XPENG Q2 2024 Earnings Report

XPENG EPS Results

• Actual EPS: -$0.19
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

XPENG Revenue Results

• Actual Revenue: $1.12 billion
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

XPENG Announcement Details

• Quarter: Q2 2024
• Date: 8/20/2024
• Time: N/A
• Conference Call Date: Tuesday, August 20, 2024
• Conference Call Time: 8:00AM ET

XPENG (NYSE:XPEV) Inc. (NYSE: XPEV) is a China-based developer and manufacturer of smart electric vehicles. The company designs, engineers and sells battery-electric sedans and sport-utility vehicles along with related software and services. Founded in 2014, XPENG positions itself as a technology-driven automaker with a focus on vehicle connectivity, software-defined features and advanced driver assistance systems.

Product offerings center on passenger EVs spanning compact crossovers and midsize sedans, supported by in-house software platforms and over-the-air update capabilities. XPENG develops its own intelligent cockpit and operating system and markets an advanced driver-assistance suite intended to enable assisted driving and enhanced vehicle automation. In addition to vehicle sales, the company provides charging solutions, after-sales services and software updates to maintain and expand functionality over the life of the vehicle.

Headquartered in China, XPENG's primary market is mainland China, and the company has taken steps to expand into selected international markets. The business emphasizes research and development, with engineering and R&D centers that support hardware and software integration. Co-founder He Xiaopeng has been a prominent figure in the company’s leadership and strategic direction. XPENG completed a U.S. public listing in 2020 and competes in China’s electric-vehicle market alongside other domestic and international manufacturers while continuing to invest in autonomous-driving research and global market expansion.

XPENG Q2 2024 Earnings Call Transcript

Key Takeaways

• Xpeng delivered 30,207 smart EVs in Q2 2024, up 38% QoQ and 30% YoY, achieving a 14% gross margin, the highest among Chinese EV makers.
• Pre-sales of the affordable Mona M03 have surpassed last year’s G6 pace, with mass deliveries starting in late August, and the next-generation P7 Plus sedan—featuring new ADAS hardware—launches in Q4.
• Released AI-powered XOS 5.2 nationwide, deploying end-to-end AI models (XMGP) for advanced ADAS, and targeting a Level 3+ driving experience on Level 2 hardware by H2 2025.
• Overseas sales topped 10% of total in Q2, with the G9 leading in Norway, Denmark and Israel, and Xpeng expanding into 30 markets and doubling international stores in H2 2024.
• Signed a master agreement with Volkswagen to co-develop an industry-leading EE architecture for CMP and MEB platforms, with the first model entering mass production by 2026.

Presentation

[He Xiaopeng, Chairman and CEO at XPeng Inc.]

Hello, ladies and gentlemen. Thank you for standing by for the second quarter 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. I will now turn the call over to your host, Mr. Alex Xie, Head of Investor Relations and Capital Markets of the company. Please go ahead, Alex.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

Thank you. Hello, everyone, and welcome to XPeng's second quarter twenty twenty-four earnings conference call. Our financial and operating results were issued via news wire services earlier today and available online. You can also view the earnings press release by visiting the IR section of our website at ir.xpeng.com. Participants on today's call from our management team will include our co-founder, chairman, and CEO, Mr. He Xiaopeng; Vice Chairman and President, Dr. Brian Gu; Vice President of Corporate Finance and VW Projects, Mr. Charles 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&A session. A webcast replay of this conference call will be available on the IR section of our website.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

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 risk uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the relevant public filings of the company as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please also note that XPeng's earnings press release and this conference call includes disclosure of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. XPeng's earnings press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

I will now turn the call over to our Co-founder, Chairman, and CEO, Mr. He Xiaopeng. Please go ahead. Hi, we're dealing with some of the technical issues. Please wait a moment.

[He Xiaopeng, Chairman and CEO at XPeng Inc.]

Hello? Hello?

[Alex Xie, Head of Investor Relations at XPeng Inc.]

Yeah, please go ahead.

[Translator]

Yes, I'm sorry. Hello, everyone. In the second quarter of 2024, XPeng, 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 talents who are already adding value in marketing, style design, AI, and other key areas. We're consistently addressing gaps and solidifying our strengths to foster well-rounded competitiveness.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

With the market launch of MONA M03 in August, we're entering an intense product launch cycle and a period of rapid development, with a number of competitive new products and models to be introduced through the end of 2026. With our AI technology advancement, targeting product innovations and technology driven cost reductions, coupled with an enhanced global and domestic marketing and sales system, these new products will fuel our sustainable growth trajectory. We're confident of achieving substantial quarter over quarter delivery volume growth in Q3 and Q4 respectively, and of reaching a new delivery record in the fourth quarter.

