Overall gross profit margin maintained at 10%-15% (XPeng 1Q24 conference call minutes)

The first quarter financial conference call summary of XPeng Group in 2024, for financial report interpretation please refer to " "No contagion of 'thunderstorm', XPeng managed to hold on" 》

I. Review of Core Financial Information:

II. Detailed Content of Financial Conference Call

2.1 Key Points from Management's Statements:

1. Cash Reserves: As of the end of the first quarter, XPeng had RMB 41.4 billion in cash reserves.

2. Research and Development: XPeng has made significant investments in research and development in areas such as intelligent electric vehicle platforms, electrical and electronic architecture, and advanced driver assistance systems. With a highly integrated intelligent technology platform, XPeng is capable of launching globally competitive models and leading the popularization of AI-driven smart cars.

3. New Model Releases and Market

• A wide product release cycle will be initiated in the third quarter of this year, with multiple new models to be launched in the next three years covering the main price range of RMB 100,000 to RMB 400,000.
• The first Mona series model will debut in June and begin mass delivery in the third quarter, targeting the market of young consumers below RMB 200,000.
• Over the next two years, Mona will introduce several other products based on the A-class platform. Additionally, there is a determination to target the price range of RMB 100,000 to RMB 200,000, which has the highest sales volume.
• A new XPeng brand B-class electric sedan will be launched in the fourth quarter of this year, achieving a 25% cost reduction for the first time and is expected to become a best-selling model.
• With the incremental sales of the new B-class model and Mona, there is confidence in achieving a significant year-on-year increase in monthly deliveries in the fourth quarter.

4. AI and Intelligent Driving Technology

• On AI Day (May 20th), XPeng fully launched the AI-driven in-car operating system 5.1 (AI Tianji Operating System), this advanced large-scale system seamlessly integrates AI technology into intelligent and other functions.
• This means that the technology architecture is ahead of competitors by one to two generations and does not use any high-definition maps. It is expected that by the third quarter of this year, XNGP can be promoted on all roads nationwide, achieving end-to-end autonomous driving capabilities.
• The plan is to elevate the urban road experience to a level similar to NGP on highways by the end of 20255. Application of End-to-End AI Models

This will mean that traditional manual methods and rule-based coding methods will be replaced by algorithm-based model training. By the end of 2025, the plan is to elevate urban road experiences to a level similar to NGP on highways, where manual takeovers are only required once every few hundred kilometers. XNGP is expected to achieve driving capabilities equivalent to or surpassing human drivers in complex scenarios.

With the ADAS technology architecture powered by advanced end-to-end AI models and extensive training using high-quality data, the competitive advantage in terms of data is highlighted. As new models start deliveries in the second half of this year, a wider customer base will soon be able to enjoy AI-driven ADAS functions. The widespread adoption of advanced ADAS will accelerate and rapidly expand the XNGP fleet, generating a large amount of data to speed up AI model training and iteration.

6. International Market Expansion

• Plans to expand overseas sales networks to over 20 countries globally, including Northern Europe, Western Europe, Southeast Asia, the Middle East, and Australia.
• In the first half of this year, XPeng established partnerships with leading automotive dealer groups and gradually opened new sales outlets.
• In early April, nearly 1,000 G9 vehicles worth over RMB 500 million were shipped to Europe. In May, the European prices for G9 and left-hand drive G6 models were announced, and pre-orders began. Plans to launch the right-hand drive version of G6 in the third quarter.
• High-speed NGP testing in overseas markets is progressing smoothly. Product advantages such as ultra-fast charging and intelligent technology have been highly praised by overseas dealers and consumers.
• XPeng is positioned as a high-end technology brand in the international market, offering superior product experiences and environmentally friendly smart electric vehicle models.

7. Strategic Cooperation with Volkswagen Group

• The strategic cooperation with Volkswagen Group is deepening rapidly, with both parties collaborating on developing electric vehicle architectures for the Chinese market.
• This platform will be applied to Volkswagen brand electric vehicle models produced in China starting from 2026.
• XPeng's intelligent technology not only monetizes through its own brand electric vehicle sales but also expands market share and financial returns through cooperation with leading global automotive OEMs.
• On April 17th, the third strategic cooperation project with Volkswagen was announced. This project involves jointly developing industry-leading electric vehicle architectures for electric vehicles designed for the Chinese market. The platform will be applied to Volkswagen brand electric vehicle models produced in China starting from 2026, integrating XPeng's latest generation EE architecture based on centralized computing and domain controller technology.
• Since the first quarter of 2024, platforms and software services have become significant revenue drivers. This clearly demonstrates innovation and a unique business model that sets XPeng apart from traditional automotive companies.

