Xpeng Inc. Q4 FY2020 Earnings Call

Hello ladies and gentlemen. Thank you for standing by for the Fourth Quarter and Fiscal Year 2020 Earnings Conference call for XPeng Inc. At this time, all participants are in listen-only mode. After the 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. Charles Zhang, Managing Director of Strategy of the company. Please go ahead Mr. Zhang.

Thank you. Hello everyone and welcome to the fourth quarter and fiscal year 2020 earnings conference call of XPeng Inc. The company's financial and operating results were issued by our newswire services earlier today and are 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 will include our Co-Founder, Chairman, and CEO, Mr. Xiaopeng He; Vice Chairman and President, Dr. Brian Gu; Vice President of Finance, Mr. Dennis Lu; and myself. Management will begin with prepared remarks and the call will conclude with a Q&A session. As a reminder, this conference is being recorded. 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 provision 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 SEC. The company does not assume any obligations to update any forward-looking statements except as required under the applicable law. 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 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. Xiaopeng He. Please go ahead.

Hello everyone. Thank you for joining XPeng's fourth quarter and fiscal year 2020 earnings conference call today. In the fourth quarter of 2020, we achieved another quarter of record-high vehicle deliveries, reaching 12,964 units, up 303% year-over-year and 51% quarter-over-quarter. Vehicle deliveries for the full year of 2020 increased by 112% year-over-year to 27,041 units. Driven by strong delivery growth, we increased our revenue in 2020 by 151.8% to RMB5.8 billion. More excitingly, we achieved a positive full year gross margin for the first time in the company's history, marking a significant milestone. I believe that 2020 signified the beginning of a new era in China's Smart EV development. During the year, our consistent execution of the past six years of full stack in-house R&D strategy bolstered our ability to provide customers with differentiated Smart EV products and lead the technology innovation of Smart EVs in China. Next, I would like to go through our recent advancements in Smart EV technology innovation. In October 2020, we released our second-generation smart in-car operating system through OTA, which features the first-of-its-kind all-voice in-car system. This is one of our key proprietary technologies that allows our customers to interact with our vehicles in natural language and continuous dialogue. In January and February 2021, the average daily utilization rate for our AI voice assistant exceeded 90%. This illustrates the disruptive changes our self-developed smart in-car operating system is bringing to traditional in-car interactions. On January 26th, 2021, we released the first OTA of XPILOT 3.0, our full-stack in-house-developed autonomous driving system, which includes our navigation-assisted highway autonomous driving solution or Navigation Guided Pilot, NGP. NGP has been activated in approximately 20% of all P7s delivered as of the end of February and has assisted our customers in driving for more than 1.3 million kilometers. Leveraging field data from our customers and our closed-loop data capability, we can continuously train our algorithms and implement fast iterations, providing our customers with an evolving autonomous driving system that can handle complex road conditions in China. In February, the NGP-assisted mileage penetration rate, which refers to the mileage assisted by the NGP as a percentage of the drivable mileage of NGP, exceeded 50% amongst those P7s that activated the NGP. This is a very exciting figure. With the continuous advancements in our autonomous driving capabilities, we're confident that autonomous driving features will be a key consideration for our customers' purchasing decisions. Later this month, we'll also kick off the NGP expedition from Guangzhou to Beijing to showcase the disruptive experiences our cutting-edge autonomous driving system can offer to customers. In addition to that, we're also planning to release multiple OTA updates of XPILOT 2.0 in 2021, including memory parking and a further improved version of the NGP to enhance our vehicles in terms of safety, functionality, and performance. We'll deploy automotive-grade LIDAR technology in our third Smart EV model, which we plan to deliver in the second half of this year. We believe our third model will be the first mass-produced Smart EV equipped with LIDAR in the world. Leveraging our visual-based perception capability complemented by LIDAR, we plan to roll out XPILOT 3.5, which will support NGP on major urban roads. We also plan to introduce XPILOT 