Hello, ladies and gentlemen. Thank you for standing by for the First Quarter 2024 Earnings Conference Call for XPeng Inc. [Operator Instructions] 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 2024 Earnings Conference Call. Our financial and operating results were issued by 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 team will include a Co-Founder, Chairman and CEO, Mr. Xiaopeng; Vice Chairman and President, Dr. Brian Gu; Vice President of Corporate Finance and Investments; Mr. Charles Zhang, Vice President of Finance and Accounting, Mr. Jiaming Wu and myself.

Management will begin with prepared remarks, and the call will conclude with a Q&A session. A webcast replay of this conference call will be available on the IR section of our website. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S.

Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today.

Further information regarding these and other risks and uncertainties is included in the 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 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 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. Please go ahead. .

Good evening, everyone. In the first quarter of 2024, XPeng announced the delivery of a 21,821 smart EVs, marking a 20% year-over-year increase, notwithstanding significant market competition, our first quarter gross margin expanded substantially to 12.9%, doubling from the previous quarter with an increase of 6.7 percentage points.

This development underscores XPeng's innovative approach to enhancing profitability and international market potential through the provision of smart technologies based on its smart EV business. This has created a completely new unique model.

Over the past decade since its inception, XPeng has consistently made a robust investment in R&D for smart EV platforms, electrical electronic architecture and advanced driver assistance systems or others for short. These strategic investments are now yielding positive financial outcomes.

As artificial intelligence continues to redefine the auto industry in China and globally. Xponghas been at the forefront of exporting its in-house developed smart technologies, resulting in significant recurring revenue and profit.

This achievement is poised to profound the impact of the company's profitability model instilling confidence in paving the way for further technical advancements as XPeng continues to lead the technology transformation within the automotive sector. At the end of Q1, we had RMB 41.4 billion in cash.

With our significantly improved gross margin, this healthy cash position allows us to concentrate more on strategic initiatives for the future. Our strategic transformation is not solely focused on boosting sales volume as the past.

We are also dedicated to achieving excellence in quality, efficiency and overall enhancement of the company's competitiveness. By leveraging our strengths and addressing any weaknesses, our goal is to become well-rounded and pursue larger scale and profits in the long run.

I am very delighted to say that we have been able to start this thinking and have the decision much earlier on than our peers. Moving forward, we will rigorously drive this transformation whilst accelerating crucial talent recruitment and improving organizational effectiveness and strategic execution.

We have confidence that with our hyper integrated, comprehensive intelligence technology platform, XPeng is well positioned to efficiently launch highly competitive models worldwide and lead the widespread adoption of AI-powered smart cars.

Since the beginning of 2024, Expand has been actively recruiting top talent in other R&D, brand marketing, style design and other key areas. We will see introduce them to you. Our goal is to rapidly elevate our marketing, customer experience and design capabilities to industries in most cutting-edge levels.

This will enable us to effectively translate our long technologies into compelling product experiences and utilize the marketing strategies to better communicate the value of our technology to customers.

With our weaknesses are properly addressed, our industry-leading AI capabilities, comprehensive R&D framework supporting rapid global scalability and customer-oriented product design will better serve as the competitive edges that set us apart and drive our success.

During the first quarter, the X9, our largest 7-digit flagship model emerged as a top center in the pure electric MPV segment as well as the pure electrode 3-row model segment following its market launch. The success of the X9 firmly establishes the product innovation and technological advancements as our most effective competitive edges.

Moving forward, we will confidently build on this success to enrich our premium product portfolio. Our aim is to provide family customers with the most advanced smart EV technologies in large vehicles, delivering signing, space, comfort and opulent again to luxury cars priced above RMB 1 million.

In the third quarter of this year, we will embark on an extensive product launch cycle, introducing a number of new models within the next 3 years. These models will cover major price segments ranging from RMB 100,000 to RMB 400,000. Like the X9, our new models will come with disruptive innovations to do new segments.

All products will feature cutting-edge other technology and with the various product series, we do cater to diverse customer needs in pricing and design both home and abroad.

We are committed to establishing a Volkswagen like super brand in the EV space with a global market presence and a wide-ranging product portfolio that caters to broad customer groups, ultimately bringing AI-powered vehicles into the mainstream.

Our new A-class electric sedan, the first model of our MONA series products will debut in June and especially launch and combine the mass delivery in the third quarter of this year.

