XPeng Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 19, 2025

Key Takeaways

  • Positive Sentiment: In Q2 the company achieved record deliveries of 103,181 units (up 242% YoY), driving strong revenue and cash on hand metrics.
  • Positive Sentiment: Vehicle gross margin rose by 3.8 percentage points QoQ to 14.3%, marking eight consecutive quarters of improvement and lifting overall margin to 17.3%.
  • Negative Sentiment: R&D and SG&A expenses increased by 50.4% and 37.7% YoY respectively, even as net losses narrowed, reflecting rising cost pressures.
  • Positive Sentiment: The new G7 SUV featuring the in-house Turing AI SoC quickly became a leader in its segment, with the Ultra trim accounting for over 50% of sales and boosting ADAS capabilities.
  • Neutral Sentiment: Xpeng plans L4-capable robotaxi mass production in 2026, but faces regulatory approvals and technology validation before full rollout.
AI Generated. May Contain Errors.
Earnings Conference Call
XPeng Q2 2025
00:00 / 00:00

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Operator

Hello, ladies and gentlemen. Thank you for standing by for the Second Quarter twenty twenty five Earnings Conference Call for Xpeng, Inc. Today's conference call is being recorded. I will now turn the call over to your host, Mr. Alex Zi, Head of Investor Relations and Capital Markets of the company. Please go ahead, Alex.

Alex Xie
Alex Xie
Head - IR & Capital Markets at XPeng

Thank you. Hello, everyone, and welcome to Xpeng's second quarter twenty twenty five earnings conference call. Our financial and operating results were issued by our newswire services earlier today and available online. You can also view the earnings press release by visiting the IR section of our website at ir.xiaopeng.com. Participants on today's call from our management team will include our Co Founder, Chairman and CEO, Mr. He Xiaopeng Vice Chairman and President, Doctor. Brian Gu Vice President of Corporate Finance and VW Projects, Mr. Charles Zhang Vice President of Finance Accounting, Mr. James Wu and myself. Management will begin with prepared remarks, and the call will conclude with a Q and A session.

Alex Xie
Alex Xie
Head - IR & Capital Markets at XPeng

A webcast replay of this conference call will be available on the IR section of our website. Before we continue, please note that today's discussion will contain forward looking statements made under the Safe Harbor provisions of The U. S. Private Securities Litigation Reform Act of 1995. Forward looking statements involve inherent risks and uncertainties.

Alex Xie
Alex Xie
Head - IR & Capital Markets at XPeng

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 public filings of the company as filed with the U. S. Securities and Exchange Commission. The company does not assume any obligation to update forward looking statements except as required under applicable law.

Alex Xie
Alex Xie
Head - IR & Capital Markets at XPeng

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

Moderator

Hello, everyone. In Q2 twenty twenty five, we achieved a record high performance across our core business and financial metrics, including deliveries, revenue, gross profit margin and cash on hand. During this quarter, our deliveries reached 103,181 units, a 242% increase year over year. The Mona M03 MAX immediately became a best seller upon launch, accounting for over 80% of total Mona M03 sales and leading the way in bringing high level ADAS technology to the mass market. Despite intense price competition, we remain focused on steady long term sustainable growth, prioritizing scaling up whilst continuously strengthening the foundational systems.

Moderator

Our vehicle gross margin increased 3.8 percentage points quarter over quarter to 14.3%, marking the eighth consecutive quarter of improvement and raising the company's overall gross margin to 17.3%. Net losses narrowing further. Free cash flow in Q2 exceeded RMB 2,000,000,000 and total cash on hand at the end of quarter surpassed RMB 47,500,000,000.0. In July, we launched the G7, our first model featuring in house developed Turing AI SoC. Over the past four weeks, it has become the top among its competitors, with the Ultra trim making up over 50% of sales.

Moderator

The Max plus Ultra experience marks a new phase in high level ADAS in the industry. Our Kunpong super electric models will begin mass production in Q4, leading us to fully upgrade to a generation technology platform with intelligence and the new vehicle dual energy system by 2025. This form will include vision based ADAS, advanced AI models, the Turing AI SoC, five g ultra fast charging battery cell, and the Quampong super electric system. These innovations will give us a generational lead, allowing for greater modularity, better supply chain management and scalability during our product cycle over the next two years, boosting our sales growth. The race for AI powered vehicles will continue indefinitely.

