XPeng Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 21, 2024

There are 11 speakers on the call.

Operator

Hello, ladies and gentlemen. Thank you for standing by for the Q1 2024 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 Xie, Head of Investor Relations of the company. Please go ahead, Alex.

Speaker 1

Thank you. Hello, everyone, and welcome to Xpeng's Q1 2024 earnings conference call. Our financial and operating results were issued via Newswire services earlier today and available online. You can also view the earnings press release by visiting the IR section of our website at ir.xiaopeng.com. Participants on today's call from our management team will include our Co Founder, Chairman and CEO, Mr.

Speaker 1

He Xiao Peng Vice Chairman and President, Doctor. Brian Gu Vice President of Corporate Finance and Investments Mr. Charles Zhang, 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 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 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.

Speaker 1

Please also note that Xpeng's earnings press release and this conference call include a disclosure of unaudited GAAP financial measures as well as unaudited non GAAP financial measures. Xpeng's earnings press release contains a reconciliation of 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

Good evening, everyone. In the Q1 of 2024, XPeng announced the delivery of a 21,821 smart EVs, marking a 20% year over year increase. Notwithstanding significant market competition, our Q1 gross margin expanded substantially to 12.9%, doubling from the previous quarter with an increase of 6.7 percentage points. This development underscores Xpone's innovative approach to enhancing profitability and international market potential through the provision of smart technologies based on its smart EV business. This has created a completely new unique model.

Speaker 2

Over the past decade since its inception, XPON has consistently made a robust investment in R and D for smart EV platforms, electrical electronic architecture and advanced driver assistance systems or ADAS for short. These strategic investments are now yielding positive financial outcomes. As artificial intelligence continues to redefine the auto industry in China and globally, XPeng has been at the forefront of exporting its in house and developed smart technologies, resulting in significant recurring revenue and profits. This achievement is poised to profoundly impact the company's profitability model in setting confidence in paving the way for further technical advancements as XPeng continues to lead the technology transformation within the automotive sector. At the end of Q1, we had RMB 41,400,000,000 in cash.

Speaker 2

With our significantly improved gross margin, this healthy cash position allows us to concentrate more on strategic initiatives for the future. Our strategic transformation is not solely focused on boosting sales volume as the past. We are also dedicated to achieving excellence in quality, efficiency and overall enhancement of the company's competitiveness. By leveraging our strength and addressing any weaknesses, our goal is to become well rounded and pursue larger scale and profits in the long run. I am very delighted to say that we have been able to start this thinking and have this vision much earlier on than our peers.

Speaker 2

Moving forward, we will vigorously drive this transformation whilst accelerating crucial talent recruitment and improving organizational effectiveness and strategic execution. We have confidence that with our hyper integrated comprehensive intelligence technology platform, XPeng is well positioned to efficiently launch highly competitive models worldwide and lead the widespread adoption of AI powered smart cars. Since the beginning of 2024, XPeng has been actively recruiting top talent in other R and D, brand marketing, style design and other key areas. We will soon introduce them to you. Our goal is to rapidly elevate our marketing, customer experience and design capabilities to industry's most cutting edge levels.

Speaker 2

This will enable us to effectively translate our advanced technologies into compelling product experiences and utilize the marketing strategies to better communicate the value of our technology to customers. With our weaknesses properly addressed, our industry leading AI capabilities, comprehensive R and D framework supporting rapid global scalability and customer oriented product design will better serve as the competitive edges that set us apart and drive our success. During the Q1, the X9, our largest 7 seater flagship model emerged as a top seller in the pure electric MPV segment as well as the pure electric 3 row model segment following its market launch. The success of the X9 firmly establishes product innovations and technological advancements as our most effective competitive edges. Moving forward, we will confidently build on this success to enrich our premium product portfolio.

Speaker 2

Our aim is to provide family customers with the most advanced smart EV technologies in large vehicles, delivering styling, space, comfort and opulence akin to luxury cars priced above RMB1 1,000,000. In the Q3 of this year, we will embark on an extensive product launch cycle, introducing a number of new models within the next 3 years. These models will cover major product segments ranging from RMB 100,000 to RMB 400,000. Like the X9, our new models will come with disruptive innovations to target new segments. All products will feature cutting edge ADAS technology and with the various product series, we will cater to diverse customer needs in pricing and design, both home and abroad.