This groundbreaking products in both ties exquisite siding, amongst intelligence and highly competitive cost structure, making it a potential favorite among younger consumer groups within the RMB 200,000 price range. We are confident that it will set the standard in the A-class BEV market.

Over the next 2 years, we will introduce several additional products based on the A-class platform. In addition, we are determined to target the RMB 100,000 to RMB 200,000 prices segment, where the highest sales volume is with our high-level orders. In the upcoming fourth quarter, we will be launching a new Expo branded B-class battery electric sedan.

We have successfully achieved a 25% cost reduction through technological advancements for the first time with this model. We expect this to become a best selling B-class BEV model in the second half of this year.

with the incremental volume from this new B-class model and MONA, we are confident of substantial year-over-year growth in monthly delivery volume in the fourth quarter. On AI Day, May 20, we began the full-scale rollout of our AI-powered in-car operating system XOS 5.1.0, AI Tianji OS.

This cutting-edge large model built system seamlessly integrates the AI technology into smart upgrade and the XOS 5.1 is available to all owners of our major models, solidifying expose position at the forefront of the non-HD map an end-to-end AI model applications in China -- and in China's auto industry.

Which means our technology architecture is a 1 or 2 generation ahead of our competitors without using any of these HD maps and which also means that by third quarter of this year, XNGP not only would be able to roll it out in all the national roads, and we would be able to drive all the roads around China and from end to end to [indiscernible].

All the cars, which means that going forward, in terms of autonomous driving capabilities in each quarter, we would be able to see exponential times of improvement, and this would mean that in terms of the old way of human-made method of rules and the coating method, this will be revised into the training of models and based on the algorithms, we aim to have XNGP accessible on order road nationwide by 3rd of the quarter, as I have said.

And our end-to-end AI model will enable us to rapidly announce our software and AI technology on a monthly basis. And we predict that by the end of 2025, we will be able to elevate the city road others experience to match a start of the current highway NGP, which means only one manual takeover per hundreds of kilometers of driving.

Our XNGP is expected to achieve the driving capabilities that are equal or equal to or surpass those of human drivers in complex scenarios.

This will soon be possible as our ADAS technology architecture is powered by a launched end-to-end AI model with extensive training using masters amounts of high-quality data, underscoring our competitive edge in data.

With our [indiscernible] model, commencing deliveries in the second half of this year, broader customers that base will soon have access to AI-powered other features.

The widespread adoption of high-level auto will accelerate and rapidly scale up our XNGP fleet, which in turn will generate a tremendous amount of data to expedite AI model training and iteration.

Large AI models will bring our owners an unprecedented AI-powered driving experience, boosting the penetration of its margins is quite with high-level auto features. Regarding the international market. This year, we will expedite our expansion into drive sales and profit growth.

We plan to expand our overseas sales network from Nordic countries to over 20 countries worldwide. In the first half of 2024, we established partnerships with the leading auto dealership groups in Western Europe, Southeast Asia, the Middle East and Australia. New sales at stores have gradually opened under these partnerships.

In early April, we shipped nearly 1,000 lines worth over RMB 500 million to. In May, we announced that the selling price and started accepting pre-orders for the GG6 model with a left-hand drive in Europe. We plan to introduce the right-hand drive a G6 in the third quarter. Highway NGP test in the overseas markets are progressing well, too.

Our product strength such as auto faster charging and smart technologies are highly valued by overseas dealers and consumers. XPeng is confidently positioned as a mid- to high-end tech-savvy brand in international markets, offering superior product experiences and eco-friendly smart EV models.

Our strategic partnership with the Volkswagen Group is rapidly deepening and expanding. Within just 1 year of establishing our partnership. On April 17, we announced our third strategic corporation projects in with Volkswagen.

This project involves the joint development of the industry-leading EV architecture for Volkswagen the EV platform designed for the Chinese market.

This platform, which will be applied to China produced Volkswagen branded EV models starting from 2026, will integrate XPeng's latest generation of EV architecture based on centralized computing and domain controller technologies.

We are confident in our ability to leverage a more mutually beneficial cooperation opportunities with Volkswagen and create significant strategic synergies as we lead the global automobile industry transition into the AI-powered driving era.

Since the first quarter of 2024, our platform and software services have become a significant driver of our earnings. This clearly showcases XPeng's innovative and unique business model. setting us apart from the traditional auto companies.