[Translator]

On August the eighth, 2024, we began pre-selling MONA M03 and were thrilled by consumers' enthusiastic response. So far, its pre-sale orders have surpassed last year's G6 pre-sale orders in the comparable sales period. Priced in the RMB 150,000 segment among the A-class BEV sedans, MONA M03 stands out with its trendy, stylish design and unique smart cockpit, offering a best-in-class driving experience which outperforms that of vehicles in the RMB 200,000 price range across many aspects. MONA M03 is setting benchmarks and emerging as a top competitor in the A-class BEV market segment. We'll be hosting our tenth anniversary gala night and launching MONA M03 on August the 27, with mass deliveries set to begin shortly thereafter. Our supply chain partners have geared up to support MONA M03's fast production ramp-up alongside us.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

I'm hopeful that the delivery pace of MONA M03's fast production ramp-up, will set new XPeng records, which will help quickly enhance the reputation of this outstanding product through word of mouth and support a strong increase in sales.

[He Xiaopeng, Chairman and CEO at XPeng Inc.]

Foreign]

[Translator]

Next, we'll officially launch our next generation sedan, the P7+, in the fourth quarter. The P7+ features exquisite styling and interior space with a three-meter wheelbase and over five-meter length, making it superior choice for family customers. Furthermore, P7+ will be our first model based on our next generation ADAS hardware platform. P7+ 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 two new models ramping up, we're optimistic about significantly expanding our market share. At the same time, I remain dedicated to bolstering our capabilities across supply chain manufacturing, marketing, sales, and customer delivery. This will fuel a more efficient and scalable operational system, accelerating product launches and deliveries during our upcoming major product launch cycle.

[He Xiaopeng, Chairman and CEO at XPeng Inc.]

[Foreign]

[Translator]

Looking ahead to the upcoming years, I believe that the impact of AI on vehicles will be even more significant than that of electrification for automotive industry. AI will fundamentally change the driving and riding experience, and will reshape the business models in the auto and mobility sector. The advancement of the end-to-end and AI models is going to break through the limitations of current ADAS technologies, and their iterations will happen much faster than traditional coding methods. AI will revolutionize ADAS safety and driving experience, lower the cost, and speed up the mass market adoption of ADAS. The combination of AI models with XNGP, 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.

[He Xiaopeng, Chairman and CEO at XPeng Inc.]

[Foreign]

[Translator]

Since July the thirtieth, AI-powered XOS version 5.2 has been made available to all XPeng owners, taking XNGP 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 testing with both an extremely high upper limit and a solid lower limit. Our extensive data sets and years of experience in urban ADAS driving give us an edge in integrating these end-to-end AI models, providing a safer, more human-like driving experience for our users. We're gearing up to tackle smart driving challenges such as ETC toll stations and parking gate barriers with our XNGP capabilities.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

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.

[He Xiaopeng, Chairman and CEO at XPeng Inc.]

[Foreign]

[Translator]

Even more excitingly, our next generation ADAS hardware platform will debut on the P7+ in the fourth quarter, offering high-level ADAS at the most competitive BOM cost in China auto industry, and in the near future, we'll offer XNGP on more EV models, making XPeng the world's first auto company to deploy high-level ADAS in a car model in the $20,000 price range. I'm optimistic that improved affordability will allow more younger users to buy and enjoy the latest AI technologies, expanding XNGP's active user base and high-quality data pool. This, in turn, will create a positive cycle, strengthening our AI-powered ADAS capabilities and further reducing costs. We aim to have our AI-powered XNGP-equipped mass production smart EVs provide a driving experience equal to that of world-class robotaxis by the second half of 2025.

[Translator]

This means just one manual takeover required for several hundred kilometers in urban areas, which is groundbreaking. In other words, we are going to offer Level 3+ autonomous software and user experience on Level 2 ADAS hardware and at a Level 2 ADAS price point. With an affordable cost structure, we believe consumers will quickly embrace AI-powered cars, just as they quickly switched from traditional fuel vehicles to electric vehicles over the past five years. I'll share more details about our advancements in AI models, robotics, robotaxi, and other cutting-edge technologies at our tenth anniversary gala night next week, and our annual tech day on 21, 24 October .

[He Xiaopeng, Chairman and CEO at XPeng Inc.]

