Xpeng Inc. Q3 FY2024 Earnings Call

Hello, ladies and gentlemen, thank you for standing by for the Third Quarter 2024 Earnings Conference Call for XPeng Inc. At this time, all participants are in listen-only mode. After 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. Alex Xie, Head of Investor Relations and Capital Markets of the company. Please go ahead, Alex.

Thank you. Hello, everyone, and welcome to XPeng's third quarter 2024 earnings conference call. Our financial and operating results were issued via 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 will include our Co-Founder, Chairman, and CEO, Mr. He Xiaopeng; Vice Chairman and President, Dr. Brian Gu; Vice President of Corporate Finance and VW Projects, Mr. Charles Zhang; Vice President of Finance and Accounting, Mr. James 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 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 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 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. He Xiaopeng. Please go ahead.

Hello, everyone. In the third quarter of 2024, we surpassed our key performance targets. We delivered 46,533 units in the third quarter, reflecting a 54% increase quarter-over-quarter and a 16% increase year-over-year, beating the high-end of our prior quarterly guidance. September's deliveries exceeded 20,000 units, marking a record high. Furthermore, thanks to technology-driven cost reduction and growth in scale, our gross profit margin increased to 15.3% in the third quarter, achieving our pinnacle level and demonstrating continuous improvement for five consecutive quarters. Over the past two years, XPeng has undergone significant transformation amidst challenges. However, I remain calm at the center of the storm, because crises often present opportunities. Having overcome these adversities, XPeng has emerged stronger than ever. We're now poised to accelerate our growth and move forward steadily. I would like to express my gratitude to all of our shareholders and everyone who has consistently supported us. We have implemented comprehensive changes in our strategies, products, management, and organizational structure. We've also addressed previous areas of improvement in marketing, sales channels, and design. Moreover, our firm investment in AI technology has begun to yield advantages in both product experience and cost efficiency, helping to bolster our competitive edge. By prioritizing customer needs, maintaining a business-oriented approach, and keeping the full picture in mind, we have established a robust capability across our entire operations from product definition, research and development, to pre-sale activities, product launches, and delivery. As a result, we have created a series of standout products that truly surprise and delight our users. XPeng’s second decade has started, and I believe the next 10 years will be the era of AI or Artificial Intelligence. I'll strive to lead XPeng to become a global AI-defined car company and spearhead the large-scale application of AI in the mobility industry. Looking at the industry landscape, I anticipate that between 2025 and 2027, we will see a knockout phase in the Chinese automobile industry. The penetration rate of China's new energy vehicles will likely rise to over 85%, while the integration of AI will lead to the next stage of consolidation of market shares. Unlike traditional car companies that have relied on cooperative integrated supply chain models for R&D in the past, winners in the AI-defined car sector will be those with in-depth, full-scale self-development capabilities. We plan to harness the power of AI and use it as a data engine, integrating both software and hardware in our research and development of the whole vehicle, AD cabin, and engines, etc. This will allow us to iterate and upgrade at an unprecedented speed, creating a substantial advantage over companies that continue to use traditional R&D models regarding user experience and optimization speed. Starting next year, I expect significant advancement in autonomous driving and vehicle intelligence. Introducing AI large models will provide a transformative experience from all aspects, enabling users to embrace safer, more comfortable, more comprehensive, and smarter AI driving and AI-driven vehicles. On November 7, the world's first AI-defined car, the P7+, was officially launched. That night, the number of firm orders exceeded 30,000 and continued to rise. The P7+ has become a phenomenal success in the mid-to-large BEV sedan market and marks a milestone in the widespread adoption of AI-defined cars. I'm pleased to see that the core reasons users choose the P7+ are its high-standard intelligent driving features across the entire model range. In the past, luxury was defined by configuration, but now it is defined by technology, and this trend is where we are striving to be. We're collaborating with suppliers to expand the production capacity of the P7+, and I expect the delivery volume of the P7+ to exceed 10,000 units in December. Currently, both the M03 and the P7+ have begun double shift production. As production capacity ramps up, we anticipate monthly deliveries will set a record in the fourth quarter and will strive to exceed 30,000 units in November. Additionally, steady and long-term progress is one of our main themes for 2025. We'll enter 2025 with tens of thousands of orders, which will increase our delivery volume in the first quarter and lay a solid foundation for a significant increase in sales next year. Starting from the P7+ model, our new and facelifted Max models will all feature the AI Hawkeye Visual ADAS solution. This is the only ADAS solution in China that does not rely on HD maps or LiDAR, and we'll take it to the rest of the world soon. In the global automotive industry, we're the first to standardize high-level intelligent driving software and hardware across our entire lineup, providing a genuinely leading experience for users. We delivered an experience of Level 3 ADAS driving at the cost of Level 2, achieving what we refer to as intelligence for all tech-powered driving with the same cost as fuel. Excitingly, in the first half of next year, after the Lunar New Year, Mona M03 Max will start mass-producing the platform-based AI Hawkeye visual ADAS solution. This will allow us to become the world's first car company to offer advanced intelligent driving vehicles for just RMB150,000 or about $20,000, lowering the threshold. With our leading AI technology and strong cost control, we have the competitive moats that will serve as our ultimate weapons for navigating from a seriously competitive red ocean to the opportunities of the blue ocean market. I believe that over the next one to five years, the penetration rate of smart features will significantly increase non-linearly. Our AI-defined vehicles, which incorporate powerful AI capabilities and autonomous driving features, will accelerate the replacement of cars that lag in these technologies or cars that only claim to have these technologies. In 2025, we plan to launch at least four new models, including super electric vehicles, and we'll also update several existing models. Each of these new and facelift models will be very distinctive in their respective market segments, and