XPeng Inc. achieves record Q2 2025 with 242% delivery growth, 125% revenue increase, and strong cash position, signaling robust future growth amid competitive landscape.

OPERATOR - (00:01:31)

Hello ladies and gentlemen. Thank you for standing by for the second quarter 2025 earnings conference call for XPeng Inc. At this time, all participants are in a 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, head of Investor Relations and Capital Markets of the company. Please go ahead, Alex.

Alex - (00:02:03)

Thank you. Hello everyone and welcome to XPeng's second quarter 2025 earnings conference call. Our financial and operating results were issued by our 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 our Co Founder, Chairman and CEO Mr. He Xiaopeng, Vice Chairman and President, Dr. Brian Gu, Vice President of Corporate Finance and VW Projects, Mr. Charles Zhang, Vice President of Finance Accounting, Mr. James Wu and myself. Management will begin with prepared remarks and the call will conclude with a Q and 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 certainties. 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 public filings of the Company as filed with the U.S. securities and Exchange Commission. The Company does not assume any obligation to update forward looking statements except as required on 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. He Xiaopeng. Please go ahead.

He Xiaopeng - Co-Founder, Chairman and CEO - (00:04:23)

Hello everyone. In Q2 2025, we achieved a record high performance across our core business and financial metrics including deliveries, revenue, gross profit margin and cash on hand. During this quarter, our deliveries reached 103,181 units, a 242% increase year over year. The XPeng M03 Max immediately became a bestseller upon launch, accounting for over 80% of total. XPeng M03 sales and leading the way in bringing high level ADAS technology to despite intense price competition, we remain focused on steady long term sustainable growth, prioritizing, scaling up whilst continuously strengthening the foundational systems. Our vehicle gross margin increased 3.8 percentage points quarter over quarter to 14.3% marking the eighth consecutive quarter of improvement and raising the company's overall gross margin to 17.3% net losses. Narrowing further free cash flow in Q2 exceeded RMB 2 billion and total cash on hand at the end of quarter surpassed RMB 47.5 billion. In July we launched the G7, our first model featuring in house developed Turing AI SoC. Over the past four weeks it has become the top among its competitors with the Ultra Trim making up over 50% of sales. The Max Ultra experience marks a new phase in high level ADAs in the industry. Our XPeng Super Electric models will begin mass production in Q4 enabling us to fully upgrade to a generation technology platform with intelligence and the new vehicle Dual energy system by 2025. This platform will include vision based ADAS advanced AI models, the Turing AI SoC 5G ultra fast charging battery cell and the XPeng Super Electric System. These innovations will give us a generational lead allowing for greater modularity, better supply chain management and scalability during our product cycle over the next two years, boosting our sales growth, the race for AI powered vehicles will continue indefinitely. To succeed, I aim to strengthen the company's core capabilities in four key areas. First, focusing on technology leadership by developing AI capabilities in the physical world across all domains. This includes full stack self development within specific vertical areas and cross domain integration in vertical areas. We are dedicated to enhancing design, AI and quality. Second, building organizational strength by attracting and retaining top talent suited to each role. World class management practices along with automated tools. Starting with the CEO, we will leverage AI to optimize the management R and D and collaboration maximizing organizational compounding effect. The third focus is excelling in commercialization, shifting from creating user centric products to developing commercially successful products and establishing a strong brand while reducing cost and increasing profitability. Lastly, our globalization approach is unique having integrated the global market needs into our product planning years ago. We attract international users with superior technology and quality to long term growth with patients. Number PG Kuiyong. Next week the all new XPeng P7, a premium intelligent sports sedan in the RMB 300,000 price range will be officially launched. The P7 reflects our innovative spirits and core values, showcasing the exceptional design and advanced technology can set market trends rather than following them. With its distinctive style, thrilling performance and generation ahead leading AI technology, the P7 is the ideal vehicle for younger consumers. It highlights Xpeng's future design approach for all models following P7, combining top tier technology with superior aesthetics. We are investing more strategically in our styling team to ensure future models deliver innovative, emotionally impactful designs. Since its debut, user interest has vastly exceeded expectations with pre sales orders surpassing all previous exponent models. During the same period, I anticipate the new P7 will rank among the top three best selling pure electric sedans in the sub 300,000 RMB segment. With deliveries of the new P7, we aim for monthly sales to steadily surpass 40,000 units starting in September. Hoi Fabu In Q4 we will introduce the X9 XPeng