[Foreign]

[Translator]

Starting from this year, our long-term strategy for international models and overseas markets is entering a period of faster growth and is playing a more significant role in driving both sales and profit growth. In the second quarter, XPeng ranked first in export sales of mid to high-end all electric vehicles, or BEVs, priced above $30,000 among all Chinese BEV brands. For the first time in our history, overseas sales accounted for more than 10% of our total sales. XPeng G9 has become the number one mid to large size all-electric SUV in Norway, Denmark and Israel, and ranked in the top three in the same class in Sweden and the Netherlands. We believe that in addition to new energy, AI is crucial for us to achieve high quality globalization.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

As of August the 15th, we completed our over-the-air, or OTA, rollout of the latest AI-powered XOS for all of our international customers, offering an unprecedented China-made OTA experience for overseas markets. Our unique and premium tech brand has gained worldwide consumer recognition by leveraging our product strength. As we enter the third quarter, we saw strong, a very, very strong momentum in the initial overseas orders for the international version of XPeng G6. Starting from August, we expect to begin deliveries of the left-hand drive and right-hand drive versions of G6. As of July, we have expanded our presence to 30 countries and regions via dealer partners and established over 70 overseas sales stores, including in Europe, the Middle East, and Latin America.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

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 2024. 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.

[He Xiaopeng, Chairman and CEO at XPeng Inc.]

[Foreign]

[Translator]

We have achieved multiple significant milestones in our long-term strategic cooperation with Volkswagen over the past year, as we steadily expanded our cooperation scope. In July of this year, we signed a master agreement of E/E architecture technical collaboration with Volkswagen Group to jointly develop industry-leading E/E architecture for all locally produced vehicles built on Volkswagen's China Main Platform, or CMP, and MEB platform. Beginning in 2026, all locally produced vehicles built on the CMP and the MEB platform will be equipped with this jointly developed E/E architecture. Thanks to the deep mutual trust and collaboration between the two teams, the first model equipped with the jointly developed E/E 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 winning strategic partnership.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

I believe that the combination of China's speed and XPeng's technology will create greater synergies and strategic value for us and our partners in this era of profound changes in the global automotive industry.

[He Xiaopeng, Chairman and CEO at XPeng Inc.]

[Foreign]

[Translator]

I'm glad that we didn't let every crisis go to waste, and that we've learned from them, rising above each one. After launching the G9 in September 2022 and experiencing sales fluctuations over the past two 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. As we enter our major production launch cycle, we anticipate that our total delivery volume will range from 41,000-45,000 in the third quarter of 2024, representing a quarter-over-quarter increase of 35.7%-49%.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

Furthermore, we project that our third quarter total revenue will fall within the range of RMB 9.1 billion-RMB 9.8 billion, representing a quarter-over-quarter increase of 12.2%-20.8%.

[He Xiaopeng, Chairman and CEO at XPeng Inc.]

[Foreign]

[Translator]

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

[James Wu, VP of Finance and Accounting at XPeng Inc.]

Thank you, Xiaopeng. Now, let me provide a brief overview of our financial results for the second quarter of 2024. I'll reference RMB only in my discussion today, unless otherwise stated. Our total revenues were RMB 1.811 billion for the second quarter of 2024, an increase of 60.2% year-over-year, and an increase of 23.9% quarter-over-quarter. Revenues from vehicle sales were RMB 6.82 billion for the second quarter of 2024, representing an increase of 54.1% year-over-year, and an increase of 23% quarter-over-quarter. The year over year and quarter over quarter increases were mainly attributable to higher deliveries.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

Revenues from services and others were RMB 1.29 billion for the second quarter of 2024, representing an increase of 102.5% year-over-year, and an increase of 28.8% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly due to higher sales from maintenance services and increased revenues from technical R&D services related to the platform and software strategic technical collaboration with the Volkswagen Group. Gross margin was 14% for the second quarter of 2024, compared with -3.9% for the same period of 2023, and 12.9% for the first quarter of 2024.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

Vehicle margin was 6.4% for the second quarter of 2024, compared with negative 8.6% for the same period of 2023, and 5.5% for the first quarter of 2024. The year-over-year increase was primarily attributable to the cost reduction and the improvement in product mix. The quarter-over-quarter increase was primarily attributable to the cost reduction. R&D expenses were RMB 1.47 billion for the second quarter of 2024, representing an increase of 7.3% year-over-year, and an increase of 8.6% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly due to higher expenses related to the development of new vehicle models as the company expanded its product portfolio to support future growth.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

SG&A expenses were RMB 1.57 billion for the second quarter of 2024, representing an increase of 1.9% year over year and an increase of 13.3% quarter over quarter. The year over year and quarter over quarter increases were mainly due to higher commission to the franchise stores and higher marketing and advertising expenses. As a result of the foregoing, loss from operations was RMB 1.61 billion for the second quarter of 2024, compared with RMB 3.09 billion for the same period of 2023 and RMB 1.65 billion for the first quarter of 2024. Net loss was RMB 1.28 billion for the second quarter of 2024, compared with RMB 2.8 billion for the same period of 2023 and RMB 1.37 billion for the first quarter of 2024.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

As of June 30, 2024, our company had cash and cash equivalents, restricted cash, short-term investments and time deposits in total of RMB 37.33 billion. To be mindful of the length of our earnings call, I would encourage listeners to refer to our earnings press release for more details on our second quarter 2024 financial results. This concludes our prepared remarks.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

We're now opening the call to questions. Operator, please go ahead.

