Hello, everyone. Thank you for joining us for the Second Quarter 2025 Earnings Conference Call for XPeng, Inc. Today's call is being recorded. I will now hand the call over to your host, Mr. Alex Xie, who is the Head of Investor Relations and Capital Markets for the company. Please proceed, Alex.

Thank you. Hello, everyone, and welcome to XPeng's Second Quarter 2025 Earnings Conference Call. Our financial and operating results were issued by our Newswire Services earlier today and are available online. You can also view the earnings press release by visiting the IR section of our website at ir.xiaopeng.com. Participants on today's call from our management team 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 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 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 public filings of the company as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update 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 second quarter of 2025, we recorded outstanding performance across our core business and financial metrics, including deliveries, revenues, gross profit margin, and cash reserves. This quarter, our deliveries reached 103,181 units, reflecting a 242% increase year-over-year. The MONA M03 Max became a top seller right after its launch, accounting for over 80% of total MONA M03 sales and advancing high-level ADAS technology for the general public. Despite facing fierce price competition, we concentrated on steady long-term growth, emphasizing scalability while enhancing our systems. Our vehicle gross margin rose by 3.8 percentage points from the previous quarter to 14.3%, representing the eighth consecutive quarter of improvement and elevating the company's overall gross margin to 17.3%. We're seeing our net losses narrow. Free cash flow for Q2 exceeded RMB 2 billion, while total cash at the end of the quarter exceeded RMB 47.5 billion. In July, we launched the G7, our first model featuring our own Turing AI SoC. In the past month, it has emerged as the leading competitor, with the Ultra trim comprising over 50% of total sales. The Max plus Ultra experience marks a significant advancement in high-level ADAS technology in the industry. Our Kunpeng Super Electric Models are set to enter mass production in Q4, leading to a complete upgrade to our new generation technology platform featuring intelligence and a dual energy system for vehicles by 2025. This new platform will include vision-based ADAS, advanced AI models, the Turing AI SoC, 5C ultra-fast charging battery cells, and the Kunpeng Super Electric System. These innovations will give us a significant advantage, enhancing modularity, improving supply chain management, and scalability during our product cycle over the next two years, thus driving sales growth. The demand for AI-powered vehicles will continue to grow indefinitely, and I aim to bolster the company's core capabilities in four main areas. First, we will focus on technology leadership by developing AI capabilities in the physical world across all sectors, enhancing design, AI, and quality specifically in vertical markets. Second, we aim to strengthen our organization by attracting and retaining top talent for each role and implementing world-class management practices and automation tools. Starting with SEO, we will utilize AI to optimize management, R&D, and collaboration, maximizing organizational efficiency. The third focus is on commercialization, moving from developing user-centric products to commercially successful products and establishing a strong brand while lowering costs and enhancing profitability. Finally, our globalization strategy is distinctive. By incorporating global market needs into our product planning from the outset, we have attracted international users with superior technology and quality for sustainable long-term growth. Next week, we will officially launch the XPeng P7, our premium intelligent sports sedan priced around RMB 300,000. The P7 embodies our innovative spirit and core values, illustrating how exceptional design and advanced technology can set market trends rather than follow them. With its unique style, exciting performance, and advanced AI technology, the P7 is perfect for younger consumers, highlighting XPeng's future design approach for all models that will follow, blending top-tier technology with excellent aesthetics. We are making strategic investments in our styling team to ensure that future models deliver innovative and impactful designs. Following its debut, user interest has greatly exceeded expectations, with pre-sales orders surpassing all prior export models during the same timeframe. I expect the new P7 will rank among the top three best-selling pure electric sedans in the sub-RMB 300,000 category. With the launch of the new P7, we aim for monthly sales to steadily exceed 40,000 units starting in September. In Q4, we will unveil the X9 Kunpeng Super Electric Edition, our first Kunpeng Super Electric Vehicle, ushering in our one vehicle dual energy era with a pure electric range exceeding 450 kilometers and a combined range of over 1,500 kilometers, leading in its category. Going forward, we plan to introduce several more super electric