Hello, ladies and gentlemen. Thank you for standing by for the First Quarter 2022 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 first quarter 2022 earnings conference call. Our financial and operating results were issued via newswire services earlier today and available online. You can also view the earnings press release by visiting the IR section of our website at ir.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 as filed with the U.S. Securities and Exchange Commission. The Company does not assume any obligation to update any forward-looking statements except as required under the applicable law. Please also note that XPeng's earnings press release and this conference call include the disclosure of unaudited financial measures as well as unaudited non-GAAP financial measures. XPeng's earnings press release contains a reconciliation of the unaudited non-GAAP financial measures to the unaudited that measures. I will now turn the call over to our Co-Founder, Gentleman and CEO, Mr. He Xiaopeng. Please go ahead.

Hi, everyone. In the first quarter of 2022, XPeng delivered 34,561 vehicles, representing 159% year-over-year growth. We continue to rank number one among emerging EV makers in China as measured by vehicle insurance registration volume. Notably, our monthly deliveries once again exceeded 15,000 units in March, demonstrating a return to the same robust level as the peak season last year despite the impact of the COVID-19. Heading into 2022, our products and technologies' competitive edge as well as our brand awareness continues to improve. The demand for our products was strong. In March, our monthly volume of new orders reached a new high. Meanwhile, our order backlog also hit historically high levels. From March 21, we raised the price across our models by RMB10,000 to RMB20,000 in order to cover the cost increase of batteries and raw materials and chips. Following the price increase, consumer demand for the mid- to high-end BEV segment has remained resilient. We expect our new orders in May, excluding some cities impacted by the COVID-19, will return to the levels before the rise in price. According to the data released on Chinese passenger vehicle insurance registrations, the BEV penetration rate in March reached over 24% and in particular, exceeded 30% in Shenzhen and Shanghai. While the industry is changed under the current impact of COVID-19-related restrictions and raw material price surges, the long-term trend of increasing BEV adoption and the strong growth trajectory will continue. I believe our relentless efforts to advance our product's competitiveness, technological advancement, intelligent capabilities and quality in addition to the ever-growing brand awareness position us well as we work to gain market share in the mid- to high-end BEV market segment and pursue our strong growth strategy. Now turn to supply chain management. Given the COVID-9 resurgence, starting in early…

Thank you, Mr. He, and hello, everyone. Now I would like to provide a brief overview of our financial results for the first quarter of 2022. I will reference to RMB only in my discussion today, unless otherwise stated. Our total revenues were RMB7.5 billion for the first quarter of 2022 and increased 153% year-over-year and a decrease of 13% quarter-over-quarter. Revenues from vehicle sales were RMB7 billion for the first quarter of 2022, an increase of 149% year-over-year and a decrease of 14.5% from the last quarter. The year-over-year increase was mainly attributable to higher vehicle deliveries, especially for the P7 and P5, while the quarter-over-quarter decrease was associated with the less vehicle deliveries affected by the seasonal factors relating to the Chinese New Year holiday. Gross margin was 12.2% for the first quarter of 2022 compared with 11.2% for the same period of 2021 and 12% for the last quarter. Repo margin reached 10.4% for the first quarter of 2022 compared with 10.1% for the same period of 2021 and 10.9% for the last quarter. The quarter-over-quarter decrease was primarily attributable to increase in raw material costs. R&D expenses were RMB1.2 billion for the first quarter of 2022, an increase of 128% year-over-year and a decrease of 15.9% quarter-over-quarter. The year-over-year increase were mainly due to: number one, the increase in employee compensation as a result of expanded research and development staff; and number two, high expenses relating to the development of new vehicle models to support future growth. The quarter-over-quarter decrease was mainly explained by less design and development expenses, which were affected by the seasonal factor relating to the Chinese New Year holiday. SG&A expenses were RMB1.6 billion for the first quarter of 2022, an increase of 128% year-over-year and a decrease of 18.5% quarter-over-quarter. The year-over-year increase was mainly due to: number one, higher marketing, promotional and advertising expenses to support vehicle sales; and number two, the expansion of our sales network and associated personnel costs and commission paid to the franchise store sales. The quarter-over-quarter decrease was mainly associated with the seasonal factors I mentioned about. As a result of the foregoing loss from operations were RMB1.9 billion for the first quarter of 2022 compared with RMB0.1 billion for the same period of 2021 and RMB2.4 billion for the last quarter. Net loss was RMB1.7 billion for the first quarter compared with RMB0.8 billion for the same period a year ago and RMB1.3 billion for the last quarter. As of March 31, 2022, our company had cash and cash equivalents, restricted cash, short-term deposits, short-term investment and long-term deposits in total of RMB41.7 billion. To be mindful of the length of the earnings call, I will encourage listeners to refer to our earnings press release for more details on our first quarter financial results. This concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead.

