Q1 2022 Xpeng Inc Earnings Call

Okay.

Hello, Ladies and gentlemen, thank you for standing by for the first quarter 2022 earnings conference calls for ex banking.

At this time all participants are in a listen only mode.

After the management's remarks, there will be a question and answer session. Today's conference call is being recorded.

I will now turn the call live or theory hosts Mr. Aleksey <unk> head of Investor Relations of the company. Please go ahead Alex.

Thank you Hello, everyone and welcome to <unk> first quarter 2022 earnings conference call, our financial and operating results were issued our newswire services earlier today and available online you can also viewed earnings press release by visiting the IR section of our website at.

I got the Shelton Dot com participants on today's call from our management will include co founder Chairman and CEO Mr. Vishal from.

My Chairman President Dr. Brian Cool.

Vice President of Finance, Mr. Kenneth Lee Vice President of corporate Finance and investments Mr. Chau Cheng 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.

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 90 95 forward looking statements.

And 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 what the company has 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 <unk> earnings press release and this conference call include the disclosure of unaudited GAAP financial measures as well as our non-GAAP financial measures.

<unk> earnings press release contains a reconciliation of.

Audited non-GAAP financial measures.

GAAP measures I will now turn the call over to our co founder Chairman and CEO . Mr. Vishal Peng. Please go ahead.

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Hi, everyone in the first quarter of 2022 X Bank delivered 34561 vehicles, representing 159% year over year growth. We continued to rank number one among emerging EV makers in China as measured by vehicle, which joins registration volume.

Notably our monthly deliveries once again exceeded 15000 units in March demonstrating a return to the same robust level as the peak season last year. Despite the impact of the COVID-19.

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Heading into 2020 to our products and technologies competitive edge as well as our brand awareness continue to improve the demand for our products was strong in March our monthly volume of new orders reached a new high. Meanwhile, our order backlog also had historically high levels from March 21st we re.

Mr price across all models by 10 to 20000 RMB in order to cover the cost increase of batteries and raw materials and chips.

Following the price increase consumer demand for the mid to high end BV segment has remained resilient and we expect all new orders in may excluding some cities impacted by COVID-19 will return to the levels before the rise in price.

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According to the data released on Chinese passenger vehicle insurance registrations, the <unk> penetration rate in March reached over 24% and in particular exceeded 30% in Shenzhen and Shanghai while.

While the industry is change under the current impact of COVID-19 related restrictions and raw material price surge at the long term trend of increasing <unk> adoption and a strong growth trajectory will continue I believe our relentless efforts to advance our product competitiveness.

And a logical events men intelligent capabilities and quality. In addition to the ever growing brand awareness position us well as we work to gain market share in the mid to high MBV market segment and pursue our strong growth strategy.

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Now turning to supply chain management, given that the COVID-19 resurgence starting in early April COVID-19 infection spiked in certain cities and related lockdown policies have led to serious challenges to the auto supply chain based on our early a judgment after supply chain risk in 2022, we have.

Stepped up our preparation for our supply chain and built inventory for some key components.

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During such challenging period, we heightened our focus on strengthening our core capabilities, we will have to reinforce our supply chain system and R&D capability of benzene all core competencies to better position our company amid the ongoing challenges of industry wide auto parts shortage and cost inflation for.

For example, we have established partnerships with a number of industry, leading battery suppliers since 2021 in order to diversify our battery supply, which we are on track to accomplish such diversification in the second quarter of 2022. This will help reduce the risk of supply location and supplier concentration starting to.

Directly boost our future delivery efficiency, including.

'twenty, the second quarter of 2022 odd and the bomb cost optimization in the long run.

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The chip supply challenge may persist longer in terms of our chip related supply chain management, we have started to gradually develop our in house R&D capabilities for our powerful embedded systems Heartware and underlying software platform since 'twenty since 2015, and we expect to deploy such events platform.

In a broader scale across our new models from this year.

Our pursuit of developing such technologies in house enables us to quickly address the chip supply shortage and enhanced verification integration and implementation of alternative chips much more efficiently.

It also provides a highly flexible infrastructure technology platform for us to tackle the semiconductor chip shortage challenges and strengthen our cost control capability.

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Shelton's manufacturing is mainly based in Guangdong, thanks to the successful containment of the researching COVID-19 outbreaks in the Guangdong Province, and government support from central and local authorities the supply chain in key areas is gradually recovering we have we assume double shift production at all jealous you've learned since mid may and I'm, making.

Every endeavor to accelerate deal vehicle delivery to better serve our customers.

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I would also like to highlight that our long term investment in smart E beam technology supports our ability to build up customer trust and loyalty as well as distinctive smart technology brand equity are.

Our highway N G P mileage penetration rate in the first quarter with nearly 70% and by the end of the first quarter. Our highway N. G. P had assisted our customers in driving more driving for more than 24 million kilometers.

These achievements will allow us to pave the way to make our next generation full scenario advanced driver assistance system available to a broader customer base.

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In February we O T. A release a lighter enabled valet parking assist function that offers automated parking across different floors in multi storey parking lot, marking the industry's first mass produce solution ever in the near future. We plan to Otas release, the industry's first.

Produce lidar enabled adaptive cruise control and lane centering control function.

It is built on augmented perception capabilities by adopting camera and lidar fusion, which enables better detection of drivable areas and surrounding traffic participants, making optimal decisions to ensure a safer and more comfortable driving experience.

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In mid May we successfully completed test of the latest engineering version of our C. D. N G. P. In Guangzhou navigating through the very complex driving scenarios across a broader area of downtown Guangzhou Our C. D. N G. P demonstrated a smooth driving experience with high safety standards.