Speaker 2

We are committed to establishing a Volkswagen like super brand in the EV space with a global market presence and a wide ranging product portfolio that caters to broad customer groups, ultimately bringing AI powered vehicles into the mainstream. Our new A Class electric Sedan, the first model of our Mona series of products will debut in June and officially launch and commence mass delivery in the Q3 of this year. This groundbreaking product boasts exquisite styling, advanced intelligence and highly competitive cost structure, making it a potential favorite among younger consumer groups within the RMB200000 price range. We are confident that it will set the standard in the A class BED market. Over the next 2 years, we will introduce several additional products based on the ACOS platform.

Speaker 2

In addition, we are determined to target RMB100000 to RMB200000 price segment, where the highest sales volume is with our high

Speaker 3

level

Speaker 2

In the upcoming Q4, we will be launching a new XPeng branded B Class battery electric sedan. We have successfully achieved a 25% cost reduction through technological advancements for the first time with this model. We expect it to become a best setting B Class and BEV model in the second half of this year. With the incremental volume from this new B Class model and Mona, we are confident of substantial year over year growth in monthly delivery volume in the 4th quarter. On AI Day, May 20, we began the full scale rollout of our AI powered in car operating system XOS 5.1 or AI 10 gs OS.

Speaker 2

This cutting edge large model built system seamlessly integrates AI technology into smart cockpit and others. XOS 5.1 is available to all owners of our major models, solidifying Xpone's position at the forefront of the non HD map and end to end AI model applications in China and in China's auto industry, which means our technology architecture is 1 or 2 generation ahead of our competitors without using any of these HD maps and which also means that by Q3 of this year, ex NGP not only would be able to roll it out in all the national roads and we would be able to drive on all the roads around China and from end to end to half this in all the cars, which means that going forward in terms of autonomous driving capabilities in each quarter, we would be able to see exponential times of improvement. And this would mean that in terms of the old way of human made method of rules and coding method, this will be revised into the training of models and based on the algorithms. We aim to have XMGP accessible on all the roads nationwide by 3rd of the quarter, as I have said.

Speaker 2

And our end to end AI model will enable us to rapidly announce our software and AI technology on a monthly basis. And we predict that by the end of 2025, we will be able to elevate the city road address experience into much of that of the current highway NGP, which means only one manual takeover per 100 of kilometers of driving. Our SMTP is expected to achieve driving capabilities that are equal to or surpass those of the human drivers in complex scenarios. This will soon be possible as our ADAS technology architecture is powered by advanced end to end AI model with extensive training using massive amounts of high quality data underscoring our competitive edge in data. With our B class sedan model commencing delivery in the second half of this year, broader customers base will soon have access to AI powered ADAS features.

Speaker 2

The widespread adoption of a high level ADAS will accelerate and rapidly scale up our X NGP fleet, which in turn will generate a tremendous amount of data to expedite AI model training and iteration. Large AI models will bring our owners an unprecedented AI powered driving experience, boosting the penetration of its smart EVs equipped with high level auto features. Regarding the international market, this year, we will expedite our expansion into drive sales and profit growth. We plan to expand our overseas sales network from Nordic countries to over 20 countries worldwide. In the first half of twenty twenty four, we established partnerships with the leading auto dealership groups in Western Europe, Southeast Asia, the Middle East and Australia.

Speaker 2

New sales stores have gradually opened under these partnerships. In early April, we shipped nearly 1,000 G Lines worth over RMB 500,000,000 to Europe. In May, we announced the selling price and started accepting preorders for the G6 model with a left hand drive in Europe. We plan to introduce the right hand drive G6 in the Q3. Highway MGP test in the overseas markets are progressing well too.

Speaker 2

Our product strength such as ultra faster charging and smart technology are highly valued by overseas dealers and consumers. Xpeng is confidently positioned as a mid to high end tech savvy brand in international markets, offering superior product experiences and eco friendly smart EV models. Our strategic partnership with the Volkswagen Group is rapidly deepening and expanding. Within just 1 year of establishing our partnership, on April 17, we announced our 3rd strategic cooperation project with Volkswagen. This project involves the joint development of industry leading EE architecture for Volkswagen's EV platform designed for the Chinese market.