4.0, built on our next-generation autonomous driving hardware and software platform, to be deployed on our fourth model, which will be launched in 2022. We're confident that XPILOT 4.0 will provide our customers with a new level of autonomous driving experiences. These technological advancements underpin our mission to drive Smart EV transformation with data and technology shaping the mobility experience of the future. Looking forward, as we upgrade our XPILOT and Xmart in-car operating system, we're committed to investing in Smart EV technologies and leading technology innovation. As we solidify our core strength in technology, we'll strive to diversify our product portfolio to address additional customer needs and expand our market share. Later in March this year, we expect to start delivering the P7 Wing edition that was unveiled in November at the Guangzhou Auto Show 2020. This edition features sporty wing doors and is also equipped with the XPILOT 3.0 system as the standard configuration, providing an exclusive and exhilarating mobility experience to auto enthusiasts. On March 3, we announced lithium iron phosphate or LFP battery-powered G3 SUVs and P7 sedans, and we plan to start deliveries in April and May respectively this year. We expect these two models to resonate across a broader customer base. In the second quarter of 2021, we'll unveil and begin selling our third mass-produced vehicle model. This brand-new design will be the first mass-produced Smart EV, equipped with LIDAR, and will support our XPILOT 3.5. Also, it will feature an innovative third-generation smart cockpit, connecting the vehicle to our everyday life in an even closer way. Mass delivery of this new model will start in the fourth quarter of this year. Furthermore, we plan to begin delivering the mid-cycle facelift version of the G3 in the late third quarter of 2021. In terms of our sales and service network, as of December 31, 2020, XPeng's physical sales and service network consisted of 160 sales stores and 54 service centers across 69 cities in China. Of the 160 stores, 72 were direct stores operated by us. During 2020, we greatly increased the efficiency of our stores, especially direct stores. By the end of 2021, we plan to increase the number of sales stores to approximately 300 covering 110 cities. In terms of our supercharging network, we also accelerated our efforts to expand our coverage across the nation. As of December 31, the number of XPeng-branded supercharging stations was 159, covering 54 cities. To further improve our customers' charging experience, we plan to significantly expand the number of XPeng-branded supercharging stations in our network to more than 500 by the end of 2021. Since we initiated the free charging program last year, the number of cities in this program has grown to 100 as of the end of December. In 2021, we'll strive to expand our free charging service network to 200 cities and provide greater accessibility in a broader range of locations, including highways and airports. At the same time, we plan to substantially increase the number of XPeng-branded supercharging stations and charging piles in selected popular destinations to facilitate more convenient and efficient charging services for our customers. In the fourth quarter, we also made positive progress in overseas markets. In December, we fully delivered the first batch of the European version G3 in Norway. In 2021, we'll continue to strengthen our capabilities in international operations in areas such as organization, product development, R&D, branding, and distribution channels. With the rapid growth in vehicle deliveries, we have been ramping up our capacity at the Zhaoqing factory to prepare for a monthly production capacity of 10,000 units within this year. Meanwhile, we have started construction of our Guangzhou manufacturing base and expect to commence production in the third quarter of 2022. Our Guangzhou and Zhaoqing Smart EV manufacturing base will ensure our production capacity and allow us to further capitalize on the rising demand in the EV market. Looking into 2021, we remain dedicated to delivering smarter and more differentiated products to our customers in our relentless drive to implement fast software and hardware iteration and technology innovation. We'll also strategically make a long-term investment in branding, sales and service network, charging network, brand-new smartification system, our powertrain technologies production and supply chain capabilities, international operations, and the R&D efforts into innovative product pipelines, such as our flying vehicle, to support our growth over the next few years. Lastly, on guidance, for the first quarter of 2021, we expect our Smart EV deliveries to be approximately 12,500 units and our total revenue to be approximately RMB2.6 billion. Thank you, everyone.