Our cutting-edge smart technologies not only enhance the monetization to XPeng's branded EV sales, but also through partnership with a world-leading auto OEM. This will result in an expanded market presence and increased the financial returns for our company.

I would like to reiterate in this ultra-competitive market, we should not only have our eyes on the scale of the sales rather should focus on becoming a well-rounded player in the market.

Despite the headwinds in the auto market in the second quarter, we have already observed a positive impact from our ongoing organizational and transformative changes.

That said, we anticipate that the total delivery volume will range between 29,000 and 32,000 units in the second quarter of 2024, reflecting a year-over-year increase of 25% to 37.9% and a quarter-over-quarter increase of 32.9% to 46.6%.

Furthermore, we project that our second quarter total revenue will fall within the range of RMB 7.5 billion to RMB 8.3 billion, representing a year-over-year increase of 48.1% to 63.9%. We anticipate witnessing more transformation-driven results in the latter half of this year.

Starting in October, we will be poised to enter a fast-track growth phase, confident in achieving significant break fluids in sales volume, margins, cash flow and AI-powered order system, and this is for the long run into the future as well. Thank you, everyone, again. With that, I will now turn the call over to our VP of Finance, Mr.

James Wu to discuss our financial performance for the first quarter of 2024. .

Thank you, Xiaopeng. Now let me provide a brief overview of our financial results for the first quarter of 2024. I'll reference RMB only in my discussion today, unless otherwise stated. Our total revenues were 6.55 billion for the first quarter of 2024, an increase of 62.3% year-over-year and a decrease of 49.8% quarter-over-quarter.

Revenues from vehicle sales were 5.54 billion for the first quarter of 2024, representing an increase of 57.8% year-over-year and a decrease of 54.7% quarter-over-quarter. The year-over-year increase was mainly attributable to higher deliveries, particularly the model X9 in the first quarter of 2024.

The quarter-over-quarter decrease was mainly attributable to lower deliveries of the G6 and the 2024 G9 compounded by seasonal impact, which is partially offset by a contribution of the X9.

Revenues from services and others were 1 billion for the first quarter of 2024, representing an increase of 93.1% year-over-year and an increase of 22.1% quarter-over-quarter.

The year-over-year and quarter-over-quarter increases were primarily attributable to the increases of revenue from technical research and development service related to the platform and software strategic technical collaboration with the Volkswagen Group.

Gross margin was 12.9% for the first quarter of 2024 compared with 1.7% for the same period of 2023 and 6.2% for the fourth quarter of 2023. Vehicle margin was 5.5% for the first quarter of 2024 compared with negative 2.5% for the same period of 2023 and 4.1% for the fourth quarter of 2023.

The year-over-year and quarter-over-quarter increases were primarily attributable to the cost reduction and the improvement in product mix of models, partially offset by the inventory provision and losses on purchase commitments related to the Model P5 with a negative impact of 3.2 percentage points on vehicle margin for this quarter.

As management lowered the P5 forecasted sales due to the expected stronger market amounts for the upcoming new vehicle models. R&D expenses were $1.35 billion for the first quarter of 2024, representing an increase of 4.2% year-over-year and an increase of 3.3% quarter-over-quarter.

The year-over-year and quarter-over-quarter increases were mainly in line with the timing and progress of new vehicle programs. SG&A expenses were 1.39 billion for the first quarter of 2024, which is flat on a year-over-year basis and a decrease of 28.3% quarter-over-quarter.

The quarter-over-quarter decrease was mainly due to lower commissions to the franchise stores and lower marketing, promotional and advertising expenses. Fair value gain on derivative liability relating to the contingent consideration was 0.18 billion for the first quarter of 2024 compared with 0.03 billion for the fourth quarter of 2023.

This noncash gain was resulted from the fair value change of the contingent consideration related to the acquisition of DD's smart auto business. As a result of the foregoing, loss from operations was 1.65 billion for the first quarter of 2024 compared with 2.59 billion for the same period of 2023 and 2.05 billion for the fourth quarter of 2023.

Net loss was 1.37 billion for the first quarter of 2024 compared with 2.34 billion for the same period of 2023 and 1.35 billion for the fourth quarter of 2023. As of March 31, 2024, our company had cash and cash equivalents, restricted cash, short-term investments and time deposits in total of 41.4 billion.

To be mindful of the length of our earnings call, I would encourage listeners to refer to our earnings press release for more details on our first quarter 2021 financial results. This concludes our prepared remarks. We'll now open the line for questions. Operator, please go ahead. .

