Hello, ladies and gentlemen, thank you for standing by for the Fourth Quarter and Fiscal Year 2021 Earnings Conference Call for XPeng Inc. At this time, all participants are in a listen-only mode. After the management’s remarks, there will be a question-and-answer session. Today’s conference call is being recorded I will now turn the call over to your host, Mr. Alex Xie, Head of Investor Relations of the Company. Please go ahead, Alex.

Thank you. Hello, everyone, and welcome to XPeng's fourth quarter and fiscal year 2021 earnings conference call. Our financial and operating results were issued by our newswire services earlier today and are available online. You can also review 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 Co-Founder, Chairman and CEO, Mr. He Xiaopeng; Vice Chairman and President, Dr. Brian Gu; Vice President of Finance, Mr. Dennis Lu; Vice President of Corporate Finance and Investment, Mr. Charles Zhang and myself. Management will begin with prepared remarks, and the call will conclude with a Q&A session. A webcast replay of this conference call will be available on the IR section of our website. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the Company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the relevant public filings of the Company and 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 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.

Hi, everyone. We closed 2021 with another record quarter of deliveries. We delivered 41,751 units in the fourth quarter alone, growing 222% year-over-year. And our total deliveries for the full year of 2021 increased by 263% compared with 2020 and reached 98,155 units, making us the top-ranked emerging EV maker in China. Our 2021 full year revenue exceeded RMB20 billion. Heading into 2022, we are experiencing even higher demand for our products, which continues to outpace our production. To expedite delivery of large volume of order backlog carried over from 2021 and our newly acquired orders earlier this year, we completed technology upgrades of our Zhaoqing plant during scheduled downtime over the Chinese New Year Holiday. By adjusting our sales and delivery schedules, new orders that came in late February and the first half of March picked up quickly and have returned to same robust level as the peak season in last December. Starting from March 21, we raised the prices across our product lineup by RMB10,000 to RMB20,000, each in order to pass through the rise in cost of batteries and raw materials. Against a backdrop of higher oil prices, driving electric vehicles typically brings increasing cost advantages over ICE vehicles, allowing for greater growth opportunities in the mid- to high-end BEV market, which is the target segment for our Smart EVs. This market also features a very evasive ray of consumers, who attach more importance to EV quality and technologies. Therefore, 2022 will be a crucial year for each EV maker to validate their products' competitiveness. Looking ahead, as we pursue rapid technology and product iterations, we'll continue to strengthen the overall competitiveness of our products. I'm confident that our sales performance will continue to lead the industry. Even though we experienced some hiccups in terms of our…

Thank you, Xiaopeng, and hello, everyone. Now I would like to provide a brief overview of our financial results for the fourth quarter of 2021. I will reference RMB only in my discussion today, unless otherwise stated. Our total revenues were RMB8.6 billion for the first quarter of 2021, an increase of 200% year-over-year and an increase of 50% quarter-over-quarter. Revenue from vehicle sales were RMB8.2 billion for the first quarter of 2021, an increase 199% year-over-year and an increase of 50% from the last quarter, mainly attributable to higher vehicle deliveries, especially for the P7 and P5. Our gross margin was 12% for the first quarter of 2021 compared with 17% for the same period of 2020 and 14.4% for the last quarter. Full year gross margin reached 12.5%, an increase of 7.9 percentage points year-over-year. Vehicle margin reached to 10.9% for the first quarter of 2021 compared with 6.8% for the same period of 2020 and 13.6% for the last quarter. The quarter-over-quarter margin reduction was primarily attributable to product mix changes. R&D expenses were RMB1.5 billion for the fourth quarter of 2021, an increase 216% year-over-year and an increase of 14.8% quarter-over-quarter, mainly due to: one, the increase in employee compensation as expanded research and development staff; and two, higher expenses relating to the development of new vehicles to support future goals. SG&A expenses were RMB2 billion for the fourth quarter of 2021, an increase of 120% year-over-year and an increase of 31% quarter-over-quarter. The year-over-year increase was mainly due to; one, higher marketing and advertising expenses to support vehicle sales; and two, the expansion of our sales network and associated personnel costs and commission for franchise store sales. The quarter-over-quarter increase was mainly driven by the expansion of our sales network and more sales commission in…

[Operator Instructions] Your first question comes from the line of Tim Hsiao.

