Xpeng Inc. Q4 FY2022 Earnings Call

Hello, ladies and gentlemen. Thank you for standing by for the Fourth Quarter and Fiscal Year 2022 Earnings Conference Call for XPeng, Inc. At this time, all participants are in a listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Mr. Alex Xie, Head of Investor Relations of the company. Please go ahead, Alex.

Thank you. Hello, everyone and welcome to XPeng’s fourth quarter and fiscal year 2022 earnings conference call. Our financial and operating results were issued via our Newswire services earlier today and available online. You can also view the earnings press release by visiting the IR section of our website at ir.xpeng.com. Participants on today’s call from our management will include: Co-Founder, Chairman and CEO, Mr. He Xiaopeng; Vice Chairman and President, Dr. Brian Gu; Vice President of Finance, Mr. Dennis Lu; Vice President of Corporate Finance and Investments, Mr. Charles Zhang; 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 U.S. 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 U.S. 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 the disclosure of the 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. He Xiaopeng. Please go ahead.

Hello, everyone. In 2022, XPeng delivered more than 120,000 electric vehicles, a year-over-year increase of 23% and ranking number 10 among emerging EV makers in China as measured by vehicle insurance registration volume. Throughout the year, a challenging macro environment and increasingly intense competition in the NEV market placed pressure on our performance. Amidst this pressure, we saw an opportunity to become a first mover in tackling the challenges faced by the industry and examine inhibitors to our business growth at the same time. At the end of last year, I rapidly and decisively conducted a review of our strategies and implemented a series of significant adjustments to our organizational structure with a focus on improving areas of weakness. We have decided to start the change with ourselves and revamp XPeng’s business with a startup mindset on an elevated platform with new angles. I believe XPeng is approaching an inflection point, as we have clearly identified what our goals are, and what our strengths and weaknesses are. We're now building recovery momentum in our sales and market share expansion. As we do this, we're placing a high premium on improving our organization and cost efficiency to fortify our strong foundation and better position our company for sustainable growth over the long term. Our overarching goal is to make XPeng a leader in the Chinese EV market and ultimately win the global EV race. What excites me is that our strategic adjustment has induced meaningful results in the first quarter of this year, which gives me confidence that we will achieve sustainable and greater breakthroughs in the next few quarters. My first step to the organizational restructure started with changes and upgrades in our top leadership. Ms. Fengying Wang has joined our team as President of the company, bringing us more than 30 years of experience in the automotive industry. Fengying is taking full responsibility for our product planning and sales operations and is also in charge of our product platform management scheme. Our extensive industry experience, in-depth market insight, and strong execution capabilities will help our product capture customer demand more accurately, while greatly improving efficiency in our sales and services division. At the same time, the adaptations to our management's organization are geared toward a flatter and more concentrated structure. In February, all design, R&D, production, supply chain and organizational management functions directly report to me. I believe that these shifts will significantly improve our planning capabilities and lift the efficiency of our decision-making and execution in the coming months. More importantly, these adjustments have effectively refreshed our execution and competitiveness. For the foreseeable future, I will remain focused on lifting labor efficiency across our organization by multiple times, though as to generate increased customer value with the same headcount, and greatly reduce costs across a full range of processes through technology and management innovation. With regard to our product planning and design, we concentrate on customer perceived value and product differentiation in our innovation. We will make substantial changes to future product model configuration mix, whole vehicle modularized design, and consistency in smart features. In terms of interior and exterior styling and design to meet XPeng customers' high standards for aesthetics, I am directly running the style and design division and building three teams that compete with each other to generate creative ideas. These initiatives will continuously improve our interior and exterior styling and space design capabilities. At the same time, I incorporated the net promoter score or NPS into the core performance indicators for a variety of business functions and required feedback collection on a monthly basis. The NPS performance evaluation will anchor the transformation of our product planning, design, and development toward a customer-centric pathway. I believe our new products, our OTAs, and new services to come, will demonstrate substantial progress. In terms of branding and marketing, we'll harness our core differentiation in autonomous driving to the full extent and enhance customer perception. We are broadening our addressable market, expanding our penetration from Tier 1 and Tier 2 cities to Tier 3 and Tier 4 cities. So far, we have completed a preliminary merge between our branding and marketing teams and refreshed our overall strategy. This will help us improve the quality, effectiveness, and flexibility of marketing activities in an effective way going forward. While significantly reducing marketing expenses, we have already flattened out the management hierarchy in our sales network. Furthermore, we are enhancing our network coverage, increasing competitive capabilities in our frontline sales staff, and developing XPeng's powerful data-driven sales touchpoint in order to achieve significant strides in sales growth. On March 10, we officially launched the new P7i sports sedan, which is an upgraded version of our highly successful P7 model. Deliveries to customers also commenced in this month. I'm pleased to see our in-store traffic and test driving volume both hit new heights in recent months following the P7i launch. This new product's smart features, digital design, and performance among other clear advantages in livery with similar products were well received among customers. Amid the market's prevailing weakness in new order intake, our results outperformed the market. Our new order intake in February increased 100% over the previous month. With the strong momentum of P7i orders, following its official launch, we expect to see considerable month-on-month growth in total new order intake in March. This marks initial success following our comprehensive transformation, which has also boosted our company morale. Our second new product model coming up this year, the G6, will make its debut at the Shanghai Auto Show. Its official launch and vehicle deliveries will occur around the end of the second quarter. The G6 will bring the most advanced electrification and smart mobility technologies to the 200,000 to 300,000 yuan priced NEV SUV markets. With unrivaled interior space, range, styling, and interior decoration, we believe the G6 will become the top-selling model in its market segment. Following the ramp-up of G6 mass production, we expect G6 monthly sales target to be 2x to 3x that of its P7 predecessor sales. In addition, in the second half of 2023, we'll launch a brand-new BEV 7-seat MPV. This new MPV model is designed to cater to customer cohorts that demand a larger interior room while serving