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

So my first question is about the revenue contribution from the collaboration with Volkswagen. The management roughly quantify the contribution of the service revenue from Volkwagen in first quarter, and we know that it's recurring.

So will it continue climbing quarter-over-quarter in the following months? Is there any chance that the revenue from the new agreements related to the E/E architectures to those who can't do within the year? So that's my first question. .

Tim, this is Charles. So the platform software collaboration revenue from Volkswagen has been recorded in the service and other revenue in Q1. As you know that it is a recurring in nature. So I think that going forward, every quarter, we will be able to book such platform software, technical services revenue.

So in Q1, we booked a multihundred million platform and software services revenue. And I think we believe that in the subsequent quarters, such revenue will be more than what we booked in Q1. And so obviously, I think that given the nature of the platform and the software revenue, it is a very high-margin business for us.

And we believe that with our vehicle sales business and also the platform and software technical services revenue, our company level GP margin can be sustainable at the low to mid-teens GP margin -- percentage GP margin. And therefore, I think that we, as Xiaopeng pointed out, we created a very unique business model in the auto industry.

In addition to that, and we will continue to deliver our cost reductions through technology and also the supply chain and to further improve our vehicle GP margin.

To address your question regarding the revenue from the E/E architecture, and we expect that the revenue from the E/E architecture will start to be recognized from the second half of this year. Thank you. .

Got it. Charles. So my second question is about Tom driving because we noticed that experience to leverage end-to-end large model to upgrade xG by third quarter of this year to cover basically overall in China and would achieve a Level 4 vehicle autonomy next year.

So to achieve that target, should we expect expand to manfully increase R&D spending during the period -- and when do you think such a technological leadership can translate into upside to new car sales or potential monetization opportunity? That's my second question. .

Thank you very much for your question. And before I answer your question, there's one correction to make and which is that we hope to achieve the ability of L4 next year. However, we know that being able to actually implement that would also need to have the hardware as well as the rules and regulations to catch up. So that's point one.

And point two, with respect to the large models, and we know that AI large models is going to have a huge impact on all the companies involved. And therefore, as we say, in the past, in terms of the rules and regulations people have and those need to change. And the large models will actually generate these new rules.

And thirdly, we don't actually need to increase our manpower at the moment, and we have about the same amount of people working -- continue to work on globalization. In terms of how fast it's going to take or what the speed is going to be like. I would say that it's hard to say. It's hard to sponsify.

In the past, when we relied on human power and one would be able to say how many people we would need how much time we would need, however, with a large model and it's about the scale, the algorithm and the speed, et cetera. And my original thinking was that it's going to be the latter half of 2025.

And now with the faster development of the technology and AI, and I think that it would be earlier than 2025 or possibly next year. So we'll wait and see. .

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

So my first question is related to more details of your new product pipeline. So in the second half, you will have 2 products. The first product is related to MONA project.

So could you give more details regarding the launch timing for the 2B version and also the 2C version? And for the next year, the product pipeline, could you also give some guidance regarding the numbers of your MONA brand product and also your on [indiscernible] brand product. .

Thank you for your question. And first of all, in terms of all our car models and the mainstream offer that we bring to the market would still be for the 2C market and the 2B market is not really our focus, including MONA.

And for MONA, this brand and as we say, because what we are looking at is to build in this 2B most beautiful anesthetic cars out there in the market. And therefore, we do not really see this having too much of a big penetration rate into the 2B market.

And then secondly, starting from Q3 this year, following onwards and in each different quarters, we will have a different car models being launched in the market and some quarters perhaps there will be a few more different models.

And in certain quarters, perhaps this will be simply an updated version of an existing model or a mixed version model, so to speak. And starting from 2024 to 2026, we will continue to roll out different car models into the market.

And in terms of the specifics, I don't think that I'm in a position to release further details to the market at the moment. And our plans that you have already heard in my previous presentation. So the second part of my answer to your question.

And for the Moneris and actually going forward and next month, we will have more to share with the market in terms of our thinking about the MONA series. And as I said before, for MONA series, we are looking at building a car that is the most beautiful and the most authentic on the external.

And in addition, we also hope that this is a car that will bring the company a good amount of profit, and it will also cover various grades of intelligent or autonomous driving. And we hope that in the past for autonomous driving, it was mainly for deposit in the price range of above 200,000.