I look forward to launching more top-selling models that users will love next year. At our recent AI Tech day, we unveiled the Kunpeng Super Electric System, our next generation extended range products, alongside our next generation pure electric products, which will be our second-largest growth engine. Together with our AI capabilities, it will drive strong momentum for accelerated development. Powertrain technology and industry-leading energy efficiency are key components of XPeng brands. We have received widespread user acclaim for our exceptional energy consumption management, with our electric vehicles regularly exceeding advertised range estimates. In our brand new extended range products, we'll employ high voltage electric technology, one generation ahead of the market, to address common user pain points facing current extended range products and provide a user experience far superior to many existing extended range products. The Kunpeng Super Electric Drive System is built on our third-generation industry-leading 800-volt platform, supporting various features, including a pure electric range of 430 kilometers, a combined range of 1,400 kilometers, and the 5C ultra-charging battery, all while controlling cost, which will lead the way for the next generation extended range technology. In the future, XPeng will adopt a dual energy approach, offering a batch of new vehicle models with pure electric and super electric powertrain options to cater to the diverse needs of global customers. I believe this will significantly expand our total addressable market, bringing multiple opportunities for sales growth and accelerating the mass adoption of AI-defined vehicles worldwide. In terms of operations, the P7+ will also mark a brand new starting point for the overall improvement in vehicle gross margins for XPeng's next-generation models. New platform-based technologies we have implemented in the P7+ will also be applied to new models and major facelifts over the next few years of 2025 and 2026. We anticipate that the gross margin of our next-generation models will reach double digits, significantly increasing our sales volume to a new level during our strong product cycles and helping us move steadily toward achieving scale profitability. XPeng Turing AI Smart driving system demonstrates our robust full sets of development capabilities. It integrates cloud-based and in-vehicle software and hardware, including chips. It sets a new gold standard for next-generation full-set development and highlights our exceptionally efficient R&D iteration process. Many of our peers are still using our previous generation of architecture and technological routes. I believe that enhancing the capabilities of smart driving relies heavily on cloud technologies. Our cloud-based large model has 80 times more parameters than in-vehicle model, making it the most advanced technology currently available in China's ADAS market. In the coming years, the synergy between our in-vehicle data, cloud-based computing power, and both cloud and in-vehicle large models, along with our globalization and car manufacturing, will grow exponentially, marking and making significant leaps forward in our large models' performance per the scaling law. We plan to realize door-to-door full scenario ADAS on GenZ AI XOS 5.5 by the end of this year. This uninterrupted and ultra-smooth driving experience will elevate us from being on par with the first year to truly leading the pack. We actually were able to deliver a similar experience three years ago already, but it was a combination of multiple solutions; whereas this 5.5 OS is a one-stop solution. Next, we plan to achieve an L3-like intelligent driving experience by the fourth quarter of 2025, targeting less than one takeover per 100 kilometers. The more advanced ultra version of the vehicle we are developing now will significantly enhance the computing power onboard and incorporate a fully redundant design for core components. This will enable us to mass-produce Robotaxi at a low cost while ensuring sufficient safety. I firmly believe the substantial improvement in autonomous driving capabilities will make AI a core differentiator among leading automating companies and a key factor in capturing user mindshare. Users will discover that AI is not only applied to autonomous driving, but will also expand and integrate into various aspects, including in-car AI Assistance, AI cabin, AI hub, smart chassis, smart audio systems, and AI battery doctors. In the medium to long term, the gap between AI leaders and laggers on product technology, brand image, and profit models will continue to widen. Now let's talk about globalization. We're accelerating our global presence, leading the way for Chinese smart EV brands in their overseas ventures. Our organizational management, product planning, autonomous driving technology, smart cockpit design, supply chain management, and manufacturing and production are all strategically aligned for global deployment. By collaborating with high-quality overseas dealers, we have extended our reach to more than 30 countries with over 110 sales stores as of the third quarter, and we have experienced strong initial sales in multiple regions. Currently, XPeng ranks first in export sales of Chinese premium BEVs and our G9 ranks first in the mid to large-sized battery electric SUV in Northern Europe. In the third quarter, our overall overseas sales increased by 70% sequentially, accounting for 15% of our total sales volume. Looking ahead to 2025, we plan to further expand our international sales network to more than 300 stores, expanding to over 90% of the EV market outside of North America. Our goal is to maintain robust growth in overseas sales over the next three years, aiming to secure the leading position in mid to high-end EV export sales among Chinese automakers. The rapid expansion of our international business will further boost our profitability. After two years of headwinds, we're about to enter a brand new positive cycle. In the fourth quarter of 2025, we expect to experience tailwinds driven by AI transformation and the Super Electric System, which will accelerate our growth and lead us toward profitability. We anticipate our total delivery volume for the fourth quarter of 2024 will range from 87,000 to 91,000 units. This represents a quarter-over-quarter increase of 87% to 95.6% and a year-over-year increase of 44.6% to 51.3%. Additionally, we project our total revenue for the fourth quarter to fall between RMB15.3 billion and RMB16.2 billion, reflecting a quarter-over-quarter rise of 51.5% to 60.4% and a year-over-year increase of 17.2% to 24.1%. Moreover, we expect our cash flow in the fourth quarter to improve significantly, resulting in positive free cash flow for the second half of the year. By year-end, we anticipate our cash on hand will exceed RMB40 billion. With healthier gross profit and cash flow, we'll have the capacity to invest deeply in research and development for the future, allowing us to consistently and confidently provide our customers in China and abroad with market-leading AI-defined vehicles. Thank you, everyone. With that, I'll turn the call over to our VP of Finance, James, to discuss our financial performance for the third quarter of 2024.