Q&A Summary

1. Revenue from Cooperation with Volkswagen: In the first quarter, revenue from platform software services in cooperation with Volkswagen amounted to hundreds of millions, with recurring nature and high gross margins, therefore, it is expected to continue recording such platform and software technology service revenue in each quarter in the futureExpected in the following quarters, this type of revenue will exceed the record set in the first quarter.

2. Annual Gross Margin: Due to the high gross margin of platform and software revenue, the company's overall gross margin is expected to be maintained at a level of 10% to 15%.

3. Mona: All models and major markets are still focused on the 2C market, with the 2B market not being a priority. Mass deliveries are expected to start in the third quarter, and despite being an A-class sedan, healthy positive gross margin contributions are anticipated.

If MONA sells 100,000 units within the first 13 months in the Didi system, and then sells another 100,000 units in the following 12 months, the incentive measures will continue to be effective. It mainly depends on how many Didi needs to purchase, and the agreement stipulates that if MONA products are used in Didi's travel ecosystem and reach a certain quantity, additional incentives will be received.

4. F57: To be launched in the fourth quarter of this year, achieving a 25% cost reduction for the first time, the gross margin of the B-class sedan is expected to be higher than the existing models (except X9).

5. Channels: Always optimizing channels. For example, entering more lower-tier cities and covering them as much as possible. It is expected to have approximately 600 stores by the third quarter of this year.

III. Q&A Analyst Q&A

Volkswagen Cooperation Revenue

Q: (1) The first question is about the revenue contribution from cooperation with Volkswagen. Can management roughly quantify the service revenue contribution from Volkswagen in the first quarter? We know this is recurring. So, (2) will this type of revenue continue to grow in the coming months? (3) Is it possible to also generate revenue this year through new agreements related to the E/E architecture?

A: The revenue from the Volkswagen platform software cooperation has been recorded in the service and other revenue in the first quarter. This revenue is recurring, so it is expected to continue to record such platform and software technical service revenue in each quarter in the future. In the first quarter, revenue of hundreds of millions was recorded from platform software services, which is very high-profit revenue for us. It is expected that in the following quarters, this type of revenue will exceed the record set in the first quarter.

Furthermore, due to the high gross margin of platform and software revenue, the company's overall gross margin is expected to be maintained at a level of 10% to 15%. Revenue related to the E/E architecture is expected to be recognized starting from the second half of this year.

R&D Expenses and L4 Level Vehicles

Q: (1) We noticed that XPeng plans to achieve end-to-end large-scale model upgrade GP in the third quarter of this year, covering almost all roads in China, and achieve the economic viability of L4 level vehicles next year. Should we expect a significant increase in R&D expenses during this period to achieve this goal? (2) When do you think this technological leadership can be translated into new vehicle sales or potential monetization opportunities?

A: Hoping to achieve L4 level capability next year, not L4, L4 but implementation still requires hardware and regulatory cooperation. Regarding the large-scale model, knowing that it will have a huge impact on all relevant companies, the past reliance on manual rules and regulations needs to change, and the large model will generate new rules, so there is no significant increase in overall personnel in practice, but rather we have more personnel to do global workThe model is difficult to quantify in terms of the scale of data and training capabilities, and the speed of achieving the goal, but it is expected to be earlier than the original plan in the second half of 2025, possibly as early as next year.

Product Line and New Models

Q: (1) The first question is about more details on the new product line. There will be two products in the second half of the year. The first product is related to the Mona project. Can you provide more details on the release time of the 2B version and 2C version? (2) Also, for next year's product line, can you provide some guidance on the number of Mona brand products and production plans?

A: All models and main markets are still in the 2C market, and the 2B market is not a focus, including the MONA brand. The MONA brand aims to create the most aesthetically pleasing cars in the market, so it is unlikely to have a high penetration rate in the 2B market. Starting from the third quarter of this year, different models will be launched every quarter, sometimes with multiple new models, sometimes with updated versions or hybrid versions of existing models. From 2024 to 2026, different models will continue to be launched. Specific details cannot be disclosed at the moment, but more information can be expected to be shared in the coming months. The MONA series aims to create aesthetically pleasing and profitable models, covering various levels of intelligent driving or autonomous driving. The goal is to introduce autonomous driving technology into models priced below RMB 200,000.

