XPeng Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 20, 2024

There are 9 speakers on the call.

Operator

Hello, ladies and gentlemen. Thank you for standing by for the Q2 2024 Earnings Conference Call for Xpeng, 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.

Operator

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

Speaker 1

Thank you. Hello, everyone, and welcome to Xfeng's Q2 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. Sharpeng.com.

Speaker 1

Participants on today's call from our management team will include our Co Founder, Chairman and CEO, Mr. He Sharp Peng Vice Chairman and President, Doctor. Brian Gu Vice President of Corporate Finance and VW Projects, Mr. Charles Zhang Vice President of Finance and Accounting, Mr. Jane Zhu and myself.

Speaker 1

Management will begin with prepared remarks and the call will conclude with a Q and 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 US Private Securities Litigation Reform Act of 1995. Forward looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today.

Speaker 1

Further information regarding these and other risks and uncertainties is included in the relevant public filings of the company as filed with the U. S. Securities and Exchange Commission. The company does not assume any obligation to update any forward looking statements, except as required under applicable law. Please also note that Xfeng's earnings press release and this conference call include disclosure of unaudited GAAP financial measures as well as unaudited non GAAP financial measures.

Speaker 1

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

Hi. We're

Speaker 1

dealing with some of the technical issues. Please wait a moment.

Speaker 3

Hello?

Speaker 2

Yes, please go ahead. Yes, I'm sorry.

Speaker 3

Hello, everyone. In the Q2 of 2024, Xpeng delivered 30,207 smart EVs, up 38% quarter over quarter and up 30% year over year, Supported by technology driven cost reductions, 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 talent 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 MonaM03 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.

Speaker 3

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 4th quarter. On August 8, 2024, we began pre selling Mona ML3 and were thrilled by consumers' enthusiastic response. So far, its pre sell orders have surpassed last year's G6 pre sell orders in the comparable sales period. Priced in the RMB 150,000 segment among the 8 5 BOE Sedan, Mona M03 stands out with its trendy stylish design and unique smart cockpit.

Speaker 3

Offering a best in class driving experience, which outperforms that of vehicles in the RMB 200,000 price range across many aspects, M1A M03 is setting benchmarks and emerging as a top competitor in the A Class BZ market segment. We'll be hosting our 10th anniversary Golar Night and launching M1A M03 on August 27th with mass deliveries set to begin shortly thereafter. Our supply chain partners have geared up to support MonaM03's fast production ramp up alongside us. I'm hopeful that the delivery pace of MonaM03's fast production ramp up will set new XBANG records, which will help quickly enhance the reputation of this outstanding product through word-of-mouth and support a strong increase in sales. Next, we'll officially launch our next generation sedan, the P7 Plus in the Q4.

Speaker 3

The P7 Plus features exquisite stapling and interior space with a 3 meter wheelbase and over 5 meter length, making it 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 BOM, but also boasts technology innovations and cost advantages that outperform our competitors. With deliveries of 2 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.

Speaker 3

This will fuel a more efficient and scalable operational system, accelerating product launches and deliveries during our upcoming major product launch cycle. 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 technology 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.

Speaker 3

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. Since July 30, AI Powered XOS Version 5.2 been made available to all Xtang owners, taking XMGP to the next level by empowering a smooth experience anywhere regardless of city and routes. 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.

Speaker 3

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 life 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 end to end AI models to the next level as our second step. Even more excitingly, our next generation ADAS hardware platform will debut on the P7 Plus in the Q4, offering high level ADAS at the most competitive form cost in China auto industry. In the near future, we'll offer XMVZ on more EV models making Xpeng the world's first auto company to deploy high level ADAS in a car model in the US20000 dollars price range.

Speaker 3

I'm optimistic that improved affordability will allow more younger users to buy and enjoy the latest AI technologies, expanding XMG's active user base and high quality data pool. This in turn will create a positive cycle, strengthening our AI powered AS 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 robotics by the second half of twenty twenty five. This means just one manual takeover required for several 100 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 pipeline.