the needs of our family customers for a human-machine co-pilot. Recently, ChatGPT 4.0 and other AI-based applications have created a buzz among hundreds of millions of users on the massive potential of generative AI models. I am also very excited about this. It represents a brand-new phase of artificial general intelligence, which with on-premise deployment that does not rely on cloud end, which not only redefines the pathway to realize autonomous driving but also increases its efficiency. Given this development, there is an even higher possibility that autonomous technology further advances from L4 to L5. We expect to incorporate GPT technology deeply into XPeng's business across the board to create ground-breaking user experiences and exceptional improvements to our operational efficiency. In late March, we began accelerating the OTA rollout of City NGP compatible with multiple models in several cities, including Guangzhou, Shenzhen and Shanghai. Through City NGP's OTA, we took the lead in mass-producing the transformer-based BEV time-series network or XNet in China, which achieved a milestone in deep learning algorithm development and application. In the second half of this year, XNGP powered by XNet's deep learning algorithms will no longer depend on a high-definition map. That said, XNGP will be supporting drivers on more urban roads across over 10 cities in China. Results from our testing showed the new version of XNGP outperformed peers' actual on-road performance in the United States. This leads us to believe XPeng's autonomous technology and its customer adoption is approaching a pivotal turning point. We have built notable leadership in smart technologies as well as customer adoption of smart technologies compared with peers. We're driving our technology roadmap and commercialization pathway to cross over the inflection point and reach an accelerated growth curve. While keeping high safety standards remains a top priority of our technology advancements, we will also be focused on the development to improve scenario coverage, user experience and software and hardware cost optimization. In terms of scenario coverage, we have expanded the usage of the advanced technology from highway scenarios into city scenarios where ADAS are used at high frequency and even become an essential driving tool. Going forward, we will strive to further broaden ADAS usage to more end-to-end driving scenarios such as internal compound ways and non-public roads and expand our geographical coverage from three cities to more major cities nationwide beginning in the third quarter. In terms of user experience, we have achieved an important psychological barrier for customers to use autonomous driving to relieve drivers, that is, drivers can let the machine safely take the wheel, resting assured that they are acting only as a supervisor. Looking ahead, we expect that through continuous OTA upgrades, XNGP's driving skills will escalate every year and in two to three years reach a level that is equivalent to a human driver with three years of driving experience. We also expect that the number of manual takeovers per 100 kilometers will be reduced to 1 or fewer. Regarding cost efficiency, we plan to cut XNGP's BOM costs significantly next year and adjust our sales model from one that bundles sales of software and hardware, to one that splits the sales of software and hardware, which is going to enable autonomous driving on all of our new vehicles and allow more customers to use the latest autonomous driving capabilities. In pursuit of breakthroughs in the aforementioned three realms, we will bring great value to our customers and build out a competitive edge in technologies, delivering long-term, sustainable revenue growth at scale and with improved margin contribution. It has been said that the past five-year period was the golden age for new energy vehicles. I believe the next five-year period will be the golden age for autonomous driving. During the five years to come, XPeng's highly advanced autonomous driving technology will help XPeng accelerate our ability to gain top market share. More powerful cost control will be the core competitive edge that will enable XPeng to secure its leadership in the EV market. We will advance the platform-based approach and technology innovation to propel our cost reduction strategy. Entering 2023, we are applying a full platform engineering approach for our BEV vehicle platform, electrical and electronic architecture, powertrain system and ADAS software and hardware development. This signals that we are entering a new phase of car-making in a unified system. In this way, we are able to develop products with superior customer experience at a faster pace and a lower cost. In the past, our R&D strengths were primarily manifested by our leading product performance. In the future, our R&D strengths will be underlined by maintaining the leading performance while achieving remarkable cost reductions. We have mapped out our strategic execution roadmap with associated cost reductions include an over 50% decrease for autonomous driving costs and about a 25% decrease for vehicle hardware costs, including powertrain, over the 2023-2024 period by means such as technology innovation and optimized configurations. I am pleased to see the design, technology R&D, supply chain and manufacturing teams are now working in a synergetic way to make our products more competitive through innovation. In terms of cash liquidity, our cash on hand at the end of 2022 amounted to over RMB38 billion. As we have nearly completed our investments in our two manufacturing bases over the past few years, our CapEx will decline substantially. We have also established three powerful vehicle platforms that can support a series of new model launches over the next three years. Our R&D will further concentrate on initiatives that best correspond with long-term trends and further differentiate our product in terms of customer experience and cost. We will also pursue improvements in our operating efficiency throughout the entire process. For example, within our sales operations, we strive to improve same-store efficiency by optimizing our store network. We believe these cost optimization efforts will start to deliver material results beginning in the coming several months, including in the second half of this year. It has always been my intention to build a successful company that can grow in scale instead of a small company in a niche market or just any generic company out there. Expanding our scale and market share to achieve economy of scale in both software and hardware is the primary goal in our long-term strategy. Although the product and management adjustment cycle in the automotive industry is more difficult than other industries and takes a longer period of time, we are still willing to sacrifice short-term sales and more patiently pursue greater victories in the medium- and long-term. Excitingly, as we rapidly implement adjustments and changes to our management, in addition to instituting a host of upgrades and iterations in our product portfolio and marketing capabilities, we have seen encouraging changes and positive results. I am firmly convinced that beginning in the third quarter of this year, XPeng's monthly sales number will achieve significant growth, both sequentially and year-over-year, as well as be much higher than the industry's average growth rate. I would reiterate that our current focus is on building and improving our capabilities in organization, product design, marketing and cost control. Continuous efforts in refining management and accelerated new product launches in the era of autonomous driving will lead us to the next level of exponential growth. We will continue to strive for this goal. Lastly, we expect our total vehicle deliveries to be between 18,000 and 19,000 units in the first quarter of 2023 and revenue to be between RMB4 and RMB4.2 billion.