models, all offering excellent pure electric range and 5C ultra-fast charging capabilities that surpass those of comparable NEVs. What sets us apart from automakers and software companies is our decade-long commitment to in-house development of critical hardware and software technologies. This focus has allowed us to jointly develop high-performance AI chips and foundational models for the physical world, facilitating true cross-domain integration and expediting iterations via extensive data and computational infrastructure, which leads to AI super agents active in the physical world. With the launches of the XPeng G7 and P7 in Q3, we are at the forefront of L3 level computing power. All ultra-trim models in our range will come equipped with three in-house developed Turing AI SoCs, delivering a total computing power of 2,250 TOPS, placing us as the global leader among mass-produced vehicles, boasting over three times the computing power of our latest flagship rivals. These ultra-trims will also include in-vehicle VLA and VLM models powered by Turing AI SoCs. The scale of our in-vehicle models will expand significantly, reaching billions of parameters, with VLA models running at double the frame rate of competitors, showcasing smarter operations, agile control, and enhancing safety and user experience in ADAS. I anticipate XPeng's VLA and VLM will become the safest and most attentive smart assistants for users, simplifying and enriching travel experiences. We plan to roll out the initial VLA model to G7 Ultra owners shortly with rapid OTA updates in the coming months. Over the next 18 months, our Turing SoC powered VLA is expected to outperform leading urban ADAS solutions by over ten times. Our goal is to achieve L3 safety, coverage, and user experience, representing a generational advancement. Our L4 capable vehicles are anticipated for mass production in 2026, with pilot robotaxi services launching in select regions. While aftermarket retrofits enable L4 capabilities in some vehicles, no mass-produced models currently include OEM integrated L4 hardware and software—this is a gap XPeng aims to fill in China. Moreover, our latest humanoid robots have also shown encouraging progress. Powered by our Turing SoC, VLA, and VLM, we are swiftly advancing towards a mass-produced version with initial L4 capabilities in robotics and are actively preparing for mass production in the latter half of 2026. During XPeng AI Tech Day, I will present the new generation of robots. We have launched the industry's first AI chip dedicated to foundational models for smart cabins, offering over twelve times the effective computing power of leading cabin processors. With the Turing AI SoC, our VLM model is designed to serve as a smart assistant in AI-enabled vehicles. It works alongside the VLA to enhance assisted driving and functions as a capable in-vehicle intelligent agent. Looking forward, we expect it to become multilingual, capable of empathetic communication, and providing proactive services, greatly enhancing the user experience of future AI-driven vehicles. I believe our combination of independent large model chips and the VLM solution will spearhead a paradigm shift in next-generation intelligent cockpit technology, prompting more OEMs to embrace and reference it. Our AI technology showcases remarkable generalization capabilities globally, beyond China. We welcome collaborations with leading global partners to explore opportunities related to our Turing AI SoC. In the first half of 2025, our overseas business has exhibited robust growth, building a strong brand reputation. In this period, overseas deliveries surpassed 18,000 units, reflecting over 200% year-over-year growth. XPeng has established itself as the best-selling Chinese NEV startup brand in ten markets, including Norway, France, Singapore, and Israel, and leads in mid- to high-end Chinese BEV sales in Europe. In July, we delivered the first locally manufactured XPeng X9 in Indonesia, marking a significant achievement in our global manufacturing strategy. By the second half of 2026, we expect to launch the entire Kunpeng Super Electric line in international markets, including ultra-trims, significantly expanding our global market potential. As the deliveries of the G7 and new P7 increase, we anticipate Q3 deliveries will be between 113,000 to 118,000 units, representing a year-over-year growth of 142.8% to 153.6%. Revenues are projected to reach between RMB 19.6 billion and RMB 21 billion, reflecting a year-over-year increase of 94% to 107.9%. Starting in Q4, we will introduce a strong product cycle featuring one vehicle dual energy, complemented by Turing AI-driven smart driving solutions, which will further fortify our market lead. We are confident in leading sales while enhancing operational efficiency toward sustainable profitability. Over the next three years, our focus will be on expanding market share both domestically and internationally, ensuring steady growth, and leveraging disruptive AI innovation to deliver added value for users worldwide. Thank you, everyone. I will now hand the call over to our VP of Finance, Mr. James Wu, to discuss our financial performance for the second quarter of 2025.

