Hello ladies and gentlemen. Thank you for standing by for the Fourth Quarter and Fiscal Year 2020 Earnings Conference call for XPeng Inc. At this time, all participants are in 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. Charles Zhang, Managing Director of Strategy of the company. Please go ahead Mr. Zhang. .

Thank you. Hello everyone and welcome to the fourth quarter and fiscal year 2020 earnings conference call of XPeng Inc. The company's 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 will include our Co-Founder, Chairman, and CEO, Mr. Xiaopeng He; Vice Chairman and President, Dr. Brian Gu; Vice President of Finance, Mr. Dennis Lu; and myself. Management will begin with prepared remarks and the call will conclude with a Q&A session. As a reminder, this conference is being recorded.

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 provision of the US Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve inherent risks and uncertainties. As such the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the relevant public filings of the company as filed with the US SEC.

The company does not assume any obligations 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 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. Xiaopeng He. Please go ahead..

[Foreign Language] Hello everyone. Thank you for joining XPeng's fourth quarter and fiscal year 2020 earnings conference call today. In the fourth quarter of 2020, we achieved another quarter of record-high vehicle delivery, which reached 12,964 units, up 303% year-over-year and 51% quarter-over-quarter.

Vehicle deliveries for the full year of 2020 increased by 112% year-over-year to 27,041 units. Driven by strong delivery growth, we increased our revenue in 2020 by 151.8% to RMB5.8 billion. More excitingly, we achieved a positive full year gross margin for the first time in the company's history marking a significant milestone.

I believe that 2020 signified the beginning of a new era in China's Smart EV development. During the year, our consistent execution of the past six years of full stack in-house R&D strategy bolstered our ability to provide customers with differentiated Smart EV products and lead the technology innovation of Smart EVs in China.

Next, I would like to go through our recent advancements in Smart EV technology innovation. In October 2020, we released our second-generation smart in-car operating system through OTA, which features the first of its kind, all-voice in-car System.

This is one of our key proprietary technologies that allow our customers to interact with our vehicles in natural language and continuous dialogue. In January and February 2021, the average daily utilization rate for our AI voice assistant exceeded 90%.

This illustrates the disruptive changes our self-developed smart in-car operating system is bringing to traditional in-car interactions.

On January 26th, 2021, we have released the first OTA of XPILOT 3.0, our full-stack in-house-developed autonomous driving system, which includes our navigation-assisted highway autonomous driving solution or Navigation Guided Pilot, NGP.

NGP has been activated in approximately 20% of all P7s delivered as of the end of February and has assisted our customers in driving for more than 1.3 million kilometers.

Leveraging field data from our customers and our closed-loop data capability, we can continuously train our algorithms and implement fast iterations providing our customers with an evolving autonomous driving system that is capable of handling complex road conditions in China.

In February, the NGP-assisted mileage penetration rate, which refers to the mileage assisted by the NGP as a percentage of the drivable mileage of NGP exceeded 50% amongst those P7s that activated the NGP. This is a very exciting figure.

With the continuous advancements in our autonomous driving capabilities, we're confident that autonomous driving features will be a key consideration of our customers' purchasing decisions.

Later this month, we'll also kick off the NGP expedition from Guangzhou to Beijing to showcase the disruptive experiences, our cutting-edge autonomous driving system can offer to the customers.

In addition to that, we're also planning to release multiple OTA updates of XPILOT 2.0 in 2021 including memory parking and a further improved version of the NGP to enhance our vehicles in terms of safety, functionality and performance.

We'll deploy automotive-grade LIDAR technology in our third Smart EV model, which we plan to deliver in the second half of this year. We believe our third model will be the first mass-produced Smart EV equipped with LIDAR in the world.

Leveraging our visual-based perception capability complemented by LIDAR, we plan to roll out XPILOT 3.5, which will support NGP on major urban roads. We also plan to introduce XPILOT 4.0 built on our next-generation autonomous driving hardware and software platform to be deployed on our fourth model, which will be launched in 2022.

We're confident that XPILOT 4.0 will provide our customers with a new level of autonomous driving experiences. These aforementioned technological advancement underpins our mission to drive Smart EV transformation with data and technology shaping the mobility experience of the future.

Looking forward, as we upgrade our XPILOT and Xmart in-car operating system we're committed to investing in Smart EV technologies and leading technology innovation. As we solidify, our core strength in technology, we'll strive to diversify our product portfolio to address additional customer needs and expand our market share.

