XPeng - Q1 2024

Transcript

Operator (participant)

Hello, ladies and gentlemen. Thank you for standing by for the first quarter 2024 earnings conference call for XPeng Inc. At this time, all participants are in listen-only mode. After management's remarks, there will be a question and answer session. Today's conference call is being recorded. I will now turn the call over to your host Mr. Alex Yi, Head of Investor Relations of the company. Please go ahead, Alex.

Alex Xie (Head of Investor Relations)

Thank you. Hello, everyone, and welcome to XPeng's first quarter 2024 earnings conference call. Our financial and operating results were issued by Newswire Services early 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 Investments, Mr. Charles Zhang; Vice President of Finance and Accounting, Mr. James Wu; and myself. Management will begin with prepared remarks, and the call will conclude with a Q&A session. A webcast replay of this conference call will be available on the IR section of our website.

Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor Provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the relevant public filings of the company as filed with the US 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 a disclosure of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. XPeng's earnings press release contains a reconciliation of unaudited non-GAAP measures to the unaudited GAAP measures.

I will now turn the call over to our Co-founder, Chairman, and CEO, Mr. He Xiaopeng. Please go ahead.

He Xiaopeng (Chairman and CEO)

大家好，我是小鹏。2024年一季度，小鹏汽车的交付量为21,821台，同比增加20%。那么在市场竞争非常激烈情况下，一季度公司的毛利环比是翻倍了，比去年四季度提高了6.7%，那么整体上升到12.9%。那么这标志着小鹏从此在实现了智能电动车业务基础上，我们还通过智能化技术的合作和输出来进行盈利，那么这就创造了一种全新的独特模式。那么小鹏汽车创业了十年，那么坚持在智能电动汽车平台、E/E电气架构和智能驾驶等技术，在高强度进行研发跟投入，目前看来已经转化为良好的财务回报。那么在AI即将颠覆并且重构中国甚至全球汽车业务的时代，小鹏也率先实现了在自研智能化技术的输出的赋能，并且产生了可观的经...

经营性的，经常性的这个收入和利润，这对我们的盈利模式会产生一个深远的影响，也会让小鹏更有底气和坚持继续的全球的技术创新，并且引领汽车行业的科技的变革。

Speaker 11

Good evening, everyone. In the first quarter of 2024, XPeng announced the delivery of 21,821 smart EVs, marking a 20% year-over-year increase. Notwithstanding significant market competition, our first quarter gross margin expanded substantially to 12.9%, doubling from the previous quarter with an increase of 6.7 percentage points. This development underscores XPeng's innovative approach to enhancing profitability and international market potential through the provision of smart technologies based on its smart EV business. This has created a completely new, unique model. Over the past decade, since its inception, XPeng has consistently made a robust investment in R&D for smart EV platforms, electrical, electronic architecture, and advanced driver assistance systems, or ADAS for short. These strategic investments are now yielding positive financial outcomes.

As artificial intelligence continues to redefine the auto industry in China and globally, XPeng has been at the forefront of exporting its in-house developed smart technologies, resulting in significant recurring revenue and profits. This achievement is poised to profoundly impact the company's profitability model, instilling confidence in paving the way for further technical advancements as XPeng continues to lead the technology transformation within the automotive sector.

He Xiaopeng (Chairman and CEO)

那么截止一季度末，我们的在手现金是RMB 414亿元，那么大幅度改善的毛利以及充裕的现金，让我们小鹏可以更加关注决策长远的战略选择。所以小鹏的战略将不会像以前一样着眼于-仅仅着眼于销量增长，我们更追求，这个在这么卷的市场里面，追求高质量、高效率，全面地提升公司的综合能力，使我们的长板更长，且没有短板，把小鹏汽车打造成一个多边形战士，这样才能够在长跑里面获取更大的规模和利润。我非常开心的是，小鹏比绝大多数企业提前更久开始有这样的思考，并且做这样的变革，而且现在变革非常的这个稳健。那么接下来我们将会坚定地推进整个的变革的调整。...

并且加快关键人才的引进，继续提升公司的组织能力，战略的执行力。那么通过高度整合的今天的这个小鹏的大AI的智能技术平台，我们还有信心在全球范围内更高效地推出将来更有更强竞争力的车型，引领AI自驾汽车的大范围的普及。

Speaker 11

At the end of Q1, we had RMB 41.4 billion in cash. With our significantly improved gross margin, this healthy cash position allows us to concentrate more on strategic initiatives for the future. Our strategic transformation is not solely focused on boosting sales volume as in the past. We are also dedicated to achieving excellence in quality, efficiency, and overall enhancement of the company's competitiveness. By leveraging our strengths and addressing any weaknesses, our goal is to become well-rounded and pursue larger scale and profits in the long run. I am very delighted to say that we have been able to start this thinking and have this vision much earlier on than our peers. Moving forward, we will vigorously drive this transformation whilst accelerating crucial talent recruitment and improving organizational effectiveness and strategic execution.

We have confidence that with our hyper-integrated, comprehensive intelligence technology platform, XPeng is well positioned to efficiently launch highly competitive models worldwide and lead the widespread adoption of AI-powered smart cars.

He Xiaopeng (Chairman and CEO)

那么在今年以来，小鹏汽车逆势反而在招聘，我们在多个领域现在都有顶尖人才加入我们，包括了自动驾驶、品牌营销、造型设计等。那么有部分的，这个我们近期会把大家介绍给大家，我们也会加快营销、客户体验、造型等方面能力，提高到行业的最前沿的水平。要把好的技术转变变成好的客户体验和好的产品，又要用好的营销，把技术和产品的价值更好地传播给我们的客户。所以在补齐短板的基礎上，我们在行业领先的AI能力和我们的整体的技术开发体系支撑，我们会在全球快速地进行规模化的布局，那么把这个客户导向的产品做得更好，那么我们相信，这也是我们取胜的长板优势。

Speaker 11

Since the beginning of 2024, XPeng has been actively recruiting top talents in ADAS R&D, brand marketing, style design, and other key areas. We will soon introduce them to you. Our goal is to rapidly elevate our marketing, customer experience, and design capabilities to industry's most cutting-edge levels. This will enable us to effectively translate our advanced technologies into compelling product experiences and utilize the marketing strategies to better communicate the value of our technology to customers. With our weaknesses are properly addressed, our industry leading AI capabilities, comprehensive R&D framework supporting rapid global scalability, and customer oriented product design, will better serve as the competitive edges that set us apart and drive our success.

