Q3 2022 Xpeng Inc Earnings Call
Hello, Ladies and Gentlemen. Thank you for standing by for the 3rd Quarter 2022 earnings conference call for XPeng Inc.
At this time all participants are in listen-only mode.
After the management's remarks, there will be a question and answer session.
Today's conference call is being recorded.
I will now turn the call over to your host Mr. Alexia, Head of Investor Relations of the company.
Please go ahead Alex.
Thank you. Hello everyone and welcome to Xpeng's third quarter 2022 earnings conference call. Our financial and operating results were issued by NewsWise Services earlier today and available online. You can also view the earnings press release by visiting the IR section of our website at ir.shaokong.com. Participants on today's call from our management will include co-founder, chairman and CEO Mr. He Shao-peng, vice chairman and president Dr. Brian Ku.
Vice President of Finance Peter Dennis Liu, Vice President of Corporate Finance and Investments Mr. Charles M. Zhang and myself.
Management will begin with prepared remarks and the call will conclude with Q&A session. A webcast replay of this conference call will be available on the IR section of our website. Before we continue, please note that today's discussion will contain the following statements made under the Safe Harbor provisions of the US Private Securities Mitigation Reform Act of 1995.
Overlooking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the relevant public filings of the company as filed with the US Securities and Exchange Commission.
The company does not assume any obligation to update any for the looking statement except as a required on the applicable law. Please also note that Ex-Im's earnings price release and this conference call include the disclosure of the un-altitude GATT financial measures as well as un-altitude non-GATT financial measures. Ex-Im's earnings price release contains a reconciliation of the un-altitude.
non-gasp dimension 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.
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In the third quarter of 2022, Xpeng delivered 29,570 electric vehicles, a year-over-year increase of 15%.
Cumulative deliveries in the first three quarters of 2022 totaled 98,553 electric vehicles, representing a growth of 75% year-over-year.
Frankly, we're going through a very challenging period in pursuing our long-term goals. In response, we recently conducted an in-depth strategic review and implemented organizational restructure. The competition for smart EVs is similar to a marathon. I believe that only strong players with core technologies, well-rounded capabilities,
and the ability to monetize from both hardware and software will eventually win in the long run.
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To enhance our product competitiveness and boost sales, we'll simplify configurations while improving our hardware and software products attractiveness to incorporate customers' voices and needs.
As market competition intensifies, we'll sharpen our marketing to highlight the great value in our industry-leading smart and electrification technologies and further enhance our branding, sales and service capabilities. I would also like to take this opportunity to sincerely thank our customers and shareholders for their valuable suggestions regarding these areas for improvement.
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Within the new organizational structure, I will focus on XPeng's strategy, product planning, and R&D. My goal will be to drive organizational change and upgrades, ensure customer values is reflected in our entire product development process, including design, R&D, sales, and service, holistically making our business operation more concentrated and efficient.
In a recent strategic review, I'm more convinced that the adoption of smart EVs will accelerate in the second half of 2023. We'll unwaveringly invest in the R&D of autonomous driving and smart cockpit technologies to strive to reduce the cost of these technologies to our customers while ensuring that customers' needs and preferences are at the center of our innovation.
to enhance our smart products competitiveness and profitability as well as our customer satisfaction. At the same time, the platform-based approach for our vehicles and powertrain will improve the efficiency of our research and development and will help consistently reduce our R&D expenses and bomb costs through technologies.
Besides, our ecosystem affiliates, XPeng Aero HD and XPeng Robotics, have both raised funds recently and are now well-equipped to operate independently. As a result, I will be spending much less of my time on our ecosystem affiliates operations.
Our co-founder Mr. Hong Xia will resign as an Executive Director of the Board of Directors to focus more on products.
Thank you for your attention.
As always, it is important to know that written expressions and
In addition, we are restructuring our brand and marketing team. Through a strengthened team and more targeted content, I believe we'll succeed in addressing the key factors that affect consumers' purchase decisions in the most sought-after channels and across a broad range of customer demographics, paving the way for more powerful brand awareness of expiring in our products.
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Leveraging our dedicated EV platforms with a focus on architecture and powertrain, we expect to increase our R&D efficiency, enhance our cost control measures, and improve supply chain management.
