XPEV

Operator: Hello, ladies and gentlemen, thank you for standing by for the Third Quarter 2024 Earnings Conference Call for XPeng Inc. At this time, all participants are in listen-only mode. After management's remarks, there will be a question-and-answer session. Today's conference call is being recorded. I will now turn the call over to your host, Mr. Alex Xie, Head of Investor Relations and Capital Markets of the company. Please go ahead, Alex.

Alex Xie: Thank you. Hello, everyone, and welcome to XPeng's third quarter 2024 earnings conference call. Our financial and operating results were issued via Newswire Services earlier today and available online. You can also view the earnings press release by visiting the IR section of our website at ir.xiaopeng.com. Participants on today's call from our management will include our Co-Founder, Chairman, and CEO, Mr. He Xiaopeng; Vice Chairman and President, Dr. Brian Gu; Vice President of Corporate Finance and VW Projects, Mr. Charles Zhang; Vice President of Finance and Accounting, Mr. James Wu; and myself. Management will begin with prepared remarks and the call will conclude with a Q&A session. A webcast replay of this conference call will be available on the IR section of our website. Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe-Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the relevant public filings of the company as filed with the US Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that XPeng's earnings press release and this conference call include the disclosure of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. XPeng's earnings press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. I will now turn the call over to our Co-Founder, Chairman, and CEO, Mr. He Xiaopeng. Please go ahead.