Thank you, Xiaopeng. Now let me provide a brief overview of our financial results for the third quarter of 2024. I'll reference RMB only in my discussion today unless otherwise stated. Our total revenues were RMB10.1 billion for the third quarter of 2024, an increase of 18.4% year-over-year and an increase of 24.5% quarter-over-quarter. Revenues from vehicle sales were RMB8.8 billion for the third quarter of 2024, representing an increase of 12.1% year-over-year and an increase of 29% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly attributable to higher deliveries. Revenues from services and others were RMB1.31 billion for the third quarter of 2024, representing an increase of 90.7% year-over-year and an increase of 1.1% quarter-over-quarter. The year-over-year increase was mainly attributable to the increased revenue from the technical R&D services related to the platform and software strategic technical collaboration, as well as electric architecture, also known as EEA technical collaboration with the Volkswagen Group. The quarter-over-quarter increase was mainly attributed to the revenue from technical R&D services related to the EEA technical collaboration with the Volkswagen Group, partially offset by the reduction in parts and accessory sales. Gross margin was 15.3% for the third quarter of 2024, compared with negative 2.7% for the same period of 2023 and 14% for the second quarter of 2024. Vehicle margin was 8.6% for the third quarter of 2024 compared with negative 6.1% for the same period of 2023 and 6.4% for the second quarter of 2024. The year-over-year increase was primarily attributable to the cost reduction and the improvement in product mix. The quarter-over-quarter increase was mainly attributable to the cost reduction. R&D expenses were RMB1.63 billion for the third quarter of 2024, representing an increase of 25.1% year-over-year and an increase of 11.3% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly due to higher expenses related to the development of new vehicle models as the company expanded its product portfolio to support future growth. SG&A expenses were RMB1.63 billion for the third quarter of 2024, representing a decrease of 3.5% year-over-year and an increase of 3.8% quarter-over-quarter. The year-over-year decrease was primarily due to lower employee compensation in the third quarter of 2024, while the quarter-over-quarter increase was mainly due to higher commissions paid to the franchise stores. As a result of the foregoing, the loss from operations was RMB1.85 billion for the third quarter of 2024 compared with RMB3.16 billion for the same period of 2023 and RMB1.61 billion for the second quarter of 2024. The net loss was RMB1.81 billion for the third quarter of 2024 compared with RMB3.89 billion for the same period of 2023 and RMB1.28 billion for the second quarter of 2024. As of September 30th, 2024, our company had cash and cash equivalents, restricted cash, short-term investments, and time deposits in total of RMB35.75 billion. To be mindful of the length of our earnings call, I would encourage listeners to refer to our earnings press release for more details on our third quarter 2024 financial results. This concludes our prepared remarks. We'll now open the call to questions. Operator, please go ahead.