Speaker 3

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 5 years. I'll share more details about our advancements in AI models, robotics, global taxi and other cutting edge technologies at our 10th anniversary Galenite next week and our annual Tech Day on October 21, 24. 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 Q2, S5 ranked 1st in export sales of mid to high end all electric vehicles or BUVs priced above US30 $1,000 among all Chinese BUV brands. For the first time in our history, overseas sales accounted for more than 10% of our total sales.

Speaker 3

Xpeng G9 has become the number one lead to large size all electric SUV in Norway, Denmark and Israel and ranked in the top 3 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 15, 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 strength. As we enter the Q3, we saw strength a very, very strong momentum in the initial overseas orders for the international version of Xpeng G6.

Speaker 3

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 force including in Europe, the Middle East and Latin America. We plan to enter more right hand drive markets in the second half of twenty twenty four, 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 twenty twenty four. Over the next couple of years, I anticipate our overseas business will maintain its strong growth momentum, leading global sales of mid to high end smart EVs and enhancing our reputation as a global tech brand.

Speaker 3

We have achieved multiple significant milestones in our long term strategic cooperation with both items over the past year as we certainly expanded our cooperation scope. 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 main platform or CMP and MUB platform. Beginning in 2026, all locally produced vehicles built on the CMP and the MUB platform will be equipped with this jointly developed EE architecture. Thanks to the 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.

Speaker 3

I believe that the combination of China's speed and expense technology will create greater synergies and strategic value for us and our partners in this era of profound changes in the global automotive industry. 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 G9 in September 2022 and experiencing sales fluctuations over the past 2 years, we have made significant strategic changes to our organization and planning. This has greatly improved Xpeng's competitiveness and positioned us for rapid growth. We're now fully prepared to navigate the next decade of AI with steady progress.

Speaker 3

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 percent to 49%. Furthermore, we project that our 3rd quarter total revenue will fall within the range of RMB9.1 billion to RMB9.8 billion, representing a quarter over quarter increase of 12.2% to 20.8%. 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 Q2 of 2024.

Speaker 2

Thank you, Xiaofeng. Now let me provide a brief overview of our financial results for the Q2 of 2024. I'll reference RMB only in my discussion today unless otherwise stated. Our total revenues were RMB8.11 billion for the Q2 of 2024, an increase of 60.2% year over year and an increase of 23.9 percent quarter over quarter. Revenues from vehicle sales were RMB6.82 billion for the Q2 of 2024, representing an increase of 54.1 percent year over year and an increase of 23% quarter over quarter.

Speaker 2

The year over year and quarter over quarter increases were mainly attributable to higher deliveries. Revenues from services and others were RMB1.29 billion for the Q2 of 2024, representing an increase of 102.5 percent year over year and an increase of 28.8 percent 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 and D services related to the platform and software strategic technical collaboration with the Volkswagen Group. Gross margin was 14% for the Q2 of 2024, compared with negative 3.9% for the same period of 2023 12.9% for the Q1 of 2024. Vehicle margin was 6.4% for the Q2 of 2024 compared with negative 8.6% for the same period of 2023 and 5.5% for the Q1 of 2024.

Speaker 2

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 and D expenses were RMB1.47 billion for the Q2 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 and A expenses were RMB1.57 billion for the Q2 of 2024, representing an increase of 1.9% year over year and an increase of 13.3% quarter over quarter.

Speaker 2

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 RMB1.61 billion for the Q2 of 2024 compared with RMB3.09 billion for the same period of 2023 and RMB1.65 billion for the Q1 of 2024. Net loss was RMB1.28 billion for the Q2 of 2024 compared with RMB2.8 billion for the same period of 2023 and RMB1.37 billion for the Q1 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 RMB37.33 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 Q2 2024 financial results.