Later in March this year, we expect to start to deliver the P7 Wing edition that was unveiled in November at the Guangzhou Auto show 2020. This edition features sporty wing doors, and is also equipped with the XPILOT 3.0 system as the standard configuration. It provides an exclusive and exhilarating mobility experience to auto enthusiasts.

On March 3, we announced lithium iron phosphate or LFP battery-powered G3 SUVs and P7 sedans and we plan to start deliveries in April and May respectively this year. We expect these two models to resonate across a broader customer base.

[Foreign Language] In the second quarter of 2021, we'll unveil and begin selling our third mass-produced vehicle model. This brand-new design will be the first mass-produced Smart EV, equipped with LIDAR and will support our XPILOT 3.5.

Also, it will feature an innovative third-generation smart cockpit, connecting the vehicle to our everyday life in an even closer way. Mass delivery of this new model will start in the fourth quarter of this year. Furthermore, we plan to begin delivering the mid-cycle facelift version of the G3 in the late third quarter of 2021.

In terms of sales and service network, as of December 31, 2020, XPeng's physical sales and service network, consisted of 160 sales stores and 54 service centers across 69 cities in China. Of the 160 stores, 72 were direct stores operated by us. During 2020, we greatly increased the efficiency of our stores, especially direct stores.

By the end of 2021, we plan to increase the number of sales stores to approximately 300 covering 110 cities. In terms of our supercharging network, we also accelerated our efforts to expand our coverage across the nation. As of December 31, the number of XPeng-branded supercharging stations was 159 covering 54 cities.

To further improve our customers' charging experience, we plan to significantly expand the number of XPeng-branded supercharging stations in our network to more than 500 by the end of 2021. Since we initiated the free charging program last year, the number of cities in this program has grown to 100 as of the end of December.

In 2021, we'll strive to expand our free charging service network to 200 cities and provide greater accessibility in a broader range of locations, including highways and airports.

At the same time, we plan to substantially increase the number of XPeng-branded supercharging stations and charging piles in selected popular destinations to facilitate more convenient and efficient charging services for our customers. In the fourth quarter, we also made positive progress in overseas markets.

In December, we fully delivered the first batch of the European version G3 in Norway. In 2021, we'll continue to strengthen our capabilities of international operations in areas such as organization, product development, R&D, branding and distribution channels.

[Foreign Language] With the rapid growth in vehicle deliveries, we have been ramping up our capacity at the Zhaoqing factory to prepare for a monthly production capacity of 10,000 units within this year. Meanwhile, we have started construction of our Guangzhou manufacturing base and expect to commence production in the third quarter of 2022.

Our Guangzhou and Zhaoqing, Smart EV manufacturing base will ensure our production capacity, and allow us to further capitalize on the rising demand in the EV market.

Looking into 2021, we remain dedicated to delivering smarter and more differentiated products to our customers in our relentless drive to implement fast software and hardware iteration and technology innovation.

We'll also strategically make a long-term investment in branding sales and service network, charging network, brand-new smartification system, our powertrain technologies production and supply chain capabilities, international operations, and the R&D efforts into innovative product pipelines, such as our flying vehicle to support our growth over the next few years.

Lastly, on guidance. For the first quarter of 2021, we expect our Smart EV deliveries to be approximately 12,500 units and our total revenue to be approximately RMB2.6 billion. Thank you, everyone. With that, I'll now turn the call over to our VP of Finance, Mr. Dennis Lu, to discuss our financial performance for the fourth quarter of 2020..

number one, higher marketing, promotional and advertising expense to support vehicle sales; number two, the expansion of our sales network and associated personnel cost, lease expense of physical sales and service center and also the commission for the franchise stores.

The quarter-over-quarter decrease was mainly due to the reduced amount of share-based compensation expense, compared with a one-off large amount recognized in the previous quarter, offset partially by increase in marketing, promotional and advertising expense, as well as personnel costs, lease expense and commission as mentioned above.

Excluding the share-based compensation expenses, the year-over-year and quarter-over-quarter increase was mainly resulted from higher marketing, promotional and advertising to support new vehicle sales, and also the expansion of our sales network and associated personnel costs, and also the increased commission paid to our franchise dealers.