We will continue to improve the customer experience of all city N. G. P. Two fast iteration of the software.

As soon as we obtain the related approval for high definition maps of city roads, we plan to launch the C. D N G P and progressively roll out to more cities.

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Once the city N G. P is capable of handling and see when driving scenarios. We believe there will be some fundamental change to customers driving experience, bringing it to a man machine co pilot stage.

Leveraging our proprietary technologies of highway N G. P V. P. A L. L. C. C. D E. L. M D. M D P along with our unique closed loop data capabilities I am confident that our next generation advanced driving assistance system from G. Nine will be superior to solutions offered by our peers.

In terms of safety performance cost and generalization.

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Our vision is to make the advanced driving assistance system available to a much broader customers ultimately transitioning to full autonomous driving will never simply stuck up smart hardware components, we resolved to developed a robust full scenario autonomous driving system with strong performance at a high level of <unk>.

Safety at affordable cost, therefore, creating greater value for all customers in our company.

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Without in house developed full stack software and core Heartware advent level. Our next step is to deeply integrate Ada smart cockpit smart chassis next generation electronic and electrical architecture, and powertrain systems lifting comprehensive capabilities of all future Smart E V products.

While allowing us to provide brand new smart product experience with lower cost.

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On May denies we made our ex pilot software a standard configuration on mid and high end versions of all existing EV models. This will allow us to accelerate the penetration of <unk> pilot software strengthen all capabilities to provide innovative functions through cross domain integration and make our ex pilot.

More affordable through economies of scale with the upcoming mass adoption of our X pilot as well as our advancement towards level four autonomous driving technology in 'twenty 'twenty six we believe more business models to monetize new software and new ecosystem will emerge.

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Moving onto our product pipeline given the fact that the Covid situation is well contained in the Guangdong Province, where our headquarters is located the R&D of all new models is progressing well in March the PS seven become the first B E V model among emerging Chinese EV makers to reach the benchmark.

Production volume of 100000 units. Meanwhile, its monthly delivery exceeded 9000 units.

The G. Nine is all flagship SUV model, we plan to officially launch G. Nine in the third quarter, followed by mass deliveries in the fourth quarter.

The Jeannine is powered by industry, leading 800 volt high voltage powertrain platform next generation advanced driving assistance driver assistance platform and electronic and electric architecture.

We hope the G. Nine it will become a benchmark model in its segment boasting comfort and luxury in addition to those industry leading technologies. We also expect jeannine to become a blockbuster model in the medium to large sized smart electric SUV market.

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In 2023, we plan to introduce two new models. One is based on our new B class platform and the other is built on our new C class platform.

We expect these two new models to feature several industry first technology innovation. In addition to their superior design.

In combination with the existing models, our product portfolio will strengthen our presence and leadership in each of the sub segment of 150000 to 400000 RMB price range.

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In addition, the development of all flying vehicle is well on track with expand Aero H T. A portfolio company and all ecosystem. According to its latest product assign the two seat flying vehicles Court is still a car that mainly drives on the road, while users may conduct safe flight with vertical takeoff and landing.

When bro conditions are open and appropriate it will deliver a brand new mobility experience for all customers from 2020 six or in a near field trip in suburban areas of cities, where people can actually experiments a new combination of mobility experience.

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We will focus on the platform base architecture, and apply modular design and Nextgen manufacturing processes when deciding our new models to allow more models to share the same powertrain platform a desk and then like honey on electric architecture et cetera, I believe drawing on the success of the PS seven will be able to achieve the structural growth.

Margin improvement from the Jeannine and subsequent new models to be unveiled a medium and long term goal is to increase our company level gross margin to above 25%.

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Now on the Supercharging network front ex self operated charging stations featuring a wide geographic coverage and a better user experience have already become one of <unk> core competitive advantages.

The April the 13th 2022 the number of ex self operated charging stations increased to 954, including 774 self operated supercharging stations and 180 destination charging stations.

Jeanice mass delivery will deploy next generation 480 kilowatts supercharging piles in the fourth quarter to provide a superior charging experience, enabling 200 kilometers range after a five minute charge.

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Frankly, the macro environment. This year is Roth with challenges, but it is clear that these challenges do not change the long term fast growth trends in the smart TV market S. B E V penetration rate continues to ramp up independent domestic E V brands are gaining consumers' mindshare and making their foray in the mid to high.

And market segments, Smart technology, and innovation are here to stay accelerating the pace of the disruption of those incumbents and presenting an opportunity for industry leaders armed with outstanding competitive edges to shine leveraging our leading edge R&D keep our technology and strong organization in <unk>.

Execution capabilities.

<unk> is well poised to capitalize on the opportunities to reshape the market cementing our leadership position with growing market share.

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For the rest of the second quarter will continue to work hard to overcome the negative impact of the ongoing COVID-19 outbreak and its supply chain pressures for the second quarter of 2022 deliveries of vehicles are expected to be between 31030 4000, and the total revenues in the second quarter.

As expected to be between $6 8 billion and $7 5 billion RMB.

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You want me to say what we've done.

Yes.

Gotcha.

Thank you everyone with that I'll now turn the call over to our VP of finance, Mr. Denis Liu to discuss our financial performance for the first quarter of 2022.

Thank you Mr. Hu and Hello, everyone now I would like to provide a brief overview of our financial results for the first quarter of 2022, I will reference to RMB only in my discussion today, unless otherwise stated.

Our total revenues were $7 5 billion for the first quarter of 2022, an increase of 153% year over year, and a decrease of 13% quarter over quarter.

Revenues from vehicle sale, it's worth 7 billion for the first quarter of 2022 an increase of 149% year over year and a decrease of 14, 5% from the last quarter.