Speaker 2

This concludes our prepared remarks. We'll now open the call to the questions. Operator, please go ahead. Thank

Operator

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 Tsao with Morgan Stanley.

Speaker 4

So my first question is about the sales momentum of the new models. Because I experienced the Q3 volume guidance of 41 ks to 45 ks suggesting September delivery could be back to previous peak. This together with the upcoming P7 product, clearly sends the company's year end multi 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 Xpeng Force buy sustain for sales momentum this time after the new models like M03 and the upcoming P7 Plus? So that's my first question.

Speaker 3

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, 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.

Speaker 3

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 plus And also when it comes to the monthly OTA and the reform of our customer experience regarding new models and safe conversions 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. We where we give our guidance and do preparations for the future development and sales, we are doing not only the rolling 12 month forecast facing taking into consideration the future competitive landscape. We also take into consideration the iteration of our new models and face conversions and how to accommodate them in the competitive environment. So relative to the year before and 2 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.

Speaker 3

Thank you.

Speaker 5

Tim, this is Brian. Let me just add a couple of points here. First of all, I think you're right. When we give the Q3 guidance, at high end of the guidance, we do assume that we will hit likely the 20,000 per month for the volume delivery, which is going to be the high point of our delivery record historically. To achieve that, actually, there are actually a number of other catalysts, I think, you should probably be aware.

Speaker 5

One is that, we are very encouraged by the Mona's debut and also the reception. We think given what we see in terms of the indicative order momentum as well as the preparation that Xiaofeng just mentioned, we're very confident that Mona delivery in the 1st 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 that the overseas delivery volume in the Q2 exceeded 10%.

Speaker 5

We anticipate the delivery from overseas will probably be above 15% in the 3rd quarter, which also diversifies our overall order intake. That give us further confidence that the delivery objectives that we set for Q3 and also Q4 will be achievable.

Speaker 4

My second question is about the ex NGP or high level edX. The constant investment in NTM large models has further enhanced expense and systematic authorities and AI smart driving technology and much faster than national wide rollout of XMGP. However, with constant return of investments, when do you expect such a massive and constant investment could translate into a real barrier to peer competitors and translate into a meaningful upside to expense new car sales? Would there be any signpost or metric we can monitor in the following quarters? So that's my second question.

Speaker 4

Thank you.

Speaker 3

Thank you for your question. Since the rollout of our version 5.0, we collected a lot of very exciting and encouraging data, including 2 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 test driving in some stores, in some areas and regions. And right now, across all of our dealer shops, you can freely use the XMGP and this is made available to all of our dealer shops right now, which will allow our consumers to have personal experience of how capable our ADAS capability is.

Speaker 3

And right now, among all Chinese EV makers, XPeng is the only actual end to end AI model implementers, although other competitors or peers of ours also claim that they are 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 reforms, which we have implemented in our technology and architecture. And the other challenge is that 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 base and also small model kind of technological routes may produce a better outcome for now.

Speaker 3

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 greater 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.

Speaker 4

Great. Thanks a lot for sharing those details and looking forward to the meaningful sales take off throughout the rest of the year. Thank you.

Speaker 3

Your next question comes from Ming Soon Lee with Bank of America.

Speaker 4

My first question is related to your cost reduction strategy. So right now, you have joined procurement in 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 short question related to your Q3 gross margin trend.

Speaker 4

So, positive factor include more export and also growing sales growth a lot, but the negative factor is more sales from Mona. So, how do we expect the trend of the Q3 gross margin?

Speaker 3

All right. Thank you for your question. Now, XLE used 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 very well.

Speaker 3

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 disruptions 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 twenty 6, 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 more superior GP margin than the rest of its peers.

Speaker 3

Thank you.

Speaker 2

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 cost.

Speaker 2

On the other side, as you mentioned, there is incremental volume coming from Mona, which we expect to be high volume model. And the other thing into Q4, as we introduce P7 Plus, which will be the first model that come 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.

Speaker 3

Thanks.