Speaker 2

This platform, which will be applied to China produced Volkswagen branded EV models starting from 2026, will integrate XPeng's latest generation of EE architecture based on centralized computing and domain controller technologies. We are confident in our ability to leverage a more mutually beneficial cooperation opportunities with Volkswagen and create significant strategic synergies as we lead the global automobile industry's transition into the AI powered driving era. Since the Q1 of 2024, our platform and software services have become a significant driver of our earnings. This clearly showcases XPoint's innovative and unique business model, setting us apart from the traditional auto companies. Our cutting edge smart technologies not only enhance monetization through Point's branded EV sales, but also through partnership with a world leading auto OEM.

Speaker 2

This will result in an expanded market presence and increased financial returns for our company. I would like to reiterate in this ultra competitive market, we should not only have our eyes on the scale of the sales, rather to focus on becoming a well rounded player in the market. Despite the headwinds in the auto market in the Q2, we have already observed a positive impact from our ongoing organizational and transformative changes. That said, we anticipate that the total delivery volume will range between 29,032,000 units in the Q2 of 2024, reflecting a year over year increase of 25% to 37.9 percent and a quarter over quarter increase of 32.9 percent to 46 point 6%. Furthermore, we project that our 2nd quarter total revenue will fall within the range of RMB7.5 billion to RMB8.3 billion, representing a year over year increase of 48 0.1% to 63.9%.

Speaker 2

We anticipate witnessing more transformation driven results in the latter half of this year. Starting in October, we will be poised to enter a fast track growth phase, confident in achieving significant breakthroughs in sales volume, margins, cash flow and AI powered ADAS system, and this is for the long run into the future as well. Thank you, everyone, again. With that, I will now turn the call over to our VP of Finance, Mr. James Wu, to discuss our financial performance for the Q1 of 2024.

Speaker 4

Thank you, Xiaopeng. Now let me provide a brief overview of our financial results for the Q1 of 2024. I'll reference RMB only in my discussion today unless otherwise stated. Our total revenues were RMB 6,550,000,000 for the Q1 of 2024, an increase of 62.3 percent year over year and a decrease of 49.8% quarter over quarter. Revenues from vehicle sales were RMB 5,540,000,000 for the Q1 of 2024, representing an increase of 57.8% year over year and a decrease of 54.7 percent quarter over quarter.

Speaker 4

The year over year increase was mainly attributable to higher deliveries, particularly the Model X9 in the Q1 of 2024. The quarter over quarter decrease was mainly attributable to lower deliveries of the G6 and the 2024 G9 compounded by seasonal impact, which is partially offset by contribution of the X9. Revenues from services and others were RMB 1,000,000,000 for the Q1 of 2024, representing an increase of 93.1% year over year and an increase of 22.1% quarter over quarter. The year over year and quarter over quarter increases were primarily attributable to the increases of revenue from technical research and development service related to the platform and software strategic technical collaboration with the Volkswagen Group. Gross margin was 12.9% for the Q1 of 2024 compared with 1.7% for the same period of 2023 and 6.2% for the Q4 of 2023.

Speaker 4

Vehicle margin was 5.5% for the Q1 of 2024 compared with negative 2.5% for the same period of 2023 and 4.1% for the Q4 of 2023. The year over year and quarter over quarter increases were primarily attributable to the cost reduction and the improvement in product mix of models, partially offset by the inventory provision and losses on purchase commitments related to the Model P5 with a negative impact of 3.2 percentage points on vehicle margin for this quarter as management lowered the P5 forecasted sales due to the expected stronger market demands for the upcoming new vehicle models. R and D expenses were RMB 1,350,000,000 for the Q1 of 2024, representing an increase of 4.2% year over year and an increase of 3.3% quarter over quarter. The year over year and quarter over quarter increases were mainly in line with the timing and progress of new vehicle programs. SG and A expenses were RMB 1,390,000,000 for the Q1 of 2024, which is flat on a year over year basis and a decrease of 28.3% quarter over quarter.