The year over year increase was mainly attributable to higher vehicle deliveries, especially 40, a P. Seven MP five while the quarter over quarter decrease was associated with the less vehicle would be the least affected by these seasonal factors relating to the Chinese new year holiday.

Gross margin was 12, 2% for the first quarter of 2022, compared what you had been 0.2% for that period of 2021 and 12% fall of last quarter.

Vehicle margin reached 10, 4% for the first quarter of 2022 compared with 10.1. For example, the same period of 2021 and 10, 9% for the last quarter the quarter over quarter decrease was primarily attributable to increases in raw material costs.

R&D expenses were $1 2 billion for the first quarter of 2022, an increase of 128% year over year, and a decrease of 15.9% quarter over quarter.

Year over year increase was mainly due to number one the increase the employee compensation as a result of expanded research and did I Miss that and number two higher expenses relating to the development of new vehicle models to support future growth.

The quarter over quarter decrease is mainly explained by less design and development expenses, which was affected by these seasonal factors relating to the Chinese new year holiday.

SG&A expenses of $1 6 billion for the first quarter of 2022, an increase of 128% year over year, and a decrease of 18, 5% quarter over quarter.

Year over year increase was mainly due to number one higher marketing promotional and advertising expenses to support vehicles sales and number two the expansion of our sales network and associated personnel costs and commission paid to re franchise store sales quarter over quarter decrease was mainly Ah.

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[noise] I shall read those out but are you foregoing loss from operations were one point IBD and for the first quarter of 'twenty or 'twenty to compare with the airport in one media and for the same period of 2021, and two point for BD in Florida last quarter.

Net loss was $1 7 billion for the first quarter compared with <unk> 8 billion for the same period, a year ago and $1 3 billion for the last quarter. So.

As of March 31st 2022, our company had a cash and cash at Cleveland restricted cash short term deposits showed any investment and don't have deposits in total of $41 7 billion.

To be mindful of the dance, albeit earnings call I will encourage listeners to refer to our earnings press release for more details of our first quarter financial results.

This concludes our prepared remarks, we will now open the call to questions.

Please go ahead.

Thank you.

And as a reminder to ask a question. Please press star one on your telephone keypad to withdraw your question press the pound key.

For the benefit of all participants on today's call.

If you wish to ask your question to management in Chinese.

Immediately repeat your question in English.

Are the sake of clarity and order. Please ask one question at a time.

Management will respond and then feel free to follow up there. Your next question.

Your first question comes from deemed Chow from Morgan Stanley .

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So I've got two questions. So the first question just wanted to.

Quickly follow up on expenses Oh previous spec change how they are a company that makes the export of standard features sports on people and pizza hasn't bodies.

Which were the surely build out to the user experience and the adoption rate.

But could you share like the abele.

The company's new software your strategy in Japan.

We plan to restart charging users, but ex pilots all three in the future with AP front like X pilot 0.0, and that's gonna be a chat a bit challenging to be seemed a fee collection. If most appears to follow is to launch free software ecosystem business model.

And my second question is about the margin trajectory.

Could you please update when.

The contribution probably holders with new prices would kick in.

I recall imagine mention here that might be laid true up I'm not sure. If there was any further changes amid a Russian supply chain disruption.

As battery costs, we'd likely be afraid I'd call it climbing in second quarter do.

Do we have enough that low cost of entry for a couple of different battery to coffee at a low price holders. They lever in both paper and they are or we can leverage call. It boy diversify battery supply chain. So those are my two questions. Thank you.

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She called me a quotation.

So thank you very good questions currently speaking for it in terms of our pricing on top of our Adas technology as well as myself as well as all the software I believe that amongst all of the emerging E V made because in China. We are doing the best in terms of our penetration rate adoption rate as well as the final results. However, we didn't notice.

The trend in the market, which is that if you separate the charging for the software as well the hardware from the perspective of the customers or the consumers. It's broader it is actually better to do a combine or a bulk of charging a package that combines the usage or the adoption of the hardware together with the software rather than do it separately. So.

If we can do this kind of integrating probably integrated pricing model for both the software and the hardware it would be actually very beneficial for our future upgrade of the software in terms of the adoption of Adas technology, the upgrading of our smart cockpit smart chassis as well as the overall software performance together combined with the hardware outperformance.

Right now we are in the mid level off a desk technology application and in the future I believe in the near future. When we are able to really moved towards a higher level of Adas technology application, which we internally call them. The man machine co driving experience. We believe at that point in time, we should be able to do a lot more O T. A S.

Of all software with this kind of integration integrated pricing.

Pricing model of the combined both the hardware and software so that we can increase and enhance the overall experience for our products for our overall user experience as well as that'd be very beneficial for the overall company level gross margin as well and so we believe this kind of integrated pricing model for both the hardware and software together will be more beneficial.

Isn't sustainable for the long run and in the future. We believe that more monetization of capitalization the base onto software usage or adoption will emerge as we continue to accumulate more data and more end user experience based on the launch of our software and hardware together. For example, there are different kinds of monetization that can be based on the.

Time spent or to use our time spent without software or are based on the mileage that our consumers or our customers use our products or services. Overall speaking, we believe that this kind of integrated pricing model will actually be more beneficial when sustainable in the long run that allow us to further optimize our user experience.

Yeah.

Hey, Tim This is Brian let me just to add a couple of comments first of all you know we have been witnessing a diverse software our monetization.

Has been implemented by various companies in China, and so far I think it is quite.

Quite clear that our the a separate charge and also subscription based models has not been very prevalent in the China market in some ways I think is limited.