Moderator

To succeed, I aim to strengthen the company's core capabilities in four key areas: First, focusing on technology leadership by developing AI capabilities in the physical world across all domains. This includes full stack self development within specific vertical areas and cross domain integration. In vertical areas, we are dedicated to enhancing design, AI and quality. Second, building organizational strength by attracting and retaining top talent suited to each role, and in world class management practices along with automated tools. Starting with the CEO, we will leverage AI to optimize the management, r and d, and collaboration, maximizing organizational compounding effect.

Moderator

The third focus is accelerating in commercialization, shifting from creating user centric products to developing commercially successful products and establishing a strong brand while reducing cost and increasing profitability. Lastly, our globalization approach is unique. Having integrated the global market needs into our product planning years ago, we attract international users with a superior technology and quality to long term growth with patients. Next week, the all new Xpeng P7, a premium intelligent sports sedan in the RMB300000 price range will be officially launched. The P7 reflects our innovative spirit and core values, showcasing the exceptional design and advanced technology can set market trends rather than following them.

Moderator

With its distinctive style, thrilling performance and generation ahead leading AI technology, the P7 is the ideal vehicle for younger consumers. It highlights Xpeng's future design approach for all models following P7, combining top tier technology with superior aesthetics. We are investing more strategically in our styling team to ensure future models deliver innovative, emotionally impactful designs. Since its debut, user interest has vastly exceeded expectations, with presales orders surpassing all previous X PON models during the same period. I anticipate the new P7 will rank among the top three best selling pure electric sedans in the sub RMB300000 segment.

Moderator

With deliveries of the new P7, we aim for monthly sales to steadily surpass 40,000 units starting in September. In Q4, we will introduce the X9 Qunpong Super Electric Edition, our inaugural Qunpong Super Electric Vehicle, marking the beginning of our one vehicle dual energy era. With over four fifty kilometers of pure electric range and a combined range surpassing 1,500 kilometers, this model will lead in range within its category. Moving forward, we plan to launch several more super electric models, each offering top tier pure electric range and 5C ultrafast charging capabilities that exceed those of comparable NEVs on the market. What distinguishes us from automakers and software companies is our decade long delegation to full stack in house development of core hardware and software technologies.

Moderator

This commitment has enabled us to co develop high performance AI chips and foundational models for the physical world, achieving true cross domain integration and speeding up iterations through extensive data sets and computing infrastructure, ultimately leading to AI super agents operating in the physical world. Beginning with the XPON G7 and P7 launches in Q3, we are leading the way in level three in L3 level computing power. All UltraTriMs across our entire model lineup will feature the three in house developed Turing AI SoCs, providing a total computing power of 2,250 TOPS. This positions us as the global leader among mass produced vehicles with over three times the computing power of our latest flagship competitors. These ultra trims also include in vehicle VLA plus VLM models.

Moderator

Driven by Turing AI SoCs, the scale of our in vehicle models will increase by an order of magnitude, reaching billions of parameters, with the BLA models running at twice the frame rate of competitors, truly exemplifying smarter brain agile control and elevating the safety and user experience of ADAS. I expect the Xpeng's VLA plus VLM to become the safest driver and the most attentive smart assistant for users, simplifying and enhancing travel. We plan to roll out the initial VLA model to g seven Ultra owners soon with rapid OTA updates over the coming months. Over eighteen months, our Turing SoC powered VLA is expected to outperform industry mainstream urban ADAS solutions by over 10 times. We aim to meet supervised L3 safety, coverage and user experience, marking a generational lead.

Moderator

Our L4 capable vehicles are scheduled for mass production in 2026, with pilot robotaxi services launching in selected regions. Although aftermarket retrofits enable L4 in some vehicles, no mass produced models currently have OEM integrated L4 hardware and software, a gap Xpeng aims to fill in China. In addition, our latest humanoid robots also have made promising advancements. With our Turing SoC, VLA and VLM, we are quickly moving toward a mass produced version featuring initial L4 capabilities in robotics, and we are actively preparing for mass production in the 2026. During Xpeng AI Tech Day, I will unveil the new generation of robots to everyone.