International Market Expansion Plan

Q: (1) Last week, the brand officially entered the Hong Kong market, and in the coming months, XPeng will enter more countries, especially the Southeast Asian market. Based on the current progress in overseas markets, have you exceeded the original targets? (2) It is expected that overseas sales will exceed ten thousand units. Will this lead to an increase in R&D expenses? Because functional support will also need to be provided in overseas markets.

A: XPeng has accelerated its international development pace this year, aiming to launch leading technology advanced electric vehicles in over 20 countries. The specific number of markets is related to the types of models available in these markets. Currently selling G9 and P7 in Europe, with the G6 launched this month and deliveries soon. In Southeast Asia and the Hong Kong market, a right-hand drive version of the G6 will be launched, with the right-hand drive version of the X9 expected to be delivered by the end of this year or early next year. This quarter, we hope to achieve an overall delivery increase of over 10%.

Regarding the XNGP-related intelligent driving technology, active testing is being conducted in multiple overseas markets, and cooperation with regulatory agencies is ongoing to ensure compliance. The development will not significantly increase overall R&D expenses, as the market targets are clear, and AI and large-scale model capabilities have improved, accelerating development in different scenarios. These capabilities are expected to be realized in some overseas markets by the end of this year or early next year, but will not significantly increase R&D expenses.

Q4 Expectations and Gross Margin

**Q: (1) The first question is about the situation in the fourth quarter of this year. You are very confident about the fourth quarter and mentioned that delivery volume will see a very high growth. Assuming a 50% growth, with the monthly delivery volume in the fourth quarter of last year being 20,000 units, if it is 30,000 units, what will be the distribution between new and old products? (2) Additionally, could you comment on the gross margin, as there are three positive factors for gross margin: cost reduction, high-margin exports, and additional income from VolkswagenIs the gross profit close to 15%?

A: The products of the fourth quarter will be fully delivered, and the delivery of B-class cars will also begin. These two products will have a significant impact on the monthly delivery volume in the fourth quarter. Although the initial delivery times are different, they will both significantly increase the delivery volume. It is expected that the monthly delivery volume of these two models will exceed that of last year. This is just the beginning of the super product cycle, with more models and updated versions to be launched in the next 18 to 24 months. The goal is to maintain stable and controllable growth, rather than intermittent explosive growth.

Regarding gross profit, although the MONA model is an A-class car, it is expected to contribute positively to gross profit. The gross profit of B-class cars is expected to be higher than the existing models (except for X9). In addition, Volkswagen's contribution will continue to be a stable source of recurring income, with additional contributions expected from cooperation with EA. The overall gross profit margin is expected to remain between 10% and 15% by the end of this year.

Powertrain Plan

Q: Regarding the powertrain plan. We have seen competitors launch the EIV version and achieve significant growth. Do you also plan to launch products with the EIV version?

A: Generally, we do not disclose information related to product design as it is still in the planning stage. Future plans may consider implementing relevant plans in flying cars, where both the flying and automotive parts will be electric vehicles. More detailed plans will be shared when the products are more concrete. In addition, despite the significant demand for PHEVs in the past year and the coming year, many consumers have found that PHEVs require very few refueling times but need frequent charging in daily use, hence they have more confidence in pure electric vehicles. Currently, efforts are being made to develop the Ultra X5 series products, believing that after experiencing PHEVs, consumers are likely to choose pure electric vehicles for their next purchase. Technically, the transition from PHEVs to pure electric vehicles is a significant leap that requires careful consideration, and XPeng will continue to closely monitor developments in this area.

Big Model Decision Issues

Q: Regarding end-to-end big models. Some feedback suggests that there is uncertainty in decision-making and it is difficult to understand why such decisions are made. Additionally, feedback mentions that as the model becomes larger, the upgrade speed slows down. How does XPeng view this issue?