Thank you, Mr. He, and hello, everyone. Now I would like to provide a brief overview of our financial results for the fourth quarter of 2022. I will reference RMB only in my discussion today, unless otherwise stated. Our total revenues were RMB5.1 billion for the fourth quarter 2022, a decrease of 39.9% year-over-year and a decrease of 24.7% quarter-over-quarter. Revenues from vehicle sales were RMB4.7 billion for the fourth quarter of 2022, a decrease of 43.1% year-over-year and a decrease of 25.3% from the last quarter. The year-over-year decrease was mainly attributable to lower vehicle deliveries for G3 and P7, while the quarter-over-quarter decrease was mainly due to lower vehicle deliveries for the P5 and P7, partially offset by the newly launched G9. Gross margin was 8.7% for the fourth quarter of 2022 compared with 12% for the same period of 2021 and 13.5% for the last quarter. Vehicle margin was 5.7% for the fourth quarter of 2022 compared with 10.9% for the same period of 2021 and 11.6% for the last quarter. The year-over-year and quarter-over-quarter decreases were mainly explained by the increased sales promotion. R&D expenses were RMB1.2 billion for the fourth quarter of 2022, a decrease of 15.3% year-over-year and a decrease of 17.9% quarter-over-quarter. The year-over-year and quarter-over-quarter decreases are mainly in line with timing and progress on new vehicle programs. SG&A expenses were RMB1.8 billion for the fourth quarter of 2022, a decrease of 12.9% year-over-year and an increase of 8% quarter-over-quarter. The year-over-year decrease was mainly due to the decrease of the commission paid to the franchise stores associated with the lower vehicle deliveries. The quarter-over-quarter increase was mainly attributable to higher marketing, promotional and advertising expenses to support vehicle sales. As a result, the foregoing loss from operations was RMB2.5 billion for the fourth quarter of 2022 compared with RMB2.4 billion for the same period of 2021 and RMB2.2 billion for the last quarter. Net loss was RMB2.4 billion for the fourth quarter compared with RMB1.3 billion for the same period a year ago and RMB2.4 billion for the last quarter. As of December 31, 2022, our company had cash, cash equivalents, restricted cash, short-term deposits, short-term investments and time deposits in total RMB38.3 billion. To be mindful of the length of our earnings call, I will encourage listeners to refer to our earnings press release for further details of our financial results for the fourth quarter and full year 2022. This concludes our prepared remarks. We will now open the call to questions.