Moderator

We have introduced the industry's first AI chip dedicated to foundation models for smart cabins, providing over 12 times the effective computing power of the leading cabin processes. Powered by the Turing AI SoC, our VLM model is designed to act as a smart assistant in AI enabled vehicles. It not only collaborates with VLA to enhance assisted driving, but also functions as a robust in vehicle intelligent agent. Looking ahead, it is expected to master multiple languages, communicate empathetically, and offer proactive services, greatly improving the user experience of future AI driven vehicles. I believe our combined independent large model chips plus BLM solution will lead a paradigm shift in the next generation intelligent cockpit technology, encouraging more OEMs to adopt and reference it.

Moderator

Our AI technology demonstrates strong generalization abilities worldwide, not just in China. We welcome partnerships with top global players to explore opportunities for collaboration on our Turing AI SoC. In 2025, our overseas business continued to show strong growth and build a top brand reputation. In the first half of the year, overseas deliveries exceeded 18,000 units, increasing over 200% year over year. Xpeng now ranks as the best selling Chinese NEV startup brand in 10 markets, including Norway, France, Singapore and Israel.

Moderator

And we lead in sales of mid to high end Chinese BEVs across Europe. In July, we delivered the first locally produced XPON X9 in Indonesia, marking a key milestone in our move towards global local manufacturing. By the 2026, we aim to fully launch the entire Kunpeng super electric lineup in international markets, including auto trims, expanding our global total addressable market significantly. As deliveries of G7 and the new P7 ramp up, we forecast Q3 deliveries to be 113,000 to 118,000 units, reflecting a year over year growth of 142.8% to 153.6%. Revenue is projected to reach between RMB19.6 billion and RMB21 billion, representing an increase of 94% to 107.9% year over year.

Moderator

Starting in Q4, we will introduce the one vehicle dual energy strong product cycle complemented by curing AI driven smart driving solutions, which will significantly strengthen our generational lead. We are confident in leading the market at scale, whilst advancing operational efficiency toward sustainable profitability. Over the next three years, our focus will be on expanding market share, both domestically and internationally, maintaining steady growth and harnessing disruptive AI innovation to enhance value for users worldwide. Thank you, everyone. With that, I will now turn the call to our VP of Finance, Mr. James Wu, who will discuss our financial performance for the 2025.

Jiaming Wu
Jiaming Wu
VP - Finance & Accounting at XPeng

Thank you, Xiaopeng. Now let me provide a brief overview of our financial results for the 2025. I'll reference RMB only in my discussion today, unless otherwise stated. Our total revenues were RMB18.27 billion for the 2025, an increase of 125.3% year over year and an increase of 15.6% quarter over quarter. Revenues from vehicle sales were CNY 16,880,000,000.00 for the 2025, an increase of 147.6% year over year and an increase of 17.5% quarter over quarter.

Jiaming Wu
Jiaming Wu
VP - Finance & Accounting at XPeng

The year over year and quarter over quarter increases were mainly attributable to higher vehicle deliveries. Revenues from services and others were 1,390,000,000.00 for the 2025, representing an increase of 7.6% year over year and a decrease of 3.5% quarter over quarter. The year over year increase was mainly attributable to the increased revenues from parts and accessories sales, in line with higher accumulated vehicle sales. The quarter over quarter decrease was mainly attributable to fluctuations in revenues from technical R and D services. Gross margin was 17.3% for the 2025 compared with 14% for the same period of 2024 and fifteen point six percent for the 2025.

Jiaming Wu
Jiaming Wu
VP - Finance & Accounting at XPeng

Vehicle margin was 14.3% for the 2025 compared with 6.4% for the same period of 2024 and ten point five percent for the 2025. The year over year and quarter over quarter increases were primarily attributable to the ongoing cost reduction and improvement in product mix of models. R and D expenses were RMB 2,210,000,000.00 for the 2025, representing an increase of 50.4% year over year and an increase of 11.4% 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 and technologies as the company expanded its product portfolio to support future growth. SG and A expenses were RMB2.17 billion for the 2025, representing an increase of 37.7% year over year and an increase of 11.4% quarter over quarter.

Jiaming Wu
Jiaming Wu
VP - Finance & Accounting at XPeng

The year over year and quarter over quarter increases were primarily attributable to the higher commissions paid to the franchise stores driven by higher sales volume. Moreover, the quarter over quarter increase was due also due to the higher marketing and advertising expenses. As a result of the foregoing, loss from operations was CNY0.93 billion for the 2025 compared with CNY1.61 billion year over year and CNY1.04 billion quarter over quarter. Net loss was CNY 480,000,000.00 for the 2025 compared with CNY 1,280,000,000.00 year over year and CNY 660,000,000.00 quarter over quarter. As of 06/30/2025, our company had cash and cash equivalents, restricted cash, short term investments and time deposits in total of billion.