A: Indeed, there were concerns about this initially, but with technological advancements, the enormous value brought by end-to-end big models can now be seen. Of course, any technology comes with uncertainties, and the key is to ensure the ability to monitor and ensure the safety and control of the black box. Secondly, large-scale simulation models are being built to help conduct various experiments and pilots. For autonomous driving models and large language models, they are considered different. By using proprietary models, there is no need for a large amount of data as required by the industry. Once the appropriate model is determined, progress can be made based on this.

Expansion of Distribution Channels

Q: Regarding distribution channels. Currently, most of the stores are located in some major areas, but the area is relatively limited. As XPeng gradually introduces more new models and expands its product line, including MONA, do you think it is necessary to increase the average area of stores, or even consider moving away from the most prominent locations?**

A: Always optimizing channels. For example, entering more lower-tier cities and covering them as much as possible. In the past, the focus was mainly on high-end and mid-tier cities. It is believed that comprehensive stores can provide better service support. Even newly opened mall stores will not have a large area, as it is believed that even with the right space, the success conversion rate of mall stores is very high. In addition, regarding the store opening plans for the fourth quarter of last year, seeing good recovery in the first and second quarters of this year, it is expected that there will be approximately 600 stores by the third quarter of this year.

Competitive Advantages of the MONA Brand

Q: (1) Regarding the MONA brand, what are the competing models in the market for 2C customers? For customers in this price range, they may have less demand for smart features and higher demand for price. (2) Besides vehicle design, what are the other key competitive advantages? (3) Furthermore, what are the sales targets of the MONA brand in the 2B market?

A: This question would be more appropriate to discuss at the MONA product launch event. However, some insights can be shared. Firstly, MONA products are characterized by high aesthetics and exterior aesthetics, with a lower price. According to the "10,000 yuan rule," every time the price drops by 10,000 yuan, sales volume will double or triple. This model has been validated in other models priced over 200,000 yuan. Now, if this strategy can be implemented in the MONA series, the scale is expected to increase significantly, about two to four times the current level. In the price range of 100,000 to 200,000 yuan in the past, no other brand could offer a car that is both beautiful, spacious, intelligent, and technologically advanced. After four years of effort and substantial investment, XPeng has finally launched a MONA product that can meet all needs. Competitors may sell 20,000 to 50,000 cars per month, but XPeng's products have significant advantages in aesthetics, space, technology, and intelligent driving functions.

Regarding intelligent driving or autonomous driving functions, some consumers may not need very advanced features, but a tiered strategy may be adopted to provide different levels of functionality. Just like in the past with mobile phone users, it's not the high-end users who generate the most data, but those who make fewer calls. Similarly, in the price range of 100,000 to 200,000 yuan, these consumers need more autonomous driving functions, but in the past, they couldn't afford them. Once they can afford it, these autonomous driving cars will be very popular. It is expected that by 2025, this demand will become a reality.

Sales Targets in the 2B Market

Q: Regarding the 2B market. Successful 2C products in this price range will also be widely used in 2B channels. So, in this versatile use case, what are the sales targets of the MONA brand in the 2B market?

A: Successful 2C products in this price range will also be widely used in 2B channels, even if not specifically targeted at the 2B market, there will be significant use cases. Collaboration with Didi will make these versatile use cases very common among MONA usersFollow-up on Sales Targets in the 2B Market

Q: Is it still reasonable to expect sales of 100,000 units in the first 13 months in the 2B segment, followed by another 100,000 units in the next 12 months?

A: The agreement with Didi is still valid and provides incentives. If MONA achieves these sales volumes in the Didi system, the incentives will remain effective. It mainly depends on how much Didi needs to purchase, and the agreement stipulates that if MONA products are used in Didi's travel ecosystem and reach a certain quantity, additional incentives will be provided. This does not involve Didi's own purchase quantity.

Software Service Revenue and Partnerships

Q: Regarding software service revenue. We see that recognizing revenue at the beginning is very helpful for overall gross profit and profitability. Since the cooperation agreement with Volkswagen is not exclusive, are you actively exploring similar partnerships with other partners?

A: The strategic cooperation with Volkswagen has indeed created significant strategic value for both parties. For example, the two parties have cooperated in technology, supply chain, and other areas, and have also discovered opportunities for closer cooperation in other areas in the future during the cooperation process. Although the cooperation with Volkswagen is not exclusive, we are still open to exploring strategic cooperation opportunities with other partners. The key is that the cooperation can bring value to both parties, rather than just a supplier relationship.

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