And with MONA series, we hope to bring the autonomous driving into the car with a price range of being 200,000. .

So last week, PM brand officially entered the Hong Kong market also in the next few months expanding more countries, especially in South. So right now, based on your order launching overseas market and also the progress of you're entering a new market.

Right now, are you ahead of your original target, which you mean you mentioned that the total volumes will be a few times more than 10,000 units. And when you incur more R&D expense because you will also provide XNGP onshares in overseas market. .

It's Brian. Let me address your question. First of all, regarding our overseas plan, I would say this year, we are, as you can see, accelerating our pace of international development. We are targeting to roll out to more than 20 countries with our industry-leading technology advanced EVs.

The exact number of markets, obviously also correlates to the type of models that we can make available to these markets. For example, right now in Europe, we're already selling the G9 P7. We are launching the left -and driving G6 this month will hopefully deliver very soon.

In other markets, for example, in Southeast Asia, and you point out Hong Kong, we are launching the right-hand driving G6 I would say, probably in a couple of months and also will probably be followed with the right-hand driving in to be delivered probably by the end of this year or early next year.

So as you can see that the whole international expansion is on track. We think the original guidance we gave in terms of number in terms of tens of thousands as well as this quarter, we would like to achieve more than 10% of our overall delivery number is still valid. So those are the right guidance we want to give international expansion.

And regarding the technical XNGP-related smart driving technology, we are actively now testing a number of overseas markets, currently also working with regulatory bodies to make sure that this compliance with -- and also developing regulations in these markets. The development is actually not going to make material increase in our overall R&D.

First of all, I think we are still very targeted in the number of markets that we want to bring the subsets of our XNGP capabilities.

But again, also just echo what Xiaopeng just mentioned, our capability of development also has been increasing now with the help of AI and large model capabilities and also removing the need for the map as well as using the large language model to accelerate the development in different scenarios also will benefit our development overseas.

So in all, I think we will look forward to seeing some of these capabilities being made available by later this year as well as probably early next year in some of the overseas markets. And also, at the same time, we don't see material increases of R&D expense because of that effort. .

Your next question comes from [indiscernible] with Deutsche Bank. .

My first question is about the number for quarter this year. You're actually very confident about the number for quarter this year. If you say that the volume, we have very high growth.

If we assume it will be a 50% growth last year in fourth quarter, monthly volume will be 20,000 if you do 30,000, what's the breakdown between the existing products and upcoming MONA and the 57 largest. Meanwhile, can comment about the margin because we see for margin. Number one is the cost reduction.

Second is the export, sell have a higher margin and so on additional EA income from Volkswagen. So is that a gross margin close to 15%. .

It's Brian. Let me just respond. First of all, in the first -- fourth quarter of this year, you will see that our MONA product will be in full delivery and also we'll be launching the delivery of our -- the segments then.

So those 2 products will contribute very meaningfully into the monthly delivery in the fourth quarter, but at a very different -- at different stages, as you can tell, because the starting of the delivery is different. So we are very excited about the prospect of both products in terms of generating significant volume.

I would say the -- I would say, assuming both models are in full delivery months, I think the monthly numbers, we anticipate simply increased over last year's comparable monthly delivery number is achievable. That's what we believe.

Again, I'm not going to give you the exact number as well as breakdown, but that's how we envision the delivery number of growth. But also, what I want to emphasize is that as you just heard that these 2 products is only the beginning of our super product cycle that will last partly for the next 18 to 24 months.

And also because the early next year, and we will also have additional products as well as updated models to be launched in the subsequent quarters. We want to make sure that the growth profile maintains stable as well as under control.

So we actually want to make sure the additional volume that we want to achieve on a monthly basis is growing in a more stable and sequential manner rather than episodical big bursts like some other model launches you've seen. So I think that that's kind of probably less until the remaining of next year given the other models later.

Hopefully, we'll give you a pre-look in the next few quarters of earnings. In terms of margin, I would like to comment, first of all, I would say, the MONA model, even though it's an A-class sort of [indiscernible], we are still anticipating healthy positive margin contribution from this model and also in healthy quantities.

For the B segment to then, we think it's going to be higher margin than probably our current models, except both will contribute, I would say, materially to the product profit gross profit mix. And also, as Charles mentioned, the contribution from Volkswagen will continue become a steady recurring income.

