Q3 will still be affected by the residual impact of G3i, and it is expected that the gross profit margin will turn positive in Q4 (minutes)

Management Statement

1) Delivery Volume: The delivery volume of $XPENG-W.HK has actually increased for 7 consecutive months, driven by the positive reception of the new model P7i, which was launched in March, and the rapid success of the G6 as a phenomenal hot-selling product. We believe that the launch of the full range of P7i models in the second half of the year will further enhance our production capacity and product competitiveness, as well as benefit from the traction effect on users in adjacent price ranges created by the G6, allowing our sales to reach a new level.

In the third quarter, we expect our total delivery volume to be approximately 39,000 to 41,000 vehicles, representing a MoM increase of 68.1% to 76.7%. The revenue is expected to be around RMB 8.5 billion to 9 billion.

2) G6: In the first month of its launch, the Max version accounted for over 70% of orders, far exceeding our initial expectations. The inflection point for customers to choose intelligent assisted driving seems to have arrived faster than we planned.

We are working closely with our suppliers to maximize the production capacity of the G6, especially the Max version. We expect a significant increase in the delivery volume of the G6 model in September this year, driving the total monthly delivery of Xiaopeng Motors to exceed 15,000 vehicles. In the fourth quarter, we will continue to increase the production capacity of the G6 and amplify the word-of-mouth effect from the first batch of delivery users, aiming to achieve a monthly delivery volume of over 10,000 for the G6. With the ramp-up of the G6 and the introduction of more diversified configurations for existing models, we will strive to achieve a monthly delivery volume of 20,000 vehicles for the company in the fourth quarter.

3) Cooperation with Volkswagen: In July, we officially announced a long-term strategic partnership with Volkswagen Group. This strategic cooperation will combine Xiaopeng Motors' leading intelligent electric vehicle technology with Volkswagen Group's world-class design, engineering, and supply chain capabilities, starting with two B-class pure electric vehicle models, to bring the best technology, products, and experiences to customers.

4) XNGP: The intelligent assisted driving software XNGP will continue to make significant breakthroughs in user experience and coverage in the second half of this year, widening the technological gap between us and our followers. In our next OTA update in October, we will introduce XNGP that does not rely on high-precision maps for the first time in selected cities. We are confident that by the end of this year, XNGP that does not rely on high-precision maps will be available in approximately 50 cities. By 2024, we plan to reduce the cost of XNGP by 50% through technological innovation, making it a standard feature on the most advanced intelligent driving hardware in the industry, and exploring flexible payment methods for software subscriptions to provide users with more options.5) Cost Reduction + Channel Expansion: We are highly confident that we can achieve our goal of reducing overall costs by 25% by the end of 2024, and even surpass this target in multiple areas. These cost reduction measures will significantly enhance our product competitiveness and lead to a substantial improvement in our gross margin by 2024. Cost reduction also gives us great confidence in our ability to launch fully autonomous vehicles in the mainstream 150,000-level market. I believe this will greatly promote the widespread adoption of intelligent automation.

6) Marketing System: Under the leadership of Wang Fengying, the marketing service system has seen rapid improvement in customer satisfaction and collaborative capabilities. In the second half of the year, we will significantly accelerate our channels, including a business model transformation in international market channels. We will vigorously optimize our sales network and introduce excellent dealer partners at a faster pace to rapidly expand our market share in second-tier and lower-tier cities.

7) Cash Flow: As of the end of the second quarter, we had a cash balance of over 33.7 billion RMB. With the recovery of our sales volume on a month-on-month basis, our operating cash outflow in the second quarter has significantly narrowed to around 1 billion RMB. In the second half of 2023, with the substantial growth in sales volume driven by new products such as G6, the gradual recovery of gross margin, and the rapid improvement in our operational efficiency, we expect overall positive operating cash flow for Xiaopeng in the second half of 2023.

Q&A

Q1: Regarding the improvement in delivery volume, when will the supply bottleneck of components (for G6) be completely resolved? Will the new vehicles based on the G6/next-generation architecture face the same delivery issues? What are the countermeasures?

A1: The order level for G6 is currently very strong, and the main challenge at present lies in the core intelligent components for the Max version. The target for G6 is to achieve monthly sales of over 10,000 units by the fourth quarter. We are working hard to improve the supply chain issues under the next-generation architecture, and it is possible to simplify the supply chain by sharing components, which will lead to a better supply chain situation in the future.

