Hello, everyone. Thank you for joining the First Quarter 2024 Earnings Conference Call for XPeng Inc. This conference call is being recorded. I will now hand it over to your host, Mr. Alex Xie, Head of Investor Relations for the company. Please proceed, Alex.

Thank you. Hello, everyone, and welcome to XPeng's First Quarter 2024 Earnings Conference Call. Our financial and operating results were issued by newswire services 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 from our management team will include a Co-Founder, Chairman and CEO, Mr. Xiaopeng; Vice Chairman and President, Dr. Brian Gu; Vice President of Corporate Finance and Investments, Mr. Charles Zhang; Vice President of Finance and Accounting, Mr. Jiaming Wu; and myself. Management will begin with prepared remarks, and the call will conclude with a Q&A session. A webcast replay of this conference call will be available on the IR section of our website. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the 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 unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. XPeng's earnings press release contains a reconciliation of unaudited non-GAAP measures to the unaudited GAAP measures. I will now turn the call over to our Co-Founder, Chairman and CEO, Mr. Xiaopeng. Please go ahead.

Good evening, everyone. In the first quarter of 2024, XPeng announced the delivery of 21,821 smart EVs, marking a 20% year-over-year increase. Despite significant market competition, our first quarter gross margin expanded substantially to 12.9%, doubling from the previous quarter with an increase of 6.7 percentage points. This development underscores XPeng's innovative approach to enhancing profitability and international market potential through the provision of smart technologies based on its smart EV business. This has created a completely new and unique model. Over the past decade since its inception, XPeng has consistently made robust investments in R&D for smart EV platforms, electrical architecture, and advanced driver assistance systems, or ADAS for short. These strategic investments are now yielding positive financial outcomes. As artificial intelligence continues to redefine the auto industry in China and globally, XPeng has been at the forefront of exporting its in-house developed smart technologies, resulting in significant recurring revenue and profit. This achievement is set to profoundly impact the company's profitability model, instilling confidence in paving the way for further technical advancements as XPeng continues to lead the technological transformation within the automotive sector. At the end of Q1, we had RMB 41.4 billion in cash. With our significantly improved gross margin, this healthy cash position allows us to focus more on strategic initiatives for the future. Our strategic transformation is not solely focused on boosting sales volume, as in the past. We are also dedicated to achieving excellence in quality, efficiency, and overall enhancement of the company's competitiveness. By leveraging our strengths and addressing any weaknesses, our goal is to become well-rounded and pursue larger scale and profits in the long run. I am pleased to say that we have been able to initiate this transformation much earlier than our peers. Moving forward, we will rigorously drive this transformation while accelerating crucial talent recruitment and improving organizational effectiveness and strategic execution. We are confident that with our hyper-integrated, comprehensive intelligence technology platform, XPeng is well positioned to efficiently launch highly competitive models worldwide and lead the widespread adoption of AI-powered smart cars. Since the beginning of 2024, XPeng has been actively recruiting top talent in R&D, brand marketing, style design, and other key areas, which we will introduce to you. Our goal is to rapidly elevate our marketing, customer experience, and design capabilities to the industry's most cutting-edge levels. This will enable us to effectively translate our long-standing technologies into compelling product experiences and utilize marketing strategies to better communicate the value of our technology to customers. By addressing our weaknesses, our industry-leading AI capabilities, comprehensive R&D framework supporting rapid global scalability, and customer-oriented product design will better serve as the competitive edges that set us apart and drive our success. During the first quarter, the X9, our largest flagship model, emerged as a top seller in the pure electric MPV segment as well as the pure electric 3-row model segment following its market launch. The success of the X9 firmly establishes product innovation and technological advancements as our most effective competitive edges. Moving forward, we will confidently build on this success to enrich our premium product portfolio. Our aim is to provide family customers with the most advanced smart EV technologies in large vehicles, delivering space, comfort, and luxury akin to high-end cars priced above RMB 1 million. In the third quarter of this year, we will embark on an extensive product launch cycle, introducing several new models within the next three years. These models will cover major price segments ranging from RMB 100,000 to RMB 400,000. Like the X9, our new models will feature disruptive innovations in new segments. All products will showcase cutting-edge technologies, and with the various product series, we will cater to diverse customer needs in pricing and design both domestically and abroad. We are committed to establishing a Volkswagen-like super brand in the EV space with a global market presence and a wide-ranging product portfolio that caters to broad customer groups, ultimately bringing AI-powered vehicles into the mainstream. Our new A-class electric sedan, the first model of our MONA series products, will debut in June, with mass delivery starting in the third quarter of this year. This groundbreaking model combines exquisite design with intelligence and has a highly competitive cost structure, making it a potential favorite among younger consumer groups within the RMB 200,000 price range. We are confident that it will set the standard in the A-class BEV market. Over the next two years, we will introduce several