He Xiaopeng: [Foreign Language] [Interpreted] Hello, everyone. I'm He Xiaopeng. In the third quarter of 2024, we surpassed our key performance targets. We delivered 46,533 units in the third quarter, reflecting a 54% increase quarter-over-quarter and a 16% increase year-over-year, beating the high-end of our prior quarterly guidance. September's deliveries exceeded 20,000 units, marking a record high. Furthermore, thanks to the technology-driven cost reduction and growth in scale, our gross profit margin increased to 15.3% in the third quarter, achieving our pinnacle level and demonstrating continuous improvement for five consecutive quarters. Over the past two years, XPeng has undergone significant transformation amidst challenges. However, I remain calm at the center of the storm, because crisis often present opportunities. Having overcome these adversities, XPeng has emerged stronger than ever. We're now poised to accelerate our growth and move forward steadily. I would like to express my gratitude to all of our shareholders and everyone who has consistently supported us. We have implemented comprehensive changes in our strategies, products, management and organizational structure. We've also addressed previous areas of improvement in marketing, sales channels and design. Moreover, our firm investment in AI technology has begun to yield advantages in both product experience and cost efficiency, helping to bolster our competitive edge. By prioritizing customer needs, maintaining a business-oriented approach and keeping the full picture in mind, we have established a robust capability across our entire operations from product definition and research and development to pre-sale activities, product launches and delivery. As a result, we have created a series of standout products that truly surprise and delight our users. XPeng’s second decade has started and I believe the next 10-years will be the era of AI or Artificial Intelligence. I'll strive to lead XPeng to become a global AI-defined car company and spearhead the large-scale application of AI in the mobility industry. Looking at the industry landscape, I anticipate that between 2025 and 2027, which is upcoming three years, we'll see a knockout phase in the Chinese automobile industry. The penetration rate of China's new energy vehicles will likely rise to over 85%, while the integration of AI will lead to the next stage of consolidation of market shares. Unlike the traditional car companies that have relied on cooperative integrated supply chain models for research and development in the past, winners in the AI-defined car sector will be those with in-depth full-scale self-development capabilities. We plan to harness the power of AI and use it as a data engine, integrated both software and hardware in our research and development of the whole vehicle, AD cabin and engines, et cetera. This will allow us to iterate and upgrade at an unprecedented speed, creating a substantial advantage over companies that continue to use traditional R&D models regarding user experience and optimization speed. Starting next year, I expect significant advancement in autonomous driving and vehicle intelligence. Introducing AI large models will provide a transformative experience from all aspects, enabling users to embrace safer, more comfortable, more comprehensive and smarter AI driving and AI-driven vehicles. On November the 7, the world's first AI-defined car, the P7+ was officially launched. That night, the number of firm orders exceeded 30,000 and continued to arise. The P7+ has become a phenomenal success in the mid to large BEV sedan market and marks a milestone in the widespread adoption of AI-defined cars. I'm pleased to see that the core reasons users choose the P7+ is its standard -- high standard, intelligent driving features across the entire model range. In the past, luxury was defined by configuration, but now it is defined by technology and this trend is where we are striving to be. We're collaborating with suppliers to expand the production capacity of the P7+ and I expect the delivery volume of the P7+ to exceed 10,000 units in December. Currently, both the M03 and the P7+ have begun double shift production. As production capacity ramps up, we anticipate monthly deliveries will set a record in the fourth quarter and will strive to exceed 30,000 units in November. Additionally, steady and long-term progress is one of our main themes for 2025. We'll enter 2025 with tens of thousands of orders, which will increase our delivery volume in the first quarter of next year and lay a solid foundation for a significant increase in sales next year. Starting from the P7+ model, our new and facelifted Max models will all feature the AI Hawkeye Visual ADAS solution. This is the only ADAS solution in China that does not rely on HD maps or LiDAR and we'll take it to the rest of the world soon. In the global automotive industry, we're the first to standardize high level intelligent driving software and hardware across our entire lineup, providing an actual leading experience for the users. We delivered experience of the Level 3 ADAS driving at the cost of Level 2, achieving what we refer to as intelligence for all tech-powered driving with the same cost as fuel. Excitingly, in the first-half of next year, after the Lunar New Year, Mona M03 Max will start mass producing the platform-based AI Hawkeye visual ADAS solution. This will allow us to become the world's first car company to offer advanced intelligent driving vehicles for just RMB150,000 or about $20,000, lowering the threshold. With our leading AI technology and strong cost control, we have the competitive moats that will serve as our ultimate weapons for navigating from a seriously competitive red ocean to the opportunities of the blue ocean market. I believe that over the next one to five years, the penetration rate of smart features will significantly increase non-linearly. Our AI-defined vehicles, which incorporate powerful AI capabilities and autonomous driving features will accelerate the replacements of cars that lag these technologies or cars that only claims to have these technologies. In 2025, we plan to launch at least four new models, including super electric vehicles and we'll also update several existing models. Each of these new and facelift models will be very distinctive in their respective market segments and I look forward to launching more top-selling models that users will love next year. At our recent AI Tech day, we unveiled the Kunpeng Super Electric System, our next generation extended range products along with our next generation pure electric products will be our second largest growth engine. Together with our AI capabilities, it will drive strong momentum for accelerated development. Powertrain technology and industry-leading energy efficiency are key components of XPeng brands. We have received widespread user claim for our exceptional energy consumption management with our electric vehicles regularly exceeding advertised range estimates. In our brand new extended range products, we'll employ high voltage electric technology, one generation ahead of the market to address common user pain points facing current extended range products in the market and provide a user experience far superior to many existing extended range products. The Kunpeng Super Electric Drive System is built on our third-generation industry-leading 800-volt platform, supporting various features, including a pure electric range of 430 kilometers, a combined range of 1,400 kilometers and the 5C ultra-charging battery, while also controlling cost, all of which will lead the way for the next generation extended range technology. In the coming future, XPeng will adopt a dual energy approach, offering a batch of new vehicle models with pure electric and super electric powertrain options to cater to the diverse needs of global customers. I believe that this will significantly expand our total addressable market, bringing multiple opportunities for sales growth and accelerating the mass adoption of AI-defined vehicles worldwide. In terms of operations, the P7+ will also mark a brand new starting point for the overall improvement in vehicle gross margins for XPeng's next-generation models. New platform-based technologies we have implemented in the P7+ will also be applied to new models and major facelift over the next few years of 2025 and 2026. We anticipate that the gross margin of our next-generation models will reach double-digits, significantly increasing our sales volume to a new level during our strong product cycles and helping us move steadily toward achieving scale profitability. XPeng Turing AI Smart driving system demonstrates our robust full sets of development capabilities. It integrates cloud-based and in-vehicle software and hardware, including chips. It sets a new gold standard for next-generation full-set development and highlights our exceptionally efficient R&D iteration process. Many of our peers are still using our previous generation of architecture and technological routes. I believe that enhancing the capabilities of smart driving relies heavily on cloud technologies. Our cloud-based large model has 80 times more parameters than in-vehicle model, making it the most advanced technology currently available in China's ADAS market. In the coming years, the synergy between our in-vehicle data, cloud-based computing power and both cloud and in-vehicle large models and our globalization and car manufacturing will grow exponentially, marking and making significant leaps forward in our large models performance per the scaling law. We plan to realize door-to-door full scenario ADAS on GenZ AI XOS 5.5 by the end of this year. This uninterrupted and ultra smooth driving experience will elevate us from being on par with the first year to truly leading the pack. We actually were able to deliver similar experience three years ago already, but it was a combination of multiple solutions, whereas this 5.5 OS is one-stop solution. Next, we plan to achieve a L3 like intelligent driving experience by the fourth quarter of 2025, targeting less than one takeover per 100 kilometers. The more advanced ultra version of the vehicle we are developing now will significantly enhance the computing power on board and incorporate a fully redundant design for core components. This will enable us to mass produce Robotaxi at a low cost while ensuring sufficient safety. I firmly believe that the substantial improvement in autonomous driving capabilities will make AI a core differentiator among leading automating companies and a key factor in capturing user mindshare. Users will discover that AI is not only applied to autonomous driving but will also expand and integrate into various aspects, including in car AI Assistance, AI cabin, AI hub, smart chessis, smart audio systems and AI battery doctors. In the medium to long term, the gap between AI leaders and laggers on product technology, brand image and profit models will continue to widen. Now let's talk about globalization. We're accelerating our global presence, leading the way for Chinese smart EV brands in their overseas ventures. Our organizational management, product planning, autonomous driving technology, smart cockpit design, supply chain management and manufacturing and production are all strategically aligned for global deployment. By collaborating with high quality overseas dealers, we have extended our reach to more than 30 countries with over 110 sales stores as of the third quarter. And we have experienced strong initial sales in multiple regions. Currently, XPeng ranks first in export sales of Chinese premium BEVs and our G9 ranks first in the mid to large-sized battery electric SUV in Northern Europe. In the third quarter, our overall overseas sales increased by 70% sequentially, accounting for 15% of our total sales volume. Looking ahead to 2025, we plan to further expand our international sales network to more than 300 stores, expanding to over 90% of the EV market outside of North America. Our goal is to maintain robust growth in overseas sales over the next three years, aiming to secure the leading position in mid to high end EV export sales among Chinese automakers. The rapid expansion of our international business will further boost our profitability. After two years of headwinds, we're about to enter a brand new positive cycle. In the fourth quarter of 2025, we expect to experience tailwinds driven by AI transformation and the Super Electric System, which will accelerate our growth and lead us toward profitability. We anticipate our total delivery volume for the fourth quarter of 2024 will range from 87,000 to 91,000 units. This represents a quarter-over-quarter increase of 87% to 95.6% and a year-over-year increase of 44.6% to 51.3%. Additionally, we project our total revenue for the fourth quarter to fall between RMB15.3 billion and RMB16.2 billion, reflecting a quarter-over-quarter rise of 51.5% to 60.4% and a year-over-year increase of 17.2% to 24.1%. Moreover, we expect our cash flow in the fourth quarter to improve significantly, resulting in positive free cash flow for the second-half of the year. By year-end, we anticipate our cash on hand will exceed RMB40 billion. With healthier gross profit and cash flow, we'll have the capacity to invest deeply in research and development and for the future, allowing us to consistently and confidently provide our customers in China and abroad with market-leading AI-defined vehicles. Thank you, everyone. With that, I'll turn the call over to our VP of Finance, James, to discuss our financial performance for the third quarter of 2024.