Super Electric Edition, our inaugural XPeng super electric vehicle marking the beginning of our one vehicle dual energy era. With over 450 km of pure electric range and a combined range surpassing 1500 km, this model will lead in range within its category. Moving forward, we plan to launch several more super electric models, each offering top tier pure electric range and 5C ultra fast charging capabilities that exceed those of comparable NEBs on the market. Number two what distinguishes us from automakers and software companies is our decade long delegation to full stack in house development of corporate core hardware and software technologies. This commitment has enabled us to co develop high performance AI chips and foundational models for the physical world, achieving true cross domain integration and speeding up iterations through extensive data sets and computing infrastructure ultimately leading to AI super agents operating in the physical world. Beginning with the Xpeng G7 and P7 launches in Q3, we are leading the way in Level 3 in L3 level computing power, all Ultra Trims across our entire model lineup will feature the 3 in house developed Turing AI SoCs providing a total computing power of 2,250 tops. This positions us as the global leader among mass produced vehicles with over three times the computing power of our latest flagship competitors. These Ultra trims also include in vehicle VLA plus VLM models driven by Turing AI SoCs. The scale of our in vehicle models will increase by an order of magnitude reaching billions of parameters. With VLA models running at twice the frame rate of competitors, truly exemplifying smarter brain agile control and elevating the safety and user experience of adas. I expect xpeng's VLA VLM to become the safest driver and most attentive smart assistant for users. Simplifying and enhancing travel. We plan to roll out the initial VLA model to G7 Ultra owners soon with rapid OTA updates over the coming months. Over 18 months, our Turing SOC powered VLA is expected to outperform industry mainstream urban ADAS solutions by over 10 times. We aim to meet supervised L3 safety coverage and user experience marking a generational lead. Our L4 capable vehicles are scheduled for mass production in 2026 with pilot Robo taxi services launching in selected regions. Although aftermarket retrofits enable L4 in some vehicles, no mass produced models currently have OEM integrated L4 hardware and software, a gap XPENG aims to fill in China. In addition, our latest humanoid robots also have made promising advancements with our Turing soc, VLA and vlm. We are quickly moving toward a mass produced version featuring initial L4 capabilities in robotics and we are actively preparing for mass production in the second half of 2026. During Xpeng AI Tech Day, I will unveil the new generation of robots to everyone jinxing we have introduced the industry's first AI chip dedicated to foundation models for smart cabins, providing over 12 times the effective computing power of the leading cabin processors. Powered by The Turing AI SoC, our VLM model is designed to act as a smart assistant in AI enabled vehicles. It not only collaborates with VLA to enhance assisted driving, but also functions as a robust in vehicle intelligent agent. Looking ahead, it is expected to master multiple languages, communicate empathetically and offer proactive services, greatly improving the user experience of future AI driven vehicles. I believe our combined independent large model chips plus VLM solution will lead a paradigm shift in the next generation intelligent cockpit technology, encouraging more OEMs to adopt and reference it. Our AI technology demonstrates strong generalization abilities worldwide, not just in China. We welcome partnerships with top global players to explore opportunities for collaboration on our Turing AI Society. In first half of 2025, our overseas business continued to show strong growth and build a brand's reputation. In the first half of the year overseas deliveries exceeded 18,000 units increasing over 200% year over year. XPENG now ranks as the best selling Chinese and EV startup brand in 10 markets including Norway, France, Singapore and Israel and we lead in sales of mid to high end Chinese BEVs across Europe. In July, we delivered the first locally produced Xpeng X9 in Indonesia, marking a key milestone in our move toward global local manufacturing. By the second half of 2026, we aim to fully launch the entire Punkhun Super Electric lineup in international markets including Ultra Trims, expanding our global total addressable market significantly as deliveries of G7 and the new P7 ramp up, we forecast Q3 deliveries to be 113,000 to 118,000 units, reflecting a year over year growth of 142.8% to 153.6%. Revenue is projected to reach between RMB 19.6 billion and 21 billion, representing an increase of 94% to 107.9% year over year. Starting in Q4 we will introduce the one vehicle dual energy strong product cycle complemented by Turing AI driven smart driving solutions which will significantly strengthen our generational lead. We are confident in leading the market at scale whilst advancing operational efficiency toward sustainable profitability. Over the next three years our focus will be on expanding market share both domestically and internationally, maintaining steady growth and harnessing disruptive AI innovation to enhance value for users worldwide. Thank you everyone. With that I will now turn the call to our VP of Finance, Mr. James Wu who will discuss our financial performance for the second quarter of 2025.