Thank you, Xiaopeng. Now let me provide a brief overview of our financial results for the second quarter of 2025. I'll reference RMB only in my discussion today, unless otherwise stated. Our total revenues were RMB 18.27 billion for the second quarter of 2025, an increase of 125.3% year-over-year and an increase of 15.6% quarter-over-quarter. Revenues from vehicle sales were RMB 16.88 billion for the second quarter of 2025, an increase of 147.6% year-over-year and an increase of 17.5% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly attributable to higher vehicle deliveries. Revenues from services and others were RMB 1.39 billion for the second quarter of 2025, representing an increase of 7.6% year-over-year and a decrease of 3.5% quarter-over-quarter. The year-over-year increase was mainly attributable to the increased revenues from parts and accessories sales in line with higher accumulated vehicle sales. The quarter-over-quarter decrease was mainly attributable to fluctuations in revenues from technical R&D services. Gross margin was 17.3% for the second quarter of 2025 compared with 14% for the same period of 2024 and 15.6% for the first quarter of 2025. Vehicle margin was 14.3% for the second quarter of 2025 compared with 6.4% for the same period of 2024 and 10.5% for the first quarter of 2025. The year-over-year and quarter-over-quarter increases were primarily attributable to the ongoing cost reduction and improvement in the product mix of models. R&D expenses were RMB 2.21 billion for the second quarter of 2025, representing an increase of 50.4% year-over-year and an increase of 11.4% 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 and technologies as the company expanded its product portfolio to support future growth. SG&A expenses were RMB 2.17 billion for the second quarter of 2025, representing an increase of 37.7% year-over-year and an increase of 11.4% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were primarily attributable to the higher commissions paid to the franchise stores driven by higher sales volume. Moreover, the quarter-over-quarter increase was also due to the higher marketing and advertising expenses. As a result of the foregoing, loss from operations was RMB 0.93 billion for the second quarter of 2025, compared with RMB 1.61 billion year-over-year and RMB 1.04 billion quarter-over-quarter. Net loss was RMB 0.48 billion for the second quarter of 2025, compared with RMB 1.28 billion year-over-year and RMB 0.66 billion quarter-over-quarter. As of June 30, 2025, our company had cash and cash equivalents restricted cash, short-term investments, and time deposits in total of RMB 47.57 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 second-quarter 2025 financial results. This concludes our prepared remarks. We'll now open the call to questions. Operator, please go ahead.

Your first question comes from Tim Hsiao with Morgan Stanley.

My first question is about brand obsession and product pricing because XPeng's average selling price has declined over the past two years due to the product mix. How do you plan to reverse this trend and effectively enhance brand positioning and the sales mix of high-end models? Additionally, where do you expect to see a significant upgrade in average selling price that could help boost profit improvement? That's my first question.

Thank you for your question, Timothy. The answer is as follows: our sales have consistently been in the range of RMB 100,000 to RMB 150,000. We are examining this internally from several angles. First, we're looking at varying the layout of our products. Second, we aim to leverage technology to enhance the premium aspect. Third, we will use emotions to boost premium appeal. Fourth, we plan to capitalize on our brand to elevate premium positioning. The upcoming P7 will be priced above RMB 300,000, and the new X9 will be priced around RMB 400,000 in 2026 to 2027. These products will mark significant sales phases for us, and we will introduce several other vehicles priced above RMB 300,000. Additionally, technology is a key strength for us, incorporating the Ultra trim version and launching robotaxis starting next year, which we believe will further elevate our premium offering. Aesthetics are also vital; visually appealing cars will enhance sales volume. Finally, I think that 2026 and 2027 will be pivotal years for XPeng in solidifying its global brand presence and increasing brand recognition, leading to an increase in the average selling price of our products, which should result in higher gross and net profit.