A broader penetration of the utilization of such technologies. We believe that you know at this stage of the market.

Our core focus is to make sure that we provide optimal service package that can be widely used that increasing the penetration and coverage and witnessing a stickiness of our technology is probably the first priority before we actually implement various different monetization strategies. So that's the.

Why I think we are adopting the current standard standardized charging model.

But I think in the long run when we actually see advanced main technology seem more broader utilization and also stickiness and dependence up this technology I'm sure it won't be able to have much more robust monetization and variations that we can use for the Chinese market.

And I'll hand over to Dennis for the second question.

Timna. This is Dennis Ah yeah in the previous earnings call. We mentioned, we will be able to deal with most of the new price oldest probably sometime in June maybe in the second half of June because of the coffee impact, especially in the Shanghai.

Now we are looking to deliver.

Our lowest price tact Otis until June so most of the new new price OTA won't be delivered probably studying in very late June and this I mean, starting in July that's the play then assessment of delivery.

Yeah.

Next question please.

Thank you.

Question comes from Nick Lai from Jpmorgan.

Huntington.

Oakland downtown with Nick.

Uh huh.

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And England things Michelle do you want to just as I'm.

I want to come to Etsy through.

Through the summer.

So I want you to have some switching types are quite strong maybe you get that done going out in.

So the government that you can.

I think it's tended to be tissue, sometimes they still don't think sinton figure them in.

Production.

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Oh, that's a good production months since I started just to keep a high tech jobs.

So she intrinsically jumps.

Jumps in Michigan that Washington, since she came to us because it's a pleasure to speak with you too much into it seems to be down slightly from the peak of it.

M T.

You wanted to kind of do you.

Do you think it's a chunk of it.

Looking like what he or she go the whole tinseltown consistent she thought it because some of those telephone.

So as you can see a few of them.

So we can kind of see.

Since it's a good chunk of it.

I couldn't didn't MSA Shan Shan Shan continue to challenge our.

Something tells me that's a great machine to be at my two simple questions. The first is a monkey production now regarding our second quarter production of 41 to 44, something a unique adult translate into Boston.

Finally total units per month.

Potentially I mean, we have.

Some of them on top of 40 Christine.

In a restaurant too cute and is it possible that this could actually yield can be recovered.

So maybe just update on chip's points and took them question just really on that piece of pipe.

Pennington, we spent supplier in June .

Hey, Nick its Brian .

Let me answer your first question first of all Youre correct our.

Quarterly guidance for the delivery this quarter reflect of a bottle neck in the supply chain.

It has been impacted in.

April as well as may and likely in June as well. So this is actually a number that reflected.

While we cannot obviously have to full output even with the capacity of the factory running at full capacity, it's still limited by the supply chain constraints.

We envision that if the supply chain are resumes normally will be able to catch up with the volume in the third quarter, because we have sufficient capacity to ramp up.

Production at a time, so I think.

You know I think we're confident that as soon as the the impact in Shanghai area in some other area that resumes normally will be able to produce enough output to accelerate the delivery and to meet the customer demand, which we're seeing is very robust.

Okay.

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Jonathan.

So Michelle what its usual cannot change so if it helps us really up.

Two of them until you seem kinder down chain hotel that shoulder with minimum wage.

The woman gets the chance to let it go.

So yeah, let me just address the question regarding the chips visibility. So if they want to any COVID-19 resurgence St. In China right now I think the majority of our peers are all of the new EV makers in China, right now will be actually restricted by the capacity or the supply of the chip in general According to all late.

This calculation every single unit or every single product of ours will need an average of 5000 chips and for some parts of the car that will require about a dozen or several dozens of the same chips for just one part of the car and for some of the main chips actually for example to be kind to five kinds of the main chips are there capacity is actually.

Okay and their supply is actually okay, but the main shortage actually comes from some of the smallest and the chip is once the chips and their capacity as they were they had limited and the visibility is also within that limit that in China as well April I would say I was performing actually quite well in terms of the capacity and the supply of the chips and disregard however.

We believe that in China, I mean, the visibility to chips in general going forward is still a very very limited and how its impact on our capacity is also going to last for a while now from 'twenty 'twenty on we begin to notice the crisis in shortage of chip supply to in general and by 2021.

We thought that well maybe the crisis can be either sold or at least alleviated to some extent by the end of 2022, but now our latest judgment is that the situation is going to I mean, the crisis is going to still last for a while maybe a head into 2023 or even longer now there are several a resolution there.

For example, finding long term contract with all of the chip supplier. It can be one of them and the other is really as I mentioned in my previous remarks that we need to build a very capable team technological teams that have very strong capability in building embedded architecture that allow our platform to be very very flexible in adapting to.

The supply shortage of chips. For example are we can we should be able to adapt to them. For example, the shortage in chips are in some parts of the platform or some part of the old product and we can change our flexibly according to the supply and off different chips in different parts of the.

Units and as I mentioned earlier in April we did actually quite okay. In terms of the visibility of the chips and sometimes you know are we only have one weeks visibility into the future in terms of our cheap and how it affects our capacity. So overall I would say the situation is still hum.

Not a very positive at the moment. Thank you.

Yeah.

All right.

The other one too.

This is chip.

Thank you Dan.

At one time, you walk into the jobs, whether you can afford it.

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B cigarettes.

Jonathan.

Trade on Husky, then you don't want to do.

But tissue that's for sure.

Don't see that kind of was underway.

The job growth is down China go from Cui, Shandong, if you need a shot Jeff.

You're calling for quite a chunky, though so there you go okay changing is they will shut down in Germany.

It does.

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Its 1 million tonne junior shut Bonnie and crashes of whole minutes switching millimeter quite nowhere right.