Jiaming Wu
Jiaming Wu
VP - Finance & Accounting at XPeng

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

Operator

Thank

Operator

If you wish to cancel your request, please press 2. If you're on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, if you wish to ask your 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.

Operator

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

Tim Hsiao
Tim Hsiao
Analyst at Morgan Stanley

So my first question is about the brand position and the product pricing, because Xper's average selling price has declined over the past two years given the product mix. How are you going to reverse the trend and effectively upgrade the brand positioning and the sales mix of high end models? And whether we're going to see more meaningful ASP upgrade and it can accelerate that can help to accelerate expense net profit improvement? That's my first question.

Moderator

Thank you very much for your question, Timothy. And the answer is as follows. As you can see for our sales, it has always been in the range of RMB 100,000 to RMB 500,000. Internally, we are also looking at this and we are approaching this from a few different directions. Number one is with respect to the different layout of our products.

Moderator

Number two is to leverage technology to increase premium. Number three, using emotions to increase premium number four, using the brand to increase premium. So if you look at the P7 that is soon to be launched, and this is in the price range of above 100,000 And soon to be unveiled, X9 will be in the range of RMB400000. In 2026 to 2027, these will be our two major product sales cycles. And there will be multiple of different cars to be launched in the market and their sales price will be above the 300,000 range at the moment.

Moderator

And number two, using technology. And technology has always been our strength, including ultra trim versions as well as robotaxis starting from next year. You will see our investment being increased and we believe that this will further drive up our premium. And the number three, using technology. So we know that ADAS has always been our strength.

Moderator

Apart from the strength of technology and we have another strength, which is aesthetics. Becoming or making aesthetically more beautiful cars will also be able to drive the sales volume. And finally, which is leveraging our brand. And I believe that in 2026 and 2027, these will be the two years of establishing more of a global brand of Xpeng and the speeding up or acceleration of our brands will pick up. So as a result, I do believe that you will see the ASP of our products will increase, so will the gross profit as well as the net profit. Thank you.

Tim Hsiao
Tim Hsiao
Analyst at Morgan Stanley

My second question is about smart driving, because we noticed that since the beginning of this year, several carmakers have launched end to end smart driving solutions in the new vehicles powered by door chips and VOA models. So how should we think about expense to take technology advantage in smart driving against such a backdrop of competition? Specifically, we could expense the Turing chip on ultra training effectively differentiated with a much better software experience versus our competitors? That's my second question. Thank you.

Moderator

Thank you for your second question. And actually, if you look at the current players in the market, when it comes to software and basically all the Tier one players, I would say that everyone is roughly the same. And for those either with computing power or the ones without the computing sufficient computing power, they would have computing power plus LiDAR to make up or bridge the gap. And in a way, we know that with computing power plus model, and plus data, these three factors will be able to provide with better results. And we know that this was an idea or a principle that people have in mind.

Moderator

However, at XPON, we have been able to validate this idea. And as you can see, our total computing power has already achieved 2,250 TOPS. In the meantime, if you look at our peers, they are still at 100 to 700 tops. And once we talk about this, when it comes to data and as well as model scaling and in terms of our frame rate, which is running at 2x of our competitors. And this, again, shows our smarter brain as well as a better control for motion.

Moderator

And in the meantime, for your next question about for UltraTrim and when we would be able to ensure that there is a gap between us as in we leading the race ahead of our peers and for the UltraTrim versions. And we will start with our initial BLA launch. And hopefully, we will bring this to the same level as the MAPS for now. And by end of this year, we would be able to see a significant improvement or difference between us and our peers. And if we're talking about huge differences between us and our peers, I would say that that time will come in next year, not long after this year.

Moderator

And roughly around when you will see the pilot runnings of our robotaxis. And with L4 as well as Ultra Trim, they come from the same source of the same model. And basically, the only difference is that there is no cloud and control. There is no hardware redundancy. So with the UltraTrim plus our Turing AI SoCs, and I do believe next year you will be able to see that our product will be leading ahead of our peers by 10 times or even more.

Tim Hsiao
Tim Hsiao
Analyst at Morgan Stanley

Thank you very much for sharing all the great details and exciting progress. Thank you.