So my first question is about the price hike because XPeng is one of the early movers and now seeing to reach the prices. Could we get a sense about how did the Company laid the foundation of 10,000 to 20,000 or 5% to 9% price hikes? What kind of cost inflation in batteries, raw material chips and have been pricing? So if the price increased just the right amount to cover the contracts or also reflect XPeng's adjustment of more price hikes in the supply chain later this year?

Tim, this is Dennis. Let me respond to your questions regarding the price realignment. Actually, we increased our price at about 10,000 to 20,000 for the old car lines in March 21 -- starting from March 20. This reflects the projected components, especially on the battery cost increase. We haven't finalized the battery price negotiation with our suppliers. But according to Chairman and also the components, we anticipate we will have a cost increase in the raw material as well as the battery. So, we tactically price -- increased the price to carbon the cost increase the main driver of the price increase to basically to cover the potential cost increase for the component costs.

So my second question is about XPILOT take rate because I think that during the presentation, the Chairman has mentioned -- just mentioned about 20% take rate of XPILOT. It seems still relatively low. Obviously, this is just due mainly to more low spec models we saw during the past quarter. But when do we expect more increase in the adoption rate of XPILOT? And what would be more ideal cap rate in your view in the next one to two years? Is it likely to up 50%?

On my end, the connection is not perfect, but I get the gist of your question. So here is my response. Now in regards the attach rate of XPILOT 3.0 actually, it all depends on the chip supply. So when the chip supply recovers to the normal level, we believe that the attach rate will increase as well. I actually have more confidence in the tax rate improvement of XPILOT 4.0 because according to our data, our users have it and their satisfaction rate of using our XPILOT is actually very high as they get used to actually having the navigation systems, according to our -- I mean, with the help of our City NGP function in their daily life from one destination to another, for example, from their home to their offices or from their offices to a shopping mall, et cetera, that definitely will give them the trend of keeping the habit of using this sort of assistance from the XPILOT. So by that time, the attach rate of our XPILOT will be even higher the current level. And in my own understanding, actually, the XPILOT 4.0 attach rate will exceed 50%. But again, that actually will depend on the future market statistics and we'll see.

And your next question comes from the line of Jeff Chung with Citi.

So my first question is about the worst case scenario of this year's full year sales volume and production capacity, if we assume further disruptions in the chip shortages. Second question is about the G9 and P7 G3 margins. And is it necessary for us to also set a monthly sales target for G9 going forward?

Jeff, this is Brian. Let me answer the question for you. Can you hear me? So first of all, we obviously -- as our policy, don't give guidance on the sales number as well as individual model numbers. But I would say that, obviously, this quarter represents a quarter that's being a low season as well as face disruption from COVID measures in China. So I would probably consider appropriate base for extrapolating for the full year. We're confident with our new model launch as well as further market momentum. The sales number should be higher than the first quarter. So that's the first answer to your question. Second question is that, on G9, we do have high hopes. This will be a blockbuster in its class, with the premium SUV class and you could also find benchmark models in that class. And we think it should be one of the top players in that category. And then I think in that being, I think, the short approach shift might see the P7 level. The third question is whether the P7 and G9 is interchangeable from a supply chain perspective, I think we hope by the time that G9 has started volume delivery towards the second half or the fourth quarter, the supply chain issue will get alleviated. But I think right now, both models are representing high gross margin products for us in the high teens. So I think for us, those are models that we will obviously make sure that has adequate chip suppliers for production.

So it is about the order backlog. After we raised the MSRP price, we saw a significant surge in new orders. So, roughly speaking, right now, the waiting time to get a car from 16 months to 20 months, which implies around four to five before the order backlog, so I just want to clarify on these numbers.