[Operator]

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. For the sake of clarity and order, please ask one question at a time. Management will respond, and then feel free to follow up with your next question. Your first question comes from Tim Hsiao with Morgan Stanley.

[Tim Hsiao, VP and Equity Research Analyst at Morgan Stanley]

Management, hello, thank you for taking my question, and congratulations on the strong delivery growth in the third quarter with the support of the new model cycle. I have two questions. The first question is about the new model sales. Because XPeng's third quarter guidance, including September, due to the contribution from the MONA M03 and incremental exports, the single-month delivery could return to the previous peak.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

Considering the upcoming P7+ as well, the single-month delivery in the fourth quarter could even potentially challenge the thirty thousand level. We have seen that during the transition between new and old platforms, how does management view, compared to previous models launched, how XPeng can consolidate the delivery volume of new models going forward, and maintain a relatively long period of growth momentum, avoiding the situation last year where new models saw a significant slowdown in sales after the honeymoon period, or where promotions led to a more volatile, pulse-like sales pattern. This is my first question.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

My first question is about the sales momentum of the new models. Because experience the third quarter volume guidance of 41,000-45,000, suggest the September delivery could be back to previous peak. This together with the upcoming P7+ could naturally send the company's year-end monthly sales to a new high of around thirty thousand. However, in light of relatively short life momentum of the new models, of the models launched last year, how could XPeng further sustainable sales momentum this time for the new models like MONA M03 and the upcoming P7+?

[Alex Xie, Head of Investor Relations at XPeng Inc.]

So that's my first question?

[He Xiaopeng, Chairman and CEO at XPeng Inc.]

[Foreign]

[Translator]

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, [Foreign], hanging up on the wall, of my office, meaning that we are aiming for steady, growth going forward. Now, it's honestly easier said than done, and it's very challenging to do that and achieve those kind of goals in such a competitive environment. Going into next year, we actually expect, the market competition to be even more brutal than what we have seen, recently, and we have done a lot when it comes to the transformation of our, organization.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

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+. And also when it comes to the monthly OTA and the reform of our customer experience, regarding new models and basic versions and everything, we also did an overhaul on our sales and marketing system. All of those are aiming to achieve a very long-term, steady growth going forward. When we give out guidance and do preparation for the future development ourselves, we are doing not only the rolling twelve-month forecast, facing, you know, taking into consideration the future competitive landscape, we also take into consideration the iteration of our new models and facelift versions and how to accommodate them in the competitive environment.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

So relative to the year before and two years beforehand, right now, we are definitely much more confident about our quarterly forecast and how to meet those targets and how to really implement our plans in order to achieve the maximum outcome. Thank you.

[Brian Gu, Vice Chairman and Co-President at XPeng Inc.]

Hey, Tim, this is Brian. Let me just maybe add a couple points here. First of all, I think, you know, you're right. When we give the third quarter guidance, at high end of the guidance, we do assume that we will hit likely the 20,000 per month, so the volume delivery, which is gonna 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, you know, probably be aware. One is that, now, we are very encouraged by the MONA's debut, and also the reception.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

We think, given what we see, in terms of the, you know, the indicative order momentum as well as the, you know, the preparation that, Xiaopeng just mentioned, we're very confident that MONA delivery, in the first month, starting in September, will likely achieve the fastest delivery record for all, EV models made by, you know, 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 second quarter exceeded 10%.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

We anticipate the delivery from overseas will probably be above 15% in the third quarter, which also diversifies our overall order intake. That give us further confidence that, you know, the delivery objectives that we set for third quarter and as well as the fourth quarter will be achievable.

[Tim Hsiao, VP and Equity Research Analyst at Morgan Stanley]

Thank you Xiaopeng and Brian. My second question is about the XNGP or high-level ADAS. The constant investment in end-to-end large models has further enhanced XPeng's systemic capabilities and AI smart driving technology, and much faster nationwide rollout of XNGP. However, when it comes to return on investment, when do you expect such a massive and constant investment to translate into a real barrier to peer competitors and translate into a meaningful upside to XPeng's new car sales? Will there be any signposts or metric we can monitor in the following quarters? So that's my second question. Thank you.