In line with our mission, we have invested in three powerful EV platforms over the past few years, including our fully established E-platform and our third generation S-platform and H-platform, both of which are expected to be mass produced next year.
Together, these advanced platforms form a solid technology foundation to support our product upgrades and iterations.
Our core technologies, including our powertrain system, advanced driver assistance system, chassis, and electrical and electronic architecture, will be shared across multiple vehicles we are developing as much as possible. As a result, the required R&D cycle time and expenditure for each new product will be reduced.
while the vehicle software and hardware quality will be more stable. We have also adjusted the organizational structure for our EV product management team accordingly. Each EV platform will be led by a senior product manager in charge of product development across the complete product cycle from design and development to sales, forming a market-led closed-loop system to improve the performance of the EV product management team.
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Mass deliveries of the G9, our flagship SUV equipped with our most advanced technologies, commenced at the end of October . All of the G9s are equipped with an 800 volt high voltage platform that enables excellent driving range. Its charging speed also outperforms all the other EV models in the market.
The increasing market recognition of G9's outstanding capabilities has marked XPeng's leadership in not only smart technology but also electrification.
Such a reputation is not only popularized in China but also overseas.
Despite near-term challenges brought by COVID-related restrictions and production ramp-up, we're confident that the G9 will soon rank among the top three in terms of monthly sales volume in a battery-electric SUV segment priced above RMB 300,000 and draw closer to number one next year as we continue to enhance our brand recognition.
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We believe G9's sales ramp-up will drive future sales volume and pull us out of the trial we experienced in October . Moreover, beginning in the first quarter of next year, we will successfully launch three new vehicle models which will further strengthen our product competitiveness.
We also expect consistent improvement in our marketing capabilities to make our subsequent product launches successful.
As we continue to roll out new products and technologies, coupled with technology differentiation of our next-generation full-scenario ADAS products, we are confident that we will achieve a significant increase in sales volume and average selling price, gaining a revenue growth in 2023 that exceeds the industry average and increasing our market share.
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Since the third quarter of this year, we have made significant progress in the mass production of autonomous driving technology. We continue cultivating consumers' trust in and willingness to purchase our products with best-in-class ADAS software.
On September 17th, Wejai built our city MGP pilot program in Guangzhou. In urban traffic scenarios, which are significantly more complex than highway scenarios, XPeng's P5 took the lead in delivering the best-in-class driver safety and driving experience at a much lower hardware cost.
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We are accelerating the development of our next generation full-scenario advanced driver assistance product XNGP and plan to release its major functions to several dozen cities in the third quarter of 2023. In my view, the upcoming release of XNGP will represent a reflection point.
where Smart Driver Assistant software becomes a must-have product with high frequency usage. We're also pleased to see that a high proportion of current G9 orders are for the max version that features XNGP ahead of the XNGP's OTA rollout. We look forward to enabling our cost competitive XNGP next year in more models.
Furthermore, we believe XNGP's hardware costs will have the opportunity to be reduced as our technology advances and become significantly lower than that of our peers.
Driven by strong brand awareness of our product and cost competitiveness, we're confident that XNGP will rapidly gain widespread adoption nationwide.
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On October 31st, the XPeng G9 obtained the Guangzhou Intelligent Connected Vehicle Road Test Permit, making XPeng G9 the first unmodified mass-produced vehicle to qualify for autonomous driving tests on China's public roads. With the parallel development of our advanced driver assistance system, XNGP, and robotaxi capabilities alongside a
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As we strive to bring our smart technologies and electrification technologies into commercialization, we firmly believe in the value proposition that our in-house developed, industry-leading technologies bring to our customers as well as our commercial value for our enterprise.
We're open to opportunities for strategic cooperation and technology collaborations globally.
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Regarding cash liquidity, our current cash amounts to over 40 billion RMB. We have become increasingly aware of the importance for automakers to maintain steady growth in the university and not just in prosperity.
Therefore, we will implement prudent cost control initiatives over the next few quarters and next few years to improve operational efficiency and streamline our investment projects.
Building on our more focused R&D strategy and vehicle and technology platforms that can be applied across different vehicle models, we plan to roll out future products at a lower R&D cost.