At the same time, we anticipate additional contribution from EA collaboration. So with all these contribution as well as our sort of view currently on the potential gross profit margin for the new products. We are maintaining healthy mid- to low to mid-teen margin gross profit for our overall business by the end of this year. .

And the second question is that we do see our peers actually launched the EIB version and won't have a big increase. What's our plan for our power chain will also launch the EIV version for product. .

Thank you for your question. And generally speaking, we would not be very willing to disclose any information in relation to our product designs because it is simply still in the planning stage. And going forward, this is something that we would be looking at being implemented in our flying cars. And in terms of the BEV and I can say that.

So for the signing party and the auto part, it will be BEV and for the further details, it is better that we wait until the product actually becomes more concrete when we have more detailed plans and post to share with the market. So please allow me just to supplement a few points.

And my first point is that, yes, indeed, in the past 1 year and in the next year to come, we will see that there is quite a lot of demand coming from the market, from the consumers or 4 PHEVs.

However, you will see that a lot of these consumers, they will realize that to decide having a PHEV and out of the year in terms of the time that they actually go to the petrol station and to get it filled up, it's very little, only a few times.

And by having this experience, more and more consumers actually have more confidence in BEVs in pure electric vehicles, so to speak. And at the moment, we are also working hard on the construction and the building of our UltraX5-series product.

And I do believe that for consumers having experienced PHEV and for the next car model, and it is very likely that they will go for BEVs. In addition, in terms of the technology and the movement from these cars and into BEVs actually it's quite a jump into -- in terms of the technology.

And you can also see if we look at it globally and for instance, in certain countries in Asia versus certain countries in Europe or in elsewhere and sometimes certain parts could only run on a certain part or certain roads, et cetera.

And we do think that it is not as simple, it is not as straightforward as what we hear from the market, and we do think that we would need to be very cautious, and we need to maintain very vigilant. And for XP, obviously, we will also continue to watch the space very carefully. .

Your next question comes from Paul Gong with UBS. .

So my first question is regarding the big mode. There has been some feedback in the industry seeing that it involves uncertainty in terms of the decision-making and also it's more difficult to figure out why the decision was made in that way. And also, the feedback is when the model becomes mature, it kind of slows down in terms of upgrading.

So how does XPeng think about this issue? This is my first question. .

Thank you very much for your question. Yes, indeed in the very beginning, we did worry about it. And however, with the advancement of the technology, we can now see the huge value that end-to-end large models are can bring. And of course, with the technologies that there are always uncertainty.

And what we need to do is to make sure that we are able to keep NI and ensuring the safety of the black box of the control of the vehicle, et cetera, and as well as the end-to-end capability. And secondly, we are also building a large size analog model OEMs to help us to carry out the various pilots and the trials.

With respect to your second question, I'm not entirely sure if I have understood what you are trying to get, but I'll try the best to answer. And I would say that from an autonomous driving model versus a large language model, these 2 are actually different and looking at it from transformers and this is on open source.

And if we do have our own model, actually, we do not need to use such amount of data as what the industry requires was set to be and for instance, 30B or whatever. And we would be able, once identifying the appropriate model, and we would be able to work on that basis and to move forward. .

So my second question is regarding the distribution channel.

So far, I can see that the stores are mostly in some prime location, but with relatively limited area XPeng as gradually announce new models and expand the portfolio, including MONA, do you see the need to expand the average size of the stores or the area of the stores even at a cost of say shifting out from the most prime location. .

Thank you for your question. And first of all, we have always continued to optimize our channels. And for instance, we are looking at going into the lower tier cities and to try and cover as many lower-tier cities as possible. In the past, we have mainly focused on the high end and the mid-end tier cities.

And secondly, we do believe that 4 asset stores these comprehensive of stores we would be able to provide a better support of services. And thirdly, even with the new stores that we opened up in the malls.

And again, we are not going to open the office with a huge area of floor area and because we do believe that even with an appropriate amount of space available for these stores in the more and the conversion rate of successful order is actually very high.

And in addition, in terms of our plans for store openings in Q4 last year, and we can see that it has been well recovered in Q1 and Q2 this year, and we predict that by Q3 this year, we will have about 400 to 600 stores. .

Your next question comes from Tina Hou with Goldman Sachs. .

Let me just translate. So in terms of our MONA brand, so for the 2C customers, what are some of the competing models in the market? And then also for the customers with this price segment, they might have less demand in terms of the smart functions and higher demand for like the pricing.