[Operator Instructions] Your first question comes from Tim Hsiao from Morgan Stanley.

So I've got two questions. So the first question, just want to quickly follow up on expense previous spec change. The Company now makes standard features for on P5 and P7 models, which will surely go out to use experience in the adoption rate. But could you share a little bit about the Company's new software strategy and the plan. We plan to restart charging users with XPILOT software in the future with AP from like XPILOT point zero. And is that going to be a bit challenging to resume the fee collection if most of the peers have followed us to launch free software ecosystem business model? And my second question is about the margin trajectory. Could you please update when the contribution from the orders with new prices will kick in? I recall management mentioned it might be late June, but I'm not sure if there's any further changes mid recent supply chain disruption. As battery costs would likely be for climbing in the second quarter. Do you have enough the low-cost inventory for component battery to compete the low-price orders delivered in both April and May? Or we can leverage our more diversified battery supply chain. So those are my two questions.

So thank you. Very good question. Currently speaking, for -- in terms of our pricing on top of our ADAS technology as well as our software, I believe that amongst all of the emerging EV makers in China, we are doing the best in terms of our penetration rate adoption rate as well as the final results. However, we did notice a trend in the market, which is that if you separate the charging for the software as well the hardware from active of the customers or the consumers, rather, it is actually better to do a combined or a bulk charging package that combines the usage or the adoption of the hardware together with the software rather than doing it separately. So if we can do this kind of integrated pricing model, for both the software and the hardware. It would be actually very beneficial for our future upgrade of the software in terms of the adoption of the ADAS technologies, the upgrading of smart carpet, smart chassis as well as the overall software performance together, combined with the hardware performance. Right now, we are in the mid level of ADAS technology application. And in the future, I believe in the near future, when we are able to really move towards a higher level of ADAS technology application, which we internally call the man machine co-driving experience, we believe at that point in time. We should be able to do a lot more OTA upgrades of our software with this kind of integration -- integrated pricing model that combine both the hardware and software so that we can increase and enhance the overall experience for our products, for our overall user experience as well as very beneficial for the overall company gross margin as well. And so we believe this kind of integrated pricing model for both the hardware and software together will be more beneficial and sustainable for the long run. And in the future, we believe that more monetization of capitalization that based on the software usage or adoption will emerge as we continue to accumulate more data and more user experience based on the launch of our software and hardware together. For example, there are different kinds of monetization that can be based on the time spent or the used time spent with our software or based on the mileage that our consumers or our customers use on our products or services. Overall speaking, we believe that this kind of integrated pricing model will actually be more beneficial and sustainable in the long run that allows us to further optimize our user experience.

Tim, this is Brian. Let me just add a couple of comments. First of all, we have been witnessing the various software monetization has been implemented by various companies in China. And so far, I think it is quite clear that the separate charging and also subscription-based models has not been very prevalent in the China market. In some ways, I think, has limited the broader penetration of the utilization of these technologies. We believe that at this stage of the market, our core focus is to make sure that we provide an optimal service package that can be widely used that increasing the penetration and coverage and witnessing the stickiness of our technology is probably the first priority before we actually implement various different monetization strategies. So that's why I think we are adopting the current standardized charging model. But I think in the long run, when we actually see advanced main technology, see more broader utilization and also stickiness and dependence of this technology, I'm sure we'll be able to have much more robust monetization and variations that we can use for the Chinese market. And I'll hand over to Dennis for the second question.