[He Xiaopeng, Chairman and CEO at XPeng Inc.]

Um, right.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

[Foreign]

[Translator]

Thank you for your question. Since the rollout of our version 5.0, we've collected a lot of very exciting and encouraging data, including two aspects. The first one is adoption rate and also penetration rate of using our high level ADAS capabilities.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

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 XNGP, and this is made available to all of our dealer shops right now, which will allow our consumers to have firsthand experience of how capable our ADS capability is. And right now, among all Chinese EV makers, XPeng is the only actual end-to-end AI models implementers. Although, you know, other competitors or peers of ours also claim that they are moving towards that end goal, but we do face multiple challenges.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

The first one is that as we increase the upper limit of our ADS 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, you know, previously we might not be able to roll out our capability across different locations around the country.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

And right now, even though we are able to do it and also provide a human-like driving experience for multiple locations and in a wider range of areas, we do experience some setbacks in a small range of cities or routes where rule-based and also small model kind of technological routes may produce a better outcome for now. But we believe the trend is that, first of all, this year is definitely a turning point for adopting these end-to-end AI models to implement and also to enhance our ADS driving capability.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

And going forward in the near future, we believe that when we are able to upgrade to a more comprehensive version, we can expect to see a great outcome when it comes to commercialization. And that means that starting from P7+, 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 ADS capability to a wider range of consumers, which can improve our leading industry-leading ADS capability. Thank you.

[Tim Hsiao, VP and Equity Research Analyst at Morgan Stanley]

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

[Operator]

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

[Ming Lee, Analyst at Bank of America]

[Foreign]

[Alex Xie, Head of Investor Relations at XPeng Inc.]

My first question is related to your cost reduction strategy.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

So right now you have joint procurement with Volkswagen. You will reduce the usage of LiDAR in the future. So in what area do you think you can achieve more cost reduction going forward? And a shorter version related to your third quarter gross margin trend. So positive factor include more export and also volume sales grow a lot. But the negative factor is more sales from MONA. So how do we expect the trend of the so-called gross margin? Thank you.

[He Xiaopeng, Chairman and CEO at XPeng Inc.]

[Foreign]

[Translator]

All right, thank you for your question. Now, XPeng 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 really well. 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 demands and also the market competition as well. Cost reduction is a big aspect of it.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

On top of that, we also have cost structure, cost reductions that are driven by our technology, by our supply chain reform, and also by our strategic partnership with Volkswagen as well. So in the second half of this year and also going to 2025 and 2026, you can expect to actually see a lot of good news when it comes to our quarter-over-quarter improvement as well. So overall, at the end of the day, we are confident that XPeng can become a company that has a more superior GP margin than the rest of its peers. Thank you.

[James Wu, VP of Finance and Accounting at XPeng Inc.]

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 gonna likely go up. You know, starting Q3, most likely we will start to recognize some revenues from the EE collaboration with Volkswagen. In the meantime, we also will see significant growth in terms of volume, which will help to thin out the manufacturing fixed allocations as well as improving manufacturing cost.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

On the other side, as you mentioned, there's an incremental volume coming from MONA, which we expect to be you know, high volume model. And the other thing into Q4, as we introduce P7+, which will be the first model that come out of our new platform to achieve the you know, cost reduction that we have communicated earlier. We do expect the P7+ margin to be very healthy, into the double digits. So all in all, I'd say, from a trend perspective, we expect the overall margin to be stable and maintained at mid to low teens, as you see in the second quarter. Thanks.

[Ming Lee, Analyst at Bank of America]

[Foreign] So, the P7+ will be your first model to use the pure vision solution. And so in your view, what will be the progress for you to improve your capability in automatic driving through this pure vision technology？。

[He Xiaopeng, Chairman and CEO at XPeng Inc.]

[Foreign]

[Translator]

Actually, regarding your question, I would say that more details to be disclosed on the future product launch conferences and also on our 1024 Tech Day. Please stay tuned. But what I can say for now is that, first of all, without relying on sensors and high definition maps, that already in 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 are interested, please stay tuned for more details in our future events.

[Operator]

Your next question comes from Bin Wang with Deutsche Bank.

[Bin Wang, Senior Equity Analyst at Deutsche Bank]

[Foreign] Until we achieve the high end of the 45,000 units in the third quarter, which means in September, we can achieve more than 20,000. So can you provide a breakdown by products, specifically how much MONA M03 in September, if we achieve the high end?

[Alex Xie, Head of Investor Relations at XPeng Inc.]