additional products based on the A-class platform. Furthermore, we are determined to target the RMB 100,000 to RMB 200,000 price segment, where the highest sales volume is. In the upcoming fourth quarter, we will be launching a new Expo-branded B-class battery electric sedan. We have successfully achieved a 25% cost reduction through technological advancements with this model, which we expect to become a best-selling B-class BEV model in the second half of this year. With the incremental volume from this new B-class model and MONA, we are confident of substantial growth in monthly delivery volume in the fourth quarter. On AI Day, May 20, we began the full-scale rollout of our AI-powered in-car operating system XOS 5.1.0, AI Tianji OS. This cutting-edge large model system seamlessly integrates AI technology into smart upgrades, and XOS 5.1 is available to all owners of our major models, solidifying XPeng's position at the forefront of the non-HD map end-to-end AI model applications in China’s auto industry. This means our technology architecture is one or two generations ahead of our competitors without using any HD maps. By the third quarter of this year, XNGP not only will be able to roll it out on all national roads, but we will also be able to drive on all roads in China from end to end. This means that going forward, in terms of autonomous driving capabilities, we will see exponential improvements each quarter. In terms of the old way of human-made rules and coding methods, this will be revised into model training based on algorithms. We aim to have XNGP accessible on all roads nationwide by the third quarter and our end-to-end AI model will enable us to rapidly announce our software and AI technology on a monthly basis. We predict that by the end of 2025, we will elevate the city road experience to match the current highway NGP, only requiring one manual takeover per hundreds of kilometers of driving. Our XNGP is expected to achieve driving capabilities that are equal to or surpass those of human drivers in complex scenarios. This will soon be possible as our ADAS technology architecture is powered by a launched end-to-end AI model with extensive training using massive amounts of high-quality data, underscoring our competitive edge in data. With our AI model commencing deliveries in the second half of this year, a broader customer base will soon have access to AI-powered features. The widespread adoption of high-level automation will accelerate and scale up our XNGP fleet, which in turn will generate a tremendous amount of data to expedite AI model training and iteration. Large AI models will give our owners an unprecedented AI-powered driving experience, significantly increasing the penetration of high-level auto features. Regarding the international market, we will expedite our expansion into driving sales and profit growth this year. We plan to expand our overseas sales network from Nordic countries to over 20 countries worldwide. In the first half of 2024, we established partnerships with leading auto dealership groups in Western Europe, Southeast Asia, the Middle East, and Australia. New sales stores have gradually opened under these partnerships. In early April, we shipped nearly 1,000 units worth over RMB 500 million. In May, we announced the pricing and began accepting pre-orders for the GG6 model with a left-hand drive in Europe. We plan to introduce the right-hand drive version of the GG6 in the third quarter. Highway NGP tests in overseas markets are progressing well, too. Our product strengths, such as faster charging and smart technologies, are highly valued by overseas dealers and consumers. XPeng is confidently positioned as a mid- to high-end tech-savvy brand in international markets, offering superior product experiences and eco-friendly smart EV models. Our strategic partnership with the Volkswagen Group is rapidly deepening and expanding. Within just one year of establishing our partnership, we announced our third strategic cooperation project with Volkswagen on April 17. This project involves the joint development of the industry-leading EV architecture for Volkswagen, designed for the Chinese market. This platform, applicable to China-produced Volkswagen branded EV models starting from 2026, will integrate XPeng's latest generation of EV architecture based on centralized computing and domain controller technologies. We are confident in leveraging more mutually beneficial cooperation opportunities with Volkswagen and creating significant strategic synergies as we lead the global automobile industry transition into the AI-powered driving era. Since the first quarter of 2024, our platform and software services have become a significant driver of our earnings. This showcases XPeng's innovative and unique business model, setting us apart from traditional auto companies. Our cutting-edge smart technologies not only enhance monetization of XPeng's branded EV sales, but also, through our partnership with a world-leading auto OEM, will enable us to expand our market presence and increase financial returns for our company. I would like to reiterate that in this ultra-competitive market, we should not only focus on sales scale but also aim to become a well-rounded player in the market. Despite headwinds in the auto market in the second quarter, we have already observed a positive impact from our ongoing organizational and transformation changes. That said, we anticipate that the total delivery volume will range between 29,000 and 32,000 units in the second quarter of 2024, reflecting a year-over-year increase of 25% to 37.9% and a quarter-over-quarter increase of 32.9% to 46.6%. Furthermore, we project that our second-quarter total revenue will fall within the range of RMB 7.5 billion to RMB 8.3 billion, representing a year-over-year increase of 48.1% to 63.9%. We anticipate witnessing more transformation-driven results in the latter half of this year. Starting in October, we will be poised to enter a fast-track growth phase, confident in achieving significant breakthroughs in sales volume, margins, cash flow, and our AI-powered operating system for the long run. Thank you, everyone. I will now turn the call over to our VP of Finance, Mr. Jiaming Wu, to discuss our financial performance for the first quarter of 2024.