It's a trend.

Is it above or below this level.

What did you want to call. It showed a woman that's really quite a bit of equipment.

Sure.

Alright, let me address the second half of your question with regards to the capacity and the pricing of a battery supplies now in 2020, one Alabama supply was greatly with strange that resulted in a lot of issues for us in terms of our deliveries as well as our overall capacity of production from 2020 on.

Also from a I think of them this year and all the way to the first half of 2023, I think the battery supply situation will actually become better and it seems up from last quarter well from Q4 last year all the way to the first months into 'twenty 'twenty. Two we begin to notice that there are a lot of a lot of pricing increase in terms of the supply of battery.

Mainly due to the increase of raw materials of making those new energy batteries, which include a lot of our price increase lithium materials and we notice that kind of price increase in China domestically speaking, but not so much in the overseas market, we believe that the pricing of lithium as a raw material.

It remains the same as the situation back in 2000 and for the first half of 2020, one and because of the current COVID-19 resurgence as well as the price increase and lithium material I think overall the situation remains a very hard job to the whole industry not just for ourselves, but that the situation can begin so resolved or at the <unk>.

I think batteries will continue to reduce slightly from the second quarter of this year on <unk> now for the second quarter of this I mean for the second half of 'twenty 'twenty. Two we are we should be able to see some adjustments or some optimization of our battery supply because we are able to adopt a multi <unk>.

Fly is about batteries, which really can be beneficial and we're still seeing some of the issues that resulted from a lack of battery supply from previous quarters and we from Q2 on the belief that we would begin to actually see a lot of progress in this regard and the second thing is with multiple suppliers of batteries, we can do better.

Our optimization of our products as well I think in the meantime, the battery pricing will continue to actually reduce from the current high level, but probably not probably they won't be able to reduce <unk> to the low level as we saw in previous years. However, we are very confident that ex <unk>.

Benefiting from our Super charging technology as our S. I see charging materials adoption also with some of the optimization and all the time well the technology advancement in that but using the wind resistance in reducing the overall weight of our products as well as two overall has a high efficiency up.

Utilizing the batteries as well as adopting multiple supply of batteries can benefit us in the long run and can allow us to continue to serve our customers with enough I'm actually production of our products are going into the second half of this year and we believe that from the second half of 2022 on we should be able to continue to boost our.

Sales of new products benefiting from the above.

Factors that I just mentioned thank you.

The next question please.

Thank you.

Your next question comes from bin Wang from Credit Suisse.

Well.

T T issue the needle here.

Well, let me take most of the things that are hard to read on even if we do youll probably shouldn't you Musica.

I'll talk on attempting to female.

Once again, thank you for little while.

Marty do you quit we put out some kind of CP wanted to partner you could touch FEMA did you assume that the market takes hoping KPN in commodity like Asia, which to me in fact, we know that you could see too.

T acquainted with RGA to catch up on it because eventually they're going to say I mentioned coming into us and we took a million of them onshore from PTC. He wants to do kind of twisting.

Peter I'll conclude especially about national share count on a M King and Toledo quit talking about Josh machine.

Attainable gosh I showed a multimode <unk>.

Well, we thank you Sir My question was about our margin outlook in our second quarter or the second half this year, because we see some different sectors. This is tightened up higher priced products only kick of heat.

Water.

While second quarter, maybe Santa Clara comparable first quarter in the gross margin and number three quarter can I pick a half kind of assume that gross margin.

Ultra high when the high pricing.

<unk>.

And the second Pie Scott Wilson Retrenching.

On the topic of pricing, what's the impact of low cost margin.

Second quarter and for the quarter, that's number one question.

Number two is about our new products as you mentioned there would be a largest has put us in the <unk>.

Gotcha.

Product in the clinic.

For the three and so what's the pricing range, what's the margin above 20% gross margin because you did not you took a 25% margin in 2025. Thank.

Thank you.

Okay.

Oh I mean this is Dennis let me address your first question.

Yes, youre right because of the coffee impact our second quarter about them will impact peak compared with the original projection show Oh second quarter, our gross margin and won't be a impact here as well.

We will for a investigate the impact and also take some action to Ricardo Martinez second quarter and go into the third quarter. Yes, we worked at either new price older show a margin India showed quite a rebound well improve how able are we.

We are seeing and we will have Florida, I imagine you're in Pune, India quarter, four when we have new model delivery to the market. So a module in the second quarter walk eastside to the are impacted by the I D.

Audio new price OTA, and then so quite how will improve in the first quarter or for the important that's all patent protection.

Yeah and.

Hey, Ben.

Let me finish just to answer your second question, yes, it would be probably the product that we're going to introduce next year, which will include a product coming pharmacy class platform or wont be at a premium to the current portfolio of products that we have including the <unk> nine. So you can expect that would be close.

Two or even exceeding the 400000 RMB price range.

It's a product that we certainly hope you will have high gross margin.

20% will be a very important benchmark for us to target our product design for that product I think.

Assuming a 20% above our product margin is actually reasonable.

Okay.

Okay.

Thank you.

Okay, well group was one of the challenges of a woman Naples, Florida.

Dominion and everyone sort of Jimmy Choo Michels says you know what.

Yes Sheila.

Yeah, So William Glenn Pizzitola Anyhow, we'll Miss you fit on the Washington.

And also internally speaking our expectation for these two new products is that they're a capability or the overall performance combined to will be actually a more superior than two piece happens combined.

No George I think essentially bought a new car you don't talk about ETP Palmer to tourism in the state.

Yeah.

Right now, we're not giving guidance just given the lack of visibility of the the.