My second question is about smart driving. We have observed that since the start of this year, several car manufacturers have introduced comprehensive smart driving solutions and new vehicles equipped with storage chips and VOA models. How should we view our technology advantages in smart driving in light of this competitive landscape? Specifically, when can we expect XPeng's Turing chip on the Ultra trim to effectively stand out with a superior software experience compared to our competitors? That's my second question.

Thank you for your second question. If we examine the current software market, all the top players are quite similar. Those with adequate computing power or those lacking it can enhance their capabilities with computing power and LiDAR. We recognize that the combination of computing power, models, and data yields superior results. At XPeng, we have proven this concept. Our total computing power has reached 2,250 TOPS, while our competitors are still in the range of 100 to 700 TOPS. In terms of data, model scaling, and our frame rate, which operates at double that of our competitors, this demonstrates our advanced processing and better motion control. Regarding your follow-up question about the Ultra trim and when we can establish a competitive advantage, we will initiate our initial VLA launch and aim to bring it to par with Max for now. By the end of this year, you will notice a significant distinction between us and our competitors. While major differences may become evident next year, shortly after this year, you can expect to witness the pilot operations of our robotaxis and the Ultra trim, which derive from the same source model. The main distinction is the lack of cloud control and hardware redundancy. Therefore, with the Ultra trim alongside our Turing AI SoCs, I believe that next year you will observe our products leading our competitors by ten times or more.

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

My first question is about your collaboration with Volkswagen, particularly your recent announcement to expand the partnership with Volkswagen's EA to include more vehicle models, including those with internal combustion engines. Can you provide more details and guidance on the future revenue expected from this collaboration with Volkswagen?

Thank you, Ming. This is Charles here. So last week, we announced our fourth cooperation with Volkswagen, basically, we're expanding our electrical and electronic architecture collaboration from battery electric EV in China to ICE and PHEV of the Volkswagen brand in China. We believe that's a major expansion of our collaboration's scope with our partner. I think that through this collaboration, we are creating significant strategic value for our partner. I believe Volkswagen is the only global auto company with the technology of a single E/E architecture platform across all powertrains, through which you can see the value creation that both parties created. Obviously, XPeng also benefits from such collaboration. Regarding the value of potential creation from our partnership with Volkswagen, as you may be aware, since Q1 2024, we have started to recognize the IP licensing revenue from the G9 platform collaboration and later on the ER collaboration. We believe that in the past couple of quarters, the revenue from such collaboration has been relatively stable within a certain range. For the second half this year, we see some potential growth in such revenue from the past two collaborations. Regarding the newly entered expanded EEA collaboration, the revenue will start to be recognized once Volkswagen's ICE and PHEV vehicles start SOP. So that's basically the third recurring revenue stream on top of the previous two revenue streams. I hope this clarifies your question, Ming.

My second question is about the robotaxi business. The Chairman already discussed this area. In the future, will you introduce a 2D version of the vehicles to distinguish them from your current product for consumers? Additionally, considering your current costs, will you be able to offer Level 4 functionality next year when you implement OTA service?

Thank you for your question. In the future, I see two types of vehicles. The first will be Level 4 enabled or capable vehicles that have people driving them. The second will be Level 4 capable vehicles that operate autonomously without drivers. This will take several years to accomplish. We anticipate needing to secure permissions and comply with various policies and regulations by 2026. For XPeng, we plan to test the AIR4 in different pilot programs, but only after obtaining the necessary approvals. Regarding your inquiries, there are aspects I cannot address at this time. However, I can confirm that XPeng is leading in producing mass-market vehicles that operate without detailed maps and do not require LiDAR to navigate urban environments. As I previously noted, we do not have software redundancy nor depend on cloud services for management. We are working to ensure our future products are distinct from robotaxis. For instance, while robotaxis will stop for passengers who wave on the street, our consumer vehicles will not feature such functions. This distinction is based on our comprehensive learning process. We will conduct trials and operations, and once we complete these, we will seek partnerships to explore further expansion.