Loss from operation was RMB1.1 billion for the fourth quarter, compared with RMB1.1 billion for the same period of 2019 and RMB1.7 billion for the same quarter of 2020.

Excluding the share-based compensation, the non-GAAP loss from operation was RMB1 billion in the fourth quarter, compared with RMB1.1 billion for the same period of 2019 and also RMB823 million for the third quarter of 2020.

Net loss was RMB787 million for the fourth quarter, compared with RMB1 billion for the same period a year ago and RMB1.1 billion for the third quarter of 2020.

Excluding share-based compensation expenses, the fair value change on derivative liabilities related to the redemption right of the preferred shares, the non-GAAP adjusted net loss was RMB713 million for the fourth quarter of 2020, compared with RMB1.1 billion for the same period of 2019 and also RMB865 million for the third quarter of 2020.

Net loss attributable to ordinary shareholders of XPeng was RMB787 million for the fourth quarter, compared with RMB1.3 billion for the same period a year ago and also RMB2 billion for the third quarter of 2020.

Excluding the share-based compensation expense, the fair value change on derivative liabilities related to the redemption right of preferred shares and also the accretion of preferred share to redemption value, the non-GAAP net loss attributable to ordinary shareholders of XPeng was RMB713 million for the fourth quarter of 2020, compared with RMB1.1 billion loss for the same period 2019 and RMB865 million for the third quarter of 2020.

Basic and diluted net loss per ADS were both RMB1.05 for the fourth quarter of 2020. Non-GAAP basic and diluted net loss per ADS were both RMB0.95 for the fourth quarter of 2020. Each ADS represents two Class A ordinary shares.

It is worthwhile to know that the calculation of earnings per share for the ADS is based on the weighted average number of the ADS. For example, 747 million ADS were used for the fourth quarter of 2020, while 377 million ADS has been used for the fiscal year 2020. And our year end ADS count was 789 million at the end of the year.

Turning back to the balance sheet. At the end of 2020, our company has cash and cash equivalent, restricted cash, short-term deposits and also the short-term investment in total of RMB35.3 billion compared with RMB2.8 billion as of December 31, 2019.

To be mindful of the events of our earnings call for our full year financial results, I will encourage listeners to refer to our earnings press release for further details. This concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead..

Thank you. [Operator Instructions] Your first question comes from Tim Hsiao of Morgan Stanley. Your line is open..

Hello, everyone. This is Tim from Morgan Stanley. Congratulations on the strong result and thanks for taking my questions. So my question is about the guidance. Because based on the latest guidance, we are looking for around 5% sequential pricing erosion in the first quarter.

So could you please elaborate more about the underlying factors, especially I think previously the management mentioned some of XPILOT 3.0 revenue would be recognized in the first quarter. So isn't that ASP-accretive? Why are we still expecting ASP to be down quarter-over-quarter here? Thanks. [Foreign Language].

Okay. Thank you for your question. I think in quarter four, we delivered close to 13,000 units. In the first quarter because of the seasonality issue the February -- which was very slow typically the lowest month in the year. So our guideline for the moment is 12,500 units. So you can see that 500 units are like volume and mix impact.

And yes, you're right we have included the XPILOT 3.0 for those vehicles those customers who have activated the functionality. We have included that in our first quarter mainly in the January and part in February.

But due to the volume and mix impact we are foreseeing that will have some minor impact on the overall revenue compared with quarter four last year. .

Okay. Thanks. My second question is about more like the impact from the component supply tightness. So we have -- we are going to launch the LFP version P7 in second quarter. So I just want to know that will the increased battery variety help to ease the battery bottleneck in second quarter or the other way around.

In the meantime, our peers and other traditional OEM highlighted the impact or the hiccup caused by the component tightness. So what's our assessment of the potential impact to expand the company's second quarter shipments? Thank you. [Foreign Language].

[Foreign Language] Yes, indeed. I think for the coming six months battery supply will remain very important for all OEMs out there.

And for our new models of P7s and G3s for their Q2 deliveries I think that would be very challenging in terms of battery supplies because we are adopting this new LPF [ph] battery and we're working very closely with our battery suppliers to solve this challenge. I believe in the long run we will be facing ramp-up in terms of our battery supply.

And by Q3 and Q4 and the coming year, we'll be able to solve the supply issue. And with our past experience of successful delivery of the 500 kilometers version, the range version of G3, we are very confident that we can solve this kind of challenge of adopting LFP as a new battery for our vehicles in the coming year..

