Hello, ladies and gentlemen, thank you for standing by for the Fourth Quarter and Fiscal Year 2023 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 of the company. Please go ahead, Alex.

Thank you. Hello, everyone, and welcome to XPeng's fourth quarter and fiscal year 2023 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.xpeng.com. Participants on today's call from our management team will include: Co-founder, Chairman and CEO, Mr. He Xiaopeng; Vice Chairman and President, Dr. Brian Gu; Vice President of Corporate Finance and Investment, 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 Security Legislation 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 laws. Please also note that XPeng's earnings press release and this conference call includes a 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.

[Foreign Language] [interrupted] Hello everyone, I am pleased to share that XPeng experienced impressive growth in our delivery volume quarter-by-quarter in 2023, which exceeded 60,000 in Q4, up 171% year-over-year, thanks to our proactive change to business strategy and organizational structure, as well as the new product launches. In total, we delivered over 140,000 units in 2023. Our efforts to focus on platform-based R&D, technology-driven cost reduction, and operational efficiency improvement have begun to yield positive results. In Q4, our gross margin improved to 6.2% with a vehicle margin expansion of 10 percentage points compared to the previous quarter. Our company achieved a positive free cash flow of more than RMB6 billion for the second half of 2023 and achieved for the first time positive full-year operating cash flow. As of the end of 2023, we had over RMB45 billion in cash, which puts us in a strong financial position to deliver high quality and rapid growth in a highly competitive environment. I believe this is just the beginning of the change, and I look forward to bringing more improvements and positive results in our capabilities and operations in 2024. In 2024, we will be celebrating the 10th anniversary of our founding. And it will also be the first year filled with intense competition in the Chinese automobile industry. Since the first quarter of the year, there has been an industry-wide price war, which has been growing increasingly fierce. Against this backdrop, several EV startups have been forced to wind down their operations, and certain renowned technology companies have terminated their investment in auto business. These dynamics suggest that the race for smart EVs for the larger wave of growth and intensified price competition, we have adjusted our strategies in a number of fields. We enhanced our organization and efficiency…

Thank you, Xiaopeng. Now let me provide a brief overview of our financial results for the fourth quarter of 2023. I'll reference RMB only in my discussion today unless otherwise stated. Our total revenues were RMB13.05 billion for the fourth quarter of 2023, an increase of 153.9% year-over-year and an increase of 53% quarter-over-quarter. Revenues from vehicle sales were RMB12.23 billion for the fourth quarter of 2023, representing an increase of 162.3% year-over-year and an increase of 55.9% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly attributable to the accelerating sales growth of the G6 and G9 in the fourth quarter of 2023. Gross margin was 6.2% for the fourth quarter of 2023 compared with 8.7% for the same period of 2022 and negative 2.7% for the third quarter of 2023. Vehicle margin was 4.1% for the fourth quarter of 2023 compared with 5.7% for the same period of 2022 and negative 6.1% for the third quarter of 2023. The year-over-year decrease was explained by: first, the inventory provisions and losses on purchase commitments as a result of upgrades of existing models with a negative impact of 1.9 percentage points; and secondly, increased sales promotions and the expiry of new energy vehicle subsidies, offset partially by cost reduction and improvements in product mix. The quarter-over-quarter increase was primarily attributable to the cost reduction and better product mix. R&D expenses were RMB1.31 billion for the fourth quarter of 2023, representing an increase of 6.3% year-over-year and an increase of 0.1% quarter-over-quarter. The year-over-year increase was mainly in line with the development timing and progress of new vehicle programs. SG&A expenses were RMB1.94 billion for the fourth quarter of 2023, representing an increase of 10.3% year-over-year and an increase of 14.4% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were primarily attributable to the…

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

[Foreign Language] So my first question is about the product strategy, because XPeng plans to launch about 13 new models and facelifts in the next three years, which implies that the company will have new model coming in the market basically every quarter, starting from the second half this year. So with such an intense launch schedule, what would you do to avoid the capitalization from the new product and keep the sales momentum of the whole lineup? As over the past few years, we noticed that whenever XPeng launch the new cars, the sales of the old model always decline. So how should we avoid that? That's my first question. Thank you.