He Xiaopeng (Chairman and CEO)

那么第一季度，我们的大七座旗舰车型X9在上市后就成为了纯电MPV以及纯电三排座车型的销量冠军。那么我认为X9的成功充分说明了产品品类创新、技术创新才是更有效的竞争手段。那么在今后几年内，我们将会继续基于X9的良好口碑跟经验，继续丰富我们的高端系列的产品线，为大家庭用户提供搭载更先进智能技术，并且在造型、空间、舒适、豪华感都能够媲美百万豪车的大型车的车型。

Speaker 11

During the first quarter, the X9, our large seven-seater flagship model, emerged as a top seller in the pure electric MPV segment, as well as the pure electric three-row model segment following its market launch. The success of the X9 firmly establishes the product innovations and technological advancements as our most effective competitive edges. Moving forward, we will confidently build on this success to enrich our premium product portfolio. Our aim is to provide family customers with the most advanced smart EV technologies in large vehicles, delivering styling, space, comfort, and opulence akin to luxury luxury cars priced above RMB 1 million.

He Xiaopeng (Chairman and CEO)

那么从今年第三季度起，我们将会开启在三年内推出多款全新造型的一个强劲的产品周期的开始，那么它会覆盖RMB 10-40万这个价格带的主要的细分市场，这其中包含了多个像X9一样专注品类创新的新物种产品。我们的所有的产品都会坚持智能驾驶的领先，同时通过多个产品序列，在价格区间和设计上去满足不同客群，包括中国甚至全球的差异化需求。我们的目标是在智能电动汽车时代，打造一个像大众汽车一样覆盖全球市场多种产品类型，拥有广阔客群的一个超级品牌，并且让AI自驾成为最重要的品类。

Speaker 11

...In the third quarter of this year, we will embark on an extensive product launch cycle, introducing a number of new models within the next three years. These models will cover major price segments, ranging from RMB 100,000 to RMB 400,000. Like the, like the X9, our new models will come with disruptive innovations to target new segments. All products will feature cutting-edge ADAS technology, and with various product series, we will cater to diverse customer needs in pricing and design, both home and abroad. We are committed to establishing a Volkswagen-like super brand in the EV space, with a global market presence and a wide-ranging product portfolio that caters to broad customer groups, ultimately bringing AI-powered vehicles into the mainstream.

He Xiaopeng (Chairman and CEO)

那么，MONA产品系列的首款，也是A级纯电轿车，将会在今年6月份亮相，那么并且在三季度正式上市跟规模交付。我相信这是一款颜值爆表，甚至来说，在RMB 20万以内的所有的车的颜值肯定是最高，且高智能，同时成本具有相当竞争力的产品。我相信MONA会成为A级纯电市场的超级明星产品。那么在明后年，我们还会在A级车的平台推出多款不同产品，并且我们也会把小鹏的XNGP自动驾驶也会打到这一价位段的车上去，那么在这个销售规模最大的价位段，去普及高等级智能辅助驾驶。

Speaker 11

Our new A-class electric sedan, the first model of our MONA series of products, will debut in June and officially launch and commence mass delivery in the third quarter of this year. This groundbreaking product boasts exquisite styling, advanced intelligence, and a highly competitive cost structure, making it a potential favorite among younger consumer groups within the RMB 200,000 price range. We are confident that it will set the standard in the A-class BEV market. Over the next two years, we will introduce several additional products based on the A-class platform. In addition, we are determined to target the A-class, the RMB 100,000-RMB 200,000 price segment, where the highest sales volume is with our high level ADAS.

He Xiaopeng (Chairman and CEO)

那么在今年的四季度，我们还将交付一款小鹏汽车品牌的全新的B级纯电轿车型。那么这款新车是基于我们最新的这个技术规模技术样本的首发车型，我们期待它将成为下半年B级纯电市场的一款爆款。这款B级新车加上MONA车型的贡献的增量，让我们很有信心，在今年的四季度会实现月交付量同比有大幅度增长。

Speaker 11

In the upcoming fourth quarter, we will be launching a new XPeng branded B-class battery electric sedan. We have successfully achieved a 25% cost reduction through technological advancements for the first time with this model. We expect it to become a best-selling B-class BEV model in the second half of this year. With the incremental volume from this new B-class model and MONA, we are confident of substantial year-over-year growth in monthly delivery volume in the fourth quarter.

He Xiaopeng (Chairman and CEO)

那么从5月20号的AI Day开始，我们融合了大型模型的AI天机系统，包括了智能座舱跟智能驾驶的能力，已经全量推送给我们的主力车型。那么这在中国汽车的行业是率先实现了第一个无高精地图，第二个端到端自动驾驶大模型的量产。那么这个在技术架构上领先了现在的友商1-2代。那么如果完全不使用高精地图，可以让小鹏在今年3季度，我们的XNGP不仅实现以前大家所期待的全国城市都能开，而且我们期待是达到每一条路都能开，而且这在将来可以让小鹏的自动辅助驾驶更有效地向全球进行推广。而端到端的大模型的升级意味着什么？意味着自动驾驶能力之后的每个季度，都可能拥有以前倍数级别的提高，将程序员人为编写的规则方式修订为用模型来进行训练跟推理使用。那么接下来，小鹏汽车的软件跟AI升级，会从原来的平台构建，进入到快速升级的这个超快周期，以后会按月进化，那么XNGP的价值又会快速地提升。那么我们的计划是，在2025年让城市自驾的体验追平当前最高等级的高速上的体验。那么也就是说，可以在一个城市里面实现数百公里，才需要接管一次的水平。

Speaker 11

On AI Day, May the twentieth, we began the full scale rollout of our AI-powered in-car operating system, XOS 5.1 or AI Tianji OS. This cutting-edge large model built system seamlessly integrates AI technology into smart cockpits and ADAS. XOS 5.1 is available to all owners of our major models, solidifying XPeng's position at the forefront of the non-HD map and end-to-end AI model applications in China and in China's auto industry, which means our technology architecture is one or two generations ahead of our competitors, without using any of these HD maps, and which also means that by third quarter of this year, XNGP not only would be able to roll it out in all the national roads, and we would be able to drive on all the roads around China, and from end to end to have this in all the cars.