Speaker 4

To use the pure vision solution. I would say in year view, what would be the progress for you to improve your capability in the type of driving through this pure vision technology.

Speaker 3

Well, actually regarding your question, I would say that more details to be disclosed on the future product launch conferences and also on our 10 24 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 itself in and of itself allow us to reduce our costs significantly. And on the other hand, with the adoption of the end to end AI models using the vision based technological approach allow us to greatly enhance our ADAS capability as well. Again, if you're interested, please stay tuned for more details in RPG events. Your next question comes from Bin Wang with Deutsche Bank.

Speaker 4

Check more than $20,000 So can you provide a breakdown by products, specifically how much more in the September if we achieve the high end? Thank you.

Speaker 5

Bin, 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 likely achieved the record for EV delivery by EV startup or new players, as you can imagine. So we hope to achieve that record.

Speaker 5

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 is 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.

Speaker 4

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

Speaker 5

Bing, 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 Q4 start a very strong product cycle. So it will be many. I would say many is more than what we current this year that has launched this year.

Speaker 5

So more than this year, definitely, as a number of vehicles of new models and revised or updated models for next 2 years.

Speaker 4

Okay. Thank you very much. Thank you.

Speaker 3

Your next question comes from Paul Gong with UBS.

Speaker 6

So my first question is regarding the export outlook. At this stage, we're glad to see the company is pushing for the exports. However, we are seeing the rising protectionism in the DMs, including the upcoming actual 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?

Speaker 6

How do you overcome it?

Speaker 5

Paul, this is Brian again. Very good question. I think you're right. Obviously, global opportunity is immense, but also there was a lot of challenges along the way. We also noticed the tariff updates in the European market, etcetera.

Speaker 5

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 sort of EV brand. If you look at our sell price of G6 as well 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 tariffs. 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.

Speaker 5

So we're actually dealing with that at the moment, which already started, I think, the regime back in July. So we have been dealing 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.

Speaker 6

So my second question is regarding the robotaxi. I recall a few years ago, once there was a moment that XPeng also had a little bit planned for the robotaxi, but subsequently, it has been modified. I understand just now you mentioned that you hope your volume produced models to achieve that similar effect versus RoboTaxi operation in overseas markets in second half of twenty twenty five. 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?

Speaker 3

Thank you. This is a very good question. Actually, when it comes to robo taxi 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 model 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 full domain or all domain kind of human wide driving experience. That is definitely defined the differences between our focus right now versus robotaxi.

Speaker 3

And the other thing is that based on our previous experience of operating on medical vehicles, we understand that right now when it comes to the industry target for robo taxi, cost still is the number one priority apart from regulation and also the mass adoption rate and penetration of this technology. The majority of robo taxi developers right now do not really balance these two aspects really well, namely cost and customer experience. Now there are several things that we can comment on when it comes to Robo Taxi. First of all, we are definitely considering the future for developing Robo Taxi. But this is very, very different from the L4 HS capability or experience.

Speaker 3

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, Robo taxi vehicles with the partnership with vehicle or mobility operators in the future, globally speaking. And another thing that I want to compliment here is that, Robo taxi, when it comes to development of Robo taxi, XBANK definitely has our unique kind of differentiation and consideration as well. We've put in a lot of thought into the future of RoboTaxi. And it's actually quite different from the pure ADAS for everyday use. And it's a different way or different kinds of mobility.

Speaker 3

And in the future, when time allows, we're going to share more of our thoughts in this regard. Thank you.

Speaker 6

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

Speaker 3

Your next question comes from Tina Hao with Goldman Sachs.

Speaker 7

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 MO3, 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?

Speaker 7

Second question is regarding our R and D expense. So we guided for RMB 3,000,000,000 to RMB 7,500,000,000 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 RMB6 1,000,000,000. So wondering whether we have any like added R and D spending into the second half? Thank you.

Speaker 2

Tina, this is James. I'll try to answer both of the 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.