A stronger product portfolio and internal organizational restructuring will also help significantly improve our sales efficiency.
Furthermore, thanks to our early investment in our production capabilities, our CAPEX needs will significantly decrease over the next couple of years compared with 2022. Therefore, we are confident that our cash position of RMB 40 billion will support our business growth in the coming years.
Also, our cash flow will substantially improve as our product sales grow.
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I hope you enjoyed this video. If you have any questions, please leave them in the comments. If you have any questions, please leave them in the comments. I'll see you in the next video. Thank you for watching.
Looking ahead to the fourth quarter, we'll focus on mitigating the impacts of COVID-related restrictions in China and making internal adjustments for our medium and long-term development.
Our November deliveries are estimated to reach at least 5,800 units, mainly due to the impact of the G9 production ramp-up. We're trying our best to expedite deliveries of our order backlog.
In December , our deliveries will rebound significantly month to month.
month over month, we expect to deliver a total of 20,000 to 21,000 vehicles in the fourth quarter of 2022 and generate revenue between 4.8 to 5.1 billion RMB.
We will accelerate internal organizational adjustment and management upgrades in the coming quarters. We are confident that we will rank among the top players in the smart vehicle industry in the medium to long term.
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Thank you everyone. With that, I'll now turn the call over to our VP of Finance, Mr. Dennis Lu, to discuss our financial performance for the third quarter of 2022.
Thank you, Mr. He and hello everyone. Now I would like to provide a brief overview of our financial results for the third quarter of 2022. I will reference RMB only in my discussion today unless otherwise stated.
Our total dry minutes were 6.8 billion for the third quarter of 2022, an increase of 19.3% year-over-year, and a decrease of 8.2% quarter-over-quarter.
Revenues from vehicle sales were $6.2 billion for the third quarter of 2022, an increase of 14.3% year-over-year, and a decrease of 10.1% from the last quarter.
The year-over-year increase was mainly attributed to high vehicle deliveries.
while the quarter over quarter decrease was mainly due to lower vehicle deliveries for the P5 and G3i.
Girls' margin was 13.5% for the third quarter of 2022, compared with 14.4% for the same period of 2021, and 10.9% for the last quarter.
The BMO has reached 11.6% for the third quarter of 2022, compared with 13.6% for the same period of 2021 and 9.1% for the last quarter. The quarter over quarter increase was mainly attributed to product exchanges.
R&D expenses were 1.5 billion for the third quarter of 2022, an increase of 18.5% year over year and an increase of 18.5% quarter over quarter.
The year-over-year increase was mainly due to the increase in employee compensation as a result of expanded research and development staff.
and a quarter over quarter increase was primarily associated with higher new vehicle development to support our future goals.
SG&A expenses were 1.6 billion for the third quarter of 2022, an increase of 5.7% year-over-year, and a decrease of 2.3% quarter-over-quarter. The year-over-year increase was mainly due to expansion of our sales network and associated personnel costs. The quarter-over-quarter decrease was mainly actually due to lower-
compared with 1.6 billion for the same period a year ago, and 2.7 billion for the last quarter.
Comprehensive loss was 0.7 billion for the third quarter compared with 1.6 billion for the same period a year ago and 0.8 billion for the last quarter. The primary difference between the comprehensive loss and net loss was foreign currency translation gain resulting from the rapid appreciation of US dollar denominated assets.
As of September 30, 2022, we had cash and cash equivalent, restricted cash, short-term investment and time deposit in total of 40.1 billion.
To be mindful of the length of our earnings call, I will encourage listeners to refer to our press release.
For more details, our third quarter financial results.
This concludes our prepared remarks. We will now open the call to questions.
I'm ready to preschool ahead.
Thank you.
If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced.
If you wish to cancel your request, please press star 2.
If you are on a speaker phone please speak of your handset to ask your question.
For the benefit of all participants on today's call, if you wish to ask your question to the 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.
We have a first question from the line of Tim Sow with Morgan Stanley . Please go ahead.
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So my first question is about deliveries. Because the vehicle deliveries have been slow in the rest of the month, likely due to the model transition and the COVID-19 curve, X-BEN has done a series of organizational restructuring, but how fast could this adjustment translate into more meaningful, violent recovery in the upcoming months, assuming the impact from the COVID restriction could ease over time.