Our first question will come from Tim Hsiao of Morgan Stanley.

My first question is about the competition in the pricing segment of RMB200,000 to RMB350,000 or USD30,000 to USD50,000, where XPeng currently has a strong position and serves as a key volume driver. However, over the past few quarters, Tesla, various EV startups, and even traditional automakers have become more aggressive in this price range. Additionally, I noted that XPeng recently upgraded its Han model and DMi to target the 200,000-plus market, while Tesla has implemented another round of price cuts. How does XPeng view the competitive landscape in this pricing segment, and how can the company ensure that its upcoming models, including the G6 and the model set to be released next year, stand out among competitors who are likely to be more price aggressive and focus on significant cost reductions in the coming quarters? That's my first question.

Thank you for your question. It's a very good one. We expect the market to see a series of price cuts by various OEMs in the next couple of years due to heightened competition, particularly among traditional OEM carmakers. We anticipate significant oversupply in the market, along with decreases in raw material costs, which will create a strong basis for these price reductions. Consequently, various brands will initiate price cuts to gain market share. As I stated earlier, our top priority at XPeng is to optimize our organization and scale, while also enhancing our autonomous driving capabilities and design language. Additionally, we will focus on cost optimization. Previously, we concentrated on developing our products' functionalities and performance. Now, as we expand our target price range to cover more than RMB250,000, RMB300,000, and even lower to RMB200,000, we've found considerable room for cost reductions. This will involve reducing overall bill of materials costs in R&D and integrating our software and hardware designs. In the near future, we will prioritize scaling up development, improving our autonomous technology, and enhancing product quality and performance while refining our cost structure, especially in our new offerings. We also anticipate making strategic price reductions to increase market share and boost deliveries. Reflecting on 2017, there were around 300 car-making startups and 70 passenger vehicle manufacturers. Now, only 50 remain, and in five years, we could see that number drop below 25; in ten years, possibly to less than 10. This means, by then, each carmaker will need to deliver at least 7 million cars annually to survive, necessitating a solid foundation in hardware, software, and cost control capabilities to endure fierce competition and strive for success. Thus, over the next five to ten years, our focus will be on strengthening our leadership in technological R&D and cost management.