Speaker 4

The quarter over quarter decrease was mainly due to lower commissions to the franchise stores and lower marketing, promotional and advertising expenses. Fair value gain on derivative liability relating to the contingent consideration was RMB0.18 billion for the Q1 of 2024 compared with RMB0.03 billion for the Q4 of 2023. This noncash gain was resulted from the fair value change of the contingent consideration related to the acquisition of Didi's Smart Auto business. As a result of the foregoing, loss from operations was RMB 1,650,000,000 for the Q1 of 2024 compared with RMB 2,590,000,000 for the same period of 2023 and RMB 2,050,000,000 for the Q4 of 2023. Net loss was RMB 1,370,000,000 for the Q1 of 2024 compared with RMB 2,340,000,000 for the same period of 2023 and RMB 1,350,000,000 for the Q4 of 2023.

Speaker 4

As of March 31, 2024, our company had cash and cash equivalents, restricted cash, short term investments and time deposits in total of RMB 41,400,000,000. 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 Q1 2024 financial results. This concludes our prepared remarks. We'll now open the line to questions. Operator, please go ahead.

Operator

Please immediately repeat your question in English. For the sake of clarity and order, please ask one question at a time. Management Your first question comes from Tim Zhao with Morgan Stanley.

Speaker 5

So my first question is about the revenue contribution from the collaboration with Volkswagen. Can management roughly quantify the contribution of the service revenue from Volkswagen in 1st quarters and we know that it's a recurring. So will it continue climbing quarter over quarter in the following months? Is there any chance that the revenue front, the new agreements related to the E architectures could also come through within the year? So that's my first question.

Speaker 5

Thank you.

Speaker 6

Hi, Tian. This is Charles. So the platform software collaboration revenue from Volkswagen has been recorded in the service and other revenue in Q1. As you know that it is recurring in nature. So I think that going forward, every quarter, we will be able to book such platform software technical services revenue.

Speaker 6

So in Q1, we booked multi RMB100 1,000,000 platform software Services revenue. And I think we believe that in the subsequent quarters, such revenue will be more than what we booked in Q1. And so obviously, I think that given the nature of the platform and the software revenue, it is very high margin business for us. And we believe that with our vehicle sales business and also the platform and software technical services revenue, our company level GP margin can be sustainable at the lowtomidteens GP margin percentage GP margin. And therefore, I think that we as Xiaofeng pointed out, that we created a very unique business model in the auto industry.

Speaker 6

In addition to that, and we will continue to deliver our cost reductions through technology and also the supply chain and to further improve our vehicle GP margin. To address your question regarding the revenue from the EE architecture and we expect that the revenue from the EE architecture will start to be recognized from the second half this year.

Speaker 3

Thank you.

Speaker 5

Got it. Thank you very much, Charles. So my second question is about Tom's writing, because we noticed that experience to leverage end to end large model to upgrade ex NGP by Q3 of this year to cover basically overalls in China and with achieve a level 4 vehicle economy next year. So to achieve that targets, should we expect Xpeng to meaningfully increase R and D spending during the period? And when do you think such technological leadership can translate into upside to new car sales or potential monetization opportunity?

Speaker 5

That's my second question. Thank you.

Speaker 2

Thank you very much for your question. And before I answer your question, there's one correction to make, which is that we hope to achieve the ability of L4 next year. However, we know that being able to actually implement that, we would also need to have the hardware as well as the rules and regulations to catch up. So that's point 1. And point 2, with respect to the large models, and we know that AI large models is going to have a huge impact on all the companies involved.

Speaker 2

And therefore, as we say, in the past, in terms of the rules and regulations people have, and those need to change. And the large models will actually generate these new rules. And thirdly, we don't actually need to increase our manpower at the moment, and we have about the same amount of people working continue to work on globalization. In terms of how fast it's going to take or what the speed is going to be like, I would say that it's hard to say, it's hard to quantify. In the past, when we relied on human power, and one would be able to say how many people we would need, how much time we would need.

Speaker 2

However, with a large model models and it's about the scale, the algorithm and the speed, etcetera. And my original thinking was that it's going to be the latter half of twenty twenty five. And now, with the fastest development of the technology and AI, and I think that it would be earlier than 2025 or possibly next year. So we'll wait and see.