I would say material prices as well as the overall environment, but we are hopeful that the rebound will be pretty robust.

From second quarter levels.

Thank you.

Okay next question.

Thank you.

Your next question comes from Jeff Cohen from CD Me.

Please go ahead.

Ego Onesie Twosies.

Anyone who choose anything behind me with John and the team down in June and of course as ours do.

I'll ask you to Julie Wilson, sometimes the Shanghai Auto show they don't know.

It shouldn't have any people.

Oh total passion, Jonathan I'll, just eagle when she debuts.

The other one you shouldn't you just got to do sequentially that you should take ones, where the blues bushel women being done the job being done, but particularly on the auto charges on top that's it.

Mr. Guangzhou.

<unk> seen some things done that should go up yeah. It was just something that I think the things aren't going to do because obviously due to country. You may well have been kind of Banco yeah that should go down as well to what woman she's a hip or a child, So Youtube channel.

There's nothing better.

So chicken excuse me, there's not too long ago.

Carlos This is thiago and team.

It's interesting to you why you J E T to the chicken.

To put it in the margin.

What's your thought Julien.

Physical did you guys were sure what poetry runs you as a whole.

Due to the module.

What's your argument about just about bottoms or something.

Oh, well you're shocked when she was a Google football I'll just yeah.

So that sounds a little while.

The cartridges it not when they actually do that you've got a some sort of margin.

Okay.

And so your questions are one is the AR due to the.

Backlog rolling from the first quarter a.

How it.

So in the second quarter will be.

That'll be MSRP price hike.

Number one.

And also who is the newly generated or the backlog.

First off for me could cause you're telling us.

On the trend on that.

It will be our agenda, where the order backlog and the final question is about the first quarter of vehicle margins.

Could you break down the vehicle margins with all the software and also separately could you tell us the first quarter software margin and for an Apple to Apple comparison.

If we strip off the raw material price hikes.

Well.

What should be the first quarter of vehicle module would have been thank you.

So Jeff This is Brian Let me answer your second question first which is the new order trends and then I'll leave the number of question to Dennis.

First of all as we said in our CEO .

Seal presentation that we actually saw the older New order recovery in May are in areas that are not affected by Covid lockdown in certain cities is already a year the pre price increase levels.

A very encouraging sign because obviously, we see that demand is genuine and also its actually rebounding cream pretty nicely. It took us probably a little bit over a month to build up that demand pool. Obviously you saw the month of April we saw slow demand recovery, but in may actually the order level is actually quite quite robust.

And I would think of as the increasing relaxation of Covid.

In large markets that we target, which are important market to us we see the overall order momentum will be quite strong.

And then I'll hand over to Dennis on the other two yeah, Hi, Jeff and let me address your first question. We we don't provide precise for example, the uranium price soda deliveries that you hold price or 20 degrees, but in our alcohol majority of BD race, Woody Oh pipe prices.

Pete and also your main G&A joke, he would be the the.

Oh price, especially at a 40 year P. Seven major piece that would be a price protection because the idea that batteries are we need some time to build those soldiers.

For your third question, yes the.

The.

First quarter. The reason why we can maintain the same gross margin that was quarter four last year, a wish because number one we had mix improvement.

Our P. Seven the part that makes that part of that mix in the first quarter. It was about 56% in the quarter for last year, you were about 50%. So that's a mixed implement and next one is the available mapping.

Kind of regeneration. We are technically you do do you saw available marketing spending to increase the overall.

Although imagine having said that we were also impacted by two key factors number one is the E V reduction.

New energy vehicle, a reduction which is about 90% subsidy level at about 20% compared with the 2021 the other one the a big chunk of what BD, a battery cost I I cannot provide you a detailed number but that is a big offset up out that the mix improvement and also the Oh.

Variable marketing reduction so all in all we were able to maintain the quadruple imagine neighbor.

For the moment.

Next question please.

Thank you.

Your next question comes from mainly from Bank of America.

Oh no sit in the hall.

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Does it go.

She social.

Shall go with someone else so that sounds good.

And how does it have expanded Sydney.

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Neil you can shop.

Peter Lynch, but theyre going to you should continue to grow.

Kim Chi Chi Tung it just reduces or something else you guys have homes on which he doesn't see that lots of Jim welcome to the 20th somebody shut down your vacation.

Change at a time.

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Agenda to go down.

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Alright.

So when you don't control the impasse and test it.

So someone else's that took out just as good.

What's wrong and as long as it either to take all that together.

Hi, This is John .

Second question excuse.

Well just sit down once you don't face yeah. So regarding your autonomous driving software.

The future will.

They sell some software be included in the comp price or you will still consider to charging the consumer on a one off or a monthly installment basis and also.

Because this time you gave the software that's a standard Oh copycat, but in the meantime, he also pencil.

So are you charging and also depends on the subsidy for.

Installing the charging pile. So is it a margin neutral event for your business and second question regarding the Super charging technology.

It is the 480 kilowatt only charging pilot and also hungry voltage.

Tree.

The ultimate.

Battery technology charging technology or in the future.

EBIT for the.

The other event charging technology. Thank you.

Okay.

Uh huh.

To answer your first question, yes, our when we.

Build those somewhere into the vehicle to get at which the price and at the same time. We are go eat up the supercharger increase Supercharging N O. Saudi are you kind of out of the yard and.

Destination charge, you to your home charger and including Easter ratios are and at the same time, we also adjust the price a little bit too Cavalier some will be a cost. So overall, yeah on the margin impact would be noon show and more importantly, we with more a customer using the app.

Software, we will be able to.

Increased the scale and also to dilute the same kind of R&D.