James Wu - Vice President of Finance - (00:31:49)

Thank you Xiaopeng. Now let me provide a brief overview of our financial results for the second quarter of 2025. I'll reference RMB only in my discussion today. Unless otherwise stated, our Total revenues were 18.27 billion for the second quarter of 2025, an increase of 125.3% year over year and an increase of 15.6% quarter over quarter. Revenues from vehicle sales were 16.88 billion for the second quarter of 2025, an increase of 147.6% year over year and an increase Of 17.5% quarter over quarter. The year over year and quarter over quarter increases were mainly attributable to higher vehicle deliveries. Revenues from services and others were 1.39 billion for the second quarter of 2025, representing an increase of 7.6% year over year and a decrease of 3.5% quarter over quarter. The year over year increase was mainly attributable to the increased revenues from parts and accessories sales in line with higher accumulated vehicle sales. The quarter over quarter decrease was mainly attributable to fluctuations in revenues from technical R and D services. Gross Margin was 17.3% for the second quarter of 2025 compared with 14% for the same period of 2024 and 15.6% for the first quarter of 2025. Vehicle Margin was 14.3% for the 2nd quarter of 2025 compared with 6.4% for the same period of 2024 & 10.5% for the first quarter of 2025. The year over year and quarter over quarter increases were primarily attributable to the ongoing cost reduction and improvement in product mix of models R and D. Expenses were 2.21 billion for the second quarter of 2025, representing an increase of 50.4% year over year and an increase of 11.4% quarter over quarter. The year over year and quarter over quarter increases were mainly due to higher expenses related to the development of new vehicle models and technologies as the company expanded its product portfolio to support future growth. SGA expenses were 2.17 billion for the second quarter of 2025, representing an increase of 37.7% year over year and an increase of 11.4% quarter over quarter. The year over year and quarter over quarter increases were primarily attributable to the higher commissions paid to the franchise stores driven by higher sales volume. Moreover, the quarter over quarter increase was also due to the higher marketing and advertising expenses as a result of the foregoing. Loss from operations was 0.93 billion for the second quarter of 2025, compared with 1.61 billion year over year and $1.04 billion quarter over quarter. Net loss was $0.48 billion for the second quarter of 2025, compared with $1.28 billion year over year and $0.66 billion quarter over quarter. As of June 30, 2025, our company had cash and cash equivalents, restricted cash, short term investments and time deposits in total of $47.57 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 second quarter 2025 financial results. This concludes our prepared remarks. We'll now open the call to questions. Operator, please go ahead.