Tim, this is Brian. Let me just to add to what Xiaopeng just said on this LFP battery version of our products. We are seeing actually very healthy and very strong demand for that product.

As we see actually just since we just recently launched we already see up to like 20% of our P7 actually have the LFP version battery orders, which is actually very interesting and very exciting.

The supply issue I think Xiaopeng mentioned, I think we actually expect this to gradually sort of resolve as we actually head towards the second half of the second quarter. And I think this volume will be picking up as we see.

So for the second quarter actually we are very confident that we can see actually quite healthy growth over the first quarter, overall for the deliveries..

Got it. Thank you very much Mr. He, Brian and Dennis. Thanks for the answers..

Your next question comes from Edison Yu of Deutsche Bank. Your line is open..

Hi. Thanks for taking the questions. First, kind of more near-term. I know you just said 2Q you should see sequential growth. Can you give us kind of an idea of not only 2Q but in the second half as well? Obviously, not trying to pin you down to a number.

But just assuming demand is there what kind of monthly sales run rate could we see? And is there any sort of limitations due to the semiconductor shortage?.

So Edison, this is Brian, again. We obviously don't want to give out long-range guidances per company policy. But what we can see as Xiaopeng described in the opening remarks that we actually have new product introductions every quarter for the next three quarters. So we actually see growth picking up on a sequential basis fairly healthy.

And in terms of supply constraints, right now we have visibility for about two to three months of semiconductor supply, which I think on a long-range basis, we are monitoring very closely as to whether that will impact our supply chain overall.

So far in the foreseeable period, we don't see any impact but that's something we're actually paying a lot of focus on. At the same time, I think we -- given our volume is relatively small compared to some larger OEMs that's facing much bigger crisis, I think we are more nimble to address this issue.

But this is definitely something we'll be monitoring very closely..

Great. Second question unrelated. So I wanted to ask about XPILOT. So as we think about the next-generation offering would you consider moving to a subscription-only model for the features? And if not, would you expect the pricing of it to go up since now you're equipping it with LIDAR? Thank you..

[Foreign Language] Yes, based on our newer generations of XPILOT, we'll definitely increase the pricing for different configurations. But whether or not it's a subscription model or a one-off payment model, it will depend on our customers' feedback and also our overall strategy.

But generally speaking, definitely, the ASP will go up for higher versions of XPILOT..

Thank you..

Your next question comes from Jeff Chung of Citi. Your line is open..

[Foreign Language] So my first question is, how should we see the sales mix between LFP and LCM powered BEV going forward, and the differences in margin outlook and guidance on changing the full year sales target? So this is my first question..

[Foreign Language] For the LFP battery, we are seeing the -- obviously it's still recent days that on the P7 version, the LFP version actually is close to 20% of the new orders. And then on the G3, I think it's around 10% of the new orders that are LFP battery.

We believe that that mix will probably going to increase as we continue the promotion in introducing these new LFP battery products.

Another very interesting I would say mix on the LFP battery versions is that since we got rid of the low-end configuration without the autonomous driving and assist-driving systems, actually the percentage of these LFP battery version P7 that's incorporating our XPILOT 3.0 hardware is actually much higher in terms of percentage than the entire P7 population, which also can potentially translate to higher software penetration for these products, which is actually quite exciting.

In terms of growth for March and the full year, I think I already gave the comments earlier. I don't know whether you're looking for anything specific..

Yeah. Just the margin outlook. If we take off the software portion, just considering the hardware, the vehicle portion, could you give us some -- the roughly level between the margin trend on the vehicle powered by LFP and on vehicle powered by LCM? Because in some OEM actually can achieve a higher margin from the LFP-powered BEV.

So I just wanted to know what the company think about the long-term margin trend?.

Thanks, Jeff. This is Dennis. For the margin, actually the instruction of the LFP product there are two purpose. One is to improve sales. The other one actually is to reduce cost. So definitely this product will improve sales as well as will improve our margin.

I cannot give you specifically the number or the amount of the margin improvement, but this product will bring us better margin for these two products, yes both P7 and G3..

Okay. Thank you. And my second question is on the autopilot revenue and income. So considering the previous P7 equipment for autopilot 3.0 the software income and also the first quarter income will be combined together in the first quarter earnings this year.

