citi Securities. Please go ahead.

Speaker 7

On last year, you mentioned that 2027 will be a critical year for autonomous driving in China, where we will probably witness 30% of car in China will adopt for the autonomous driving. I was wondering what is your latest view on that? And could you possibly share the theory behind your estimation? Thank you.

Speaker 2

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 the last year. And first of all, in terms of the large model and being adopted in ADAS system 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. Secondly, and we know that in terms of hardware cost and for XPON, 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.

Speaker 2

And not only just that, for others, XPONE believes that, and we like to see the cost to come down. And we also see out there in the market that there are other people providing even cheaper solutions. And what we have discovered is that with the large model OEMs, 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 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 so we have a lot of confidence in this. Apologies.

Speaker 2

And I have one last point to add and which is that in terms of the non HD map and we in the beginning and when we looked at this and we thought that yes, it will 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 will help again with the large model and its adoption and helping further advancing the ADAS and autonomous driving.

Speaker 2

Thank you.

Speaker 7

I'll let you hear me.

Operator

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.

Speaker 1

Thank you once again for joining us today. If you have further questions, please feel free to contact Xpeng's Investor Relations through the contact information provided on our website or the Pearson Financial Communications.

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Earnings Conference Call
XPeng Q4 2023
00:00 / 00:00