OPERATOR - (00:35:51)

Thank you. If you wish to ask a question, please press Star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press Star two. If you're on a speakerphone, please pick up the handset to ask your question for the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. For the sake of clarity and order, please ask one question at a time. Management will respond and then feel free to follow up with your next question. Your first question comes from Tim Sao with Morgan Stanley. Please go ahead.

Tim Sao - Analyst - (00:36:53)

Then. So my first question is about the brand proposition and the product pricing. Because XPeng's average selling price has declined over the past Two years. Given the product mixed, how are you going to reverse the trend and effectively upgrade the brand positioning and the sales mix of high end models? And when are we going to see more meaningful ASP upgrade? And it can accelerate, that can help to accelerate XPeng's, profit, improvement. That's my first question.

He Xiaopeng - Co-Founder, Chairman and CEO - (00:38:41)

Dang champion the time and bow you just. Thank you very much for your question Timothy. And the answer is as follows. As you can see for our sales it has always been in the range of 100,000 to 500,000 RMB. Internally we are also looking at this and we are approaching this from a few different directions. Number one is with respect to the different layout of our products. Number two is to leverage technology to increase premium. Number three, using emotions to increase premium. Number four, using the brand to increase premium. So if you look at the P7 that is soon to be launched and this is in the price range of above 300,000 and soon to be unveiled, X9 will be in the range of 400,000 RMB by 2026-2027. These will be our two major product sales cycles and there will be multiple of different cars to be launched in the market and their sales price will be above the 300,000 range at the moment. And number two, using technology and technology has always been our strength including ultra Ultra trim versions as well as Robo taxis. Starting from next year you will see our investment being increased and we believe that this will further drive up our premium and the number three, using technology. So we know that ADAS has always been our strength apart from the strength of technology. And we have another strength which is aesthetics. Becoming or making aesthetically more beautiful cars will also be able to drive the sales volume and finally which is leveraging our brand. And I believe that in 2026 and 2027 these will be the two years of establishing more of a global brand of Xpeng and the speeding up or acceleration of our brand will pick up. So as a result I do believe that you will see the ASP of our products will increase. So will the gross profit as well as the net profit. Thank you.

Tim Sao - Analyst - (00:42:38)

My second question is about smart driving because we noticed that since the beginning of this year several carmakers have launched end to end smart driving solutions and new vehicles powered by Thor chips and VLA models. So how should we think about expense technology advantage in smart driving against such a backdrop of competition? Specifically, Link could expense the Turing chip on Ultra Trim effectively differentiated with a much better software experience versus our competitors. That's my second question. Thank you.

He Xiaopeng - Co-Founder, Chairman and CEO - (00:43:16)

So XPeng Dug up number. So gosh, thank you for your second question. And actually if you look at the current players in the market, when it comes to software and basically all the tier one players, I would say that everyone is roughly the same. And for those either with computing power or the ones without the computer sufficient computing power, they would have computing power plus LiDAR to make up or bridge the gap. And in a way we know that with computing power plus model and plus data, these three factors will be able to provide with better results. And we know that this was an idea or a principle that people have in mind. However, at XP we have been able to validate this idea and as you can see, our total computing power has already achieved 2,250 tops. In the meantime, if you look at our peers, they are still at 100 to 700 tops. And whilst we talk about this, when it comes to data as well as model scaling and in terms of our frame rate, which is running at two times of our competitors, and this again shows our smarter brain as well as a better control for motion. And in the meantime, for your next question about for Ultra Trim and when we would be able to ensure that there is a gap between us, as in we leading the race ahead of our peers hand for the Ultra Trim versions and we will start with our initial VLA launch and hopefully we will bring this to the same level as Max for now. And by end of this year we would be able to see a significant improvement or difference between us and our peers. And if we're talking about huge differences between us and our peers, I would say that that time will come in next year, not long after this year and roughly around when you will see the pilot runnings of our Robotaxis. And with L4 as well as Ultra Trim, they come from the same source of the same model. And basically the only difference is that there is no cloud and control, there is no hardware redundancy. So with the ultratrend plus our Turing AI and I do believe next year you will be able to see that our product will be leading ahead of our peers by 10 times or even more.