[Foreign Language] [interrupted] Thank you very much for your question and that is a great question. So exactly in the beginning of this year, and this is what Fengying and I myself, we have done, and this was our number one task. And it is very important to carry out the planning and that involves the planning for products, the technology, supply chain, as well as the manufacturing and the launches of products. And if one would like to do this, usually the preparation should really start two to three years beforehand. And this would involve, for instance, looking at the price range, the size of different cars, the capabilities and as well as time lines. So especially with our brand new products and these products and for instance, certain products that we did not really have a lot of volume in the past. And for our product team and starting from Q1 of last year, we had -- we organized the team and in order to be able to come up with a product that is suitable for the new technology. And at the moment, we simply would only need one architecture, two powertrain and two autonomous driving system, and this would be able to support our product. And in the past, we have had situations whereby once a product has been launched into market, however, the supply chain wasn't strong enough to cope with the demand for delivery. And this time around, we had also looked at and discussed very comprehensively regarding this issue in terms of supply chain management, manufacturing and we will also have digital process in place to make sure that all the processes are done and followed exactly the same to ensure quality improvement, production improvements, efficiency improvement as well as cost reduction. You…

[Foreign Language] So, my second question is about the competition. As we noticed that competition on the vehicle prices and new products has been getting fiercer year to date. In addition to the increase in new models in the second half of this year, how XPeng will react to the price flow. And in the meantime effectively increase sales of existing models? That's my second question. Thank you.

[Foreign Language] [interrupted] Thank you for your question. And to be honest, this is really quite a tough question and I believe that different automobile companies will have different ways to deal with the competition. And for us, really -- to answer your question from two perspectives, and the first one is from a macro perspective, and I think it's really important about building up the systematically very strong foundation. And the second one is all about innovation. And the innovation, having innovative product is the only possible way to avoid competition. And thirdly, we are always pursuing quality first and then to scale. If you do it the other way around, if you start with scale first and it would be very difficult to improve the quality. And secondly, if we talk about on the short term micro level, and I think that it would have the following areas and the first one would be marketing. And we are always looking at how to spend less money to improve the marketing results. And secondly, it's all about the sales and the service capability. As I talked earlier, last quarter of 2023, we had terminated 130 dealers, and those were the underperforming ones. And by Q2 this year, once we have built up our new dealer partners and matured and nurtured all these dealers. And we believe that this is the dealers who would help us to be able to further promote our vehicles in the third and the fourth tier cities. And thirdly, it is about the functionality and the capability of your product. And so from the micro level, it is all about marketing, plus sales, plus service and plus your product.

[Foreign Language] Thanks for sharing all the details. Thank you.

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

[Foreign Language] So my first question is regarding your cooperation with Volkswagen. Could you give more quantified answer regarding your cooperation? For example, how many components you are able to co purchase along with the Volkswagen? And how much cost do you expect to save?

Hi, Ming, this is Charles. I think a few weeks ago, we announced that we have entered into the master agreement for the platform and the software services. That is a major development milestone for the projects we're working together based on our G9 platform. In the meantime, we're also entering into the joint procurement program that we will jointly procure the components for both our models on top of the G9 platform and also the Volkswagen's models building on our G9 platform. I will say that, that's a very high degree of the platform and the component sharing. And through the joint procurement program, also leveraging Volkswagen's world class supply chain capabilities, we have seen the initial good results coming out of from the joint sourcing program. And we believe that such joint sourcing program will continue to allow us to optimize our cost structure and also quickly bring our own cost structure to the competitive level in the market. Also, I think last point is that, as Xiaopeng mentioned in his remark, the revenue generating from the platform software services will start to kick in from 2024. And it is the recurring -- once it started to recorded in our P&L, it will be a recurring revenue and will have meaningful impact -- meaningfully positive impact to our GP margin. And so it will continue to give us the positive contribution to our profitability.

[Foreign Language] My second question is related to your MONA project -- product. So how do you think about your integration level between XPeng brand as well as the MONA mono project brand? And could you also give us more details about the progress for you to launch the 2B model and also 2C model? And also lastly, is the autonomous driving functions provided by MONA similar to [indiscernible] 3.5?

Hi, Ming, it's Brian. Let me address your question on this MONA project. Yes, we're very excited that we'll be launching the MONA sub brand in a very short time. And also, we think it will be, I would say, one of the blockbuster products in this category. The reason we think there's a potential is because: one, we think it's a very well designed product, it has, I think, I would say, best-in-class design as well as in some of the functions, especially as it related to smart functions. We think it will have differentiation compared to similar products in this category. At the same time, we have done a lot of effort, try to make sure the product is also very competitive from both cost as well as competitiveness in terms of the focusing on both 2C and 2B channels. So needless to say, we have high hopes for this MONA product. And also, in terms of strategy, we think it will have actually the dual prong channels. I think it will start from the 2C channel first to make sure it will be received as a premium product and then followed by, I think, 2B channel sales. So that's likely to be the sequence of our marketing. From the specific product functions and capabilities, I will probably leave that to the launch event to give the full details. But needless to say, again, we think it's a very competitive product. We also have plans to steadily improve on this product based on additional, I would say, development plan for later this year as well as early next year. So this is also going to be improving as a platform in this A class. So again, I mean, I think this is a lot to expect for, and I think I would love all of you to wait until our launch event, which will happen probably very soon.