I think there is a mix of good and bad news with what's happening right now. Obviously, the bad news is the resurgence and recurrence of the pandemic, which really affects our supply chain, especially in cities such as Shanghai because this is really the headquarter of all of the key suppliers of our company. And the good side of the story is that we are actually improving our overall capability in enhancing our battery cell supply. And so, obviously, there's a lot of disruption in the -- interruption in the market. And also, there's a lot of risk, but we will do our best and be fully committed to speed up the delivery time -- lead time. Overall, I believe that the actual outcome would be better than expected.

And your next question comes from the line of Ming Lee with Bank of America.

So my first question is regarding the battery supply situation. Currently, you have three suppliers but you are still looking of the LFP battery supply. So you also delayed some vehicle delivery. So what is the current situation? Yes. So my second question is regarding the new platform and your capacity breakdown for your three plants in the future. That's my question.

In response to your first question, first of all, we are very different from other new energy vehicle makers in a sense that we actually collaborated with multiple suppliers of batteries. And so in the past what we experienced is that there has been a lot of demand for our ST batteries. This really [Technical Difficulty]. So in the past, what we experienced that the market demand for LFP demand actually has surpassed our suppliers' capacity for batteries supply. So that's why we experienced a lot of challenges in the supply chain. But going forward, we actually have been able to gradually alleviate this problem, and we are very confident that we can continue to improve the situation. And for the second half of this year and for the coming year, we are very confident that the overall supply chain shortages can be relieved to a certain extent. And then in response to your second question, basically we differentiate the concept of planned capacity and the actual deliveries of our -- or the actual carried out or executed capacity. And so, we do have planned capacity for each single plant of ours and through multiple shifts of working, we can actually maximize those capacity. And so, what we are doing right now is that we are trying to coordinate different plans in producing different models on different platforms because we haven't been able to -- we are not in a position to announce the exact number in terms of the capacity of each single plant yet. I can just give you a rough idea that the single plant capacity will surpass 0.5 million.

Your next question comes from the line of Nick Lai with JPMorgan.

My question is really about the cash. By the end of last year, we had about RMB43 billion cash on balance sheet. And how should we think about the use of cash in terms of CapEx on the expense, on the spending and the sales marketing? That's the first question.

Nick, this is Dennis. Let me respond to your first question. Yes, you're right. We actually -- we have about RMB43 billion cash in hands of the end of last year. And our plan, actually, as I mentioned, we actually achieve operating cash flow breakeven or positive cash inflow in the second half of the last year. So our plan is to continue to improve the efficiency and also to improve the capital spending. So, we are projecting -- we are trying very hard to continue positive even operating cash flow this year. And other than that, we also have some spending on the CapEx. For example, we continue to have new products. We will have the facility and equipment for the new product. And we also have the investment in terms of the capacity -- the new plant capacity. So that's our plan for the usage of our cash in hand. Operating-wise, we will try to be breakeven positive and capital expenditure will continue to include efficiency of spending while supporting the product development and also to support the capacity development for this year.

My second question really about a quick update on box initiative that management mentioned in the previous conference call.

Now we actually plan to test the robotaxi sort of capability and performance by Q4 this year on P9. We didn't actually announce or make any statement regarding achieving Level 4 by 2024. Our estimate is that we can actually achieve or work towards the goal of autonomous driving by 2026. Now in terms of the exploration in the robotaxi model, right now we are -- we need to do a lot more testing to be able to find out the business logic behind robotaxi and to gather more data from the actual execution of the capability and also to understand better the regulatory environment in this regard. But currently, with our observations in the expo development as well as the gathering of the data, we are very confident and very, very excited about the future of robotaxi, and we estimate that we can actually achieve a high level of autonomous driving sooner than expected.

And your next question comes from the line of Bin Wang with Credit Suisse.

Okay. My question is about new products for 2023 because we you actually said that we have some products from the new technology platform. So it does mean one product from each platform or actually one product from two platform? Meanwhile, just mentioned the four plus will be available for the city and G3. That means that you can upgrade can and P5 and P7 upcoming for the upcoming City NGP with the hardware upgrade?

This is He Xiaopeng. Next year, we plan to launch two new products on two platforms, and both of them will support the deployment of XPILOT 4.0.

And your next question comes from the line of Xinchi Yin with CITIC Securities.