Q2: Regarding the price war, how do you view this round of competitive pricing? How will you respond in the future? Has there been any change in strategy? Will it affect the gross margin of individual vehicles in the future?

A2: Our current strategy is to ensure that we regain growth and scale, which is our most important strategic focus. Another priority is to achieve a very strong cash flow.

There is still some residual impact from G3i in the third quarter, and we expect our gross margin to turn positive in the fourth quarter of this year.

We are very confident in achieving positive operating cash flow in the second half of the year.

Q3: Regarding the channel expansion reform, what impact will it have on channel/marketing expenses?

A3: We will eliminate underperforming stores, whether they are directly operated stores or our current channels, which will bring higher operational efficiency and lower marketing costs. In fact, we envision a more efficient and lower sales and marketing ratio.Q4: Break-even guidance?

A4: Achieve positive quarterly free cash flow next year and achieve overall break-even by 2025.

Q5: Comparison and pros and cons of high-precision maps versus non-high-precision maps?

A5: High-precision maps mean lower error rates in real-world situations, but there are also many advantages to not having high-precision maps, mainly reflected in not needing maps (can be directly used on smartphones), no policy regulation issues, and no need to purchase and maintain maps.

Q6: What are the requirements/impacts of high-precision maps on computing power and corresponding hardware costs?

A6: With 512 TOPS of computing power, we are very confident in our ability to excel in this field. In terms of computing power, cost reduction can also be achieved from an electrical perspective - one PGBA and two SOCs can accomplish everything, which is a significant cost reduction from a technological standpoint.

Q7: Any new products next year?

A7: Currently unclear, probably to be launched in the second half of next year.

Q8: More information on the new MPV this year?

A8: Progress is going smoothly, sticking to the original plan for release in the fourth quarter, possibly in the later part of the fourth quarter. The actual delivery volume for this year is not significant, but scale delivery will begin next year.

The new vehicle follows the same logic as the G6 in terms of intelligent vehicle systems; it has a significant advantage over competing products in the same price range.

Q9: Is it possible to seek cooperation with other automakers besides Volkswagen?

A9: We maintain an open attitude.

Q10: How do you view the progress of autonomous driving technology?

A10: Fully autonomous driving is estimated to be achieved between 2025 and 2026.

There are several factors that will affect this:

First, it is not applicable to all road environments (referring to over 95% of roads in China, including residential areas and underground parking lots in residential areas).

Second, cost.

Third, overall capability - including safety and user experience. User experience can be divided into two aspects - better takeover performance: in the next two to three years, we expect to achieve 0-1 takeovers per thousand kilometers, which is a very comfortable data point; and the other aspect is that it should be smarter and more efficient than most standard drivers.

Today's large language models have actually advanced the timeline for achieving this, so I believe the likelihood of achieving it by 2025 is higher.

Q11: Thoughts on the product strategy for the full price range? How will you approach the range of 250,000 to 350,000 RMB?

A11: Starting from the second half of 2024, there will be a lot of new models and generation updates, covering the range from 150,000 to 350,000 RMB.

The 250,000 to 350,000 RMB vehicle segment is well planned, and specific models will be shared later.

Q12: Besides the impact of inventory reduction, are there any other factors affecting the gross margin performance this quarter?

A12: As mentioned earlier, we included some impacts from G3i and EOP in the second quarter. I want to emphasize that most of the impacts are non-cash, as they are due to our decision to accelerate the amortization of unamortized tools. Excluding the impact of EOP, our gross margin is still slightly lower than the first quarter.This is mainly because we have increased promotional expenses for some older models, while the decrease in battery costs in the second quarter partially offset this.

We have seen a significant improvement in cash flow in the second quarter, and we will continue to see this in the second half of the year. In addition to the impact on profitability, a major influence will come from the impact of working capital, as we improve our receivables from a delivery perspective as we increase production. We will gradually settle our accounts payable. Therefore, with the increase in sales, we will achieve substantial operating capital gains in the second half of the year, which will help improve our operating cash flow.

Q13: What are the reasons for the poor performance of the ultra-fast charging models in the past? Are there any plans to introduce lithium iron phosphate ultra-fast charging batteries to reduce costs?

A13: When mass-producing the G9, we have already provided customers with 3C NCM and LFP batteries as standard configurations, which are the best and fastest charging technologies among similar products in the market. This is still the case at present.

The combination of 3C batteries and the 800V platform can achieve ultra-fast charging. Even on standard charging pulses, I believe that 90% of the charging stations in the market also support 800V, which can support high-voltage fast charging and 3C battery powertrain technology.