Operator

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

Ming Hsun Lee
Ming Hsun Lee
Managing Director - Head of Greater China Auto research at Bank of America

So my first question is related to your cooperation with Volkswagen because recently you just announced to broaden your cooperation with Volkswagen's EA and expand into a more vehicle model including ICEV. So could you give us more color and guidance regarding the future revenue from the cooperation with Volkswagen?

Charles Zhang
Charles Zhang
Vice President, Corporate Finance and Investments at XPeng

Thank you, Min. This is Charles here. So last week, we announced our fourth cooperation with Volkswagen. Basically, we're expanding our electrical and electronic architecture collaboration from the battery electrical EV in China into the ICE and PHEV of Volkswagen brand China. And we believe that's a major expansion of our scope of the collaboration with our partner.

Charles Zhang
Charles Zhang
Vice President, Corporate Finance and Investments at XPeng

And I think that through this collaboration, we are really creating a very significant strategic value for our partner. And I believe that Volkswagen is probably the only global auto company that possess the technology that has one EE architecture platform across all the powertrain. So through which you can see the value creation that we created by both parties. Obviously, I think it was from X TON side, we're also benefiting from such collaboration. So in terms of your second part of your question regarding the value of the potential creation from our partnership with Volkswagen.

Charles Zhang
Charles Zhang
Vice President, Corporate Finance and Investments at XPeng

As you may be aware of, right now, since Q1 twenty twenty four, we have started to recognize the IP licensing revenue from the G9 platform collaboration later on the ERFetch collaboration. And we believe that in the past couple of quarters, the revenue from such collaboration has been relatively stable within certain range. And for the second half of this year, we see some potential growth potential in such revenue from the past two collaborations. So in terms of the newly entered the expanded EEA collaboration, we the revenue will start to be recognized once those Volkswagen IC and the PHEV vehicles start SOP. So that's basically the third recurring revenue stream on top of the previous two revenue streams. I hope this clarify your question, Min.

Ming Hsun Lee
Ming Hsun Lee
Managing Director - Head of Greater China Auto research at Bank of America

Charles. Thank you. So my second question is related to a robotaxi business. I think the chairman already mentioned this cooperation, this business. So in the future, will you launch the to be version of vehicles to differentiate from your current product for the consumers?

Ming Hsun Lee
Ming Hsun Lee
Managing Director - Head of Greater China Auto research at Bank of America

And also, for your current cars, is it able to provide level four functions next year when you provide OTA service? Thank you.

Moderator

Thank you for your question. And in the future, in my view, there will be two types of vehicles. And the first type will be L4 enabled or L4 capable vehicles And the second type will be L4 capable vehicles with no people driving it. And of course, this will take years to achieve.

Moderator

And we also know that with L4, this will need to obtain the permission and approval by different policies and the regulations. In 2026, for XPONG, we will try out the L4 in different pilots. And of course, the precondition is that we are running these pilot schemes whilst after we have obtained the relevant approvals. In terms of the questions that you have asked, there are areas that I'm not really in the position to to answer today. But what I can try to answer is that, number one, for expensive vehicle, and we are the front market where the mass produced vehicles with the no map, non HD map model.

Moderator

And that is just to say, we do not need LiDAR to scan the whole map, the whole city. And in the meantime, as I have mentioned earlier, we do not have the software redundancy, nor do we need the cloud to take over to manage this. And what we strive to achieve between our future products and the robotaxi is that they would be of models of the same sources and however, there are differences, for instance, for our robotaxis and there will be functions such as when the passengers on the street wave their hands, the robotaxis will stop. But for our own vehicles to consumers, obviously, there is no When there is a passenger on the street waving their hands, our own vehicles will not be stopping.

Moderator

So this is all about strengthened learning of the whole process. And we ourselves, obviously, will carry out our own trials and our own operations. And when all of these have passed and we will be seeking out and speaking to partners and looking at how to expand this further.

Ming Hsun Lee
Ming Hsun Lee
Managing Director - Head of Greater China Auto research at Bank of America

That's all my question.

Operator

Your next question comes from Ping Yu Wu with Citi. Please go ahead.

Ping Le Wu
Analyst - Equity at CITIC Securities Company

Let me translate the questions. First, congratulations on the successful launch of the pre sales of the new P7 and a very highly original design. It's also appreciated by customers who are also leading the area era. And could you please share more about the reason behind the P7 strong order performance? And how do we forecast itself?