Tim, this is Dennis. Yes, in the previous earnings call, we mentioned we will be able to deliver most of the new price orders probably sometime in June, maybe in the second half of June. Because the COVID impact, especially in the Shanghai area, now we are looking to deliver the low price protected orders until June. So most of the new price or will be delivered probably starting in very late June and some starting in July. That's the present assessment of the delivery.

Thank you. Your next question comes from Nick Lai from JPMorgan.

My two simple questions. First is on monthly production. Measuring guiding second quarter production of 31,000 to 34,000 units and that translates into roughly about 11,000 to 12,500 units per month. Does that mean potentially we have production loss somewhere about 25% the rest of 2Q? And is it possible that this production loss can be recovered in third quarter and latest update on chip supply? And the second question is really on battery supply pricing mechanism with the supplier? Thank you.

Nick, it's Brian. Let me answer your first question. First of all, you're correct. Our quarterly guidance for the delivery this quarter reflects a bottleneck in the supply chain, which has been impacted in April as well as May and likely in June as well. So, this is actually a number that reflected that we cannot obviously have the full output even with the capacity of the factory running at a full capacity. It's still limited by the supply chain constraints. We envision that if the supply chain resumes normally, we'll be able to catch up with the volume in the third quarter because we have sufficient capacity to ramp up production at a time. So I think we're confident that as soon as the impact in Shanghai area and some other area that resumes normally, we'll be able to produce enough output to accelerate the delivery and to meet the customer demand, which we're seeing is very robust.

So yes, let me just address the question regarding the chips visibility. So if there was any COVID resurgence in China right now, I think the majority of our peers or all of the new EV makers in China right now will be actually restricted by the capacity or of the chips in general. According to our latest calculation, every single unit or every single product of ours will need an average of 5,000 chips. And for some parts of the car that will require about a dozen or several dozens of chips for just one part of the car. And for some of the main ships actually, for example, three kinds to five kinds of the main chips, their capacity is actually okay and their supplier is actually okay. But the main shortage actually comes from some of the smallest and the cheapest ones, the chips and their capacity is very, very limited. The visibility is also very limited in China as well. April, I would say I was performing actually quite well in terms of the capacity and the supply of the chips in this regard. However, believe that in China, I mean, the visibility to chips in general going forward is still very, very limited and how its impact on our capacity is also going to last for a while. Now from 2020 on, we begin to notice the crisis in shortage of chip supplies in general. And by 2021, we thought that while crisis can be resolved or at least alleviated to some extent by the end of 2022. But now our latest judgment is that the situation is going to -- I mean the crisis is going to still last for a while, maybe ahead into 2023 or even longer. Now there are several resolutions…

Thank you. Your next question comes from Bin Wang from Credit Suisse.

My question is about the margin outlook in the second quarter or the second half of this year because we see different factors is this margin the higher-priced products can only kick in, in the third quarter as second quarter maybe some decline compared to first quarter in the gross margin? And the number three quarter, second half can assume the gross margin can reach out high when the high pricing products start to help. And the second part, you recently changed the software pricing. What's the impact of low gross margin in the second quarter and third quarter? That's number one question. Inventories about new products, as you mentioned, there will be a large size products and large products in the 2023. And so what's the pricing range? Was the margin can above the 20% gross margin because you are guiding our target 25% margin in 2025 or midterm?

Wang Bin, this is Dennis. Let me address your first question. Yes, you're right. Because of the COVID impact, our second quarter volume was impacted compared with our original projection. So, our second quarter gross margin will be impacted as well. We will further investigate the impact and also take some action to recover the margin in the second quarter. And going to the third quarter, yes, we will deliver new price orders. So our margin in the third quarter will rebound will improve. However, we are seeing -- we will have further margin improvement in the quarter four when we had new model delivery to the market. So, our margin in second quarter will be slightly impacted by the delivery -- the new price order. And then third quarter will improve and the first quarter will further improve. That's our present projection.