So my second question is about the sales network. Could you please help to update us XPeng’s channel strategy this year? While Tier 1, 2 cities that we'll see that’s strategically critical, the growth in the lower-tier cities in China was on outpace than higher-tier cities and be kind of a key growth driver. So quite a few EV makers are targeting to pantry into the lower-tier cities. So how is XPeng going to grow its presence in the lower-tier cities? And in the meantime, we had the company change its hybrid business model, consisting of the direct sales and the dealership. Will be there any material changes in upcoming quarters? That's my second question.

Our newly recruited senior management member, Ms. Wang Fengying actually is way more experienced than me in terms of channel distribution. And since one month after her enrollment, she’s already had numerous discussions regarding our distribution channel and our network development. So for this year, we have several strategies in place already. First of all, we will maintain our current model of having directly run franchise stores in order to promote our sales and distribution. However, the mix from franchise stores will increase. And the second point is that we have and will continue to flatten out our management structure so as to improve the overall service quality as well as to improve the profitability and efficiency of our distribution channels. And the third point is that we will actually expand the functionality of those kinds of channels to not only sales purposes or functionality but also to increase force function as well, so as to provide a more comprehensive set of services to our customers. Now one of our upcoming next steps, which I can review right now is that we don't believe that it would be very effective to have a large number of small distributors or small channels. Rather, we prefer to prioritize the development of quality channels to improve our overall service and distribution efficiency. Regarding the second part of your question, which is the channel network in Tier 3, Tier 4 cities. First of all, we will work with our partners to expand the channel and network. In addition to that, we also design and curate appropriate products suitable for Tier 3 and Tier 4 cities and we do have some facelifted products upcoming to be expected.

The next question comes from Paul Gong of UBS.

My first question is regarding the arrival of Ms. Wang Fengying in her new role as President, what has been her biggest criticism on the XPeng Motor for the current situation and what is her plan to change it?

This is a very interesting question. Ms. Wang has been with us for over 1.5 months. Her main criticisms of the company are twofold: one pertains to planning and the other to sales and marketing. It’s a positive time because it’s better to identify problems and seek solutions rather than be complacent and unaware of the issues at hand. We are currently working hard to rectify some previous mistakes. Personally, I feel a lot of pressure from Ms. Wang as she is putting in effort every day of the week. We are all committed to being very diligent at work, which adds to the pressure I feel.

So my second question is regarding your interesting comment on the GPT application into the smart vehicles. Can you give us an example of how do you imagine such kind of technologies to be used in the long term in the smart vehicles? And if so, shall we pay for some kind of technology royalty or a servicing fee on that?

Thank you for your question. Now definitely, ChatGPT and related AI technologies will provide a lot of values for our midterm and long-term development. Now when we look at autonomous driving technology or capabilities, the lower level or medium level kind of autonomous driving technology always face the conundrum of being not smart enough as human drivers because cars definitely can be very capable as a driving vehicle; but in terms of decision making, a lot of it comes down to the intelligence level. So the fact that the ChatGPT AI technology allows on-premise deployment as well as cloud connection will actually be a catalyst in terms of the development of autonomous driving technology all the way from Level 4 to Level 5. Now in terms of the potential fee or cost of dropping the technology, first of all, we will look at the near-term application in the software side, which will be much sooner than its application on the hardware side because it's application in the hardware, we're talking about integrating the software together with the hardware, which is quite a different story from just applying it on the software side. And we mainly will look at some of the key areas, for example, education and also document processing, language processing, etc. And definitely, we expect to see a lot of variations of related ChatGPT technology in China, and we will select the right partners for XPeng in the future according to our developmental pathway. And right now, we are in conversation with a lot of potential partners. In regards to the potential cost, we believe it's quite minimal.

Next question comes from Bin Wang of Credit Suisse.

I have two questions. First, regarding your cost reduction, you mentioned a 25% cut in vehicle component costs, which is impressive. Could you provide more details on how you plan to achieve that? For instance, will you be using die-casting as part of the cost-cutting strategy? This is quite important. My second question is about G9. Recently, G9 hasn't been performing well, but in the past, its volume was even higher than P7. How do you plan to maintain G9's sales momentum, and what is the current status of G9 maintenance?