Separately, have we adjusted our 10,000 target for G9 per month or the new P7 next year due to the current supply-demand challenges? This is also hard core related to the company's profitability into 2023. So this is my first question. Thank you. We Gateway will be making MS Nissansoft G9 released on June 29th in Tennessee. Cause I'm going to be wearing a system Thank you for joining us here this evening.
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All right, first of all, thank you for your question. I just reviewed a lot of historic cases of how manufacturers do changes over time. Currently, the organization adjustments that XPeng is conducting is for the major long-term goals, not for the short term. So, we ask for your patience. At the same time, we are very confident that we can see more of
And we are very confident that we can be ranked among the top three players in the battery electric SUVs segment, priced above 300,000 RMB. Now in 2023, with the rollout of our further developed xNGP function, we believe that G9 cells volume can be further enhanced.
to further exceed actually P7's performance compared to the same developmental stage in the history. At the same time, P7's competitiveness will be further enhanced alongside with our technological improvements and also their sales performance will be improved in the coming year as well. Now in mid-2023, we expect to launch a new product or a new model that are priced between 200,000 to 300,000.
The December delivery overall will reach 10,000, not just G9. The overall delivery for December . Just one week back to the application.
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So my second question is about the cash flow.
In light of the challenging macro backdrop, investors are increasingly concerned about expense cash flow. The company still has a pretty strong cash position and balance sheet based on the latest definition statement, but will there be any potential changes to our supplier payment turn or surge in new model investment next year that may deteriorate our operating cash flow?
What kind of cash burn should we expect next year? And separately, based on the latest financial statement, expense short-term borrowing also increased more substantially in the quarter. Is there any specific reason to that? That's my second question. Thank you.
Okay, Tim, it's Brian . Let me address your question. First of all, the payment terms for our suppliers, we don't see any material change. We actually have been taking a pretty favorable payment terms with our supplier and partners. And if you look at the operating cash outflow, the first three quarters, it's actually less than six billing.
And then we actually also foresee the entire CAPEX for this year, 2022, to be less than 4.5 billion RMB, lower than what we anticipated earlier in the year. And then looking to 2023, we actually see a significant change reduction in CAPEX due to a number of factors. Now as you noted, matchENG ph additives of 0.2 with 15 times less than 24.0. And Yue of 100 Und comments atcyd voetsi 0.1. marquee fatality.
Xiaofeng mentioned earlier that we actually pretty much completed our capacity build out. So we don't need to incur significant capex for that. We also have completed the construction of these new product platforms for the new car launches. A lot of these capex has been already incurred already.
So next year, we think the capex for us will be significantly lower, actually below 3 billion RMB in our estimate for next year. And also, in line with the current streaming line and focus that we are doing in our R&D project, we think the R&D expenses next year compared to 2022 will also see not growth, actually in line or reduction.
and we also see the SG&A expenses going down due to some of the structural organizational changes we mentioned. So overall, we are actually very confident that we can see free cash flow, outflow, simply improve next year compared to this year. And also, with our current cash on hand, we have very adequate resources to meet our business plan, and we also anticipate that carefully and awkwardly exceeding the national unemployment gap.
to start short-term borrowing in the third quarter. The reason is basically for the kind of money management because we have established considerable credit lines with variety of banks. And then we kept totally draw down some part of the credit lines to strengthen the relationship with banks. So that's why you see a slight increase in the short-term borrowing at the end of September .
Perfect. Thank you.
Thank you. We have next question from the line up, Ming Sun Li with Bank of America. Please go ahead.
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Thank you.
Min, this is Dennis. Regarding your question on the ASP, yes, you are right in the third quarter our ASP increased primarily compared with quality due to the beta mixed, beta P7. As mentioned, that also improved the margin. For the quarter four, the P7 in terms of P7
compared with the quarter three, offsetting some of the available market spending on the P5 and G3. So that's the answer to your first question. In terms of material cost increase so far, we haven't seen the big changes in terms of the battery cost for the next many for the first quarter.
But we believe due to more supply, we are seeing opportunities in terms of the battery supply and that would in return translate into a cost reduction maybe in the second half. So with that, the cost improvement will help to maintain or to improve our margin offsetting the app.