Which means that going forward, in terms of autonomous driving capabilities, in each quarter, we would be able to see exponential times of improvement. And this would mean that in terms of the old way of human-made method of route and the coding method, this will be revised into the training of models and based on the algorithms. We aim to have XNGP accessible on all the roads nationwide by the third quarter, as I have said. And our end-to-end AI model will enable us to rapidly advance our software and AI technology on a monthly basis. And we predict that by the end of 2025, we will be able to elevate the city road ADAS experience into much of that of the current highway NGP, which means only one manual takeover per hundreds of kilometers of driving.

Our XNGP is expected to achieve driving capabilities that are equal to or surpass those of the human drivers in complex scenarios. This will soon be possible as our ADAS technology architecture is powered by advanced end-to-end AI model, with extensive training using massive amounts of high-quality data, underscoring our competitive edge in data. With our B-class sedan model commencing deliveries in the second half of this year, broader customers base will soon have access to AI-powered ADAS features. The widespread adoption of a high-level ADAS will accelerate and rapidly scale up our XNGP fleet, which in turn will generate a tremendous amount of data to expedite AI model training and iteration. Large AI models will bring our owners an unprecedented AI-powered driving experience, boosting the penetration of its smart EVs equipped with high-level ADAS features.

Regarding the international market, this year, we will expedite our expansion into drive sales and profit growth. We plan to expand our overseas sales network from Nordic countries to over 20 countries worldwide. In the first half of 2024, we established partnerships with the leading auto dealership groups in Western Europe, Southeast Asia, the Middle East, and Australia. New sales stores have gradually opened under these partnerships. In early April, we shipped nearly 1,000 G9s worth over RMB 500 million to Europe. In May, we announced the selling price and started accepting pre-orders for the G9 and G6 models with a left-hand drive in Europe. We plan to introduce the right-hand drive G6 in the third quarter. Highway NGP tests in the overseas markets are progressing well, too. Our product strengths, such as ultra-fast charging and smart technologies, are highly valued by overseas dealers and consumers.

XPeng is confidently positioned as a mid- to high-end tech-savvy brand in international markets, offering superior product experiences and eco-friendly smart EV models.

He Xiaopeng (Chairman and CEO)

那么我们与大众汽车集团的长期战略合作伙伴关系在不断的深化，并且合作的规模也在迅速扩大。在四月十七号，我们很高兴宣布，小鹏汽车与大众集团在不到一年的时间里面达成了第三项战略合作。那么小鹏和大众将为大众汽车在中国市场的电动车平台，联合开发行业最领先的电子电气架构。那么这个平台将集成小鹏汽车当前最新一代基于中央计算跟域控制器的电子电气架构技术，从2026年起，全面应用在中国生产大众汽车品牌的电动车型。那么我们期待与大众的伙伴一起，在全球汽车行业里面，面向AI自驾时代的转型浪潮中间，找到更多合作共赢的机会，创造更大的战略的协同价值。那么从今年一季度开始，平台和软件的技术服务收入已经开始成为我们收入的重要来源，这标志着小鹏汽车已经发展出与传统车企不一样的全新的商业模式。那么我们的行业领先的智能化技术，将不仅仅通过小鹏汽车品牌的销量变现，我们还可以跟全球最领先的品牌合作，获得更大的市场影响力和更好的财务回报。

Speaker 11

Our strategic partnership with the Volkswagen Group is rapidly deepening and expanding. Within just one year of establishing our partnership, on April the seventeenth, we announced our third strategic cooperation project with Volkswagen. This project involves the joint development of industry-leading E/E architecture for Volkswagen, the EV platform designed for the Chinese market. This platform, which will be applied to China-produced Volkswagen branded EV models starting from 2026, will integrate XPeng's latest generation of E/E architecture based on centralized computing and domain controller technologies. We are confident in our ability to leverage more mutually beneficial cooperation opportunities with Volkswagen, and create significant strategic synergies as we lead the global automobile industry's transition into the AI-powered driving era. Since the first quarter of 2024, our platform and software services has become a significant driver of our earnings.

This clearly showcases XPeng's innovative and unique business model, setting us apart from the traditional auto companies. Our cutting-edge smart technologies not only enhance the monetization through XPeng's branded EV sales, but also through partnerships with a world-leading auto OEM. This will result in an expanded market presence and increased financial returns for our company.

He Xiaopeng (Chairman and CEO)

我再次强调，在这么卷的市场里面，一定不要仅仅为了追求销量规模，更重要的是要让产品全能。所以尽管我们在第二季度仍然面对车市的诸多挑战，但是小鹏包括组织在内多项变革调整还在坚定持续的执行，但是我们已经看到了这些调整所带来的积极的影响。我们预期，2024年第二季度的总交付数量约为29,000-32,000辆，同比上升25%-37.9%，那么环比上升32.9%-46.6%。那么收入预计约为RMB 75-83亿元，同比上升48%-63%。那么我期待今年下半年大家会看到更多变革的成果落地，特别是从今年第四季度10月份开始，小鹏将会进入更高速度发展的一个快车道。我相信这次无论销量、利润率、现金流，还包括我们的自驾的能力，我想我都有信心获得巨大的突破，并且我的目标是在之后的时间更加稳定下去。

Speaker 11

I would like to reiterate, in this ultra competitive market, we should not only have our eyes on the scale of the sales, rather to focus on becoming a well-rounded player in the market. Despite the headwinds in the auto market in the second quarter, we have already observed a positive impact from our ongoing organizational and transformative changes.