Tim Sao - Analyst - (00:48:20)

Thank you very much for sharing all the great details and exciting progress. Thank you.

OPERATOR - (00:48:26)

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

Ming Sun Lee - Analyst - (00:49:05)

So my first question is related to your cooperation with Volkswagen, because recently you just announced to broaden your cooperation with Volkswagen's EEA and expand into more vehicle model, including icuv. So could you give us more color and guidance regarding the future revenue from the cooperation with Volkswagen. Thank you Ming.

Charles Zhang - Vice President of Corporate Finance and VW Projects - (00:49:31)

This is Charles here. So last week we announced our force cooperation with Volkswagen. Basically we're expanding our electrical and electronic architecture collaboration from the battery electrical EV in China into the IC and PHEV of Volkswagen brand in China. And we believe that's a major expansion of our scope of the collaboration with our partner. And I think that through this collaboration we are really creating a very significant strategic value for our partner. And I believe that Volkswagen is probably the only global auto company that possess the technology that has one EE architecture platform across all the powertrain through which you can see the value creation that we created by both parties. Obviously I think from exponent side we're also benefiting from such collaboration. So in terms of second part of a question regarding the value of the potential creation from our partnership with Volkswagen, as you may be aware of Right now, since Q1 2024 we have started to recognize the IP licensing revenue from the G9 platform collaboration later on the technology collaboration. And we believe that in the past couple of quarters the revenue from such collaboration has been relatively stable with within certain range. And for the second half this year we see some potential growth potential in such revenue from the past two collaborations. So in terms of the newly entered the expanded EEA collaboration, the revenue will start to be recognized once those votes, Volkswagen's ICE and the PHEV vehicle start sop. So that's basically the third recurring revenue stream on top of the previous two revenue streams. I hope this clarify your question, Ming.

Ming Sun Lee - Analyst - (00:51:58)

Yes Charles, thank you Kaoji. So my second question is related to robot taxi business. I think the chairman already mentioned this business. So in the future will you launch the to be version of vehicles to differentiate from your current product for the consumers and also for your current cars, is it able to provide level four functions next year when you provide ota? Thank you Thank you.

He Xiaopeng - Co-Founder, Chairman and CEO - (00:54:48)

Woody to Moshe, thank you for your question. And in the future in my view there will be two types of vehicles and the first type will be L4 enabled or L4 capable vehicles with people driving those. And the second type will be L4 capable vehicles with no people driving it. And of course this will take years to achieve and we also know that with L4 capabilities will need to obtain the permission and approval by different policies and regulations. In 2026 for Xpeng we will try out the airfoil in different pilots and of course the precondition is that we are running these pilot schemes whilst after we have obtained the relevant approvals. In terms of the questions that you have asked, there are areas that I'm not really in the position to answer today, but what I can try to answer is that number one for expensive vehicle and we are the front markets were the mass produced vehicles with the no map, non-HD map model. And that is to say we do not need LIDAR to scan the whole map, the whole city. And in the meantime, as I have mentioned earlier, we do not have the software redundancy nor do we need the cloud to take over to manage this. And what we strive to achieve between our future products and the robotaxi is that they would be of models of the same sources. And however there are differences. For instance for our robotaxis and there will be functions such as when the passengers on the street wave their hands, the robotaxis will stop. But for our own vehicles, to consumers, obviously there is no such functions. When there is a passenger on the street waving their hands, our own vehicles will not be stopping. So this is all about strengthened learning of the whole process and we ourselves obviously will carry out our own trials and our own operations. And when all of these have passed and we will be seeking out and speaking to partners and looking at how to expand this further.

OPERATOR - (00:58:25)

Your next question comes from Pengyu Wu with City C. Please go ahead.