Speaker 2

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 we'll 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.

Speaker 2

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 CNY7 1,000,000,000 for the full year in terms of engineering expense. Thank you.

Speaker 7

Thank you. That's very clear.

Speaker 3

Your next question comes from Ping Yu Wu with Citic Securities. So my first question is, I actually went to see Mona in the first time and it was of very good quality, but people only feel the quality when they see the car in person. So do we have some self action to make less more people to see the car in their in personally, yes. 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.

Speaker 3

Now when it comes to Mona, definitely its capability is more superior to most of the other comparable cars of its class, especially when it comes to aesthetic and dynamic perception capabilities. Since our rollout of the car across our different stores since the beginning of August this year, we've received very unprecedented and very encouraging reception from responses from the consumers, which again resonates with what you mentioned in your question. You have to see it 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 MO3's sales performance will be even more superior than G6 of the same comparable sales period.

Speaker 3

And also one thing that I would like to add is that because we are very confident of the performance and capabilities of MOC 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 shops across the country. And again, there are a lot of sales and marketing possibilities when it comes to promoting this kind of affordable vehicles for the market. Thank you. My second question is, we actually do a lot of inner reforms from 2022. And after 2 years, how do we evaluate our ability in sales and marketing right now?

Speaker 3

Thank you. Thank you for the question. 2 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 1st stage of success, where we actually have different, aspects of improvement when it comes to our products and also our competitiveness.

Speaker 3

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, etcetera. We also focus on training our sales staff to improve their overall capability and working efficiency as well.

Speaker 3

So we're very confident of our future development, not only in China, but also globally speaking. We believe that for the mid term, our target is to become 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 Yucan Ding with HSBC.

Speaker 8

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? If not specific, at least could they give us a little bit reference versus the group average gross profit margin? And also to clarify, Brian said in the second half of the year, roughly the margin level would be net to low teen percent, stay relatively stable.

Speaker 8

Does that mean the positive benefit of the margin support coming from the software part will largely absorb by the product mix coming down and also increasing channel discount?

Speaker 2

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.

Speaker 2

With regard to margin overseas, in conclusion, it is healthy, good margin. When you look at overseas markets, right, 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.

Speaker 2

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, mix 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.

Speaker 3

Got it. Thank you.

Speaker 8

So the second question is really about 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 will 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.

Speaker 8

So if we're talking about next year, is the iPhone moment, Chargebee moment. So how could you help us to envision how the singularity and the breakout could happen? Does that mean because we're getting maturing technologies or we're selling more vehicles? Or because of the technology is getting better, we are finding diversified revenue model? Thank you.

Speaker 3

Well, it was very challenging for me to try to respond to your questions without involving technical terms or language, but I'll do my best. First of all, the previous model or technological approach that was widely adopted in this tree for ADAS is the so called all knowing perspective relying on high definition maps and also rule based architecture to develop their ADAS autonomous driving capability. Now the main challenge for that approach is that you have actually numerous corner cases where you actually have to examine them 1 by 1 and the customer experience, the driving experience itself is not perfect. For example, most of the market available right now is driving at about 40 to 50 kilometers per hour. And also their late changes and turn making, it looks very, very robotic.

Speaker 3

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 attitude here, excellent or high quality experienced driver or human like driver, someone like yourself, when it comes to the driving habit and the performance across different areas of the country. But obviously, they also encountered a challenge of solving different corner cases because it's not rule based. For example, if we encounter stray animals, for example, a stray hat in the world, world, 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 hitting 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 model is going to be a lot more significant and a lot quicker than the previous rule based approach.

Speaker 3

I hope I answered your question. Thank you.

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 Exelon's Investor Relations team via the contact information provided on our website for the Pearson financial communications. Thank you.

Speaker 3

This concludes today's conference call.

Operator

You may now disconnect your line. Thank you.

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Earnings Conference Call
XPeng Q2 2024
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