Thank you.

[Brian Gu, Vice Chairman and Co-President at XPeng Inc.]

Hey, 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'll likely achieve the record for EV delivery by EV startup or new players, as you can imagine, we hope to achieve that record. Secondly is that it also will consist of a significant percentage from overseas, which will be mostly G9 and G6. As you know, that G6 is starting delivery this month and next month, so that will also mean there's contribution from these mainstream models from our lineup.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

So other than that, I don't think we would probably provide any more details on the mix.

[Bin Wang, Senior Equity Analyst at Deutsche Bank]

Okay,[ Foreign] My question, second one is about the new products. You mentioned vehicle model cycle. Can you elaborate a little bit about our product for next year? Thank you.

[Brian Gu, Vice Chairman and Co-President at XPeng Inc.]

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

[Bin Wang, Senior Equity Analyst at Deutsche Bank]

Okay, thank you very much. Thank you.

[Operator]

Your next question comes from Paul Gong with UBS.

[Paul Gong, Analyst at UBS]

[Foreign] So my first question is regarding the export outlook.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

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 extra tariff. And we are also seeing in other markets the rising competition even among the Chinese EV makers is escalating. How do you foresee these challenges? How do you overcome it?

[Brian Gu, Vice Chairman and Co-President at XPeng Inc.]

Hey, Paul, this is Brian again. Very good question. I think you're right. Obviously, global opportunity is immense, but also, you know, there's a lot of challenges along the way. We also noticed the tariff updates, you know, in the European market, et cetera. But what I would say a few points. One is that we so far has been very successfully launching our product in Europe as well as other global markets, positioning those products as premium sort of EV brand.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

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 tariff, but I think given you know the efforts by our team, the pricing, as I mentioned, as well as you know using a collaborative relationship with local partners, we still can achieve, I would say, good marginal contribution from those sales. So we are actually dealing with that at the moment, which already started, I think, the regime back in July.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

So we have been doing this in the last month and a half already. And then looking outside of Europe, I think we actually also see huge opportunities for Middle East, including Israel, Southeast Asia, which is the market that we will be launching our right-hand drive models as we speak, this month and next month. And also we're seeing significant growth opportunities in other parts of the world. So with additional sort of a product launch, as well as the better, I would say, more premium positioning of our product globally, as well as the you know, you know, 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.

[Paul Gong, Analyst at UBS]

Oh, oh, thank you very much. Okay, my second question is regarding the robotaxi. Okay, I remember a few years ago, at one point, XPeng should have, uh, mentioned that there was a plan to launch a robotaxi, and then later, because, uh, some changes in the plan, uh, it was not further pursued. Okay, we also noticed, as just mentioned, your hope is that, uh, the mass-produced vehicles next year in the second half can achieve, uh, such an effect for overseas robotaxi. Okay, but we, just, uh, from the perspective of robotaxi operations, can you share with us, uh, why, as a leader in autonomous driving, the enthusiasm for doing robotaxi is not high. So my second question is regarding the robotaxi.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

I recall a few years ago, once, there was a moment that, XPeng also had a little bit, plan 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 2025. But just want to listen to you guys, why, as a industry leader in the autonomous driving, you are not a big fan of robotaxi operation?

[He Xiaopeng, Chairman and CEO at XPeng Inc.]

[Foreign]

[Translator]

Thank you. This is a very good question. Actually, when it comes to robotaxi development, not only in China, but globally speaking, the technological approach is quite different from what we adopt right now, which is the end-to-end AI models, architecture. Now, the focus of robotaxi right now in the market is to focus on offering safe, and good customer experience within a small, area or region, whereas our, target is to offer a full domain or all domain kind of human-like driving experience.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

That is definitely defines the differences between, you know, our focus right now versus robotaxi. And the other thing is that, you know, based on our previous experience of operating vehicles, we understand that right now, you know, when it comes to the industry target for robotaxi, cost still is the number one priority, you know, apart from regulation and also the mass adoption rate and penetration of this technology. You know, the majority of robotaxi developers right now do not really balance these two aspects really well, namely cost and customer experience.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

[Foreign]

[Translator]

Now, there are several things that we can comment on when it comes to robotaxi. First of all, we are definitely considering the future for developing robotaxi, but this is very, very different from the L4, ADS capability or experience. The second thing is that we're not considering involving ourselves in the operation of robotaxi, but rather focusing on producing, you know, high quality products, or vehicles, robotaxi vehicles, with the partnership with vehicle or mobility operators in the future, globally speaking.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

And another thing that I want to comment here is that, you know, robotaxi, when it comes to development of robotaxi, XPeng 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, you know, the pure ADS for everyday use. And it's a different way, a different kind of mobility. And in the future, when time allows, we're going to share more of our thoughts in this regard. Thank you.