But a while ago the management seems to give a rather conservative guidance on the software income, so I just want to know the -- why? And secondly, could you give us some color on the attach rate on the autopilot 3.0 right now? And also going forward as well as they three -- autopilot 3.5 penetration level in the future? Thank you..

Hey, Jeff, this is Brian again. So as I think I mentioned earlier that the entire P7, the activation of our XPILOT 3.0 represents over 20% of the entire P7 population which we have delivered over 20,000 units already. And upon introduction in OTA in the NGP in January, we saw actually the penetration slightly going up which is very encouraging.

We also saw the utilization rate of that product is at a very high level over 50%. So we're actually very confident that as we go into more and more product that's having the XPILOT 3 point architecture embedded in the vehicle, we see the penetration rate will continue to increase. That's the trend that we are foreseeing.

It's difficult to predict the XPILOT 3.5 the penetration rate.

But for the third product that we're going to introduce in the fourth quarter, we're actually going to have the product mostly in the configuration -- have either 3.0 or 3.5 XPILOT capabilities, which means that the majority, let's say over 80% of the models for the third product we'll be able to charge software revenue and -- because they have the hardware configuration.

So we anticipate the penetration rate for that product will be higher than P7..

[Foreign Language] So I would just like to add to that. Basically, right now, if you look at our current XPILOT upgrading you will notice the trend that we've been upgrading them quite aggressively and rapidly.

Basically in the future, new models launched by XPeng, all of them will be equipped with newer version of XPILOT and we plan to remove all of the older versions. For example, this upcoming third model that's going to be launched by XPeng will be equipped with XPILOT 2.5 or above. So all of those will be a chargeable version of XPILOT.

And for our fast upcoming model, as to be launch -- to be launched by our company, it will be equipped with XPILOT 4.0.

So as a result with the development and advancement of our software and technology and also this kind of investment on R&D efforts in the autonomous driving and with future reduction in cost of these hardware preparation to support such XPILOT technologies, we believe in the future all of the new vehicles launched by XPeng will be equipped with not only the hardware that -- and architecture that are able to support newer versions of XPILOT, but also we will forecast more and more revenue income from the software of XPILOT.

Thank you..

Thank you, management and no more questions from me. Thank you..

Your next question comes from Bin Wang of Crédit Suisse. Your line is open..

[Foreign Language].

Hey, Bin, do you want to repeat it in English for the other people to understand your question?.

Sure. Actually, I just want to know whether you actually speed up your R&D for autonomous driving. Because if you compare to your plan announced in the last October you actually guide that XPILOT 3.5 actually will only launch in 2022. But it seems that in the opening remarks you mentioned maybe end of this year, you already achieve the XPILOT 3.5.

For the same issue, actually, you also announced you will roll out an XPILOT 4.0 in 2022. This seems to be earlier compared to your last -- in the technology that you get on 2023.

So that’s actually, can I assume you -- we have speed up the R&D capability? And meanwhile, actually, in the urban driving that actually XPILOT 3.5, it does means you can already achieve the 90-degree turning in the vehicle, but also actually recognize the traffic lights? Last, actually, because if you do need speed up your R&D we do have a big jump in R&D expense for the upcoming two or three years.

Thank you..

[Foreign Language] Thank you for your question. Indeed in 2020 based on our efforts our R&D efforts in particular into XPILOT 3.0, we actually gained confidence into our future R&D effort and future launching of XPILOT 3.5, 4.0, and even 5.0.

So, yes, we plan to bring up the -- bring ahead the schedule of launching fewer I mean in the future more higher version of XPILOTs. And all of those comes from our current R&D efforts and also the data that we collected from our customers which are very -- which have been very positive. So, that's to the first part of your question.

To the second part of your question, I believe that in the future LIDAR technology, millimeter wave technology, and cameras will be part of the standard configuration of the hardware architecture that supports a safer driving experience for future autonomous driving technology in general.

Because that will give us a better computing power that allow us to not only navigate along to level one, level two highways, but also in a broader sense of the urban roads in -- across China and in other regions of the world.

However, we believe that in order to achieve the full level of autonomous driving, there is still a long way to go, not only in China but all over the world. But we definitely have confidence that this will come sooner than expected. Thank you. And yes, we are going to significantly increase our R&D spending this year and for upcoming years as well.