Your next question comes from Pingyue Wu with Citic Securities.

Let me translate the questions. First, congratulations on the successful launch of the presales of the new P7; it has a very original design, which is appreciated by customers leading the era. Could you share more about the reasons behind the strong order performance for the P7 and how we forecast its sales? Will it be a high-volume model like the first generation of P7 or our latest P7+?

Thank you very much for your question. The P7 will officially launch into the market next week. I won't elaborate on all the details today, but I can share a few points. First, the attention and interest we have received for the P7 have exceeded our expectations since late last year through early this year. In terms of presales, it has surpassed historical sales figures for other series, such as the MONA. Interestingly, a high percentage of the P7 purchasers are male consumers, and they belong to the youngest age groups we have seen, with diverse professional backgrounds. The P7 is not only an aesthetically pleasing car but also very sturdy. Feedback from users and media reviews indicates that the chassis we developed with Volkswagen is strong, and we are receiving very positive responses. Our goal is to rank among the top three in pure battery vehicles within the price range of 200,000 to 300,000. While we cannot guarantee a better ranking, we will certainly strive to achieve it.

My second question is about the robotaxi. We have renewed our announcement of our robotaxi strategy. What opportunities do we currently see in terms of technology or regulatory access?

Thank you for your question. XPeng is an OEM company, which sets us apart from robotaxi software or service providers. For the AIR4, we must address various challenges to enable customers to purchase these vehicles, including regulatory approvals and technology iterations. However, once we navigate these obstacles, the growth potential will greatly increase. While there will be opportunities for robotaxis in specific regions, scaling them globally remains a challenge at this point. Previously, users depended on navigation to operate vehicles with the ADAS system. In the future, we expect that users will not need navigation and can update their OTAs using the same source code. These are challenges that XPeng aims to tackle moving forward.

Your next question comes from Tina Hou with Goldman Sachs.

The first question is about vehicle gross margin. We notice that the vehicle gross margin has increased by 3.8% compared to the previous quarter, which is significantly higher than in prior quarters. Can management provide us with a breakdown of the various factors that contributed to this improvement?

Tina, this is James. Thanks for the question. You're right. You have identified three aspects: product mix change, cost reduction, and scale. All three factors come into play. However, I would say the majority of the impact is still on the product mix side. The MONA M03 accounted for a significant delivery percentage in the first quarter, and that percentage has reduced through the second quarter as we transition MONA into the new version. Meanwhile, our new G6 and G9 saw an increase in product mix during Q2 2025. These models have a very healthy gross margin as a result of improved technology and specifications that customers like. Also, our engineering efforts have led to a higher level of platform commercialization. All of these factors have helped us achieve healthier gross margins for our new model year changes. Additionally, we delivered a slightly higher volume in the second quarter, which also contributed to this. Lastly, we continue to optimize our supply chain, helping to reduce material costs in Q2.

My second question is about operating expenses. Is management still committed to the annual guidance of RMB 8.5 billion for R&D expenses? Regarding sales and marketing expenses, we noticed an increase of about RMB 200 million from Q2 to Q1 due to the new model launch schedule. Looking at Q3 and Q4, the intensity of the new model launch schedule appears to be similar to that of the second quarter. Should we anticipate that the sales and marketing expenses, excluding channel fees, will be quite similar to those in the second quarter?