[Paul Gong, Analyst at UBS]

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

[Operator]

Your next question comes from Tina Hou with Goldman Sachs.

[Tina Hou, Analyst at Goldman Sachs]

[Foreign]Thanks management for taking my question.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

My first question is regarding our production preparation for MONA M03, cause previously with G6, I think the supply bottleneck was mainly related to the LiDAR. However, with M03, we don't have LiDAR, so this should have much faster ramp up. So just wondering how much are we preparing for in the next few months? Second question is regarding our R&D expense, so we guide it for three to three, sorry, RMB 7-7.5 billion previously, but looking at our first half tracking and looking at last year's first half, second half seasonality, it seems like it's tracking just below RMB 6 billion. So, wondering whether we have any like added R&D spending into the second half? Thank you.

[James Wu, VP of Finance and Accounting at XPeng Inc.]

It's Tina, this is James. I'll try to answer both of your questions. On MONA production capacity, obviously we've seen what we have experienced in the past, launches with regard to G6 and X9. These are great lessons we've learned. So what we have done is we have started preparing the MONA production preparation way ahead of time versus the previous cases. So we've anticipated the supply constraints from some of the key components, and we have set sufficient plans to prepare solutions for those issues that we have experienced in the past.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

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 will achieve the planned production and delivery as we have communicated earlier. Your second question about the engineering expense. Yes, from the first half, if you look at our engineering expenses, it's relatively flat and comparable to last year. But as we mentioned earlier, we are entering into a pretty heavy product cycle, and a lot of the engineering expenses with regard to design and product development has already kick in, so we expect the engineering expenses to ramp up in the second half of the year. For the full year, we still remain our earlier guidance of about RMB 7 billion for the full year in terms of engineering expense. Thank you.

[Tina Hou, Analyst at Goldman Sachs]

Thank you. That's very clear.

[Operator]

Your next question comes from Ping Wu with CITIC Securities.

[Ping Wu, Research Analyst at CITIC Securities]

[Foreign]

[Alex Xie, Head of Investor Relations at XPeng Inc.]

I have two questions. The first one is about MONA, because I, I also was the first time to see the MONA real car. This car is actually very good looking and has a very good texture, but I feel that only people who go to the site to see the real car can feel the quality of this car. My first question is, do we have some targeted actions to let more people go to the site to see the car in person, yes.

[James Wu, VP of Finance and Accounting at XPeng Inc.]

[Foreign]

[He Xiaopeng, Chairman and CEO at XPeng Inc.]

Yes, indeed. Well, when it comes to sales and marketing, technical approaches, it is quite different between, functional or performance-oriented cars versus, affordable cars. Now, when it comes to MONA, definitely, its capability is more superior, to most of, the other, comparable cars of its class, especially when it comes to aesthetic and dynamic perception capabilities. Since our rollout, of the car in, you know, across our different stores, since the beginning of August, this year, we've received a very unprecedented and very, encouraging, reception from, and responses from the consumers, which again, you know, resonates with what you mentioned in your question. You have to, see and feel it, you know, to know how good a car it is.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

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 MONA M03's sales performance will be even more superior than G6 of the same comparable sales period.

[Ping Wu, Research Analyst at CITIC Securities]

[Foreign]

[He Xiaopeng, Chairman and CEO at XPeng Inc.]

Okay [Foreign]

[Translator]

And also one thing that I would like to add is that, because we are very confident of the performance and capabilities of MONA M03 when it comes to static and dynamic perception 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 dealership across the country. And again, you know, there are a lot of sales and marketing possibilities when it comes to promoting this kind of affordable vehicles for the market. Thank you.

[Ping Wu, Research Analyst at CITIC Securities]

Okay, thank you very much. My second question is, if we start from the G9, actually from the second half of 2020 we did an internal adjustment, actually we have already experienced these two periods. So, you also mentioned that we made a lot of changes. I would like to ask if you can share, specifically in, for example, sales and marketing capabilities, how we now evaluate the current capabilities. Right.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

After two years, how do we evaluate it, our ability in sales and marketing right now? Thank you.

[He Xiaopeng, Chairman and CEO at XPeng Inc.]