Thank you, Brian.

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

[Foreign Language] And my question is about the full year 2024 volume target. For the media report that your target is 260,000 to 280,000 units. Is that in the wide range you are thinking about? If that is the case, which means in each quarter you actually need to sell about 75,000 units in prior monthly 25,000. So if you -- where you can achieve 25,000 if it’s true? Secondly, do you actually got some commitments from DiDi to ascertain to be from the MONA and how much volume from the export? Thank you.

Hi, Bin, it's Brian again. I think good try, but I think as usual, we do not give specific annual guidances on delivery numbers, that’s our policy. But what I can say, at least for our perspective is, we are very optimistic about this year given the product lineup and the launch schedule. We think we can achieve on a full year basis a much greater than market sort of growth rate, and I think we will be gaining significant market share increases. That's our expectation. We also think this year will be similar to last year in terms of our -- first half will be light, given obviously the industry dynamic as well as our product launch schedules. But we think we will start to pick up speed towards the second quarter, as well as the second half based on the changes we're making in our sales and marketing channels as well as our product launch in the third and fourth quarter. For MONA, I think it's a -- like I said, it's a very exciting product. We'll be launching the 2C channel first, which we think will likely happen in the third quarter in terms of delivery. And also for the 2B channel, will probably be a few months behind. We do not have specific number to give you in terms of what the MONA expectation is. But I think, as you can tell, to be a successful product in the A class category, I think you will have to deliver on a sort of range around about 10,000 a month type of scale to be successful. So obviously, at a steady state, we think MONA should be achieving that level of sales. So again, I think I don't have a specific numbers, but you can tell that this is how we envision the full year delivery will look like. [Multiple Speakers] let me just comment on that. Again, this year, we will be making significant expansion efforts into many new markets. I think that we will start to see the delivery results from those efforts. And I think from the volume perspective, we think we will be generating tens of 1,000 of sort of delivery from international sales.

[Foreign Language] In the recent conference over the weekend, Huawei said that [indiscernible] in autonomous driving, however, Huawei want to make the situation change. Can you describe what's the technology differentiation between the XPeng technology and Huawei and how you maintain the leadership? Thank you.

[Foreign Language] [interrupted] Thank you very much for your question. Actually, when Mr. Yu Chengdong from Huawei was making this statement, I happened to be among the audience and I was sitting downstairs in the audience. And I would say that for Huawei and XPeng and both companies, we are working together and putting in our efforts into something that we both truly believe. And Huawei, obviously, is an excellent Chinese technology company and we have a lot of respect for them. I’d say that, both companies have out unique advantages and for XPeng and in terms of what we have done and we really started working more on our brand as well as our marketing from end of last year. And in terms of autonomous driving and I believe that there are four areas that would really be very important. And number one would be the capability or functionality of your car. Second would be safety. And thirdly would be the cost of the vehicle. And fourthly would be, how international that you can expand into for your product and to obtain more revenue and profit. In China, obviously, we can see that autonomous driving is something that everybody loves. And however, in terms of the general public demand it is not quite yet met and this is something that we need to work hard on in the next 18 months. And we can see that for instance in terms of application in the [ore] (ph) areas, and all round application and the cost [reducting] (ph), as well as more marketing work to be carried out. And in the next 18 months, in addition, I do believe that huge changes will be brought by with the large model being applied to autonomous driving and this is something that we should watch out for and we believe that this will bring great benefits to the industry. And since first quarter of last year, we have also worked hard in bringing down the cost as well as working more on our marketing and the same as Huawei. And what we want to do is that, we want to become an excellent company. But then coming back to autonomous driving. I would still say that we are a company that is more specialized in vehicle and autonomous driving is really our strength and this is our uniqueness. Thank you.

Thank you very much.

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

[Foreign Language] Thanks management for taking my question. So the first question is about our new brand. Since in terms of the pricing segment, it's actually quite separate from the XPeng brand. So wondering, would our sales channel be share the current sales channel or have a separate sales channel considering the target customer segment would be differentiated? And then the second also related is that, considering we are at a lower price range for the new brand, wondering the designed gross margin level, would it be also lower than the XPeng brand? Thanks.