Thank you. Your first question comes from Tim Hsiao with Morgan Stanley. Please go ahead.

So my first question is on driving because in the next three to five years, are you expecting the technology gap of smart driving to be widened or narrowed? Several leading local EV brands in China are considering making smart driving a standard configuration for all mass-market models. Will the time driving become a mid-tier function in the future? And how can XPeng ensure consumers can feel and appreciate the difference and choose XPeng's cars because of that? That's my first question. Thank you.

Thank you. This is a very good question. Actually, we've been talking about this for the past two years, while we are developing our end-to-end large model solution. Now what we need here for this next generation of capability is not only, first of all, the capital for R&D, but also the computing power and big tech as well. And in the coming three to five years, I think any companies trying to compete in this landscape will not only have the full sets of self-developed R&D capability that combine software and hardware, but also on the cloud side, whole vehicle, chip development, and also EEA development across different car manufacturing capabilities are all essential for having that capability. So in sum, I believe that the gap between different EV makers will actually be widened in the several years. Another point that I would like to mention is that ADAS capability is just like part of your brain. You have to not only have your mindset, what you think you can do, but you actually need to be able to deliver your claims, and that will set the bar or the threshold for entering this competition. Another point that I would like to mention is the whole vehicle capability. How do we make sure that the whole car gets smarter in order to carry all this ADAS generation capability? So I think going forward, users will actually have a better idea or awareness of how capable a company is, how good the product is, and they will have an in-depth experience or first-hand experience of what truly means to have smart ADAS in the product. Thank you. I also would like to add that traditionally, the model for OEMs to develop cars is to work with Tier-1 suppliers. However, in the future, when we require cars to adapt the ADAS capability from not only the brain but your upper torso and your legs and the whole body, it will actually require a completely different model of development, which will also, in the coming three to four years, set us apart from the rest of the competition. Thank you.

My second question is about profitability because over the past few quarters, we've seen XPeng posting consecutive margin improvement at both vehicle and at the Group level. Looking to next year, how could the company further narrow the loss and systematically turn to profit? That's my second question. Thank you.