Yes. And Bin, to answer your second question -- Bin, let me finish. Just to answer your second question. Yes, the products that we're going to introduce next year, which will include a product coming from a C Class platform, will be at a premium to the current portfolio of products that we have, including the G9. So you can expect that will be close to or even exceeding the RMB400,000 price range. And for such a product that we certainly hope it will have high gross margin. So, 20% will be very important benchmark for us to target our product design. But for that product, I think, assuming a 20% or above product margin is actually reasonable.

And also internally speaking, our expectation for these two new products is that their capability or the overall performance combined will be actually more superior than two P7s combined.

Right now, we're not giving guidance, given the lack of visibility of the, I would say, material prices as well as the overall environment. But we are hopeful that the rebound will be pretty robust from second quarter levels.

Thank you. Your next question comes from Jeff Chung from Citi Bank.

Okay. I have three questions. One is the due to the backlog rolling from the first quarter, how many volume sold in the second quarter will be valued at MSRP price hike? This is number one. Number two is the newly generated order backlog since the 1st of May. Could you tell us on the trend on the newly generated order backlog? And the final question is about the first quarter vehicle margins. Could you break down the vehicle margins without the software? And also separately, could you tell us the first quarter software margin? And for an apple-to-apple comparison, if we strip off the raw material price hike, what should be the first quarter vehicle margin would have been?

So Jeff, this is Brian. Let me answer your second question first, which is the new order trend, and then I'll leave the number question to Dennis. First of all, as we said in our CEO presentation that we actually saw the order -- new order recovery in May in areas that's not affected by COVID lockdown in certain cities is already near the pre-price increase levels, which is a very encouraging sign because obviously, we see that demand is genuine. And also, it's actually rebounding pretty nicely. It took us probably a little bit over a month to build up that demand pool, obviously, saw the month of April, we saw slow demand recovery. But in May, actually, the order level is actually quite robust. And I would think it was increasing relaxation of COVID measures in large markets that we target, which are important markets to us, we see the overall order momentum will be quite strong. Then I'll hand over to Dennis on the other two.

Yes. Jeff, let me address your first question. We don't provide very precise -- for example, the new price order deliveries, the oil price order deliveries. But in April, the majority of deliveries were the oil price protected. And also in May and June majority would be the old price especially for the P7. Major P7 would be the price protection because the backlog is -- we need some time to deliver those orders. For your third question, yes, the first quarter, the reason why we can maintain the same gross margin level as quarter four last year was because, number one, we have mix improvement. Our P7, the product mix -- product line mix in the first quarter was about 56%; in the quarter four last year, it was about 50%. So that's a mix improvement. And next one is the variable marketing rationalization. We technically reduced our variable marketing spending to increase the overall margin. Having said that, we will also impact by two key factors. Number one is the NAV reduction. The new energy vehicle reduction, which is about 20% in the subsidy level about 20% compared with the 2021. The other one, the big chunk would be the battery cost. I cannot provide a detailed number, but that is a big offset of our -- like the mix improvement and also the variable marketing reduction. So all in all, we were able to maintain the quarter four margin level for the moment.

Thank you. Your next question comes from Ming Lee from Bank of America.

So regarding your autonomous driving software. So in the future, will the sales of the software be included in the car price or you will still consider to charge the consumer on a one-off or a monthly installment basis? And also, because this time, you give the software a standard configure. But in the meantime, you also tend some free charging and also panel subsidy for installing charging pile. So is it a margin nature event for your business? And second question, regarding the supercharging technology, so is the 180-kilowatt hour charging pile and also 800 voltage battery, the ultimate battery technology, charging technology? Or in the future, do you expect even further advanced charging technology?

Let me address your first question. Yes, when we build those software into the vehicle together with the price and at the same time, we get the supercharging, free supercharging and also the kind of the destination charge the home charger and including the installation. And at the same time, we also adjust the price a little bit to cover some of the costs. So overall, the margin impact would be neutral. And more importantly, with more customer using the software, we will be able to increase scale and also to dilute the same kind of R&D expense. So overall, that's a good strategy for us. In terms of the next product, G9 and also the future product, we haven't really decided yet or subject to further internal discussion whether we will continue such practice. So we will have another arrangement that is subject to our internal discussion. And when we introduce a product, we will also mention that. Now your second question.