That said, we anticipate that the total delivery volume will range between 29,000 and 32,000 units in the second quarter of 2024, reflecting a year-over-year increase of 25% to 37.9% and a quarter-over-quarter increase of 32.9% to 46.6%. Furthermore, we predict that our second quarter total revenue will fall within the range of RMB 7.5 billion-RMB 8.3 billion, representing a year-over-year increase of 48.1% to 63.9%. We anticipate witnessing more transformation driven results in the latter half of this year. Starting in October, we will be poised to enter a fast track growth phase, confident in achieving significant breakthroughs in sales, volume, margins, cash flow, and AI powered ADAS system, and this is for the long run into the future as well.

He Xiaopeng (Chairman and CEO)

那么谢谢大家！下面由我们的财务VP James为大家介绍我们在2024年第一季度的财务状况。

Speaker 11

Thank you everyone again. With that, I will now turn the call over to our VP of Finance, Mr. James Wu, to discuss our financial performance for the first quarter of 2024.

James Wu (VP of Finance and Accounting)

...Thank you, Xiaopeng. Now let me provide a brief overview of our financial results for the first quarter of 2024. I'll reference RMB only in my discussion today, unless otherwise stated. Our total revenues were RMB 6.55 billion for the first quarter of 2024, an increase of 62.3% year-over-year, and a decrease of 49.8% quarter-over-quarter. Revenues from vehicle sales were RMB 5.54 billion for the first quarter of 2024, representing an increase of 57.8% year-over-year and a decrease of 54.7% quarter-over-quarter. The year-over-year increase was mainly attributable to higher deliveries, particularly the Model X9 in the first quarter of 2024.

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

Vehicle margin was 5.5% for the first quarter of 2024, compared with -2.5% for the same period of 2023, and 4.1% for the fourth quarter of 2023. The year-over-year and quarter-over-quarter increases were primarily attributable to the cost reduction and the improvement in product mix of models, partially offset by the inventory provision and losses on purchase commitments related to the Model P5, with a negative impact of 3.2 percentage points on vehicle margin for this quarter. As management lowered the P5 forecasted sales due to the expected stronger market demands for the upcoming new vehicle models.

R&D expenses were RMB 1.35 billion for the first quarter of 2024, representing an increase of 4.2% year-over-year and an increase of 3.3% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly in line with the timing and progress of new vehicle programs. SG&A expenses were RMB 1.39 billion for the first quarter of 2024, which is flat on a year-over-year basis and a decrease of 28.3% quarter-over-quarter. The quarter-over-quarter decrease was mainly due to lower commissions to the franchise stores and lower marketing, promotional, and advertising expenses.

Fair value gain on derivative liability relating to the contingent consideration was RMB 0.18 billion for the first quarter of 2024, compared with RMB 0.03 billion for the fourth quarter of 2023. This non-cash gain resulted from the fair value change of the contingent consideration related to the acquisition of DiDi's smart auto business. As a result of the foregoing, loss from operations was RMB 1.65 billion for the first quarter of 2024, compared with RMB 2.59 billion for the same period of 2023, and RMB 2.05 billion for the fourth quarter of 2023.

Net loss was RMB 1.37 billion for the first quarter of 2024, compared with RMB 2.34 billion for the same period of 2023, and RMB 1.35 billion for the fourth quarter of 2023. As of March 31, 2024, our company had cash and cash equivalents, restricted cash, short-term investments, and time deposits in total of RMB 41.4 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 first quarter 2024 financial results. This concludes our prepared remarks. We'll now open the line to questions. Operator, please go ahead.

Operator (participant)

Ladies and gentlemen, 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. For the benefit of participants on today's call, if you wish to ask a 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)

谢谢 you, 管理层, 这是我的提问。我这边有两个提问。第一，首先，也恭喜贵司在这个大众合作的项目上面进一步的有所突破。那想请问一下，是不是能够针对一季度大众合作的这个平台，软件技术收入的一个规模做一个量化？那另外，在接下来几个季度的贡献是不是可以预期会逐季上升？

那另外，上个月公布的这个电子电气架构的这个协议的收入，是不是有机会在今年认列？好，这是我的第一个问题。So my first question is about the revenue contribution from the collaboration with Volkswagen. Can the management roughly quantify the contribution of the service revenue from Volkswagen in first quarters? And, we know that is recurring, so will it continue climbing quarter-over-quarter in the following months? And is there any chance that the revenue from the new agreements related to the E/E architectures could those come due within the year? So that's my first question. Thank you.

Charles Zhang (VP of Corporate Finance and Investments)

Hi, team, this is Charles. So the platform software collaboration revenue from Volkswagen has been recorded in the service and other revenue in Q1. As you know, that it is a recurring nature, so I think that going forward, every quarter, we will be able to book such platform and software technical services revenue. So in Q1, we booked a multi-hundred million RMB platform and software services revenue. And I think we believe that in the subsequent quarters, such revenue will be more than what we booked in Q1. And so obviously, I think that given the nature of the platform and the software revenue, it is very high margin business for us.

We believe that with our vehicle sales business and also the platform and software technical services revenue, our company level GP margin can be sustainable at the low to mid-teens GP margin percentage. Therefore, I think that we, as Xiaopeng pointed out, that we created a very unique business model in the auto industry. In addition to that, we will continue to deliver our cost reductions through technology and also the supply chain, and to further improve our vehicle GP margin. To address your question regarding the revenue from the E-architecture, we expect that the revenue from the E-architecture will start to be recognized from the second half this year. Thank you.

Tim Hsiao (VP and Equity Research Analyst)

Got it. Thank you very much, Charles. Now, my second question is about the modeling, because we noticed that XPeng is to leverage end-to-end large model to upgrade XNGP by third quarter of this year to cover basically all roads in China, and will achieve a level four vehicle autonomy next year. To achieve that targets, should we expect XPeng to meaningfully increase R&D spending during the period? And when do you think such a technological leadership can translate into upside to new car sales or potential monetization opportunity? That's my second question. Thank you.

Speaker 11

So thank you very much for your question. And, before I answer your question, there's one correction to make, and which is that, we hope to achieve the ability of L4 next year. And, however, we know that, being able to actually implement that, would also need to have the hardware as well as the rules and regulations to catch up. So that's point one. And point two, with respect to the large models, and we know that, AI large models is going to have a huge impact on all the companies involved. And therefore, as we say in the past, in terms of the rules and regulations people have, and those need to change, and the large models will actually generate these new rules.