NEV subsidy discontinuation. Yeah, so, Minh, just to also add to this. The fourth quarter, due to the volume contraction and also launching of our new product, G9, I think the gross profit will face some pressure versus the third quarter. And then the first quarter, given the subsidy elimination, which impacts some of our lower-priced models.
So that will also present a challenge for the gross profit. However, our view is that with the volume rebounding starting the second quarter and then the rest of the year with scale and also we anticipate battery prices moderate and also show some opportunities for decline later in the year. I think the gross profit trend will improve significantly in the later half of next year.
Okay, I think it Brian and Dennis. I have a more question.
Thank you. We have next question from the line up Nick live with JP Morgan. Please go ahead.
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Chairman Mr. He just mentioned that we're going to change a lot of strategies regarding management including branding and marketing team. And can we look at more what are going to change in terms of branding strategy and marketing campaign and what can we expect will change having an impact on underlying demand or volume.
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All right, thank you. Next for your question, we are actually conducting or in the midst of doing this organizational adjustment with focus on our branding and marketing. Looking back, I mean in the past our branding and sales and marketing mainly focused on sales with more focus on boosting the sales of our products. But going into the future, we are going to balance different aspects of our branding, marketing, and sales with innovative measures.
and we plan to actually reduce our spending to boost in the sales while increasing our spending in the marketing. Now the second thing that is regarding the organizational adjustment is that we expect to integrate our organization to make it more efficient and effective. And we plan to recruit their high quality talent from a different...
industries in order to boost our sales and marketing efficiency. And we aim to launch a series of measures in order to tackle different challenges, as well as boost our effectiveness in order to align our product portfolio, as well as to achieve higher customer satisfaction rate while adjusting the customer demand.
Now, we are talking about our near-term strategy for this organizational changes in the coming 15 months, but we believe that in the long run, we will continue this adjustment in order to achieve our mid to long-term goal. Thank you.
So basically today we recommend each mutual recovered future endpoints and theSH?-154- Companies, I'll see you in the next video.
And just allow me to add several key points. The first one is that we will have a clearer positioning of our brands and products. And the second thing is that we are aiming for the long game. We are not doing this for the short term. And the third point is that we are going to be more aggressive and more proactive in our sales and marketing campaigns rather than being
rather passive just like in the past and the fourth and the last point is that we will remain very customer oriented and focused. Thank you. Thank you very much.
So my second question is really about a common striving XMGP solution and can we elaborate a bit more how are we different from the other solutions such as Mobileye and Huawei and so on. So my second question is really about how are we different from the other solutions such as Mobileye and Huawei and can we elaborate a bit more how are we different from the other solutions such as Mobileye and Huawei and so on.
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First of all, allow me to address the first part of your question. From our own user experience, there are four key components.
the cost, you know, how much people are willing to pay for the advanced technology. And we actually are confident that in the future, the cost of affording our XNGP or related AIDA software will be able to be reduced to 20% to 30% of their current cost. And the third component is safety, and the fourth component is the true value that you are able to contribute to your customers.
Now for XNGP, when we are able to roll out our city-based scenario or function, we are actually expanding the scenario coverage by over nine times because 90% of the usage happens on city roads, compared to only 10% happen on highways and parking scenarios. Now in the past, without our XNGP, people mainly rely on, for example, high definition maps or...
laser-based technology, etc., those pose a lot of challenges, especially in areas where you don't have high-definition mapping available, and that causes a sharp difference, that actually produces a sharp difference in terms of user experience and in terms of the safety as well. And we don't think that that is our final target. That's why we launched xNGP. That would allow a very consistent performance even in the future.
reaching the use of such functionality from areas with high definition maps and without high definition maps. And that will allow our customers to have a very easy and safe and efficient driving experience, just like when you are a passenger in a car driven by an experienced driver. And that kind of seamless integration is our goal.
from the recognition that we have spent a lot of effort and resources to develop market-leading technologies. And we think actually in addition to increase ourselves, I think there is tremendous value embedded in these technologies that can be monetized in other ways potentially.