Operator

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

Speaker 7

So my first question is related to more details of your new product pipeline. So in the second half, you will have 2 products. The first product is related to Monarch project. So could you give more details regarding the launch timing for the 2B version and also the 2C version? And for the next year, the product pipeline, could you also give some guidance regarding the numbers of your mono brand product and also your Xpeng brand product?

Speaker 2

Thank you for your question. And first of all, in terms of all our car models and the mainstream offer that we bring to the market would still be for the 2C market and the to be market is not really our focus, including Mona. And for Mona, this brand and as we say, because that's what we are looking at is to building this to the most beautiful and aesthetic cars out there in the market. Therefore, we do not really see this having too much, let's say, big penetration rate into the 2B market. And secondly, starting from Q3 this year, following onwards and in each different quarters, we will have different car models being launched in the market.

Speaker 2

And some quarters, perhaps there will be a few more different models. And in certain quarters, perhaps this will be simply an updated version of an existing model or a mixed version model, so to speak. And starting from 2024 to 2026, we will continue to roll out different car models into the market. And in terms of the specifics, I don't think that I'm in a position to release further details to the market at the moment and our plans, as you have already heard in my previous presentation. So the second part of my answer to your question and for the Mona series and actually going forward and next month, we will have more to share with the market in terms of our thinking about this series.

Speaker 2

And as I said before, for Mona series, we are looking at building a car that is the most beautiful and the most aesthetic on the external. And in addition, we also hope that this is a car that will bring the company good amount of profits, and it will also cover various grades of intelligent or autonomous driving. And we hope that in the past for autonomous driving, it was mainly for the cars in the price range of above $200,000 With Mona Series, we hope to bring the autonomous driving into the car with a price range of within RMB 100,000.

Speaker 7

So last week, S10 brand officially entered Hong Kong market and also in the next few months Xpeng will enter more and more countries, especially South Asia. So right now, based on your product launch in overseas market and also the progress of entering a new market, Right now, are you ahead of your original target, which you mentioned that the total volumes will be a few times more than 10,000 units. And will you incur more R and D expense because you will also provide ex NGP functions in the overseas market?

Speaker 8

Ming, it's Brian. Let me address your question. First of all, regarding our overseas plan, I would say this year, we are, as you can see, accelerating our pace of international development. We are targeting to roll out to more than 20 countries with our industry leading technology advanced EVs. The exact number of markets obviously also correlates to the type of models that we're going to make available to these markets.

Speaker 8

For example, right now, in Europe, we're already selling the G9 and P7. We are launching the Lepan drive in G6 this month. We'll hopefully deliver very soon. In other markets, for example, in Southeast Asia and as you point out, Hong Kong, we're launching the right hand driving G6, I would say, probably in a couple of months. And also, we'll probably be followed with the right hand drive being X9 to be delivered probably by the end of this year or early next year.

Speaker 8

So as you can see that the whole international expansion is on track. We think the original guidance we gave in terms of number, in terms of tens of thousands as well as this quarter, we would like to achieve more than 10% of our overall delivery number still valid. So those are the right guidances we want to give on international expansion. And regarding the technical XNGP related smart driving technology, we are actively now testing a number of overseas markets, currently also working with regulatory bodies to make sure that this compliance with and also developing regulations in these markets. The development is actually not going to make material increase in our overall R and D.

Speaker 8

First of all, I think we are still very targeted in the number of markets that we want to bring the subsets of our XC NGP capabilities. But again, also to echo what Xiaofeng just mentioned, our capability of development also has been increasing now with the help of AI and large model capabilities and also removing the need for the map as well as using the large language model to accelerate the development in different scenarios also will benefit our development overseas. So in all, I think we will look forward to seeing some of these capabilities being made available by later this year as well as early next year in some of the overseas markets. And also at the same time, we don't see material increases of R and D expense because of that effort.

Speaker 7

Thank you,

Operator

Brian. Your next question comes from Bin Wang with Deutsche Bank.