And thirdly, we don't actually need to increase our manpower at the moment, and we have about the same amount of people working, continue to work on globalization. In terms of how fast it's going to take or what the speed is going to be like?

I would say that it's hard to say, it's hard to quantify. In the past, when we relied on human power and one would be able to say how many people we would need, how much time we would need. However, with a large model, models, and it's about, you know, the scale, the algorithm and the speed, et cetera. And my original thinking was that it's going to be the latter half of 2025, and now, with the faster development of the technology and AI, and I think that it would be earlier than 2025 or possibly next year. So we'll wait and see.

Operator (participant)

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

Ming Lee (Managing Director and Head of Greater China Auto research)

Xiaopeng He 以及 各位 管理 层，你们好！那我这边，也是两个问题。那第一个问题呢，是有关于是之后的一些车型的一些，有没有更详细的一些说明，那主要的话，第三季的这个 MONA Project，它的，就是 to B 车 跟 to C 车，它的这个节奏大概会是怎样？然后，接着的话，能不能讲一下，就是说，因为明年之前有提到说，应该每季都有，至少一款新车，那可不可以请管理层大概给我们量化一下，说比如说有多少款车是小鹏牌，然后多少的车是这个 MONA 牌。对，那我先翻译一下我的问题。So, my first question is related to more details of your new product pipeline.

So in the second half, you will have two products. The first product is related to MONA project. So could you give more details regarding the launch timing for the to B version and also the to C version? And for the next year, the product pipeline, could you also give some guidance regarding the numbers of your MONA brand product and also your XPeng brand product? Xie xie.

He Xiaopeng (Chairman and CEO)

首先我想说明呢，这个，我们所有的车型，我们的主力的客户全部是to C的，我们不会考虑，在to B领域有大规模的车型，包括MONA，包括所有的，这个是。所以，MONA在一开始设计的时候，就是以最高颜值去设计的，所以在高颜值的情况下，我们也不认为他在to B的市场是有一个巨大的可以有一个渗透率。那么在从今年第三季度之后，我们在不同的季度会有不同的这样一些车，有的季度会比较多的车，也有的季度可能是只有一些改款车的组合。那么同时我们在从2024年第三季度到2026年，我们会持续有，这个相关的这个车型。那么关于这个具体的，这个，这个产品的规划突破，我们在这里就不方便去跟大家大众来分享，但今年的这两款，我们已经刚刚在这个财报里边得到了分享。先帮我翻译一段，谢谢。

Speaker 11

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

Then some quarters, perhaps there will be a few more different models, and in certain quarters, perhaps this will be simply an updated version of an existing model or a mixed version model, so to speak. Starting from 2024 to 2026, we will continue to roll out different car models into the market. In terms of the specifics, I don't think that I'm in a position to release the further details to the market at the moment. Our plans, you have already heard in my previous presentation.

He Xiaopeng (Chairman and CEO)

那么这个MONA会是小鹏一个系列，我们在下个月会来跟这个市场回来分享我们在MONA上的一些思考。那今天，还是重复一下刚刚所说的，MONA有非常好的颜值，而且我们期望有不错的这个利润，而且我们期望在MONA里面有不同等级，包括最高等级的这个智能驾驶，能够把这个自驾，从原来的，从当前的200,000以上为主价格段，打到这个200,000以内，这是我们在MONA的一些思考。谢谢。

Speaker 11

So the second part of my answer to your question, and for the MONA series, actually going forward, next month, we will have more to share with the market in terms of our thinkings about this series. As I said before, for MONA series, we are looking at building a car that is the most beautiful and the most aesthetic on the external. In addition, we also hope that this is a car that will bring the company good amount of profits, and it will also cover various grades of intelligent or autonomous driving. We hope that in the past, for autonomous driving, it was mainly for the cars in the price range of above RMB 200,000.

With MONA series, we hope to bring the autonomous driving into the car with a price range of within RMB 200,000.

Ming Lee (Managing Director and Head of Greater China Auto research)

Hello. You take a diaspora, because sometimes XPeng brand is also going to Hong Kong. Now, which I know you taking it to different countries.

Now, can we please, Xiaopeng and Brian, you这边，可以多分享一下 just 我们的今年的这个，海外的这个，布局啊。那包括就是说原先指引的就应该是，几万台的一个销量，然后包括我们现在进去这个海外市场的这个，速度跟进度是跟我们原先预期的，符合，还是说，有机会再超前一些？然后另外在海外的话，刚才小鹏总也提到，就是说这个，高速的这个，N NGP的这个，测试是很顺利的，那，在这个部分的话，比如说R&D的投入会，是一个比较高的金额吗？还是说其实我们带着就是从中国这边的有些技术，出海的话，其实这个，它的这个复制能力都是，都是比较容易的。谢谢！那我也翻译一下我的第二个问题。So, last week, XPeng brand officially entered the Hong Kong market, and also, in the next few months, XPeng will enter more and more countries, especially South Asia.

So right now, based on your product launch in overseas market and also the progress of you're entering a new market right now, are you ahead of your original target, which you mentioned that the total volumes will be a few times more than 10,000 units? And, will you incur more R&D expense because you will also provide XNGP functions in the overseas market?

Brian Gu (Vice Chairman and President)

Hey, Ming, it's Brian. Let me address your question. First of all, regarding our overseas plan, I would say this year we are, as you can see, accelerating our pace of international development. We are targeting to roll out to more than 20 countries, with our, you know, industry-leading, you know, technology advanced EVs. The exact number of markets obviously also correlates to the type of models that we can make available to these markets. For example, right now in Europe, we are already selling the G9 and P7. We are launching the left-hand driving G6 this month. We'll hopefully deliver very soon.

In other markets, for example, in Southeast Asia, and or you point out Hong Kong, we're launching the right-hand driving G6, I would say probably in a couple of months. And also, will probably be followed with the right-hand driving X9, to be delivered, probably by the end of this year or early next year. So as you can see that, the whole international expansion is on track. We think, the original guidance we gave in terms of number, in terms of, you know, tens of thousands, as well as, this quarter, we would like to achieve, more than 10% of our overall delivery numbers are still valid. So those are the right guidances we want to give on the international expansion.