Yes. The target of a 25% cost restructuring isn't exceptional on its own, but it highlights that we have not performed adequately in the past and there is significant potential for improvement in cost reduction. Currently, we are exploring multiple strategies to lower our manufacturing and production costs. For instance, we have new technologies like integrated stamping techniques that can help decrease manufacturing costs. Additionally, we have effective methods for reducing vehicle costs by about 50% to 60%. Moreover, we are utilizing whole vehicle platform engineering techniques for chips and batteries, which will also help lower costs. Therefore, we have various approaches to achieve cost reductions across our powertrain, vehicle platform, engineering architecture, scale, and configurations. Looking ahead to the second half of this year and into next year, we have set different developmental goals for cost reduction and anticipate positive results. Regarding G9 deliveries, although it faces challenges in the RMB300,000 price range among its BEV competitors, we have several strategies to enhance sales. First, we're increasing the number of configurations, and second, we're rolling out XNGP functions on both the G9 and P7i, which should make G9 more appealing. Additionally, we've received positive feedback from customers regarding the quality and performance of the G9. The launches of the P7i and G6 are expected to attract more foot traffic to our stores and generate interest in the G9 as part of our product lineup. Furthermore, we are seeing a resurgence in sales and deliveries in March compared to February. Therefore, we remain confident that we are on track to meet our G9 delivery targets for the year.

The next question comes from Nick Lai of JPMorgan.

I think what you mentioned in your questions might be viable 15 years ago, which was that you can basically sell anything as long as they are cheap enough. However, it might not work today. We still believe that product quality speaks volume. So for this year in terms of our overall marketing and pricing strategy, we have set up different aggressive goals for, for example, the second half of the first quarter as well as for the upcoming several quarters of the year. So we definitely expect a lot of reinvigorated deliveries or sales outcome for the rest of the year. Now regarding battery supply, in January of last year, we experienced significant pricing inflation in the industry, which encouraged the development of hybrid vehicles but hindered progress in the electric vehicle sector. This year, we are pleased to see that battery prices have decreased. The new price competition in the industry, led by several major battery manufacturers, is a positive development for battery electric vehicles and will help improve our pricing competitiveness. Based on discussions with our battery suppliers, we are confident that the price reductions from our suppliers will be more substantial than the industry average. Internally, we have also identified various ways to optimize our cost structure to lower expenses related to powertrains, batteries, and parts. This includes integrating components and replacing traditional NCM or NCA batteries with LFP batteries, as well as extending the driving range supported by each battery by approximately 10% to 20%. These strategies will help us further reduce battery costs, and we expect to see results over the next 12 months.

So my first question is regarding product competitiveness of G6. Because the management team just mentioned they expect G6 in the future, the stabilized monthly sales could be 2x to 3x of P7 but because of G6 is in a similar price segment of P7, so what is the product competitiveness to give you the confidence?

I apologize for not being able to share too many details about our upcoming models, but you can expect more information on the G6 at the Shanghai Auto Show in mid to late April this year. I can highlight a few aspects of the G6: it features a longer driving range thanks to the optimized weight of the vehicle, which is achieved through our integrated stamping technology along with improved heat management and wind resistance management technologies. Additionally, the interior space of the G6 is impressive, particularly in the second row where the seating area is quite spacious. Another noteworthy aspect of the G6 is its design; it follows the XPeng style, which we believe will be very appealing to our customers.

My second question is about battery technology. In the future, will you consider using a different type of battery, like a cylindrical type? Also, regarding your current order backlog, G9, you have already provided the high-voltage fast-charging battery. Is that ratio sufficient? If it isn't, is it due to the lack of charging infrastructure or because consumers are comfortable with the current normalized battery pack sizes?

Regarding G9 and all of our upcoming new models and facelift versions, all of them will be equipped with fast-charging capabilities suitable for 800 volts and also silicon carbide fast charging technology. We will also expand construction of this fast-charging infrastructure as well. Now what I would like to mention is that this fast charging technology will not only work on the dedicated charging pile but also in the original charging pile as well. So you can actually speed up the charging by using the technology on both charging piles. In addition to that, we also have put in place our modular optimization technology to optimize the batteries as well as chips in the design of those new vehicles. So we are open to the possibility of adopting cylindrical batteries in the future.

Due to time constraints for this call, 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 further questions, please feel free to contact XPeng's Investor Relations through the contact information provided on our website.

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