Thank you, Xiaopeng. Now let me provide a brief overview of our financial results for the first quarter of 2024. I'll reference RMB only in my discussion today, unless otherwise stated. Our total revenues were 6.55 billion for the first quarter of 2024, an increase of 62.3% year-over-year and a decrease of 49.8% quarter-over-quarter. Revenues from vehicle sales were 5.54 billion for the first quarter of 2024, representing an increase of 57.8% year-over-year and a decrease of 54.7% quarter-over-quarter. The year-over-year increase was mainly attributable to higher deliveries, particularly the model X9 in the first quarter of 2024. The quarter-over-quarter decrease was primarily due to lower deliveries of the G6 and the 2024 G9, compounded by seasonal impacts, which were partially offset by a contribution from the X9. Revenues from services and other sources were 1 billion for the first quarter of 2024, representing an increase of 93.1% year-over-year and an increase of 22.1% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were primarily attributable to growth in revenue from technical research and development services related to the platform and software strategic collaboration with the Volkswagen Group. Gross margin was 12.9% for the first quarter of 2024, compared with 1.7% for the same period of 2023 and 6.2% for the fourth quarter of 2023. Vehicle margin was 5.5% for the first quarter of 2024 compared with negative 2.5% for the same period of 2023 and 4.1% for the fourth quarter of 2023. The year-over-year and quarter-over-quarter increases were primarily due to cost reduction and improvements in the product mix, partially offset by inventory provisions and losses on purchase commitments related to the Model P5, which had a negative impact of 3.2 percentage points on vehicle margin for this quarter. As management lowered the P5 forecasted sales due to expected stronger market demand for upcoming new vehicle models. R&D expenses were RMB 1.35 billion for the first quarter of 2024, representing an increase of 4.2% year-over-year and an increase of 3.3% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly in line with the timing and progress of new vehicle programs. SG&A expenses were RMB 1.39 billion for the first quarter of 2024, which is flat on a year-over-year basis and a decrease of 28.3% quarter-over-quarter. The quarter-over-quarter decrease was mainly due to lower commissions to franchise stores and reductions in marketing, promotional, and advertising expenses. Fair value gains on derivative liabilities related to contingent consideration were RMB 0.18 billion for the first quarter of 2024 compared with RMB 0.03 billion for the fourth quarter of 2023. This non-cash gain resulted from the fair value change of the contingent consideration related to the acquisition of DD's smart auto business. As a result of the foregoing, loss from operations was RMB 1.65 billion for the first quarter of 2024 compared with RMB 2.59 billion for the same period of 2023 and RMB 2.05 billion for the fourth quarter of 2023. Net loss was RMB 1.37 billion for the first quarter of 2024 compared with RMB 2.34 billion for the same period of 2023 and RMB 1.35 billion for the fourth quarter of 2023. As of March 31, 2024, the company had cash and cash equivalents, restricted cash, short-term investments, and time deposits totaling RMB 41.4 billion. To be mindful of the length of our earnings call, I encourage listeners to refer to our earnings press release for more details on our first-quarter 2024 financial results. This concludes our prepared remarks. We'll now open the line for questions. Operator, please go ahead.

Your first question comes from Tim Hsiao with Morgan Stanley.

So my first question is about the revenue contribution from the collaboration with Volkswagen. Can management roughly quantify the contribution of the service revenue from Volkswagen in the first quarter, and can we expect it to continue climbing quarter-over-quarter in the following months? Is there any chance that the revenue from new agreements related to the E/E architectures could be realized within the year? So that's my first question.