On the expense so Oh boy, that's a good strategy for us in terms of the next part that Jean I and also what are your future product. We we haven't really decided yet that was subject to a photo in time discussion are we know what it would've continued be such practice, though we will have a.

A regimen, that's subject to our internal discussion and when we introduce a product we will also I mentioned that.

You are sick of Shin charges.

Go ahead Paul.

Or what else.

He has a long tail.

So like Oh, let's see.

Uhm, let's say you got that one.

All of them against you for three questions.

Telephone somebody with a lot.

So when she wants you to be able to have a woman.

10 minutes.

So what about you gave us a whole bundle so you're correct.

So these aren't happening okay.

And don't want a silver.

I'm doing well.

So it says it was mentioned that they will take longer.

Female symbol.

Thank you Josh.

Alright, let me address the second question of Yours actually this year. We have made this plan to launch the 480 kilowatts are charging facility by the fourth quarter. I know originally you know before heading into 'twenty 'twenty. Two we had planned to actually launched two kind of charging them a facilitation one is 260 kilowatt.

The other is 480, but after evaluating the macro environment of this year, we make the final decision of Lunching 480 kilowatts by Q4. This year that allows for charging for fun, but it's that last part 200 kilometers of driving experience. However, if you actually charge for it 10 to 15 minutes. He can give you even a longer driving range, but we haven't had.

The final testing results yet that's why we are not releasing the number.

Well I mean, the Wheeler Indian email teachers is down to just about Buffalo Tim was it was helpful.

But she's a channel out of them what do you do you place with home care and food at home operating she couldn't find a way to push for women and children to finish up on yet.

But you don't have Deutsche anything you Cook Torchwood avoided.

And so that's what I said I Didnt know what the trader Schinder, she told us and what can be done we don't want it you can challenge.

Is it a concern.

Until the cheese or teaching people how to teach you know Shelby Cleveland Huntsville.

She had a patient.

And shouldn't that achievable this year.

So you'll be jumping in shadows until towards cheat sheet.

She doesn't know what she saw the show so that's all part and Egypt as well. So you could I kind of heard you won't go and sell that you couldn't theater instead of two children in cohort two cohort of Jacob.

On the tissue.

And so for the upcoming year, we believe that our with our building up the 480 kilowatts Supercharging facility as well as our 70 kilowatts destination charging we should be able to actually launch quite a powerful charging that work that's going to cover a why did you a graphical area in China and in the coming year, we believe that we have.

To welcoming a new how does Eva of thumb optimization optimization as well as electrification now in terms of the improvement of our electrification. We believe that as the our technology continues to develop in terms of reducing our window system, including enhancing the do you think.

And the efficiency of the electric system, the powertrain as well as a battery with also the further enhancement of the Supercharging our infrastructure, we will be able to welcome in a stage where it in Iraq, where we actually have a higher charging them efficiency or effectiveness compared to what the traditional Augusta.

Patients out for I C E vehicles, which means that interest feature the market adoption rate for a new age or E V will actually be higher because consumers will begin to actually see a great enhancement and using every single dollar for charging their electric vehicles with lesser use with a less usage of power consumption.

Okay.

So I shouldn't do it.

In Arizona seven ablation.

So anyway okay.

Her couldnt you just sort of adjustments we should put in.

And with Huntington and she Didnt go Crazy and go from there for.

10 minutes.

He is 100 those things until you don't typically does I shouldn't be able to do it.

In general and just thoughts on the shelf.

The whole women's had suggested.

They are accretive on above what you have been watching it.

During the quarter.

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C J.

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Good morning.

Well typically where they open quite a telephone teaching to the woman isn't that you said your best shot at that.

Charlie Wenzel number 20, I couldn't do any of them go to nonpartisan challenge, how you order jellyfish, Illinois.

Okay.

And so the second part of my I'm, sorry is actually by the second half of 'twenty to 'twenty three we expect to see a mute a development that is revolutionary for it unless you think apple optimization of our technology, which means that by that time, we should be able to cover the full scenarios of driving Oh.

We can enhance the user experience and also the safety standards for using our products as well and by that time, which means that we should be able to.

Integrate the insulation of our latest technology in the hardware as well as all software together with our combined installation or prefiguration off both the hardware and software together as a standard configuration of our products. When we reached a stage of consistent south of those kind of a pre install configuration, we should be able to.

I actually optimize the overall standards for safety as well as driving experience because we will be able to put in a lot of the embedded mm mm functions that we want to add insult in our products to optimize the user experience and overall that can save a lot of the usage of all hot wherein overall to increase the usage.

Fishing sea and effectiveness about hot where in general so yeah, just to summarize <unk> by the end of this year or by the second half of next year, we should be able to welcome in a lot of resolution or any changes in terms of the electrification as well as optimization in our industry and the second part of your question is also about the next year.

Generation to us our charging facility, yes, we are still in the R&D process. We are constantly developing our technology in order to develop the next generation of Supercharging facility that can allow for fast charging five minutes and that support even longer range of driving yes. That's all for my answer. Thank you.

Hi, operator.

Thanks.

Yeah.

Okay.

Thank you.

Your next question comes from Jean Chang from C. A C C.

Okay.

We know how to clean the house and she told me if you're talking about not your 10 o'clock 10 minutes.

On the O N E.

What's in that country, where we outgrow ourselves okay number one people Oh, how should see human powertrain you can go back and do you watch over telephone not sound way.

<unk> you want me to answer that question right.

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Not much I ended with no tricking Johnny you were trying to teach them off for sure Union, it's more tricky well Michelle with you to figure out why the company bought back then that's I'm going to eat virtually equal there should moderate in your car or you can be impactful you.