Pengyu Wu - (00:58:48)

Shambao. Let me translate the questions first. Congratulations on the successful launch of the pre sales of the new P7 and it's a very highly original design. It's also appreciated by customers who are also leading the era, And could you please share more about the reason behind the P7 strong order performance and how do we forecast itself? Is it going to be a high volume model just like the first generation of or our latest P7 plus thank. You.

He Xiaopeng - Co-Founder, Chairman and CEO - (01:02:09)

Thank you very much for your question and for P7. Yes indeed, next week P7 will be officially launched into the market. Certain detailed data. I'm not going to be elaborating on those today. However, there are a few points that I can comment on. Number one is that the attention and interest that we have received in P7 has indeed far exceeded our expectation from end of last year to earlier this year. And in terms of the pre sales orders, as you have stated, it has exceeded all our historical data sales for different other series of cars such as Mona etc. And if you look at the purchasers and the users consumers who have purchased P7 and it is also quite interesting, there is a very high percentage of male consumers. In addition, in terms of the age brackets of those who have placed an order for P7 so far, it is the youngest age brackets that we have and their professions are also quite interesting. So this is what we have witnessed so far from the pre sales orders and for P7, it is not only that it is an aesthetically beautiful car, it is also very strong, sturdy car handle, whether you are running race tracks or running on highways. And what we have received, the feedback from the users as well as from the media reviews, is that the chassis that we have worked together with, Volkswagen, is rather strong. And so we are getting very good positive feedback from the users, from the media. And our aim is to become the top three in the pure battery vehicles, in the pure battery electric vehicles in the price range of 200,000 to 300,000. And of course we don't know whether we can achieve a better ranking for that, but we will strive to do so. My second question is about the Robotaxi and as we renewed our announcements of our robo taxi strategy and what opportunities such as technology or regulatory access do we see currently?

Pengyu Wu - (01:05:14)

Thank you. Family.

He Xiaopeng - Co-Founder, Chairman and CEO - (01:07:07)

Thank you for your question. And as you can see for xpeng, we are an OEM company which makes us essentially different from Robotaxi software providers or Robotaxi service providers for L4 capabilities. Of course, in order to sell this to the customers and for the customers to be able to drive such cars, there are issues that we need to resolve or we need to go about, for instance for regulation issues and technology iterations, etc. But as you have stated, once we cross over those humps and once people are able to purchase L4 vehicles, in terms of the upper limit of the growth, that has greatly improved. And that is number one point and the number two for Robotaxis to operate within a certain region. I do think that there will be such possibilities. However, to say that Robotaxis will be rolled out on a global scale, I think it is difficult at this stage at least. But I would also say that globally speaking, for Robotaxis to be rolling out, it is also getting further expanded at the moment. And we know that in the past people would need to rely on navigation to use their cars and to drive the ADAS system. And in the future, would people be able to rely on ADAS without navigation? And would people be able to update their OTAs by simply relying on the same source codes? And those are questions and challenges that expone we hope that we would be able to strive to resolve in the future. Thank you so much.

OPERATOR - (01:09:09)

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

Tina Hu - Analyst - (01:09:46)

Thanks management for taking my question. So the first Question is regarding vehicle gross margin. We see that on a quarter over quarter basis it's up by 3.8% which is much bigger versus previous quarters. So could management help us break down the different factors contributing to this sequential improvement? Thanks.

James Wu - Vice President of Finance - (01:10:09)

Hi Tina, this is James. Thanks for the question. You're right. I think you mentioned three aspects in terms of the product mix change, cost reduction as well as scale. I think all three factors come into play. What I would say is the majority of the impact is still on the product mix side. So if you remember, the Mona M3 accounts for a pretty significant delivery percentage in the first quarter and that percentage has reduced through the second quarter as we transition Mona into the new version. Whereas our new G6 and G9 has increased its product mix in the second quarter of 2025. What we've seen is the new G6 and G9 has a very healthy gross margin thanks to the improvement technology as well as the specs that we offer to our customers, customers that they like. In the meantime, we have achieved a higher level of platform canonization through our engineering efforts. All of that have helped us to achieve healthier gross margin for our new model year changes. In the meantime, as you mentioned earlier, scale also come into play. We have delivered slightly higher volume in the south second quarter as well. And last but not least, we have continued our effort through our supply chain optimization which helped us to further optimize our material costs as well in the second quarter. Thank you.