Mainly we'll be focusing on all of the areas surrounding autonomous driving including the software upgrade, the data, and computing, and also the internationalization of autonomous driving and also an exploration into the level four autonomous driving strategy and also to the hardware upgrade in relation to supporting the software upgrade. .

Thank you..

Your next question comes from Ming Lee of Bank of America. Your line is open..

[Foreign Language] So, my question is regarding the international expansion, especially, in Europe countries. Because for some hardware or HD map because of initial security reasons, so you probably need to change the vendor or change your software et cetera.

So, what kind of challenge and bottleneck do you see for your international expansion especially the smart cabin and autonomic driving are your strength?.

[Foreign Language] Yes. Actually, I've had many years of experience into expanding into the overseas market. I've been doing that, since my first entrepreneurial project, which was back in 2010. So my opinion on overseas expansion is maybe quite different from other counterparts in there.

I think it takes a lot of time and efforts to build a solid foundation in order to grasp the international opportunities right there. In the future, our strategy on overseas expansion is in general will be very similar to our domestic market ones. Basically, we'll focus on our product portfolio and our operation and organization.

In those three areas, I think it would be very similar in our domestic market and international market, so that in the future, it can speed up our process of internationalization. And basically, after XPILOT 2.5, we'll be able to synchronize the launching of future XPILOT versions both in the domestic market and in the overseas market as well.

And we plan to launch maybe in the European market and also in some very developed markets XPILOT 4.0 and above in the future at the same time as we launch it in the domestic markets. Now, in terms of our smart cockpit, right now, we are doing everything in-house and we already dedicated a large team of R&D people in – last year in this regard.

And in the coming year, we're going to build an even bigger team that focus on the R&D of smart cockpit. Usually, it will take maybe a longer time such as 12 months to build a good solid technological foundation that allow us to really apply it in all of our products and allow us to have a good foundation to expand overseas.

But once the foundation is built, we believe that in the future development is going to be very impressive in terms of the speed of expansion, the reduction of costs, and also the core technological, and high quality – the technological foundation and the quality of our smart cockpit product.

And so in the future, our overall strategy is that, we are going to be a very powerful platform that are able to launch a very rich product line that have a very solid autonomous driving capability. And also, we are going to have a very strong and powerful sales and marketing team that supports our overseas market expansion in the future. Thank you..

Thank you. I don't have more questions..

Your next question comes from Paul Gong of UBS. Your line is open..

Hi, management. Thanks for taking my question. My first question is regarding on the R&D headcount. I recall during the IPO you had like 1500 R&D people roughly one-third on the autonomous driving. Now you have more financial resources than ever. And I think Xiaopeng also mentioned, you're going to increase R&D significantly this year.

Do you have any target of the headcount for the R&D heading towards later of this year? [Foreign Language].

[Foreign Language] Indeed, we plan to greatly increase the headcount in not only the R&D, but also our sales and service teams as well. So by the end of this year, we forecast that the R&D team will double in its size. And also we're going to also increase the R&D people that will be surrounded around our ecosystem as well. Thank you..

[Foreign Language] Let me translate my question. The second question is regarding the monetization of your autonomous driving. Given the price gap between the XPILOT 2.5 and 3.0, the penetration is just 20% so far for P7 on the XPILOT 3.0. In view you have spent fixed cost on the R&D of the software.

And is it worthy for you to consider to narrow down the price gap between the 2.5 and 3.0 and try to monetize less in the near-term, but harvest more data to feed into the software and further improve that?.

[Foreign Language] Actually, we don't have any current plans to shorten or narrow the price gap between different versions of XPILOT software offerings because we are dedicating our R&D efforts into the core AD technological developments.

And we believe that in the future, we're only going to have newer and newer or higher and higher versions of XPILOT. And in the future older versions or lower versions of XPILOTs will be removed from our product portfolio.

And we believe that as we advance into the exploration into a higher level of AD technologies, actually not only will us be able to upgrade our payment fee for software -- higher-level softwares, but also across the ecosystem we are going to have so many opportunities across different scenarios that allow us to really provide better experience for our customers and also a lot of monetization opportunities in the future.

Thank you..

Thank you..

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

Thank you once again for joining us today. If you have any further questions please feel free to contact us. Thank you. Thank you everyone. .

This concludes this conference call. You may now disconnect your lines. Thank you..