Speaker 3

My first question is about number 4 quarter this year. You're actually very confident about the number 4 quarter this year. If you just say that the volume will have very high growth, if we will assume there will be, say, 50% growth and last year in number 4 quarter monthly volume will be 20,000. So if it was 30,000, what's the breakdown between the existing products on upcoming Mona and the F57 large sales today. Meanwhile came common about the margin because we see 3 out there for the margin.

Speaker 3

Number 1 is the cost reduction. 2nd is the export, generally have a higher margin and still one additional EA income from Volkswagen. So is that gross margin close to 15%? Thank you.

Speaker 8

Hey, Bing, it's Brian. Let me just respond. First of all, in the Q4 of this year, you will see that our Mona product will be in full delivery and also we'll be launching the delivery of our the B segment sedan. So those two products will contribute very meaningfully into the monthly delivery in the Q4, but at a very different at a different stages, as you can tell, because the starting of the delivery is different. So we are very excited about the prospect of both products in terms of generating significant volume.

Speaker 8

I would say the I would say assuming both models are in full delivery months, I think the monthly numbers we anticipate simply increased over last year's comparable monthly delivery number is achievable. That's what we believe. Again, I'm not going to give you the exact number as well as breakdown, but that's how we envision the delivery number of growth. But also what I want to emphasize is that, as you just heard that these two products is only the beginning of our super product cycle that will last probably for the next 18 to 24 months. And also, because the early next year and we will also have additional products as well as updated models to be launched in the subsequent quarters.

Speaker 8

We want to make sure that the growth profile maintains stable as well as under control. So we actually want to make sure the additional volume that we want to achieve on a monthly basis is growing in a more stable and sequential manner rather than episodical big bursts like some other model launches you've seen. So I think that's kind of probably lasts until the remaining of next year, given the other models will later hopefully will give you a prelude in the next few quarters of earnings. In terms of margin, I would like to comment. First of all, I would say the Mona model, even though it's an A Class sort of sedan, we are still anticipating healthy positive margin contribution from this model and also in healthy quantities.

Speaker 8

For the B segment sedan, we think it's going to be higher margin than probably our current models except the X9. So both will contribute, I would say, materially to the product profit mix gross profit mix. And also, as Charles mentioned, the contribution from Volkswagen will continue, become a steady recurring income. At the same time, we anticipate additional contribution from EA collaboration. So with all these contribution as well as our sort of view currently on the potential gross profit margin for the new products.

Speaker 8

We are maintaining healthy mid to lowtomidteen margin gross profit for our overall business by the end of this year.

Speaker 3

And the second question is that we do see our peers actually launched the EIB version and then won't have a big increase. What's our plan for our powertrain? Will you also launch the ENV version for the products? Thank you.

Speaker 2

Thank you for your question. And generally speaking, we would not be very willing to disclose any information in relation to our product designs because it is simply still in the planning stage. And going forward, this is something that we would be looking at being implemented in our flying cars. And in terms of the BEV, and I can say that, so for the flying party and the auto party, it will be BEV. And so for the further details, it is better that we wait until the product actually becomes more concrete when we have more detailed plans and more ready to share with the Thank you.

Speaker 2

So please allow me just to supplement a few points. And my first point is that, yes, indeed, in the past one year and in the next year to come, we will see that there is quite a lot of demand coming from the market, from the consumers for PHEVs. However, you will see that a lot of these consumers, they will realize that despite having a PHEV and out of a year, in terms of the times that they actually go to the petrol station and to get it filled up, it's very little, only just a few times. And by having this experience, more and more consumers actually have more confidence in BEVs and pure electric vehicles, so to speak. And at the moment, we are also working hard on the construction and the building of our Ultra X5 series of products.

Speaker 2

And I do believe that for consumers having experienced PHEVs and for the next car model and it is very likely that they will go for In addition, in terms of the technology and the movement from these cars and into BEDs actually is quite a jump into in terms of the technology. And you can also see if we look at it globally and for instance, in certain countries in Asia versus certain countries in Europe or in elsewhere, and sometimes certain cars could only run on a certain path or certain road, etcetera. And we do think that it is not as simple, it is not as straightforward as what we hear from the market. And we do think that we would need to be very cautious and we need to maintain very vigilant. And for XP, obviously, we will also continue to watch this space very carefully.