[Foreign Language] [interrupted] Thank you very much for your question with respect to the new brand. And for the new brand, we will be launching them into our existing stores and we will have independent exhibition halls for the new brand. And in the future, we are also looking at building more dealerships and more independent stores dedicated to these new brands and we hope that there will be 100 of these new independent stores for the new brands dedicated to them. And with respect to your other question, I will invite our Finance VP Mr. James Wu to take your question.

Yes. On the margin front for MONA, typically, we won't give specific margin for a particular car line. As Brian and Xiaopeng mentioned, MONA will be focusing on the A Class segment. Obviously, we won't imagine that A segment product to make the highest profit in our portfolio. But overall, our expectation is MONA will achieve healthy positive margin for this brand overall. And as Brian mentioned, MONA, that will be launched in the Beijing Auto Show, will just be the first model. There will be additional models that's coming through the platform. The other thing that over the long term we might be thinking about is a different commercialization strategy in terms of our software, and we'll give more guidance and information in the next couple of quarters. And the other thing I want to mention is, in terms of MONA, because it's large scale, the target customer base and our partnership with DiDi. So they will help us to market the product. Eventually, we expect relatively lower sales -- associated sales cost for MONA compared to XPeng brand overall.

[Foreign Language] So my second question is regarding, I think in the February delivery report, we mentioned that there were some supply chain bottleneck regarding to X9 before the Chinese New Year. And the company expects after Chinese New Year, these bottlenecks would be resolved and delivery volume of X9 should increase. So just wondering what kind of bottleneck were we facing? And also going forward, how shall we -- how do we plan to prevent these similar situations from happening again? Thanks.

[Foreign Language] [interrupted] That is an excellent question, and thank you for putting this forward. So in terms of the supply chain issue that you had mentioned encountered by X9 end of February after Chinese New Year, this problem has already been resolved. And yes indeed in the past we have also encountered similar issues. Internally we have also been reflecting how to resolve this problem. And since taking over the supply chain myself personally last October and we have combed through a new management system, and we are now reducing the number of suppliers, and we mainly focus on these high quality, privately -- private Chinese companies, which are listed, and those are the ones who can also provide us with certain flexibilities. And so in the future, I don't think that we need to worry about this issue because we do now have long term strategic partners in place. And second, in terms of our [indiscernible] products and we now have standardized modules, generally speaking and we have about one to two partners who provide us with these modules that can be used in quite a broad spectrum of different models of cars, and this will improve the efficiency and bring down the cost as well as ensure the quality. And they are very flexible partners to work with. And thirdly, in terms of supply chain management team, we have also done work to adjust our existing supply chain management team and in terms of the organizational structure and we now have a new system in place. And internally, our company has the determination that we are ready and for all of these products to be launched for the first 3 months and we want to make sure that we will achieve a very good scale of sales.

[Foreign Language]

Your next question comes from Xinchi Yin with CITIC Securities. Please go ahead.

[Foreign Language] On last year you mentioned that 2027 will be a critical year for autonomous driving in China, where we will probably witness 30% of car in China will adopt for the autonomous driving. I was wondering what is your latest view on that? And could you possibly share the theory behind your estimation? Thank you.

[Foreign Language] [interrupted] Thank you very much for your question. And yes, indeed for this year and I do believe that we would be able to complete the task a little bit ahead of time ahead of schedule as what I have mentioned the last year. And first of all in terms of the large model and being adopted in ADAS system and through our testing we had already been able to discover that the large model could really help with the speeding up and the realization of the generic intelligence and smart autonomous driving. So it is definitely an advantage and we have already done the testing and it has already approved this. Secondly, we know that in terms of hardware cost and for XPeng, obviously, we would like to bring it down and we also would like to see that providing support to our systems by a large scale and not only just that for ADAS, XPeng believes that and we'd like to see the cost to come down. And we also see out there in the market, there are other people providing even cheaper solutions. And what we have discovered is that, with the large model OEMs, it definitely would be able to provide more computing power and more CPU and this would be able to help and push for the faster and better achievement in our vehicles and to bring the success faster to the market. And another point I would like to mention is that, in certain restricted scenarios or in certain scenarios whereby there are a lot of limitations and we can see that the large model has actually helped with the speeding up of realizing fully autonomous driving and this is something that we are focusing on and we have a lot of confidence in this. Apologies, I have one last point to add and which is that, in terms of the non HD map and we in the beginning and when we looked at this and we thought that, yes, it will speed up the process in a linear process. However, it wasn't linear, it was actually extremely fast in terms of how it has ramped up and we do believe that having this data in our hand and having witnessed the non HD map, how it's working in reality and we do think that this is something will help again with the large model and its adoption and helping further advancing the ADAS and autonomous driving. Thank you.

[Foreign Language]

Thank you. That is all the time we have for 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.