Hey, Tim, it's Brian. Yes, let me address this question. First of all, I think in this quarter's financials, we're very encouraged to see that our non-GAAP operating margin loss has narrowed to 15.5%, compared to about 19% in the second quarter. So you start to see operating leverage narrowing our operating losses, and I think that trend will continue. As we mentioned, we're going to launch P7+, which we believe has a better margin profile. Overall, we can see the scale effect come into play, leading to continued improvement in vehicle margins. On the expense side, there are still significant reduction opportunities. For example, in the fourth quarter, we’ll maintain R&D spending below RMB2 billion in total, which will likely bring our annual R&D to less than RMB6.5 billion, lower than our original estimate. Going into next year, we expect these factors to compound with the launch of more robust products. As mentioned, we have new models and refreshed models to be launched, along with products addressing new segments, such as the extended range energy module. With all this, we're very optimistic about our growth and margin improvement. We still maintain the view articulated two years ago that we'll break even at some point next year, likely towards the end of the year, and I still hold that view. We hope to deliver on that. The improvement will also generate healthy cash flow for the company next year. By the end of this year, we estimate we'll have over RMB4 billion on hand, and next year, over RMB40 billion. I apologize for any miscommunication, and next year, I think we will continue to see healthy cash flow that will provide us with a strong capital base to achieve breakeven.

Great. Thanks for sharing the details and congrats again on the strong results. Thank you.

Thank you. Your next question comes from Ming Hsun Lee with Bank of America. Please go ahead.

So my first question is related to export outlook. So in 2024, how do you expect the export sales contribution to your total revenue? And currently, because of some overseas markets, the charging infrastructure is not as good as in China, do you see any potential bottleneck for EV penetration in certain countries? And in the longer term, will you see your EREV product to be the major product for the overseas market?

Hey, Ming, it's Brian again. Yes, let me address your question on the overseas market. First of all, I think we do see the overseas market as a very robust growth market for us. It's still very early in the electrification process compared to the Chinese market. Given our current coverage, we are hoping to tap into that growth. As you mentioned, this year, our overseas market percentage has increased to around 15% of our sales. I think next year, we expect the contribution will be similar. Even though our domestic market growth is very significant, we still think overseas growth will have a very similar growth profile as well. In terms of the Electric BEV versus extended range format, you're right. In some markets, we do recognize the lack of infrastructure could be a potential bottleneck for BEV penetration. However, I think these markets still have ample growth opportunity for BEV models themselves. So we're also very hopeful that the growth of BEV exports and market penetration will increase as we expand into more markets. At the same time, once we actually have extended range products, we think in some markets, particularly for Latin America, Central Asia, or the Middle East, where charging infrastructure is lacking for efficient and fast charging BEV products, some of the extended range products will also be attractive. So we're actually very optimistic that both BEV as well as extended range products will find attractive growth opportunities in various global markets.

Yes, thank you, Brian. So my second question is about capacity. Could you advise your latest capacity and also your effective capacity in 2025? Do you have any plan to expand the new plant, or can you just expand your current plants to meet demand? And recently, do you also see any component shortage across your supply chain? Thank you.

Hey, Ming, this is Charles. First of all, I think as we mentioned in the earnings call, both our Guangzhou and Zhaoqing plants have already turned a second shift. Each of the plants can support approximately 200,000 to 300,000 per annum based on the two shifts. As we communicated before, there is ample reserved land and an existing plant next to our Guangzhou and Zhaoqing manufacturing base. We believe that we can expand our production capacity at a fast speed and with low capital intensity. We already have our long-term production capacity planning until 2026. So we believe that all these required manufacturing capacities have been well planned ahead. Given we have long-term planning for our manufacturing capacity, we are also working with our suppliers to expand their capacity because we are pushing really hard on the platform, unify the platform and also the component sharing across multiple platforms and vehicles. So it is actually more efficient for our suppliers to expand their capacity with us.

Thank you, Charles.

Thank you. Your next question comes from Bin Wang with Deutsche Bank. Please go ahead.

My first question is about the gross margin of the vehicles. In the third quarter, you got 2.2 percentage points margin expansion. Can you quantify each of the factors? How much came from the product mix, how much came from cost reduction, how much came from the high base? What would be the cost? And secondly, okay, you actually guide for the number for the fourth quarter? Do you think the vehicle gross margin can go to double-digit or not? Thank you.