Operator

Your next question comes from Paul Gong with UBS.

Speaker 9

So my first question is regarding the end to end big model. There has been some feedback in the industry saying that it involves uncertainty in terms of the decision making. And also, it makes it more difficult to figure out why the decision was made in that way. And also, the feedback is when the model becomes modular, it kind of slows down in terms of upgrading. So how does XPeng think about this issue?

Speaker 9

This is my first question.

Speaker 2

Thank you very much for your question. Yes, indeed. In the very beginning, we did worry about it. And however, with the advancement of the technology, we can now see the huge value that end to end large models are can bring. And of course, with the technologies, there are always uncertainties.

Speaker 2

And what we need to do is to make sure that we are able to keep an eye and ensuring the safety of the black box, of the control of the vehicle, etcetera, and as well as the end to end capability. And secondly, we are also building a large size analog model OEMs to help us to carry out the various pilots and the trials. With respect to your second question, I'm not entirely sure if I have understood what you are trying to get, but I'll try my best to answer. And I would say that from an autonomous driving model versus a large language model, these 2 are actually different. And looking at it from transformers, and this is not open source.

Speaker 2

And if we do have our own model, actually, we do not need to use such amount of data as what the industry requires or set to be in, for instance, a 30B or whatever. And we would be able, once identifying the appropriate model and we would be able to work on that basis and to move forward? Thank you.

Speaker 9

So my second question is regarding the distribution channel. So far, I can see that the stores are mostly in some prime location, but with relatively limited area as expand gradually launch more new models and expand the portfolio including Mona. Do you see the need to expand the average size of the stores or the area of the stores even as a cause of say shifting out from the most

Speaker 7

prime location?

Speaker 2

Thank you for your question. And first of all, we have always continued to optimize our channels. And for instance, we are looking at going into the lower tier cities and to try and cover as many lower tier cities as possible. In the past, we have mainly focused on the high end and the mid end tier cities. And secondly, we do believe that 4 asset stores, these comprehensive stores would be able to provide a better support of services.

Speaker 2

And thirdly, even with the new stores that we open up in the malls, and again, we are not going to open them up with a huge area of floor area, because we do believe that even with an appropriate amount of space available for these stores in the mall, the conversion rate of successful order is actually very high. And in addition, in terms of our plans for store openings in Q4 last year, and we can see that it has been well recovered in Q1 and Q2 this year, and we predict that by Q3 this year, we will have about 600 stores.

Operator

Your next question comes from Tina Hao with Goldman Sachs.

Speaker 10

Let me just translate. So in terms of our Mona brand, so for the 2C customers, what are some of the competing models in the market? And then also for the customers with this price segment, they might have less demand in terms of the smart functions and higher demand for like the pricing. So aside from, I think, the vehicle design, what are some of our key competitive advantages in the segment? Also, do we have any sales volume target for the 2B part of Mona distribution?

Speaker 10

Thank you.

Speaker 2

Thank you very much for your question. And actually, this question is better asked in our mono products launch event. Anyway, I'll make a few comments. And first of all, for this mono product, as introduced and presented earlier, this is a product with very high beauty as well as external aesthetics. And in addition, it also comes with a cheaper price.

Speaker 2

And we actually have a model, which is what we call the US10 $1,000 rule, which means that every time the price goes down by US10 1,000 dollars and you will see that the sales of that product will actually go up by one time or actually go up by 2x. And this model has been validated in our old experience with our other vehicles of a price range above $200,000 And now if we would be able to implement this and to give a bit of a price of this discount for Mona series. And in terms of the specific price reduction, we will talk about that in our Mona product launch. And I believe the sale that we are looking at is actually huge. And I would say it's about 2 to 4 times of the present level.

Speaker 2

In the past, for 100,000 to 200,000 price range, nobody was able to provide the consumers with a car that is not only beautiful, has a good space, but also a smart car with very good technology. After 4 years of hard work and R and D and so much investment into this, finally XP has been able to come up with a product in Mona that is able to meet all the above demand. In other words, if you look at our competitors at the moment, yes, San Fran say that they can sell 20000 to 50000 units of cars per month. And however, I can assure you that for our mono products, you would see a huge difference between our car versus the competitors' cars because not only that we are able to provide the beauty, to provide the space, but also to provide this range of price with a good technology and good smart driving functionality that it was this need that was not able to be met in the past. So to answer your second question and with respect to smart driving or autonomous driving, and I would say that it is likely, yes, that some of these consumers, they may not need very highly advanced functions, and we will possibly be looking at a strategy that is stratifying and gaining out different levels of adders to the consumers.