James Wu: Thank you, Xiaopeng. Now let me provide a brief overview of our financial results for the third quarter of 2024. I'll reference RMB only in my discussion today unless otherwise stated. Our total revenues were RMB10.1 billion for the third quarter of 2024, an increase of 18.4% year-over-year and an increase of 24.5% quarter-over-quarter. Revenues from vehicle sales were RMB8.8 billion for the third quarter of 2024, representing an increase of 12.1% year-over-year and an increase of 29% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly attributable to higher deliveries. Revenues from services and others were RMB1.31 billion for the third quarter of 2024, representing an increase of 90.7% year-over-year and an increase of 1.1% quarter-over-quarter. The year-over-year increase was mainly attributable to the increased revenue from the technical R&D services related to the platform and software strategic technical collaboration, as well as electric architecture, also known as EEA technical collaboration with the Volkswagen Group. The quarter-over-quarter increase was mainly attributable to the revenue from technical R&D services related to the EEA technical collaboration with the Volkswagen Group, partially offset by the reduction in parts and accessory sales. Gross margin was 15.3% for the third quarter of 2024, compared with negative 2.7% for the same period of 2023 and 14% for the second quarter of 2024. Vehicle margin was 8.6% for the third quarter of 2024 compared with negative 6.1% for the same period of 2023 and 6.4% for the second quarter of 2024. The year-over-year increase was primarily attributable to the cost reduction and the improvement in product mix. The quarter-over-quarter increase was mainly attributable to the cost reduction. R&D expenses were RMB1.63 billion for the third quarter of 2024, representing an increase of 25.1% year-over-year and an increase of 11.3% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly due to higher expenses related to the development of new vehicle models as the company expanded its product portfolio to support future growth. SG&A expenses were RMB1.63 billion for the third quarter of 2024, representing a decrease of 3.5% year-over-year and an increase of 3.8% quarter-over-quarter. The year-over-year decrease was primarily due to lower employee compensation in the third quarter of 2024, while the quarter-over-quarter increase was mainly due to higher commissions paid to the franchise stores. As a result of the foregoing, loss from operations was RMB1.85 billion for the third quarter of 2024 compared with RMB3.16 billion for the same period of 2023 and RMB1.61 billion for the second quarter of 2024. Net loss was RMB1.81 billion for the third quarter of 2024 compared with RMB3.89 billion for the same period of 2023 and RMB1.28 billion for the second quarter of 2024. As of September 30th, 2024, our company had cash and cash equivalents, restricted cash, short-term investments and time deposits in total of RMB35.75 billion. To be mindful of the length of our earnings call, I would encourage listeners to refer to our earnings press release for more details on our third quarter 2024 financial results. This concludes our prepared remarks. We'll now open the call to questions. Operator, please go ahead.