My two questions is about G9 and CapEx. So the first question is, could you please provide more details about G9 and what's the well base of G9? And will there be a six-feet version or seven-feet version? And my second question is about CapEx. So what's the CapEx budget on Guangzhou and Wuhan factory, respectively? What's the progress of these two factories?

This is Xiaopeng. Let me respond to your first question. In terms of G9, what I can be -- what I can announce right now is going -- G9 is going to be a five-seat medium to large size SUV. It won't be a six-seater or seven-seater. And in terms of the details such as wheelbase, et cetera, we will actually launch -- we will give you more details in our official announcement when we have the information. Thank you.

Okay. The second question, this is Dennis. So let me handle this. In our Guangzhou plant, our total capital expenditure is somewhere around RMB2.5 billion to RMB3 billion. And among that, the construction and the land actually is funded by the government. And the government provided a loan to us, to a free interest. And in terms of facility, actually, the government is funding 50% of the interest cost. So we will pay 50% of the interest cost in terms of the bank loan. The plan is the -- in terms of construction has been completed and now we are doing the equipment and facility for the new plant, new production. So this is to support the new vehicle production. In terms of Wuhan plant, Wuhan plant, the plant is bigger than the Guangzhou plant. So the total capital expenditure, the original project was about RMB4 billion, about slightly higher than RMB4 billion. And among that, the government will fund the interest of the around RMB3 billion. That will be -- the interest will be funded by the government and the rest will be funded by XPeng itself. The plant is under construction including the building and also the facility and that actually is to support the new production, as we mentioned for next year. So, that's the status of the plant construction and also the capital spending of our plant.

And your final question comes from the line of Jing Chang with CICC.

So my first question is about our debt rate or the supplier massive this year? And what are the positive or some negative effects of multiple supplier method, especially on our time maintaining and also our purchase costs? And my second question about the gross profit margin and also expect the expense ratio guidance this year. And considering the current cost and our price -- product price increase, how can you expect our gross cost margin this year and also about the expense ratio? Will our expectation of our R&D and SG&A ratios reflect a stronger scale effect?

This is Xiaopeng. Let me respond to your first question. Having multiple suppliers for our battery sales definitely gives us a lot of values, mainly in two aspects. The first one is to definitely make sure that we have enough supply, and the second is, help us to optimize or enhance our cost control capability. Now for the first benefit, because we have multiple models that definitely are really popular in the market and we received a lot of orders last year. But due to the supply shortage in batteries, especially in LFP batteries, we were not able to actually fulfill or deliver those orders last year and the actual sales of our models or our products LFP batteries was actually a lot smaller than the actual orders that we received. And this year, with our concerted effort with our supplier partners, we hope that and we are very confident that we can alleviate the situation this year. And the second benefit, which I mentioned earlier, is the cost control capability enhancement. As the raw materials for batteries and for a lot of the core components continue to increase, the whole industry experienced a lot of cost increase risk. But because of our multiple supplier partner network and this model, we are able to actually relieve this sort of stress within, I think, one quarters to three quarters time. And this year, we will continue to suppliers to better consult our cost. Thank you.

For the second one, the margin, firstly, we don't provide the margin guidance for the future. But according to the information we have on hand, actually in the first quarter, we use a majority of the battery stock, which we acquired or we purchased. So the cost increase did not really hit us on a full quarter basis. So we anticipate some material good news on the battery. And also we have better product mix. The P7, actually, the mix is higher than quarter four last year. And for the second half, because we have increased the price and then after we delivered those price protection orders, probably starting in late May or June, we will have capability to cover the cost. So all in all, we anticipate quarter one and quarter two margin would be equivalent or even slightly better in the quarter four, the margin level. And for starting from June, we -- actually, the price would affect be a new price, which we will be able to cover the cost. And more importantly, we have G9, which will be sold in the second half. So, we anticipate the second half margin will be better than the first half. That's kind of a general assessment for the margin thus far. Thank you.

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

So, thank you once again for joining us today. If you have further questions, please feel free to contact XPeng's Investor Relations through contact information provided on our IR website or The Piacente Group Investor Relations.

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