This is James again. Regarding the expenses, I'll answer in two parts. From an R&D perspective, you are correct; we have been expanding our investment in R&D, particularly to bring AI capabilities from the digital world to the physical world. As Xiaopeng mentioned earlier, we will start to launch one car with a dual energy platform in Q4 this year. We have increased our engineering workforce and capabilities throughout this year and into the second half. Our AI technology investment will enhance our leadership in this area, including autonomous driving, robotic investment, and our engineering workforce enhancement. The cloud-based competition of power is another area of continued investment. Regarding sales expenses, the second quarter does show a slight increase compared to Q1, partly due to higher deliveries. The commissions paid to franchises are part of this increase. We also launched several products in Q2, yet we have more significant launches in Q3, like the G7 and the new P7. These launches will likely require higher marketing and advertising expenses. At the end of Q3 and into Q4, we will launch the Kunpeng Super Electric platform and our X9 product, which will also need sufficient resources for a successful launch. Therefore, we will continue investing to ensure adequate marketing and advertising expenses to support these upcoming product launches.

Your next question comes from Xiaoyi Lei with Jefferies.

So my first question is about your product strategy. The next P7 has made a significant leap in the Rafik design. Does this signal a shift in XPeng's product strategy towards prioritizing design? Should we understand this not just as a short-term adjustment but as a core component of the company's long-term strategic transformation?

Thank you for your question. The short answer is yes. Last year, we realized that while technology has always been our focus, we were lacking in other areas. Consequently, at the start of 2024, we decided to place greater emphasis on design as well. Over the past 24 months and looking ahead, our goal is to ensure that our products are without flaws. We intend to enhance areas where we perform adequately while further improving where we excel. We are now prioritizing style and aesthetics in our products. Previously, we considered style and aesthetics after engineering, cost, and vehicle positioning. Now, we sometimes prioritize style and aesthetics first, then engineering and costs. In Shanghai, we have two dedicated design buildings, and in Guangzhou, we have one, totaling three buildings. We are also establishing more international centers to assist with design. Overall, we seek to provide a better product experience and user interaction. The P7 exemplifies the progress we have made and is the benchmark we aim to reach.

My second question is about how XPeng is responding to policy changes. With China's anti-involution policy becoming a significant regulatory focus in the auto industry, how is XPeng adapting its business operations in light of this policy? What specific effects will this have on your operations and market stance?

This is Brian. Let me address this question. First of all, we noticed the recent policy announcement around anti-involution measures. This is actually a culmination of discussions aimed at improving the Chinese economy's competitiveness and health. It's good for the long run. As an industry, we need healthy competition. We should have the ability to reinvest in new technology and to build better quality products, which aligns with this new policy direction. We will continue focusing on innovative technology products for our customers through relentless innovation and development, which is the right path forward. By focusing on target customers and delivering the best quality and technology, we aim to earn recognition from our customers, partners, and regulators. We remain committed to full-stack innovation and building appealing products for our customers while maintaining disciplined and orderly operations. For instance, XPeng has been one of the earliest OEMs to respond to the government's request for improving payment terms, ensuring our partners and suppliers benefit from this new trend. Ultimately, we believe this will lead to a healthier ecosystem and industry for our company.

Your next question comes from Bin Wang with Deutsche Bank.

My question is about the G7 SUV. The company seems to be experiencing some challenges with the intelligent cockpit related chips. When will this issue be resolved? What is the current assumption for the normalized monthly volume?

Bin, just to clarify, there's no issue with G7. We announced that we will deploy the specific Turing SoC for infotainment in October. Then we will roll out the VOA and VOM models for G7 customers.

My second question is about vehicle gross margin guidance for the third quarter. Previously, the guidance indicated that only in the fourth quarter would vehicle gross margin reach high teens since the second quarter vehicle cost margin was higher than market expectations. Do we expect to achieve high teens vehicle gross margin in the third quarter?

Bin, this is James. Regarding vehicle margin, we significantly improved in Q2, for the reasons explained earlier. In the long term, we will account for the overall competitive landscape and improve our scale as our strategic priority. Overall, we'll take that into account as our guidance from a pricing and margin perspective. I would emphasize looking into the second half, as we launch brand new P7 and the X9 Super Electric version. I would focus on Q4, where we aim for profitability, and that target hasn't changed. We hope to achieve high teens profitability in the fourth quarter as well. Both of these will help solidify our target to achieve breakeven in the fourth quarter.

Thank you. That concludes our question-and-answer session. 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.