Ping Le Wu
Analyst - Equity at CITIC Securities Company

Is it going to be a high volume model just like the first generation of P7 or our latest P7 plus Thank you.

Moderator

Thank you very much for your question. And for P7, yes, indeed, next week, P7 will be officially launched into the market. Certain detailed data, I'm not going to be elaborating on those today. However, there are a few points that I can comment on. Number one is that the attention and interest that we have received in P7 has indeed far exceeded our expectation from end of last year to earlier this year.

Moderator

And in terms of the presales orders, as you have stated, it has exceeded all our historical data sales for different other series of cars such as Mona, etcetera. And if you look at the purchasers and the users, consumers who have purchased P7, and it is also quite interesting. There is a very high percentage of male consumers. In addition, in terms of the age brackets of those who have placed an order for P7, so far it is the youngest age brackets that we have. And their professions are also quite interesting.

Moderator

So this is what we have witnessed so far from the pre sales orders. And for P7, it is not only that it is an aesthetically beautiful car, it is also very strong, sturdy car. So whether you are running on racetracks or running on highways. And what we have received the feedback from the users, as well as from the media reviews, is that the chassis that we have worked together with Volkswagen is rather strong. And so we are getting very good positive feedback from the users, from the media.

Moderator

And our aim is to become the top three in the pure battery vehicles in the pure battery electric vehicles in the price range of $200,000 to $300,000 And of course, we don't know whether we can achieve a better ranking for that, but we will strive to do so.

Ping Le Wu
Analyst - Equity at CITIC Securities Company

My second question is about the robotaxi. And as we renewed our announcement of our robotaxi strategy and what opportunities such as technology or regulatory access do we see currently? Thank you.

Moderator

Thank you for your question. And as you can see, for Xpeng, we are an OEM company and which makes us essentially different from a robotaxi software providers or robotaxi service providers. For Air Force, of course, in order to sell this to the customers and for the customers to be able to drive such cars, there are issues that we need to resolve or we need to go about it, for instance, for regulation issues and technology iterations, etcetera. But as you have stated, once we cross over those humps and once people are able to purchase our four vehicles, in terms of the upper limit of the growth, that has greatly improved. And that is number one point.

Moderator

And then number two, for robotaxis to operate within a certain region, I do think that there will be such possibilities. However, to say that robotaxis will be rolled out on a global scale, I think it is difficult at this stage, at least. And, but I would also say that globally speaking for robotaxis to be rolling out, it is also getting further expanded at the moment. And we know that in the past, people would need to rely on navigation to use their cars and to drive the ADAS system. And in the future, would people be able to rely on others without navigation?

Moderator

And would people be able to update their OTAs by simply relying on the same source codes? And those are questions and challenges that XPON, we hope that we would be able to strive to resolve in the future.

Ping Le Wu
Analyst - Equity at CITIC Securities Company

Thank you so much.

Operator

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

Tina Hou
Tina Hou
Analyst at Goldman Sachs

Thanks management for taking my question. So the first question is regarding vehicle gross margin. We see that on a quarter over quarter basis, it's up by 3.8%, which is much bigger versus previous quarters. So could management help us break down the different factors contributing to this sequential improvement? Thanks.

Jiaming Wu
Jiaming Wu
VP - Finance & Accounting at XPeng

Tina, this is James. Thanks for the question. You're right. I think you mentioned three aspects in terms of the product mix change, cost reduction as well as scale. I think all three factors come into play.

Jiaming Wu
Jiaming Wu
VP - Finance & Accounting at XPeng

What I would say is the majority of the impact is still on the product mix side. So if you remember, the Mona M3 accounts for a pretty significant delivery percentage in the first quarter and that percentage has reduced through the second quarter as we transition Mona into the new version, whereas our new G6 and G9 has increased its product mix in the 2025. What we've seen is the new G6 and G9 has a very healthy gross margin, thanks to the improvement technology as well as the specs that we offer to our customers that they like. In the meantime, we have achieved a higher level of platform commercialization through our engineering efforts. All of that have helped us to achieve healthier gross margin for our new model year changes.

Jiaming Wu
Jiaming Wu
VP - Finance & Accounting at XPeng

In the meantime, as we mentioned earlier, scale also come into play. We have delivered slightly higher volume in the second quarter as well. And last but not least, we have continued our effort through our supply chain optimization, which helped us to further optimize our material costs as well in the second quarter. Thank you.