[Foreign]

[Translator]

Thank you for the question. Two years ago, when we started our reform, we started with our planning, not only when it comes to product launch, but also the planning for the whole, you know, 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. Right now, I think we've achieved the first stage of success, where we actually have different aspects of improvement, when it comes to our products and also our competitiveness. And by Q3, Q4 this year, you'll begin to see how it translates into our sales performance.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

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, you know, after-sales and also when it comes to car insurance, etc. We also focus on training our sales staff to improve their overall capability and working efficiency as well.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

So we're very confident of our future development, not only in China, but also globally speaking, we believe that, you know, in the midterm, our target is to become, you know, one of the top players in the China automaking industry, when it comes to our sales and marketing capabilities. Thank you.

[Operator]

Your next question comes from Yuqian Ding with HSBC.

[Yuqian Ding, Research Analyst at HSBC]

[Foreign] So, my first question is about the gross profit margin.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

Can management help us to break down the overseas margin and also domestic part, especially the wholesale bits, what's the impact of the profitability over there? It's not specific. At least could they give us a little bit reference versus the group average of gross profit margin. And also to clarify, Brian said in the second half of the year, roughly the margin level would be mid- to low-teens % stay relatively stable. Does that mean the positive benefits of the margin support coming from the software part will largely absorbed by the product mix coming down and also increasing channel discount?

[James Wu, VP of Finance and Accounting at XPeng Inc.]

Yes, this is James. I'll try to answer your question. First, as Brian mentioned, we are expanding on a global basis pretty rapidly, so we would expect the overseas sales, both in terms of absolute volume as well as percentage of total, volume increasing, in the second half compared to the first half. With regard to margin from 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.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

We have different business models in different countries, including, you know, direct sales model, dealership model, as well as distribution model. The way to understand margin and income and impact to the bottom line is quite different across these different models. In some, I would say, from a variable profit or contribution margin perspective for our overseas business, it is quite good, and it's helping us to improve the overall profitability of the company. All right, your second question regarding the volume margin trend in the second half, I just wanted to clarify that, you know, we didn't really refer to the software margin for the second half.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

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, you know, additional, new vehicle models with regard to MONA and P7+. 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, you know, moderate growth, compared to what we've seen in the first half. Thank you.

[Yuqian Ding, Research Analyst at HSBC]

Got it, thank you. So the second question is really about the autonomous driving differentiation. So autonomous driving technology, everyone is developing that, everyone is talking about leveraging the big data loop, engineering capability and processing powers to get it down. But will the industry run into the stage that the technology development curve is running flattish in terms of the development slope, so everyone can do the autonomous driving service, but no one is really sticking out. So if we're talking about next year as the iPhone moment, ChatGPT moment, so how?

[Alex Xie, Head of Investor Relations at XPeng Inc.]

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.

[He Xiaopeng, Chairman and CEO at XPeng Inc.]

[Foreign]

[Alex Xie, Head of Investor Relations at XPeng Inc.]

[Foreign]

[Translator]

It will be very challenging for me to try to respond to your questions without involving, you know, technical terms or language, but I'll do my best. First of all, the previous model or technological approach that was widely adopted industry 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 one by one, and the customer experience, the driving experience itself is not perfect. For example, most of the ADAS vehicles on the market available right now is driving at about 40-50 km per hour. And also there are lane changes and turn making looks very, very robotic.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

It's not a human-like kind of driving experience. Whereas the AI approach, or end-to-end AI models approach, allow us to actually learn from excellent, and I want to focus on the experience here. Excellent or high quality experienced driver, or human-like driver, someone like yourself, you know, when it comes to the driving habit and the performance across different areas of the country. But obviously, they also encountered a challenge of solving different corner cases because it's not rule-based. For example, if you encounter stray animals, for example, a stray cat in the world, you know, on the road, it's not going to try to avoid it because it's not something that they've learned before. Whereas in a rule-based approach, maybe there is a rule there that states that you have to avoid hitting those animals.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

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. 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.

[Alex Xie, Head of Investor Relations at XPeng Inc.]

Thank you once again for joining us today. If you have further questions, please feel free to contact XPeng Investor Relations team via the contact information provided on our website for The Piacente Group. Thank you.

[Operator]

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

Participants

Analysts

• Alex Xie, Head of Investor Relations at XPeng Inc.
• Bin Wang, Senior Equity Analyst at Deutsche Bank
• Brian Gu, Vice Chairman and Co-President at XPeng Inc.
• He Xiaopeng, Chairman and CEO at XPeng Inc.
• James Wu, VP of Finance and Accounting at XPeng Inc.
• Ming Lee, Analyst at Bank of America
• Paul Gong, Analyst at UBS
• Ping Wu, Research Analyst at CITIC Securities
• Tim Hsiao, VP and Equity Research Analyst at Morgan Stanley
• Tina Hou, Analyst at Goldman Sachs
• Yuqian Ding, Research Analyst at HSBC
• Translator