Hey, Bin, this is James. To your question on the Q3 versus Q2 margin improvement, I'd say it's primarily driven by two aspects. One is we continued engineering cost reduction with regard to efforts on VAVE in combination with the battery cost reduction as we see the battery cost coming down for the entire industry. You didn't mention the EOP impact. We did have some EOP impact in the second quarter, which is less in the third quarter, which is also driving an improvement in the margin. As we look into Q4, we mentioned earlier the P7+ delivery will start in Q4. This is a product that will embed our latest platform with the cost reduction targets achieved and represent a double-digit gross margin as we communicated earlier. This is going to help us further improve our vehicle margin from Q3 into Q4. So as a trend, we do see margin continue to improve combined with larger scale. As Xiaopeng mentioned earlier, we expect our Q4 delivery to exceed prior quarters in history, therefore helping us to thin our manufacturing costs as well and improve overall margin.

So can we have a double-digit gross margin in the number for the fourth quarter? Is that possible?

The overall margin will improve. As you can see, we reported an overall margin in Q3, and you can expect that to improve in the fourth quarter.

Okay. Thank you. The question is that recently media reported that a Taiwan foundry company may not be able to do the OEM for China chip suppliers for the 7-nanometer. Were there any potential impacts for our upcoming chips? Thank you.

Hi, Bin, this is Charles. I think that the mass production of our Turing SOCs is progressing well, and we haven't seen any impact on our development of the Turing SOC.

Okay. Thank you.

Thank you. Your next question comes from Tina Hou with Goldman Sachs. Please go ahead.

Thanks for taking my question. So my first question is regarding long-term cost reduction of EV. If we look at it from the angle of the powertrain, the ADAS bond, including both smart cabin as well as autonomous driving, as well as for maybe potentially the car body and interior/exterior, how much potential further cost reduction do you think there is in the longer term? Thank you.

Thank you for this question. Actually, we've never stopped thinking about that, and our understanding and possible solution to it has been changing over the years. I remember about 1.5 years ago during the earnings call, I made a promise of achieving significant cost reduction. At that time, I summoned my courage to make that promise, and I'm very happy and proud that we were able to deliver what we promised at that time. In the coming three to four years, obviously, there is a lot of room for improvement regarding cost reduction. Many things are very obvious, such as supply chain optimization, economies of scale, and also technology-driven cost reduction. But specifically, we can do a lot more things as well. For example, on one hand, we can do something called super integration, meaning that we can combine different capabilities of different parts together and make something that is significantly different from what we traditionally have, or we can learn and adopt the Apple model, which is to empower the Tier-1 suppliers or help them to develop the capabilities of Tier 2, Tier 3 suppliers' advantages, leveraging their already existing logistics capabilities and many other details that can help us to improve efficiency and cut costs. In addition to that, we also can look at savings and cost control in the electronic materials, etc. These are just some examples, the tip of the iceberg here really. As a company that's constantly driven by technology innovation, we also can look at the upgrade of our manufacturing process and our craftsmanship in the coming three to four years. We're not going to stop until we achieve the optimal level of cost-cutting. Now in the future AI Tech Day and also in future earnings calls, you can expect to hear our reporting ofevery year's cost control outcome. I don't think it's just going to come from only scale or supply chain control optimization, but more likely being driven by technological innovation. Thank you.

My second question is regarding our 2025 new model pipeline and also volume outlook. Could we get more details about the four new models, which quarter they will come out, what kind of price range, body type, and our overall volume outlook for 2025? Thank you.

Hey, Tina, it's Brian. First of all, we are not providing annual guidance as we've done in the past. Right now, all I can say is that next year, we are confident that we can continue the momentum we're seeing in the second half of this year. Looking at the growth profile, I think it will be more moderate growth compared to this year. Still, I think the second half will be slightly heavier than the first half. In terms of the model, we gave you the total number, but at the moment, we are not ready to share specific models and exactly when they will be launched. We mentioned that there will be four new models. One of those will be extended range models. In addition to those four models, we will have a few refreshes of current models, and that will be spread over the next four quarters. So you'll expect to see a new model and refresh potentially every quarter.