Speaker 2

And I would actually like to quote the Internet thinking that when I was establishing my business and it's something that was quite popular in the industry back in those days. And what it says is that for the mobile phone users, actually, they are not the high end generators of the data. It is rather that the people who are making fewer phone calls are the high end data generators. So to adopt that analogy or that thinking and if we look at the RMB100000 to RMB200000 price range and this is actually the group of consumers that would need more of the autonomous driving functions. It's simply that in the past, this was out of their price range and they were not able to afford this.

Speaker 2

Once they are able to afford this, they would be all over the autonomous driving cars in the price range. And I do believe that next year in 2025, we will see that coming into

Speaker 3

a reality.

Speaker 8

Tina, also this is Brian. Let me just comment on your question on the 2B segment. What we see in this price segment of product, the successful C2C product will also will be used quite prevalently in 2B channels as well. So I think a success of this product, even though not targeted at the 2B segment, but still will have significant use cases applied to 2B mobility use. And also with our partnership and collaboration with DiDi, I think that multipurpose sort of use case will be very, very prevalent in our user base for Mona.

Speaker 10

So just to quickly follow-up. So for the 2B part, should we still expect 100,000 units in the 1st 13 months and then 100,000 units in the next 12 months? Is this still a reasonable expectation? Thank

Speaker 8

you. The agreement we have with Didi is still valid. We still provide such an incentive for Mona to be used in DD system. If they achieve those in volume, I think the incentive was to be valid. Yes.

Speaker 2

So this is

Speaker 10

mainly, it's up to Didi, how many they want to purchase?

Speaker 8

No. I think if you read our agreement, which is made public available, it is actually an agreement that if the Mona product is used in the Didi system, in the mobility ecosystem, they could up to a certain number, they will receive additional incentive. It does not relate to their own purchases.

Speaker 10

Okay. Thank you. So my second question is in terms of the software services revenue. So we see started recognition and has been very helpful in terms of our overall margin and profitability. So because our agreement with Volkswagen is not exclusive, Are we actually actively exploring similar collaboration with other partners?

Speaker 6

Hi, Tina. I think that our strategic collaboration with Volkswagen actually creates a very strong value strategic value to each other. For example, we are collaborating on the technology and also we are collaborating on supply chain. And also during the process, we also identified opportunity to work more closely going forward in other areas. We believe there are a lot of things we can do as a strategic partner to each other.

Speaker 6

However, I think that from the collaboration perspective, our collaboration with Volkswagen were not exclusive to each other. So therefore, I think that we are also open minded to looking for the strategic collaboration opportunity with other players. However, I think that what we value most is that we see how we can bring value to a partnership and create value to each other, not just a supplier relationship.

Operator

That does conclude our question and answer session. 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.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Key Takeaways

  • In Q1 2024 XPeng delivered 21,821 smart EVs, a 20% year-over-year increase, while expanding its gross margin to 12.9%—up 6.7 percentage points quarter-over-quarter.
  • With RMB 41.4 billion in cash and a strategic shift toward quality, efficiency, and long-term profitability, XPeng is moving beyond pure volume growth.
  • An extensive product cycle begins in Q3 with the Mona A-class Sedan debut and ramps up with a cost-optimized B-class sedan in Q4, covering price points from RMB 100,000 to 400,000.
  • XPeng’s XOS 5.1 AI cockpit and mapless NGP system will be nationwide by Q3, targeting near-L4 city driving performance by 2025 with only one manual takeover per 100 km.
  • Recurring high-margin software services from the Volkswagen partnership—including a co-developed EE architecture for VW’s China EVs in 2026—bolster XPeng’s “auto + software” model and support sustainable mid-teens GP margins.
A.I. generated. May contain errors.
Earnings Conference Call
XPeng Q1 2024
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