We also saw tremendous interest in such technologies. We have leading technology in smart driving autonomy, in smart cockpit, in electrification, and in high voltage platform, etc. So I think these are technologies I think could become valuable if we actually have ability to make it more scalable.
help us to make these technologies reach more scale, at the same time without compromising our focus of producing attractive and competitive products ourselves. So this is an attitude. Obviously, if there's more specific progress, this is all and happy to update when it's available.
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Thank you. We have next question from the line-up, Binh Wong with Credit Suisse. Please go ahead.
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Second, what's the accumulated auto backlog for G9? Because conditions for this year delivery should be more than 10K auto backlog already secure. Thank you.
Hey Bing, it's Brian . First of all, you have tried a number of times that we don't disclose backlog on any model of particular company backlogs, but there are a few things that I want to point out to you. One is that you can see that our delivery timetable has now been extended to later in first quarter. That shows our orders that...
over 300,000 RMB price and that's also indication of the level of demand that we see.
I just want to check because on your official website when we try to book a treatment online as twitter because we get reporters saying that these treatments are really facebook or maybe they are legit rather far from theirbered standards and in fact they show up there
and expecting to deliver time. I want to know whether this knife changes according to your auto backlog. Because similarly, Tesla actually, if you go to their China website, they actually can show the model 3, model 1 waiting time. Sometimes it was one to four weeks, sometimes it's 12 weeks. Actually, indicating the demand waiting time for this changing according to the auto backlog. So I just want to know whether G9.
within your website is changing according to your auto backlog on Realtime base. Thank you. Yes, Bing, I think you are right. The wait time is correlated to the real-time demand and also our production ramp-up capabilities. So what you see in the retail store reflects the various models real-time delivery timetable. Okay, thank you. Okay.
Then I will translate my question. My question is about how to be demand oriented and specifically the first one is what is the real customer's demand?
Secondly, how do we find them and what do we do in terms of our structure? Yes, that's another question.
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All right, thank you for your question. Now, there are two basic logics behind the industry of automaking, especially for our OEMs. The first one is to adopt the theory of buckets, which means that you have to identify your weakest links and also identify your strengths as well. Now in the past several years, I think not just
In the long term, one of the key competitive strengths is to really identify your goal. I'm talking about short term as well as the long term goal as well. You have to make sure that you understand the current focus, whether you aim for the short term or the long run. And the second logic behind our automaking industry is to define your customer portfolio or your target customer group as well as your regional target as well. Now for the past two to three years, I explained...
specific car models. However, what I would like to mention is that in the future, our Tautopus driving or ADAS technology will be a standard configuration in our future product lineup with very consistent performance and very high quality capabilities across our product. And also that's our long-term goal based on which we will further enhance our technological capability and also do better in cost.
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Regarding the second part of your question, our current organizational changes are mainly conducted to fulfill two goals or mainly focus on two areas. The first one is to do changes in terms of our product planning, product development, and also to have a higher efficiency and effectiveness in implementing our technology and our future products. And also to control, well first of all to be able to...
we will be able to truly offer end-to-end solutions that are able to deliver high quality products to our customers. Thank you.
If you attend our Q&A session for more information one can contact our specialist or Storys
better configurations and it's I think it would cause a rise in the bond cost and will we maintain a relatively stable Gp margin and rise our MSRP or we want to boost ourselves ourselves and maybe
maybe maintain our price or even lower our price. Thank you. Yes, Bing, it's Brian again. On P7 next year, yes, we aim to launch the upgraded model to reflect the technology advancements, particularly the ones that you saw already on G9. So the P7 will have
the equally advanced autonomous driving architecture. We'll also have the faster charging capabilities and higher voltage capabilities as well as a number of other upgrades and fixes that will address some of the shortcomings people have received the feedback on. Benefiting from the platform development.
actually since a lot of these advancements are sharing the modular and platform development, we actually are able to control the cost of the new P7 so to maintain the similar margins of the current version. And also some models of the current version P7 will continue to be selling.
price and probability on this series, the P7 series.
Thank you.
Thank you. As there are no further questions, now I'd like to turn the call back over to the company for closing remarks.
Thank you once again for joining us today. If you have further questions, please feel free to contact Expense Investor Relations through the contact information provided on our website for the TPG Investor Relations. Thank you.
Thank you. This concludes today's conference call. You may disconnect your lines now. Thank you for your participation.
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