Tim, this is Charles. So the platform software collaboration revenue from Volkswagen has been recorded in the service and other revenue in Q1. As you know, it is recurring in nature, so I believe that going forward, we will be able to book such platform software technical services revenue every quarter. In Q1, we booked multiple hundreds of millions in platform and software services revenue. We believe that in subsequent quarters, such revenue will exceed what we booked in Q1. Given the nature of the platform and software revenue, it is a very high-margin business for us, and we believe that with our vehicle sales business in addition to the platform and software technical services revenue, our company-level gross profit margin can be sustainable at low to mid-teens percentage gross profit margin. Therefore, as Xiaopeng pointed out, we have created a very unique business model in the auto industry. In addition to that, we will continue to achieve cost reductions through technology and the supply chain, further improving our vehicle gross profit margin. To address your question regarding the revenue from E/E architecture, we expect that revenue will begin to be recognized in the second half of this year. Thank you.

Got it. Charles. So my second question is about autonomous driving because we noticed that we expect to leverage the end-to-end large model to upgrade XNGP by the third quarter of this year to cover basically all of China and achieve a Level 4 vehicle autonomy next year. To achieve that target, should we expect XPeng to significantly increase R&D spending during this period, and when do you think such technological leadership can translate into new car sales or potential monetization opportunities?

Thank you very much for your question. Before I answer your question, let me correct a point: we hope to achieve Level 4 capabilities next year. However, we know that actual implementation requires hardware, as well as regulations that need to catch up. Regarding large models, AI large models will have a huge impact on all the companies involved. As we noted in the past, the rules and regulations need to change, and the large models will help generate these new rules. We do not need to increase our manpower at the moment; we have the same number of people continuing to work on globalization. In terms of timing, it's hard to specify how quickly we will see that transition. In the past, when we relied on human power, we could estimate how many people we needed and how long it would take. Now, with large models, it’s about scale, algorithms, and speed. My original thinking was that it would be the latter half of 2025. With the accelerated technology development, I think it could be earlier than 2025, perhaps next year. So we will wait and see.

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

So my first question is related to more details about your new product pipeline. In the second half, you will have two new products. Could you provide more details regarding the launch timing for the 2B version and also the 2C version? For next year, can you provide some guidance regarding the number of your MONA brand product and also your other brand's product?

Thank you for your question. In terms of all our car models, our mainstream offerings will primarily focus on the 2C market, while the 2B market is not our primary focus, including MONA. For MONA, we aim to produce vehicles with the most beautiful aesthetics on the market. Starting from Q3 this year, we will introduce different car models each quarter; some may be entirely new models while others are updates of existing ones. From 2024 to 2026, we will continue rolling out various car models. For specifics, I’m not in a position to release further details at the moment, although additional insights will be shared in my future presentations. Our goal with the MONA series is to create the most beautiful and authentic vehicles while also ensuring good profitability and offering various levels of intelligent or autonomous driving. In the past, autonomous driving was primarily for vehicles priced above RMB 200,000; with the MONA series, we hope to make it available for vehicles in that price range.

So right now, based on your plans for launching in overseas markets and entering new markets, are you ahead of your original target of a few times more than 10,000 units? Will your R&D expenses increase as you provide XNGP overseas?

Let me address your question. First of all, regarding our overseas plan, this year we are accelerating our pace of international development, targeting to roll out to more than 20 countries with our industry-leading technology-advanced EVs. The exact number of markets correlates with the models we can offer in those markets. In Europe, we are already selling the G9 and P7. We are launching the left-hand driving G6 this month and hope to deliver soon. In other markets, such as Southeast Asia and Hong Kong, we will launch the right-hand driving G6 in a couple of months, with delivery expected by the end of this year or early next year. So, the international expansion remains on track. The original guidance of achieving more than 10% of our overall delivery numbers still stands. Regarding the XNGP smart driving technology, we are actively testing in overseas markets, working with regulatory bodies to ensure compliance and developing relevant regulations. The development will not lead to a material increase in our overall R&D. We remain focused on a targeted number of markets, and the capabilities of AI and large models will benefit our development overseas. We look forward to making some capabilities available in late this year or early next year in overseas markets, without seeing significant increases in R&D expenses.

Your next question comes from indiscernible with Deutsche Bank.

My first question is about the numbers for the quarter this year. You're quite confident about the volume for this quarter. If we assume 50% growth compared to last year's fourth quarter, monthly volume should be 20,000. If you achieve 30,000, what's the breakdown between existing products and upcoming MONA and the other models? Can you also comment on the margin as we see margin improvements from cost reduction, exports that have a higher margin, and income from Volkswagen? Is gross margin near 15%?