All right. Let me address the second question of yours. Actually, this year, we have made this plan to launch the 480-kilowatt or charging facility by the fourth quarter. And originally, before heading into 2022, we had planned to actually launch two kind of charging facilitation. One is 260 kilowatt, the other is 480. But after evaluating the macro environment of this year, we make the final decision of launching 480 kilowatts by Q4 this year that allows for charging for five minutes that lasts for 200 kilometers of driving experience. However, if you actually charge for 10 to 15 minutes, it can give you even a longer driving range, but we haven't had the final testing results yet. That's why we are not releasing the number. And so for the upcoming year, we believe that with our building of the 480-kilowatt supercharging facility as well as our 70-kilowatt destination charging, we should be able to actually launch quite a powerful charging network that's going to cover a wider geographical area in China. And in the coming year, we believe that we are going to welcome a new kind of era automation, optimization as well as electrification. Now in terms of the improvement of electrification, we believe that as the -- our technology continues to develop in terms of reducing wind resistance, including enhancing the -- using the efficiency of the electric system, the power chain as well as our battery with also the further enhancement of the supercharging infrastructure, we will be able to welcome in a stage where an era where we actually have a higher charging efficiency or effectiveness compared to the traditional gas stations for ICE vehicles, which means that in the future, the market adoption rate for new -- or a new EV will actually…

Thank you. Your next question comes from Jing Chang from CICC.

So my -- I have some follow-up questions regarding the Company adjustment to charging and software activation charges. The first is regarding to the pricing strategy of new model after the integration of software and hardware, we have so the price difference of different versions of our current model taking P5 as an example, the price of P version and E version is RMB32,000 and RMB18,000 higher than the T version, so not about to cover the increase in hardware cost. On our new models such as new -- such as G9 will take the benefit of software into cut into the pricing strategy that has suppressed difference between different versions of the model will widen. My second question about this year, we can see a supply of new more to 250,000 has been increased significantly. And from those have emphasized their new electrification technology such as C2C and C2 -- and we have also heard that more on technology will be applied to our new models such as G9 and next year's new model in the short term, especially in this year and the first half of next year. Do you worry about that competing products will have a great impact on our sales of P5 and P7?

About the first question of yours, yes, in the future upcoming models of ours, including P9 and other new models, we plan to enhance the price gap between different considerations, for example, for higher-end products or higher-end configurations, the price will be a higher because they embed or incorporated a lot of ADAS function as well as the high -- or advanced software. But on the other side of coin is that for lower configuration products, we are actually able to sort of lower the pricing because we will use a better BOM cost optimization, with the adoption of lesser events kind of hardware for those kind of low configuration, which can be very beneficial for individual consumers as well as for us as a company. Now in May, after the adjustment of our pricing that include both the software and hardware, we actually have seen a spike in orders mid- to higher-end configurations for P5. That gives us a lot of confidence in going forward because in the future with this kind of new pricing strategy or incorporation of both hardware and software into the one configuration, we should be able to further enhance our overall capacity -- I mean, capability in optimizing the user experience, the driving experience as well as optimizing our gross margin and in adopting more high-level ADAS technologies into our future products. And regarding P7 or P5, actually ever since our -- the launch of City NGP on P5, we've been able to actually recognize our leadership position of this model in the market because if our peers were develop similar products with the same sort of performance configuration in the coming several years, the pricing of their products will be much higher than ours for P5. And also, we are going to release more information regarding our automation and smart designs for the upcoming products and the current product portfolio in the future when we have them ready. Actually reviewing the sales performance of P7 when we first launched it in July back in 2020, outweigh to the March 2021 when we launched a highway NGP for P7, we were able to see growth in the total sales or the order number of this particular model with the adoption of NGP. And also for Q1 this year, we were able to record a history -- historically high level of 9,000 units of monthly sales for this particular product. So I would say that overall, we are very confident about our judgment of the positioning of these kind of products in the market in terms of its own positioning, in terms of the product quality, our market share as well as the OTA relief in the future that will strengthen our leadership position of this product. Thank you.

Operator, we are ready to conclude this call.

Thank you. And this includes the Q&A session. I would now like to turn the call over back to the management 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 Group Investor Relations.

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