Tina Hu - Analyst - (01:12:00)

The so my second question is regarding the operating expenses. So for R and D expense, is management still keeping the 8.5 billion RND of annual guidance? And also in terms of the sales and marketing expense because we're seeing just around 200 million increase from 2Q to 1Q with the new model launch schedule. And if we look at 3Q and 4Q it seems that the new model launch schedule is very similar to the intensity is very similar to second quarter. So should we expect excluding the channel fees, the sales fee and marketing expense should be quite similar to the second quarter. Thanks.

James Wu - Vice President of Finance - (01:13:24)

Got it. This is James again. So with regard to the expenses, I'll answer in two parts from an R and D perspective. You're right. We have been expanding our investment in the R and D segment particularly to try to basically be bring the AI capabilities from the digital world to the physical world as well. As Xiaopeng mentioned earlier, we will start to launch one car with two dual energy platform in the fourth quarter of this year. So we have basically increased our engineering workforce and capabilities throughout this year. As well as into the second half. In the meantime, our AI technology investment will help us to enhance our leadership in this area which includes autonomous driving robotic investment as well as our enhancement of the engineering workforce. Also the cloud based computational power is something that we have continued to improve invest as well. So this is on the R and D side with regard to the sales expenses. You're right, the second quarter has a slight increase versus the first quarter, partially also because of our higher deliveries in the second quarter as we pay commissions to our franchise stores is part of that as well. We have Product launches in Q2 as you mentioned, but remember we have more significant product launches in the third quarter. For example the G7 which is a brand new SUV as well as the new P7. These two launches I would say would be more significant and probably would require higher marketing and advertising expenses. In the third quarter and going into end of third quarter and into fourth quarter we'll be launching the XPeng Super Electric platform as well in our X9 product which we will also provide and deploy sufficient resource to make the successful launch as well. In that regard we will continue to invest and make sure the marketing and advertising expenses are appropriate to support the product launches in the second half. Thank you.

Tina Hu - Analyst - (01:15:54)

Thank you very much. James.

OPERATOR - (01:15:58)

Your next question comes from Xiao Li Li with Jeffries. Please go ahead.

Xiao Li Li - (01:16:44)

So my first question is about your product strategy. The next P7 has made a significant leap in the ethics design. Does this signal a shift in XPeng's product strategy towards prioritizing design? Should we understand this not just as a short term adjustment but as a core component of the company's long term strategic transformation? Shukran, thank you very much for your question and the overall answer to your question is yes. So last year we were looking at this and we were thinking that for technology has always been our strength and we have always focused on autonomous driving and invested a huge amount of money and resources in the area. However, we have lacked in the other areas and therefore in the beginning of 2024 we started to think that we should shift more focus onto design as well. And for the past 24 months as well as the next whatever months to come and in the near short term future I would say that the company's target is to ensure that our product does not have any shortcomings. We try and improve the areas that we are doing okay and further adding on strength to our existing areas that we already outperform others and which means that we are now currently giving more weightings and giving more attention to the styles and aesthetics of our products. In the past, when we look at styles or when we look at aesthetics and design of a car, it comes at last. We first start with the engineering. We first then look at the cost and the positioning of the car and finally it comes to the design and style and aesthetics of a car. But now it is the reverse. Sometimes we look at the style and aesthetics of a car first. We then decide on the engineering, the cost and the positioning of this vehicle. So in Shanghai Currency we have two buildings that are dedicated to work on the design and styles of our vehicle. In Guangzhou we have one building, so that's three buildings in total. Globally we are also building more different centers to help us with the designs. And overall I would say that we are looking at providing our users with a better physical product as well as a better overall user experience. And for the P7 and you can see that this is a process that we have been able to do so and that is also the target that we strive to achieve. Thank you, that's very helpful. My second question is regarding the policy response. As we noticed that China's anti involution policy has become a key regulatory direction in the auto sector. How's exponent adjusting the business operations in response to this policy? And what specific impact will this have on your operations and market positioning?