Thank you, Xiaopeng, and hello, everyone. We are very pleased to have achieved solid results in our fourth quarter and throughout fiscal year 2020, which demonstrates our ability to effectively cater to the rapidly growing market demand for a compelling smart mobility experience. Our top line in the fourth quarter and for the full year expanded year-over-year with robust vehicle delivery performance. In particular, we increased gross margin sequentially in the fourth quarter and posted the first positive full-year gross margin. Additionally, we had a strong cash position to ensure a solid financial foundation to execute our business strategies and to enhance our competitive advantages. Now, I would like to walk you through our detailed financial results for the fourth quarter of 2020. Total revenues were RMB2.9 billion for the fourth quarter, representing an increase of 345% from RMB640 million for the same period of 2019, and an increase of 43% from RMB2 billion for the third quarter of 2020. Revenues from vehicle sales were RMB2.7 billion for the fourth quarter, up 376% from RMB575 million for the same period of 2019, and an increase of 44% from RMB1.9 billion for the third quarter of 2020. The year-over-year increase was mainly due to mass delivery of the P7. The quarter-over-quarter increase was primarily due to accelerated vehicle deliveries for both P7 and G3 in the fourth quarter of 2020. Gross margin was 7.4% for the fourth quarter, compared with a negative 6.6% for the same period of 2019 and 4.6% for the third quarter of 2020. Vehicle margin was 6.8% for the fourth quarter, compared with negative 8.5% for the same period a year ago and 3.2% for the third quarter of 2020. The improvement was primarily due to better product mix decreased material costs and increased manufacturing efficiencies. Research and development expenses were RMB460 million for the fourth quarter down 29% from RMB652 million for the same period in 2019 and down 28% from RMB635 million for the third quarter of 2020. The year-over-year decrease was mainly due to higher expenses relating to the development of the P7 a year ago. The quarter-over-quarter decrease was mainly due to the reduced share-based compensation expenses in the fourth quarter compared with a one-off large amount recognized in the third quarter. Selling, general, and administrative expenses were RMB918 million for the fourth quarter, representing an increase of 133% from RMB395 million for the same period a year ago and a decrease of 24% from RMB1.2 billion for the third quarter of 2020. The year-over-year increase was mainly due to: number one, higher marketing, promotional, and advertising expense to support vehicle sales; number two, the expansion of our sales network and associated personnel cost, lease expense of physical sales and service center, and also the commission for the franchise stores. The quarter-over-quarter decrease was mainly due to the reduced amount of share-based compensation expense, compared with a one-off large amount recognized in the previous quarter, offset partially by an increase in marketing, promotional and advertising expense, as well as personnel costs, lease expense and commission as mentioned above. Excluding the share-based compensation expenses, the year-over-year and quarter-over-quarter increase was mainly a result of higher marketing, promotional and advertising to support new vehicle sales, and also the expansion of our sales network and associated personnel costs, and also the increased commission paid to our franchise dealers. The loss from operations was RMB1.1 billion for the fourth quarter, compared with RMB1.1 billion for the same period of 2019 and RMB1.7 billion for the same quarter of 2020. Excluding the share-based compensation, the non-GAAP loss from operations was RMB1 billion in the fourth quarter, compared with RMB1.1 billion for the same period of 2019 and also RMB823 million for the third quarter of 2020. Net loss was RMB787 million for the fourth quarter, compared with RMB1 billion for the same period a year ago and RMB1.1 billion for the third quarter of 2020. Excluding share-based compensation expenses, the fair value change on derivative liabilities related to the redemption right of the preferred shares, the non-GAAP adjusted net loss was RMB713 million for the fourth quarter of 2020, compared with RMB1.1 billion for the same period of 2019 and also RMB865 million for the third quarter of 2020. Net loss attributable to ordinary shareholders of XPeng was RMB787 million for the fourth quarter, compared with RMB1.3 billion for the same period a year ago and also RMB2 billion for the third quarter of 2020. Excluding the share-based compensation expense, the fair value change on derivative liabilities related to the redemption right of preferred shares and also the accretion of preferred share to redemption value, the non-GAAP net loss attributable to ordinary shareholders of XPeng was RMB713 million for the fourth quarter of 2020, compared with RMB1.1 billion loss for the same period 2019 and RMB865 million for the third quarter of 2020. Basic and diluted net loss per ADS were both RMB1.05 for the fourth quarter of 2020. Non-GAAP basic and diluted net loss per ADS were both RMB0.95 for the fourth quarter of 2020. Each ADS represents two Class A ordinary shares. It is worthwhile to know that the calculation of earnings per share for the ADS is based on the weighted average number of the ADS. For example, 747 million ADS were used for the fourth quarter of 2020, while 377 million ADS has been used for the fiscal year 2020. And our year-end ADS count was 789 million at the end of the year. Turning back to the balance sheet. At the end of 2020, our company has cash and cash equivalents, restricted cash, short-term deposits and also the short-term investment in a total of RMB35.3 billion compared with RMB2.8 billion as of December 31, 2019. To be mindful of the events of our earnings call for our full-year financial results, I will encourage listeners to refer to our earnings press release for further details. This concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead.