Regarding the technical, XNGP-related, smart driving technology, we are actively now testing a number of overseas markets, currently also working with regulatory bodies to make sure that this complies with and also developing regulations in these markets. The development is actually not gonna make material increase in our overall R&D. First of all, I think we are still very targeted in the number of markets that we want to bring the subsets of our XNGP capabilities. But again, also, just to echo what Xiaopeng just mentioned, our capability of development also has been increasing now with the help of AI and large model capabilities.

Also removing the need for the map, as well as using the large language model to accelerate the development in different scenarios, also will benefit our development overseas. So in all, I think we will, you know, look forward to seeing some of these capabilities being made available by later this year, as well as probably early next year in some of the overseas markets. And also at the same time, we don't see material increases of R&D expense because of that effort.

Ming Lee (Managing Director and Head of Greater China Auto research)

Thank you, Brian.

Operator (participant)

Your next question comes from Bin Wang with Deutsche Bank.

Ben Wang (Director and Head of China Offshore DCM)

谢谢各位领导，我有两个问题。第一个呢，想请您能不能描述一下我们四季度的场景啊？因为刚才领导说到那个四季度的销量会跟去年有一个很高的增长，去年我们四季度单月应该都在20,000台，能否假设就是我们在今年四季度都很大的增长，能达到30,000台呢？如果是30,000台的话呢，我们怎么在现有产品以及这个MONA，还有那个F57这个大型轿车中间一个分配。啊，同时呢，在这么好的销量的的时候，我们的毛利率应该怎么看？因为到那时候呢，我们也有三个因素，比如说我们的再大量的成本，出口更高的毛利，还有更多的大众这个EEA的贡献，我们毛利能够否达到15%？这是我的第一个问题。...

My first question is about the fourth quarter this year. You're actually very confident about our fourth quarter this year, if you just say that the volume will have a very high growth. If we assume there will be, say, 50% growth, and last year in the fourth quarter, monthly volume was at 20K. So if it was 30K, what's the breakdown between the existing products and upcoming MONA and the F57 large sedan there? Meanwhile, can you comment about the margin? Because we see three drivers for the margin. Number one is the cost reduction, second is the export, certainly have a higher margin and third one, additional E/E income from Volkswagen. So if that gross margin goes to 15%? Thank you.

Brian Gu (Vice Chairman and President)

Hey, Bin, it's Brian. Let me just respond. First of all, in the fourth quarter of this year, you will see that our MONA product will be in full delivery, and also we'll be launching the delivery of our the B segment sedan. So those two product will contribute very meaningfully into the monthly delivery in the fourth quarter, but at a very different at a different stages, as you can tell, because the starting of the delivery is different. So we are very excited about the prospect of both products in terms of generating significant volume. I would say, the I would say, assuming both models are in full delivery month, I think the the monthly numbers we anticipate significantly increased over last year's comparable monthly delivery number is achievable.

That's what we believe. Again, I'm not gonna give you the exact number as well as breakdown, but that's how we envision the delivery number growth. But also what I want to emphasize is that, as you just heard, that this, these two product is only the beginning of our super product cycle, that will last probably for the next 18-24 months. And also, because the early next year, and we will also have additional products as well as updated models to be launched in the subsequent quarters, we want to make sure that the growth profile maintains stable as well as under control.

So we actually want to make sure the additional volume that we wanna achieve on a monthly basis is growing in a more stable and sequential manner rather than episodic, you know, big bursts, like, you know, some other model launches you've seen. So I think that's you know gonna probably last until the remaining of next year, given the other models will related, hopefully will give you a prelude in the next few quarters of earnings. In terms of margin, I would like to comment. First of all, I would say the MONA model even though it's an A-class sort of sedan, we are still anticipating healthy, positive margin contribution from this model and also in healthy quantities.

For the B-class sedan, we think it's gonna be higher margin than probably our current models except the X9. So both will contribute, I would say, materially to the product profit mix, gross profit mix. And also, as Charles mentioned, the contribution from Volkswagen will continue to become a steady, recurring income. At the same time, we anticipate additional contribution from E/E Architecture collaboration. So with all these contributions, as well as our sort of view currently on the potential gross profit margin for the new products, we are maintaining healthy mid- to low- to mid-teen margin gross profit for our overall business by the end of this year.

Ben Wang (Director and Head of China Offshore DCM)

Okay. The other question, and the second question is that we do see our peers actually launch the EREV version, and it won't have a big increase. What's our plan for our powertrain? We are also launched an EREV version for the product. Thank you.

Speaker 11

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

He Xiaopeng (Chairman and CEO)

接受了混动之后，他们发现，原来我一年才加油几次，但是平常是经常要充电，所以他们开始更多地接受纯电的产品。所以我们今年会加速在超快充，甚至S5超快充的建设，最近我们建得非常快，要加快这种用户的补能体验。我相信很多的混动车主，他们在下一款车都很大概率会愿意换成纯电，这是我们看到的第一個需求。请帮我翻译，谢谢。

Speaker 11

please allow me just to supplement a few points, and my first point is that yes, indeed, in the past one year and in the next year to come, we will see that there is quite a lot of demand coming from the market, from the consumers for PHEVs. However, you will see that a lot of these consumers, they will realize that despite having a PHEV and out of a year, in terms of the time that they actually go to the petrol station and to get it filled up, is very little, only just a few times. And by having this experience, more and more consumers actually have more confidence in BEVs, in pure electric vehicles, so to speak. And at the moment, we are also working hard on the construction and the building of our S5 series of products. And I do believe that for consumers having experienced PHEVs and for the next car model, and it is very likely that they will go for BEVs.