Brian Gu - Vice Chairman and President - (01:22:37)

Hi, this is Brian. Let me address this question. First of all, I think we noticed the recent policy announcements around anti involution measures and I think this is actually a culmination of a number of discussions that in aim to improve the Chinese economy, competitiveness as well as healthiness. I think that's good for the long run. I think as an industry we need to have a healthy competition. At the same time we need to have the ability to reinvest into new technology, reinvest into building better quality products. And this is actually the right direction from our perspective. We actually always focused on achieving the most innovative technology and products for our customers through relentless innovation, relentless development. And I think this is actually, I would say coincides with this new policy direction. We feel like by focusing on our target customers, by delivering the best quality, the best technology and in products that actually has broader appeal ultimately will be the right solution and will earn the right recognition both from customers as well as from our partners as well as from our regulators. So I think in that regard we will continue to focus on full stack innovation, continue to focus on building innovative, also broadly appealed appealing products to our customers. At the same time also be able to maintain A disciplined and orderly operations. For example, you probably noticed that Xiaopong Expand is actually one of the earliest OEMs to respond to the government's request of improving sort of payment terms. We have really been making sure that our partners, our suppliers are all benefiting from this new trend and we believe that ultimately will lead to a more healthier ecosystem and industry for our company.

Xiao Li Li - (01:24:57)

Thank you, that's very helpful.

OPERATOR - (01:25:02)

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

Bin Wang - (01:25:19)

My question is about G7 SUV. The company seems to be facing some difficulty in the intelligent computing chips. When this issue can be resolved and what's the normalized monthly assumption does the company currently have? Thank you.

He Xiaopeng - Co-Founder, Chairman and CEO - (01:25:39)

Hey Bing, just to clarify, there's no issue with G7 so we announced that we will deploy the specific touring SOC for infotainment in October and then when we'll roll out the C like VLA and the VLM models for the G7 customers.

Bin Wang - (01:26:05)

Okay. My second question about vehicle gross margin guidance for the third quarter. Previously the guidance is that only number four quarter vehicle cost margin can go to high teens. Because the second quarter vehicle cost margin has been higher than the market expectation, do we expect in the third quarter we already can achieve the high teens vehicle cost margin. Thank you.

James Wu - Vice President of Finance - (01:26:41)

Hi Bing, this is James. So with regard to the vehicle margin, yes, we have improved significantly in Q2 and the reasons I have explained before, you know, in the long term we have always focused on taking into account the overall competitive landscape as well as improve our scale as our strategic priority. So overall, we'll take that as our overall guidance from a pricing as well as margin perspective. What I would emphasize is going into the second half as we launch the brand new P7 as well as the X9 Super Electric version. I would focus on Q4, which we have communicated earlier that we are aiming at profitability in the fourth quarter and that target has not changed. And we have, as you remember, mentioned, that we hope to achieve high teens profitability, overall profitability in the fourth quarter as well. And that target has not changed as well. Both of that will help us to solidify our target to achieve break even in the fourth quarter. Basically, that's my answer to your question. Thanks.

Bin Wang - (01:28:04)

Thank you.

OPERATOR - (01:28:07)

Thank you. That concludes our question and answer session. 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 Pierson Financial Communications. This concludes today's conference call. You may now disconnect your line. Thank you.