Thank you. Your first question comes from Tim Hsiao of Morgan Stanley. Your line is open.

Hello, everyone. This is Tim from Morgan Stanley. Congratulations on the strong result and thanks for taking my question. My question is about the guidance. According to the latest guidance, we are anticipating around 5% sequential pricing erosion in the first quarter. Could you please elaborate on the underlying factors? I believe the management previously mentioned that some of the XPILOT 3.0 revenue would be recognized in the first quarter, which should be ASP-accretive. Why are we still expecting ASP to decline quarter-over-quarter? Thanks.

Thank you for your question. In the fourth quarter, we delivered close to 13,000 units. In the first quarter, we are experiencing a seasonal slowdown, especially in February, which is typically our lowest month of the year. Our current guidance is 12,500 units, indicating a 500-unit difference primarily due to volume and mix effects. You are correct that we have incorporated XPILOT 3.0 for those vehicles where customers have activated the functionality, which is reflected in our first quarter results, mainly in January and partially in February. However, because of the volume and mix impacts, we anticipate a slight decrease in overall revenue compared to the fourth quarter of last year.

Thank you. My second question is about the impact of tight component supply. We plan to launch the LFP version of the P7 in the second quarter, and I want to know if the increased variety of batteries will alleviate the battery bottleneck in that quarter or make it worse. Additionally, our competitors and other traditional OEMs have mentioned the challenges posed by component tightness. What is our assessment of how this might affect the company's shipments in the second quarter? Thank you.

Yes, indeed. I believe that for the next six months, battery supply will be crucial for all OEMs. For our new P7 and G3 models scheduled for Q2 delivery, we are expecting significant challenges regarding battery supplies as we are transitioning to the new LFP battery. We are collaborating closely with our battery suppliers to address this issue. In the long run, I anticipate an increase in battery supply capabilities. By Q3, Q4, and into the next year, we should be able to resolve the supply challenges. Based on our previous success with the 500 kilometers version of the G3, we are confident in overcoming the hurdles presented by the adoption of LFP batteries for our vehicles in the coming year.

Tim, this is Brian. Let me just add to what Xiaopeng just said on this LFP battery version of our products. We are seeing actually very healthy and very strong demand for that product. As we see actually just since we just recently launched we already see up to like 20% of our P7 actually have the LFP version battery orders, which is actually very interesting and very exciting. The supply issue I think Xiaopeng mentioned, I think we actually expect this to gradually sort of resolve as we actually head towards the second half of the second quarter. And I think this volume will be picking up as we see. So for the second quarter actually we are very confident that we can see actually quite healthy growth over the first quarter, overall for the deliveries.

Got it. Thank you very much Mr. He, Brian and Dennis. Thanks for the answers.

Your next question comes from Edison Yu of Deutsche Bank. Your line is open.

Hi. Thanks for taking the questions. First, kind of more near-term. I know you just said 2Q you should see sequential growth. Can you give us kind of an idea of not only 2Q but in the second half as well? Obviously, not trying to pin you down to a number. But just assuming demand is there what kind of monthly sales run rate could we see? And is there any sort of limitations due to the semiconductor shortage?

So Edison, this is Brian again. We don't want to provide long-term guidance as per company policy. However, as Xiaopeng mentioned in the opening remarks, we will have new product launches each quarter for the next three quarters, and we expect to see healthy sequential growth. Regarding supply constraints, we currently have visibility into about two to three months' worth of semiconductor supply, which we are closely monitoring to determine if it will affect our overall supply chain. For now, we don't foresee any impact, but we are focusing on it. Additionally, since our volume is relatively small compared to larger OEMs dealing with more significant issues, we believe we are in a better position to respond to this challenge. Nonetheless, this is an issue we will keep a close eye on.

Great. Second question unrelated. So I wanted to ask about XPILOT. So as we think about the next-generation offering would you consider moving to a subscription-only model for the features? And if not, would you expect the pricing of it to go up since now you're equipping it with LIDAR? Thank you.

Yes, with our new generations of XPILOT, we will certainly raise the pricing for various configurations. Whether this will be a subscription model or a one-time payment model will depend on customer feedback and our overall strategy. In general, the average selling price will increase for the higher versions of XPILOT.