In the fourth quarter of this year, both the MONA product and the new models will be fully delivered, contributing significantly to our monthly delivery. Assuming both models are in full delivery, we believe it's achievable to see an increase over last year's comparable monthly delivery numbers. However, I’m not going to provide the exact numbers or breakdowns; we're looking for stable and controlled growth rather than episodic spikes. These two products are just the beginning of our super product cycle that will last over the next 18 to 24 months. Additionally, our future models are set up to maintain stable growth. In terms of margin, we anticipate that the MONA model will contribute positively to gross margins, and the B segment is expected to have higher margins than our current models. All this contributes to maintaining healthy mid to low-teens gross profit margins overall by the end of this year.

I see our peers have launched their EIB versions but have not seen a big increase. What's our plan for the power chain to also launch the EIV version for our products?

Thank you for your question. Generally speaking, we would prefer not to disclose information regarding our product designs as they are still in the planning stage. That said, our current focus remains on buildings, not just plans. We are working diligently on our UltraX5-series product; as consumer experience with PHEVs grows, they may be more inclined towards BEVs for future purchases. Transitioning to BEVs is quite a jump in terms of technology. Nonetheless, we remain vigilant and continue to keep a close eye on the market developments.

Your next question comes from Paul Gong with UBS.

My first question is regarding the big model. There has been some feedback in the industry indicating uncertainty in decision-making and it's challenging to understand why certain decisions were made. Additionally, there are concerns that as the model matures, it could slow down in terms of updates. How does XPeng address this issue?

Thank you for your question. In the beginning, we had concerns, but we now see the immense value that end-to-end large models can bring. There is always uncertainty with technology. We must ensure the safety of the vehicle's operational control while maintaining end-to-end capacity. We are also developing a large model OEMs to carry out various pilots and tests. Regarding the differences between an autonomous driving model and a large language model, these two processes are distinct, and with our own models, we will need significantly less data to progress.

My second question is regarding the distribution channel. Currently, most of your stores are in prime locations but with limited area. As XPeng gradually announces new models and expands its portfolio, do you see the need to increase the average size of the stores or their area at the cost of shifting out of prime locations?

Thank you for your question. We continuously optimize our channels, including exploring lower-tier cities to provide support and services. Our focus has primarily been on high- and mid-tier cities. We believe comprehensive stores enhance service support. Even with new stores in malls, we do not plan to occupy large spaces as our conversion rate remains high with appropriate space requirements. Our plans for store openings in Q4 last year have seen a recovery, and we predict having about 400 to 600 stores by Q3 this year.

Your next question comes from Tina Hou with Goldman Sachs.

So for the MONA brand, among 2C customers, what competing models exist in the market? For customers in this price segment, there may be less demand for smart functions and higher price sensitivity. Aside from vehicle design, what are our competitive advantages in this segment, and do we have a sales volume target for the 2B part of the MONA distribution?

Thank you for your question. This question is more suited for our MONA product launch events, but I will make a brief comment. The MONA product aims for high aesthetics and affordability, reflecting our USD 10,000 rule. Each reduction by USD 10,000 may double sales for that product category. This strategy has worked in the past for our vehicles priced above 200,000. If we implement the same pricing strategy for the MONA series, we expect sales to increase significantly, potentially by 2 to 4 times the current levels. Regarding competitors, we aim to fill market gaps by offering beauty, space, technology, and price. Many competitors have not matched this combination so far. As for smart driving capabilities, we anticipate more demand for advanced features from this consumer group once it falls within their price range and believe 2025 will realize this potential.

This is Brian. Regarding questions on the 2B segment, the successful 2C product is also likely to be applied within mobility channels. Thus, while not explicitly targeted at the 2B segment, we anticipate significant applicability for MONA within broader mobility solutions, especially given our collaboration with DD, which presents substantial use cases.

To follow up, for the 2B sector, can we still expect 100,000 units in the first 13 months and another 100,000 units in the next 12 months? Is this still a reasonable expectation?

The agreement we have with DD is still valid, and we provide incentives for MONA to be utilized within the DD system. If they achieve the target volumes, those incentives will likewise be valid.

To quickly follow up: regarding software services revenue, it has bolstered our overall margin and profitability. Since our agreement with Volkswagen is not exclusive, are we actively exploring collaborations with other partners?

Our collaboration with Volkswagen creates significant value for both parties. We are working jointly on technology, supply chain, and potential future collaboration opportunities. We're open to exploring strategic partnerships beyond our Volkswagen agreement, but our priority lies in creating beneficial value through these partnerships.

That does conclude our question-and-answer session. 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 for the XPeng Financial Communications.

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