So aside from, I think, the vehicle design, what are some of our key competitive advantages in the segment. Also, do we have any sales volume target for the 2B part of MONA distribution. .

Thank you very much for your question. And actually, this question is better asked in our mono product launch events. Anyway, I'll make a few comments. And first of all, for this MONA product as introduced and presented earlier, and this is a product with a very high beauty as well as external asset exit.

And in addition, it also comes with a cheaper price.

And we actually have a model and which is what we call the USD 10,000 rule and which means that every time the price goes down by USD 10,000, and you will see that the sales of that product will actually go up by one time will actually go up by 2x, and this model has been validated in our old experience with our other vehicles of a price range above 200,000.

And now if we would be able to implement this and to give a bit of a price discount for MONA series, and in terms of the specific price reduction, we will talk about in our MONA product launch. And I believe the sale that we are looking at is actually huge. And I would say it's about 2 to 4x of the present level.

In the past, for 100,000 to 200,000 price range, nobody was able to provide the consumers with the part that is not only beautiful, has a good space, but also a smart card with a very good technology.

After 4 years of hard work and R&D and so much investment into this, finally, XP has been able to come up with the product in MONA that is able to meet all the above demand. In other words, if you look at our competitors at the moment, yes, it's kind of from data they can sell 20,000 to 50,000 units of cars per month.

And however, I can assure you that for our MONA product and you would see a huge difference between our car versus the competitors' cards because not only that we are able to provide the beauty to provide the space, but also to provide this range of price and with a good technology and the good smart driving functionality that it was this need that was not able to be met in the past.

So to answer your second question and with respect to smart driving or autonomous driving. And I would say that it is likely yet that some of these consumers that they may not need a very highly advanced functions, and we will possibly be looking at a strategy that is classifying and getting out the different levels of orders to the consumers.

And I would actually like to put the Internet thinking that when I was establishing my business and something was quite popular in the industry back in those days. And what it says is that for the mobile phone users, actually, they are not the high-end generators of the data.

It is rather that the people who are making fewer phone calls are the high-end data generators. So adopted that analogy without thinking. And if we look at the RMB 100 to RMB 200,000 price range, and this is actually the group of consumers that would use more of the autonomous driving functions.

It's simply that in the past, this was out of their price range, and they were not able to afford this once they are able to afford this, they would be all over the autonomous driving cars in the prince range. And I do believe that the next year in 2025, we will see this coming into a reality. .

Also, this is Brian. Let me just comment on your question on the 2B segment. what we see in this price segment product, the successful 2C product will also -- will be used quite prevalently into channels as well.

So I think the success of this product, even though not targeted at the 2B segment, but still, we'll have significant use cases apply to be mobility use. And also with our partnership in collaboration with DD, I think that multipurpose sort of use case will be very, very prudent in our user base for MONA. .

And so just to quickly follow up. So for the 2B part, should we still expect 100,000 units in the first 13 months and then 100,000 units in the next 12 months.

Is this still a reasonable expectation?.

The agreement we have with DD is still valid, we still provide such an incentive for MONA to be used in DD system in -- if they achieve those volumes, I think the incentive will still be valid. Yes. .

So this is mainly -- so is up to DD, how many they want to purchase. .

No. I think if you read our agreement, which has made public available, it is actually an agreement that if the Mona product is used in the DD system, in the mobility ecosystem, they could add to a certain number, they will receive additional incentive. It does not relate to their own purchases. .

So my second question is in terms of the software services revenue. So we see started recognition and has been very helpful in terms of our overall margin and profitability.

So because our labor agreement with Volkswagen is not exclusive, are we actually actively exploring a similar collaboration with other partners?.

In -- I think that our strategic collaboration with Volkswagen actually create a very strong value -- strategic value to each other. For example, we are collaborating on the technology. And also, we are collaborating on supply chain and also during the process, we also identified the opportunity to work more closely going forward in other areas.

We believe there are a lot of things we can do as a strategic partner to each other. However, I think that from the collaboration perspective, our collaboration with Volkswagen were not exclusive to each other. So therefore, I think that we are also open-minded to looking for the strategic collaboration opportunity with other players.

However, I think that what we value most is that we see the -- how we can bring value to a partnership and create value to each other, not just a supplier relationship. .

That does conclude our question-and-answer session. 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 for the XPeng Financial Communications. .

This concludes today's conference call. Thank you for participating. You may now disconnect..