Thank you.

Your next question comes from Jeff Chung of Citi. Your line is open.

My first question is about how we should view the sales mix between LFP and LCM powered BEVs in the future, along with the differences in margin outlook and guidance regarding changes to the full year sales target.

For the LFP battery, we are observing that the P7 version's LFP variant accounts for nearly 20% of new orders, while the G3's LFP battery representation is around 10% of new orders. We anticipate that this mix will increase as we continue promoting and introducing these new LFP battery products. An interesting aspect of the LFP battery versions is that after removing the low-end configurations that lack autonomous driving and assist-driving systems, the percentage of LFP battery version P7s featuring our XPILOT 3.0 hardware is significantly higher compared to the overall P7 population. This could lead to greater software penetration for these products, which is quite exciting. Regarding growth for March and the entire year, I believe I've addressed this earlier, but I'm open to specific inquiries if you have any.

Could you provide insights on the margin trend between vehicles powered by LFP and those powered by LCM, specifically for the hardware segment? I've noticed that some OEMs manage to achieve a higher margin with LFP-powered BEVs, and I'm curious about the company's perspective on the long-term margin trend.

Thanks, Jeff. This is Dennis. For the margin, actually the instruction of the LFP product there are two purposes. One is to improve sales. The other one actually is to reduce cost. So definitely this product will improve sales as well as will improve our margin. I cannot give you specifically the number or the amount of the margin improvement, but this product will bring us better margin for these two products, yes both P7 and G3.

Thank you. My second question is about the revenue and income from autopilot. Considering the previous P7 equipment for autopilot 3.0, the software income and the first quarter income will be combined in this year's first quarter earnings. However, management seems to have provided conservative guidance on the software income, and I would like to understand why. Additionally, could you provide insights on the current attach rate for autopilot 3.0 and its expected penetration level for autopilot 3.5 in the future? Thank you.

Hey, Jeff, this is Brian again. As I mentioned earlier, the activation of our XPILOT 3.0 has accounted for over 20% of the total P7 population, with more than 20,000 units delivered already. Since the introduction in OTA within the NGP in January, we have seen a slight increase in penetration, which is encouraging. The utilization rate for this product is very high, exceeding 50%. We are confident that as we continue to roll out more products featuring the XPILOT 3.0 architecture, the penetration rate will keep rising. That's the trend we anticipate. It's challenging to predict the penetration rate for XPILOT 3.5, but for the third product launching in the fourth quarter, most configurations will be equipped with either 3.0 or 3.5 XPILOT capabilities. This means that over 80% of the models for this product will enable us to generate software revenue due to their hardware configuration. Therefore, we expect the penetration rate for this product to be higher than that of the P7.

I would like to add that we are currently upgrading our XPILOT technology quite aggressively. In the future, all new models launched by XPeng will feature the latest versions of XPILOT, and we intend to phase out the older versions. For instance, the upcoming third model will come with XPILOT 2.5 or higher. With continuous development and investment in research and development for autonomous driving, as well as expected reductions in hardware costs to support XPILOT technologies, we believe all new vehicles from XPeng will not only have the necessary hardware and architecture for the latest XPILOT versions but will also generate increasing revenue from XPILOT software. Thank you.

Thank you, management and no more questions from me. Thank you.

Your next question comes from Bin Wang of Crédit Suisse. Your line is open.

Brian Gu: Hey, Bin, could you repeat your question in English for everyone to understand? Sure. I would like to know if you've accelerated your R&D for autonomous driving. Comparing to your plan from last October, you mentioned that XPILOT 3.5 would only launch in 2022. However, in your opening remarks, you indicated that XPILOT 3.5 might be ready by the end of this year. Additionally, you also announced an XPILOT 4.0 rollout for 2022, which seems to be ahead of your previous timeline in technology set for 2023. Can I assume that you've increased your R&D capabilities? Furthermore, regarding urban driving, does XPILOT 3.5 enable 90-degree turns and traffic light recognition? Lastly, if you're speeding up your R&D, it seems we should expect a significant rise in R&D expenses over the next two or three years. Thank you.