He Xiaopeng (Chairman and CEO)

那么第二个部分呢，就是这个，实际上从技术角度，从增程到纯电的跨越难度要远高于从纯电到增程。那么但是我们相信，当前这一代的增程实际上已经看到了很多挑战，例如，在全球化上碰到了很多挑战。中国汽车是以在城市里面开为主，而部分海外的国家是城市跟高速都占相当，相当的比例。那么在高速增程的当前的体验是有非常多的问题。那么所以换一个角度，对小鹏来说，在增程领域，下一代增程是什么样的？这是我们更多的思考，所以在更后面希望再跟大家分享我们对于这些的看法，谢谢。

Speaker 11

In addition, in terms of the technology and the movement from these cars and into BEVs, actually it's quite a jump into in terms of the technology. And you can also see, if we look at it globally, and you know, for instance, in certain countries in Asia versus certain countries in Europe or in elsewhere, and sometimes certain cars could only run on a certain path or certain roads, etc. And we do think that it is not as simple, it is not as straightforward as what we hear from the market, and we do think that we would need to be very cautious, and we need to maintain very vigilant. And for XP, obviously, we will also continue to watch this space very carefully.

Operator (participant)

Your next question comes from Paul Gong with UBS.

Paul Gong (Head of China Automotive Industry Research)

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

He Xiaopeng (Chairman and CEO)

Yes, when we first started doing end-to-end models, from a certain angle it was consistent with your idea. We all had this very big worry. But as technology advanced, we saw the huge value of end-to-end models. We all know that all large models have uncertain factors, but the most important thing is how you go about building your controller, just like your brake system, your black box safety system. So in this aspect, I think what's relatively good is that XPeng, in past autonomous driving efforts, did a large amount of work related to safety control and safety game theory. There are many things here that we can continue in the end-to-end part, in this area, where we add control over capabilities; this is the first one. Second, we want to establish a huge simulation, a complete testing system, to be able to do more of this in simulation...

在 这个 里面 去 花 了 非常 大 的 力 气 ， 正在 去 做 的 这个 事情 。 好 ， 先 帮 我 翻 译 这一 段 ， 谢谢 。

Speaker 11

...Thank you very much for your question. Yes, indeed. In the very beginning, we did worry about it, and however, with the advancement of the technology, we can now see the huge value that end-to-end large models can bring. And of course, with the technologies, there are always uncertainties, and what we need to do is to make sure that we are able to keep an eye and ensuring the safety of the black box, of the control of the vehicle, etc. And as well as the end-to-end capability. And secondly, we are also building a large size analog model, and to help us to carry out the various pilots and the trials.

He Xiaopeng (Chairman and CEO)

关于第二个问题，我不是很特别能理解，这个，我可以来尝试来说一下，就是说实际上在自动驾驶的大模型和大语言大模型不完全一致，我们实际上，实际上你可以认为在Transformer的基础上，了解整个大模型的逻辑，要自己来书写，而不是用某个开源大模型。OK，那么，当你自己拥有使用大模型的能力的时候，实际上你不需要如此大的数据的变革。就是说，比如说，业界所说的什么30个B或者更大的B的这样的一个模型，在合适的模型里面，足够多的数据在预训练，那么将来我们也期望加入后续训练的能力，去使整个在合适的模型里面取得最大的价值，当然它已经比人来书写自动驾驶的程序能力有巨大的提高，我觉得。谢谢！好，这是我的回复。

Speaker 11

With respect to your second question, I'm not entirely sure if I have understood what you are trying to get, but I'll try my best to answer. I would say that, from an autonomous driving model versus a large language model, these two are actually different. Looking at it from Transformer, and this is not open source, and if we do have our own model, actually we would not need to use such amount of data as what the industry requires or set to be in for instance, 30 B or whatever, and we would be able, once identifying the appropriate model, and we would be able to work on that basis and to move forward. Thank you.

Paul Gong (Head of China Automotive Industry Research)

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

He Xiaopeng (Chairman and CEO)

我们一直在做渠道上的优化，我们比如说包括了我们现在在做渠道下沉，目前我们在覆盖更多低线城市的这个渠道。在过去的时间，小鹏主要在高线城市，这个中高线城市里面。第二个就是刚才所讲的，就是我们一定会增加在四S综合店的比例提高，那么四S店里面能够对于服务跟多车型有更好的支持。那么第三呢，我们在这个新开的在mall里面的店，我们还是不会用很大的这个面积，我们会用适度的面积，实际上在mall里面不需要把所有车摆进去，就可以达到非常好的引流跟转换。请帮我翻译，谢谢。

Speaker 11

Thank you for your question. First of all, we have always continued to optimize our channels, and for instance, we are looking at going into the lower tier cities and to try and cover as many lower tier cities as possible. In the past, we have mainly focused on the high-end and the mid-end tier cities. Secondly, we do believe that 4S stores will be the comprehensive stores, and would be able to provide a better support of services. Thirdly, even with the new stores that we open up in the malls, and again, we are not going to open them up with a huge area of floor area, and because we do believe that even with an appropriate amount of space available for these stores in the mall, and the conversion rate of successful order is actually very high.

He Xiaopeng (Chairman and CEO)

那么，我们在去年的四季度进行了渠道优化，那么继在今年的 一、二季度正在恢复，而且已经恢复得不错的。同时我们在今年三季度，我们的销售门店数量我们预计会增加到 600 家，为更大的范围放量做好准备。好，谢谢。

Speaker 11

In addition, in terms of our plans for store openings in Q4 last year, we can see that it has been well recovered in Q1 and Q2 this year, and we predict that by Q3 this year, we will have about 400-600 stores.

Paul Gong (Head of China Automotive Industry Research)

Thank you very much! That's quite helpful. 非常感谢，很有帮助。

Operator (participant)

Your next question comes from Tina Hou with Goldman Sachs.