So for the four new models, should our expectations not be lower versus MONA as well as P7+?

Well, I think we are very confident that the models we launch will be leading their respective categories. Obviously, different segments and different categories will have different volume expectations, but we do feel like our models will be very competitive in their respective segments.

Thank you very much.

Thank you. Your next question comes from Nick Lai with J.P. Morgan. Please go ahead.

At the moment, third quarter export overseas market accounted for about 15% of our sales volume, but we understand from other competitors that for those who have overseas exposure, the possibility of profit margin is generally about 1.5 to 2 times higher than the same car sold in China. Is it fair to say the same pattern will apply to XPeng? Likewise, how do we educate customers that Level 2 and Level 3 functionality is something very nice and that they need to have in the future?

Hey, Nick, it's Brian. There are a couple of areas to consider in terms of overseas market profitability contribution. Yes, I think, in general, the price of selling our models overseas is higher than domestic prices. There are additional costs, obviously, and potential tariffs and duties that we have to pay, but the margin in general is slightly higher than the domestic gross margin. To be mindful, the margins that we achieve in a lot of these overseas markets are wholesale margins because we are working with importers or distributors in those countries. We are not responsible for retailing and distributing those products. A lot of those are margins that represent direct contribution to us rather than just gross margin. Going into next year, clearly, we need to deal with changes in tariffs and potential new markets to have a more flexible approach to that structure. But this year, the contribution has been positive. Xiaopeng addresses your second question.

Thank you. Yes, indeed, different countries are different. They have different users, preferences, and regulations. For this discussion, I'm going to focus on the differences between Europe and China. Currently, regarding the capabilities delivered to our European customers, they really love smart cabins, fast and ultra-fast efficient charging, our high-quality services, after-sales services, and also valet parking, auto parking, LCC, and ACC. These are the most commonly accepted and preferred ADAS features that are loved by European customers. Regarding other aspects of ADAS features, because of the regulatory environment in Europe, the implementation of those features is about 12 months behind what we see in China right now. As a company driven by technology with heavy investment and strong capabilities in software and hardware, we are confident in adopting the same set of solutions but using different combinations for different markets to build our global presence as a premium brand going forward.

My second question is really about the trading policy from a top-down standpoint. What's our view on the continuity of the policy into '25? Likewise, our product sales volume has been very strong, especially for M03 and P7+. If we place orders today and only get the cut sometime in the first quarter next year, what's our marketing strategy for the customers who get a cut only in the first quarter? Thanks.

Hi, Nick, this is Charles. We believe that our newly-launched product like M03 and also the P7+ are very competitive in terms of product capabilities. Customers choose the product because there are no alternative products available to them in the price range. We believe that we will continue to see strong momentum for the orders for both M03 and P7+. More importantly, I think we have a significant order backlog for both M03 and P7+, carrying probably tens of thousands of orders into Q1. This will be the foundation for our growth in 2025.

Thanks. My question is for the customer who buys P7+ or M03, if they only get a car in the first quarter of 2025, will XPeng consider reimbursing or providing additional incentives?

Hi, this is Alex. First of all, we do not have any specific insights about the government subsidies. We expect the auto sector will still be supported by potential stimulus policy as a priority of any economic policy. Regarding customer expectations, I think they have quite reasonable expectations for the delivery time. As you can see, the delivery time for the P7+ is eight to 11 weeks. I don't think our customers, they expect to see delivery before December this year for most customers who placed their orders now. They have reasonable expectations. We don't believe they will change their decision due to subsidies. They chose XPeng cars because of the unique value proposition we bring to these customers in these segments, especially P7+ more than M03, which exceed the competitiveness of all our peers' models. So we don't really expect to see a material impact from any potential continuation or discontinuation of subsidies based on our product competitiveness as well as strengthening our channels.

Thanks, very clear. 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 further questions, please feel free to contact XPeng's Investor Relations through the contact information provided on our website or the Piacente Financial Communications.

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