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It'll be asking to see challenges with neutrals are when they actually came out.

Waiting about Jack well, not quite back to Ocwen and ship them to their strength and Trump.

But they know how to do Ya man can I, you should get quite a bit oh.

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Yeah convenient shopping you ship, all wait and see how it goes whether it's easy drinking three San Juan does St with our key water tea sounds logical people tell me they didn't tricking check in so that he can start out.

Okay.

The whole thing.

So my I have some follow up for live questions regarding to our company. So it's adjustment to charging.

Tried to targeting and attracting and the software.

Activation target first.

And regarding to the pricing strategy of new motto operating integration of software and hardware has felt that the secret sauce of our current model taking P. Five I think the example, with the price P project and emerging.

It could take 2000, RMB and the 18th but they arent be higher than the key immersion.

The mouse models that to cover the increase in hardware costs.

Our new models, such as new section.

Such as G night, there'll be takes the benefit of all the software into account into the correct pricing strategy that has depressed difference between different broker and stuff like.

My second question about this year, we can see in spite of numerous crap that 200 to 215 talking R&D has increased significantly and someone else has emphasized here are there new electrification technologies, such as well she can see amplitude.

And we have also heard that tomorrow, Nokia there'll be applying to our new modern centric Tonight on next year's model.

Sheltering, especially in this year and the first half of next year too.

Do you worry about the bad competing products, we don't have a great impact on our self L. P. Five emptying out a piece.

If I can.

Yeah.

Fisher Eagle Intel would you does he gender niches such as the ones I hope.

For me the PTO machine.

Oh without a dual class. So there's really no one wants to trade with us. So he retired from just the go go to and that's what I'm, suggesting that a new law in New Jersey, who died upon which I will not Oh no. My time, so that you don't even know what it sounds like it should have the social.

Possibly usual critical materials central Toyama need instead of progesterone and so you won't see that in general.

Our balance sheet and looking to call. So you felt that you can email me the totality of the bundle.

A couple of things what he's doing.

The audience treat women shouldn't that I kind of okay, you're going to finish out this will be done with an intelligent Indian patients at home and to appeal with the co pay to pay those shouldn't the topical workshop I'll kick off.

Some of them as you wish.

Industrial defense and show nothing pinching.

Got it.

Nothing is off the Moody's does that change on the table that you wish you all a treaty.

Jonathan diet that so don't forget that of course that some of them don't even go to it.

Central to that.

Yes.

Oh boy so but.

About the first question of yours, yes in the future upcoming models of hours, including Pinite and other new models, we plan to enhance the price gap between different configuration. For example for higher end products or higher end configurations. The price will be aimed higher because they embed our incorporated a lot about adas function as well as the <unk> our advanced software.

But on the other side of coin is that for lower configuration products, we are actually able to sort of lower the pricing because we will use a better bom cost optimization for the adoption of a lesser.

Our events are kind of hardware for those kind of low and configuration, which can be very beneficial for individual consumers as well as for us as a company now in may after the adjustment to house our pricing that include both the software and hardware, we actually have seen a spike in orders for mid to higher end configurations.

P. Five that gives us a lot of confidence in going forward because in the future with these kind of new pricing strategy or incorporation of both hardware and software into the one configuration, we should be able to further enhance our overall capacity I mean, our capability in optimizing the user experience of driving experience as well as optimizing gross.

Margin and in adopting more high level Adas mm mm mm technologies into our future products.

We didn't give we're going to see it all.

The PCP with people dancing needle.

I see but since then you basically lose a whole such as the one you've attributed she's wouldn't miss it penciled in for Jonathan.

To change.

That just won't hold a shoot you an email and Michelle NGO.

John I'm going to need them today.

Hey, Daniel could you only have them Chico's Hudson.

Sure.

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The pitch is the whole issue.

The one particular center partnership so call. It another sold it doesn't matter the pendulum desert casino to the Puget Sound you don't women people don't we spoke with us.

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She was in consultation with the whole women's that condo Jacob.

To choose to go from J P. G that goes when Vito pizzuto sugar. So I'm sure. This will go on to.

Something even starting in the June digital and I talked about.

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Some of them are getting one of them that you had to use some of that some people kind of.

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Saturday Huh.

Yep.

Sure.

And regarding piece of an RP five actually ever since our launch of C. D. N G. P. O G. On P. Five we've been able to actually recognize all the leadership position of this model in the market because if all our peers were to develop similar products with the same sort of performance configuration in the coming several years the pricing of their products will be much higher.

Then hours for P. Five mm and also we are going to release more information regarding our automation and smart design for the upcoming products and the current product portfolio in the future. When we have them ready actually reviewing the sales performance of P. Seven when we first launch it in July up back in 2020 odd weights you add that in March 'twenty.

'twenty one when we launched the highway N G P for P.

<unk> seven we were able to see a strong growth in the total cell somewhere of the order number of this particular model with the adoption of N. G. P. And also for Q1. This year, we were able to record a history historically high level off that 9000 units with monthly sales, but is it particular products. So I would say that overall, we are very confident about our judgment of these are the positioning.

These kind of products in the market in terms of its own positioning in terms of the product quality, our market share as well as Oh T. A mm mm the belief in the future that will strengthen our leadership position of these products. Thank you.

Hey, how about chicken when they should have I'm sorry.

Operator, we are ready to conclude this call.

Thank you.

In addition to just Nick Q&A session I would now like to turn the call over back to the management for any closing remarks.

Thank you once again for joining US today. If you have further questions. Please feel free to contact ex comes Investor relations through the contact information provided on our website or the Pearson.

Relations.

Thank you and this concludes today's conference call you May now disconnect your line.

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