Thank you for your question. In 2020, our research and development efforts, particularly with XPILOT 3.0, boosted our confidence in our future R&D initiatives and the upcoming launches of XPILOT 3.5, 4.0, and even 5.0. We intend to accelerate the schedule for launching higher versions of XPILOT in the future. All of this is driven by our ongoing R&D efforts and the very positive feedback we've gathered from our customers. Regarding your second question, I believe that in the future, LIDAR technology, millimeter wave technology, and cameras will be standard components of the hardware setup that enhances safety in autonomous driving. This will provide us with improved computing power, enabling navigation not only on level one and level two highways but also on urban roads in China and other parts of the world. However, we recognize that reaching full autonomous driving capabilities requires significant progress, both in China and globally. Nevertheless, we are confident this will occur sooner than anticipated. Additionally, we plan to significantly increase our R&D expenditure this year and in the coming years, primarily focusing on all aspects of autonomous driving, including software upgrades, data management, computing, international expansion of autonomous driving, and exploring level four autonomous driving strategies alongside hardware enhancements to support software improvements.

Thank you.

Your next question comes from Ming Lee of Bank of America. Your line is open.

My question is about international expansion, particularly in European countries. Given the initial security concerns with certain hardware or HD maps, will you need to change your vendor or software? What challenges and bottlenecks do you anticipate for your international expansion, especially regarding smart cabins and autonomous driving, which are your strengths?

Yes. I have extensive experience in expanding into international markets, having started this journey in 2010 with my first entrepreneurial project. My perspective on overseas expansion may differ from others in the field. It requires significant time and effort to establish a solid foundation to seize international opportunities. Our approach to overseas expansion will closely resemble our strategies in the domestic market, focusing on our product portfolio, operations, and organization. This consistency will help accelerate our internationalization process. After XPILOT 2.5, we aim to synchronize the launch of future XPILOT versions in both domestic and international markets simultaneously. We plan to introduce XPILOT 4.0 and higher in the European market and other developed markets at the same time as in our domestic markets. Currently, we are managing our smart cockpit development entirely in-house with a dedicated R&D team that we expanded last year. In the upcoming year, we will grow this team further to enhance our smart cockpit R&D. Establishing a robust technological foundation typically takes about 12 months, which is essential for integrating it across our products and enabling overseas expansion. Once this foundation is in place, we anticipate impressive future development regarding the speed of expansion, cost reduction, and the technological quality of our smart cockpit products. Overall, our strategy is to create a strong platform capable of launching a comprehensive product line with robust autonomous driving capabilities, supported by a powerful sales and marketing team to facilitate our future international expansion. Thank you.

Thank you. I don't have more questions.

Your next question comes from Paul Gong of UBS. Your line is open.

Hi, management. Thanks for taking my question. My first question is about the R&D headcount. I remember that during the IPO, you had around 1500 R&D staff, with about one-third focused on autonomous driving. Now that you have more financial resources than ever, and as Xiaopeng mentioned, you're planning to significantly increase R&D this year. Do you have a target for the R&D headcount as we move towards the end of this year?

Indeed, we plan to significantly increase our headcount not only in R&D but also in our sales and service teams. By the end of this year, we expect the R&D team to double in size. Additionally, we will increase the R&D personnel around our ecosystem as well. Thank you.

Let me translate my question. The second question is about the monetization of your autonomous driving. Considering the price difference between the XPILOT 2.5 and 3.0, the penetration is currently only 20% for the P7 with XPILOT 3.0. Given that you have invested fixed costs into the R&D of the software, is it worth it to think about reducing the price gap between the 2.5 and 3.0 in order to monetize less in the short term, but gather more data to improve the software further?

Actually, we don't have any current plans to shorten or narrow the price gap between different versions of XPILOT software offerings because we are dedicating our R&D efforts into the core AD technological developments. We believe that in the future, we will only have newer or higher versions of XPILOT. Additionally, older or lower versions of XPILOT will be removed from our product portfolio. As we advance into higher-level AD technologies, we expect to not only increase our payment fee for higher-level software, but also to create numerous opportunities across various scenarios that will enhance the customer experience and present significant monetization opportunities in the future. Thank you.

Thank you.

As there are no further questions, now I'd like to turn the call back over to the company for closing remarks.

Thank you once again for joining us today. If you have any further questions please feel free to contact us. Thank you. Thank you everyone.

This concludes this conference call. You may now disconnect your lines. Thank you.