Tina Hou
Tina Hou
Analyst at Goldman Sachs

Sales marketing So my second question is regarding the operating expenses. So for R and D expense, is management still keeping the RMB 8,500,000,000.0 of annual guidance? And also in terms of the sales and marketing expense, because we're seeing just around $200,000,000 increase from 2Q to 1Q with the new model launch schedule. And if we look at 3Q and 4Q, seems that the new model launch schedule is very similar to the intensity is very similar to second quarter. So should we expect excluding the channel fees, the sales and marketing expense should be quite similar to the second quarter? Thanks.

Jiaming Wu
Jiaming Wu
VP - Finance & Accounting at XPeng

Got it. This is James again. So with regard to the expenses, I'll answer in two parts. From an R and D perspective, you're right. We have been expanding our investment in the R and D segment, particularly to try to basically bring the AI capabilities from the digital world to the physical world.

Jiaming Wu
Jiaming Wu
VP - Finance & Accounting at XPeng

As well as Xiaopo mentioned earlier, we will start to launch the one car with two dual energy platform in the fourth quarter of this year. So we have basically increased our engineering workforce and capabilities throughout this year as well as into the second half. In the meantime, our AI technology investment will help us to enhance our leadership in this area, which includes autonomous driving, robotic investment as well as our enhancement of the engineering workforce. Also, cloud based computational power is something that we have continued to invest as well. So this is on R and D side.

Jiaming Wu
Jiaming Wu
VP - Finance & Accounting at XPeng

With regard to the sales expenses, you're right, the second quarter has a slight increase versus the first quarter, partially also because of our higher deliveries in the second quarter as we pay commissions to our franchise stores as part of that as well. We have product launches in Q2, as you mentioned, but remember, we have more significant product launches in the third quarter, for example, the G7, which is a brand new SUV as well as the new P7. These two launches, I would say, would be more significant and probably would require higher marketing and advertising expenses in the third quarter. And going into end of third quarter and into fourth quarter, we'll be launching the Qunfeng super electric platform as well in our X9 product, which we will also provide and deploy sufficient resource to make the successful launch as well. In that regard, we will continue to invest and make sure the marketing and advertising expenses are appropriate to support the product launches in the second half.

Tina Hou
Tina Hou
Analyst at Goldman Sachs

Thank you very much, James.

Operator

Your next question comes from Xiaoli Li with Jefferies. Please go ahead.

Xiaoyi Lei
Xiaoyi Lei
Analyst at Jefferies

So my first question is about your product strategy. The new the next P7 has made a significant leap in the ethics design. Does this signal a shift in Xpeng's product strategy towards prioritizing design? Should we understand this not just as a short term adjustment, but as a core component of the company's long term strategic transformation?

Moderator

Thank you very much for your question. And the overall answer to your question is yes. So last year, we were looking at this and we were thinking that for technology has always been our strength. And we have always focused on autonomous driving and invested a huge amount of money and resources in the area. However, we have lapped in the other areas and therefore, in the beginning of 2024, we started to think that we should shift more focus on the design as well.

Moderator

And for the past twenty four months, as well as the next whatever months to come and in the near short term future, I would say that the company's target is to ensure that our product does not have any shortcomings. We try and improve the areas that we are doing okay. And further adding on strength to our existing areas that we already outperformed others, which means that we are now currently giving more weightings and giving more attention attention to the styles and aesthetics of our products. In the past, when we look at styles or when we look at aesthetics and design of a car, it comes at last. We first start with the engineering.

Moderator

We first then look at the cost and the positioning of the car. And finally, it comes to the design and style and aesthetics of a car. But now, it is the reverse. Sometimes we look at the style and aesthetics of a car first. We then decide on the engineering, the cost and the positioning of this vehicle.

Moderator

So in Shanghai, currently, we have two buildings that are dedicated to work on the design and styles of our vehicle. In Guangzhou, we have one building, so that's three buildings in total. Globally, we are also building more different centers to help us with the designs. And overall, I would say that we are looking at providing our users with a better physical product as well as a better overall user experience. And for the P7, and you can see that this is a process that we have been able to do so, and that is also the target that we strive to achieve. Thank you. That's very helpful.

Xiaoyi Lei
Xiaoyi Lei
Analyst at Jefferies

My second question is regarding the policy response. As we noticed that China's anti evolution policy has become a key regulatory direction in the auto sector. How's Xpeng adjusting the business operations in response to this policy? And what specific impact will this have on your operations and market positioning?