Tina Hou (VP and Head of China Autos Equity Research)

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

He Xiaopeng (Chairman and CEO)

对，这个问题实际上是我们MONA的发布会来进行描述的。这个，我觉得MONA我们可以看到，购车用户实际上需要高颜值，满足他客户需求的车，那么如果它比其他的车的价格会低，我们在以前有一个叫$10,000的模型，每低$10,000，大概整个车的销量会提高1-2倍，实际上是。这个在RMB 200,000以上的车我们都看到了这样一个趋势，就是原来新造车势力竞争的一个最主要的标杆。如果我们能够在这个上面下降一些额度，那具体的额度等我们发布会再告诉大家，这个我们相信它的规模的需求是非常之大的，会是现在的2-4倍的规模，我认为最起码。那么但是在过去的情况下，为什么在RMB 100,000-RMB 200,000之间的车没有人做出又漂亮，空间又不错，又有智能？是因为它做不到。好，我觉得这个在小鹏在这里面，跟我们的合作伙伴一起在研发的这个四年，有这么大的研发投入情况下，我觉得到现在我们总算可以开始准备了，我觉得这是我们的一个整体思考。所以换个角度，您的问题，在to C的领域里面，我们看到一些当前，有一些友商的车，它卖得非常多的，一个月20,000台-50,000台之间。但是，我们觉得实际上我们跟它还是有一个非常大的定位的一个差异，让它满足了非常多，对于美，对于科技的需求，对用户的需要，在过去是没有。谢谢，帮我先翻译一下。

Speaker 11

Thank you very much for your question. Actually this question is better asked in our MONA products launch event. Anyway, I'll make a few comments. First of all, for this MONA product as introduced and presented earlier, and this is a product with very high beauty as well as external aesthetics. In addition, it also comes with a cheaper price, and we actually have a model which is what we call the $10,000 rule, which means that every time the price goes down by $10,000, and you will see that the sales of that product will actually go up by one time, will actually go up by two times. This model has been validated in our old experience with our other vehicles of a price range above RMB 200,000. Now, if we would be able to implement this and to give a bit of a price discount for MONA series, and in terms of the specific price reduction, we will talk about that in our MONA product launch. I believe the sale that we are looking at is actually huge, and I would say it's about 2-4 times of the present level. In the past, for RMB 100,000-200,000 price range, nobody was able to provide the consumers with a car that is not only beautiful, has a good space, but also a smart car with very good technology. After 4 years of hard work and R&D and so much investment into this, finally, XPeng has been able to come up with a product in MONA that is able to meet all the above demands. In other words, if you look at our competitors at the moment, yes, some of them say that they can sell 20,000-50,000 units of cars per month. However, I can assure you that for our MONA products, and you would see a huge difference between our car versus the competitors cars, because not only that, we are able to provide the beauty, to provide the space, but also to provide this range of a price with a good technology and a good smart driving functionalities that it was this need that was not able to be met in the past.

He Xiaopeng (Chairman and CEO)

那么关于智能化的需求，这个，我们也讨论了很久，也思考了很久。这个。我觉得两个吧，我觉得第一个我们会给出，不同的智能化分层的这个版本，去满足刚刚所说的，有一部分的用户可能不太需要，强的智能化，但是。我用一个以前我在移动互联网创业的案例，分享一下，就是说移动手机在语音的高端用户，往往不是数据流量的前端用户，反之，打电话比较少的用户，反而是数据流量的前端用户。所以从我们的部分的数据，我认为实际上在RMB 10万-RMB 20万这个级别的用户，更多人需要高等级智能驾驶，只是不是他觉得太贵了。一旦当他获得这个高科技的产品，但他又买得起，支付了价格，会是巨大的吸引力。我认为在这个事情上，在明年，2025年，大家就会看到这个数据的这个，变化，谢谢。

Speaker 11

So to answer your second question, and with respect to smart driving or autonomous driving, and I would say that it is likely, yes, some of these consumers, they may not need a very highly advanced functions, and we will be looking at a strategy that is stratifying and giving out different levels of products to the consumers. And I would actually like to quote the Internet thinking that when I was establishing my business and something that was quite popular in the industry back in those days, and what it says is that for the mobile phone users, actually they are not the high-end generators of the data. It is rather that the people who are making fewer phone calls are the high-end data generators.

To adopt that analogy or that thinking, and if we look at the 100,000-200,000 RMB price range, and this is actually the group of consumers that would need more of the autonomous driving functions, it's simply that in the past, this was out of their price range and they were not able to afford this. Once they are able to afford this, they would be all over the autonomous driving cars in this price range. And I do believe that the next year, in 2025, we will see this coming into a reality.

Brian Gu (Vice Chairman and President)

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

Tina Hou (VP and Head of China Autos Equity Research)

Just to quickly follow up. For the ToB part, should we still expect 100,000 units in the first 13 months and then 100,000 units in the next 12 months? Is this still a reasonable expectation? Thank you.

Brian Gu (Vice Chairman and President)

The agreement we have with DiDi still valid. We still provide such an incentive for MONA to be used in DiDi system if they achieve those volume. I think the incentive will still be valid. Yes.

Speaker 11

This is mainly, so it's up to DiDi, how many they want to purchase?

Brian Gu (Vice Chairman and President)

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

Tina Hou (VP and Head of China Autos Equity Research)

Okay, thank you. So my second question is about our software services revenue. Because we indeed see that from this quarter it started to be recognized as revenue, and it also has a very high profit margin, giving our company possibly the overall profitability brought a very good boost. Then because our agreement with Volkswagen is actually not exclusive, so I want to ask, are we now actively exploring similar models with other partners? Uh, so, uh, my second question is in terms of the software services revenue.

So, revenue recognition has started and has been very helpful in terms of our overall margin and profitability. So because our collaboration agreement with Volkswagen is not exclusive, are we actually actively exploring similar collaboration with other partners?

Brian Gu (Vice Chairman and President)

Hi, Tina. I think that our strategic collaboration with Volkswagen actually creates a very strong value, strategic value to each other. For example, we are collaborating on the technology, and also we are collaborating on supply chain and also, during the process, we also identified the opportunity to work more closely, going forward in other areas. We believe there are a lot of things we can do as a strategic partner to each other. However, I think that, from the collaboration perspective, our collaboration with Volkswagen, we're not exclusive to each other. So therefore, I think that we are also open-minded to looking for the strategic collaboration opportunity with other players.

However, I think that what we value most is that we see how we can bring value to a partnership and create value to each other, not just a supplier relationship.

Operator (participant)

That does conclude our question and answer session. I'd like to turn the call back over to the company for closing remarks.

Brian Gu (Vice Chairman and President)

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 Piacente Group.

Operator (participant)

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