Brian Hongdi Gu
Brian Hongdi Gu
Vice Chairman and Co-President at XPeng

Hi, this is Brian. Let me address this question. First of all, I think we noticed the recent policy announcements around anti dilution measures. And I think this is actually a culmination of a number of discussions that aim to improve the Chinese economy competitiveness as well as healthiness. I think that's good for the long run.

Brian Hongdi Gu
Brian Hongdi Gu
Vice Chairman and Co-President at XPeng

I think as an industry, we need to have a healthy competition. At the same time, we need to have the ability to reinvest into new technology, reinvest into building better quality products, and this is actually the right direction. From our perspective, we actually always focused on achieving the most innovative technology and products for our customers through relentless innovation, relentless development. And I think this is actually, I would say, coincides with this new policy direction. We feel like by focusing on our target customers, by delivering the best quality, the best technology and products that actually has broader appeal is ultimately will be the right solution and will earn the right recognition both from customers as well as from our partners as well as from our regulators.

Brian Hongdi Gu
Brian Hongdi Gu
Vice Chairman and Co-President at XPeng

So I think in that regard, we will continue to focus on full stack innovation, continue to focus on building innovative, also broadly appealing products to our customers. At the same time, also be able to maintain a disciplined and orderly, I would say, operations. For example, you probably noticed that Xiaopong XPan is actually one of the earliest OEMs to respond to the government's request of improving sort of payment terms. We have really have been making sure that our partners, our suppliers are all benefiting from this new trend. And we believe that ultimately will lead to a more healthier ecosystem and industry for our company.

Xiaoyi Lei
Xiaoyi Lei
Analyst at Jefferies

Thank you. That's very helpful.

Operator

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

Bin Wang
Bin Wang
Research Analyst - Asia Pacific at Deutsche Bank

My question is about the G7 SUV. The company seems to be facing some difficulty in the injection cockpit with the chips. When this issue can be resolved? And what's the normalized monthly volume assumption the company currently have? You.

Charles Zhang
Charles Zhang
Vice President, Corporate Finance and Investments at XPeng

Hey, Binh, I'll just clarify, there's no issue with G7. So the we will we announced that we will deploy the specific touring SoC for infotainment in late in October. And then and when we will roll out the like a VON and the VON models for the G7 customers.

Bin Wang
Bin Wang
Research Analyst - Asia Pacific at Deutsche Bank

My second question about the vehicle gross margin guidance for the third quarter. Previously, the guidance is that only in the number four quarter vehicle gross margin can go to high teens. Because the second quarter vehicle gross margin has been higher than the market expectation, do we expect in the third quarter we already can achieve the high teens vehicle gross margin? Thank you.

Jiaming Wu
Jiaming Wu
VP - Finance & Accounting at XPeng

Hi, Bin. This is James. So with regard to the vehicle margin, yes, we have improved significantly in Q2 and the reasons I have explained before. In the long term, we have always focused on taking into account overall competitive landscape as well as improve our scale as our strategic priority. So overall, we'll take that as our overall guidance from a pricing as well as margin perspective.

Jiaming Wu
Jiaming Wu
VP - Finance & Accounting at XPeng

What I would emphasize is going into the second half as we launch the brand new P7 as well as the X9 super electric version. I would focus on Q4, which we have communicated earlier that we are aiming at profitability in the fourth quarter and that target has not changed. And we have, as you remember, mentioned that we hope to achieve high teens profitability overall profitability in the fourth quarter as well, and that target has not changed as well. Both of that will help us to solidify our target to achieve breakeven in the fourth quarter. Basically, that's my answer to your question. Thanks.

Bin Wang
Bin Wang
Research Analyst - Asia Pacific at Deutsche Bank

Thank you.

Operator

Thank you. That concludes our question and answer session. Now I'd like to turn the call back over to the company for closing remarks.

Alex Xie
Alex Xie
Head - IR & Capital Markets at XPeng

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

Operator

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

Executives
    • Alex Xie
      Alex Xie
      Head - IR & Capital Markets
    • Jiaming Wu
      Jiaming Wu
      VP - Finance & Accounting
    • Charles Zhang
      Charles Zhang
      Vice President, Corporate Finance and Investments
    • Brian Hongdi Gu
      Brian Hongdi Gu
      Vice Chairman and Co-President
Analysts
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