Operator: Thank you. [Operator Instructions] Your first question comes from Tim Hsiao with Morgan Stanley. Please go ahead.

Tim Hsiao: [Foreign Language] So my first question is on driving because in the next three to five years, are you expecting the technology gap of smart driving be widened or narrow? Several leading local EV brands in China considering making smart driving a standard configuration for all mass-market models? Will the time driving become a mid-tier function in future? And how XPeng could ensure consumers can feel and appreciate the difference and choose XPeng's cars because of that? That's my first question. Thank you.

He Xiaopeng: [Foreign Language] [Interpreted] Thank you. This is a very good question. Actually, we've been talking about this for the past two years, while we are developing our end-to-end large model solution. Now what we need here for this next generation of capability is not only first of all, the capital for R&D, but also the computing power and big tech as well. And in the coming three to five years, I think any companies who tried to compete in this landscape will not only have the full sets of self-developed R&D capability that combines software and hardware, but also on the cloud side, whole vehicle, chip development and also EEA development across different car manufacturing capabilities are all essential for having that capability. So in sum, I believe that the gap between different EV makers will actually be widened in the several years. Another point that I would like to mention is that ADAS capability is just like part of your brain. You have to not only have your mindset, what you think you can do, but you actually need to be able to deliver your claims and that also will set the bar or the threshold for entering this competition. Another point that I would like to mention is the whole vehicle capability. How do we make sure that the whole car gets smarter in order to carry all this ADAS generation -- ADAS capability? So I think going forward, users will actually have a better idea or awareness of how capable a company is, how good the product is, and they will have an in-depth experience or first-hand experience of what truly means to have a smart ADAS capability in the product. Thank you. I also would like to add that traditionally the model for OEMs to develop cars is to work with Tier-1 suppliers. However, in the future, when we require cars to adapt the ADAS capability from not only the brain but your upper tassel and your legs and the whole body, it will actually require a completely different model of development which will also in the coming three to four years set us apart from the rest of the competition. Thank you.

Tim Hsiao: [Foreign Language] My second question is about the profitability because over the past few quarters, we've seen XPeng posting consecutive margin improvement at both vehicle and at the Group level. Looking to next year, how could the company further narrow the loss and systematically turn to profit? That's my second question. Thank you.

Brian Gu: Hey, Tim, it's Brian. Yes, let me address this question. First of all, I think in this quarter's financials, I think we're very encouraged to see that our non-GAAP operating margin actually the loss has narrowed to 15.5%, compared to -- in the second quarter, I think it's about 19%. So you start to see operating leverage narrowing of our operating losses. And I think that trend will continue. As we mentioned, we're going to launch P7+, which we think is actually a better margin profile product. And also overall, we actually can see the scale effect come into play, as well as additionally, we can see continued improvement on the vehicle margin front. And also on the expense side, I think we still -- also start to see very significant reduction opportunities. For example, for the fourth quarter, I think we are going to hold a very consistent R&D spend below RMB2 billion in total and that will make our entire year’s R&D to be probably less than RMB6.5 billion, lower than our original estimate. So going into next year, we start to see these factors kind of compound with additional launch of more robust products. As we mentioned, we have new models, as well as refresh models to be launched. We also have models that's tackling new segments, including, for example, extended range energy module. So with all that, I think we're very optimistic about our robust growth, as well as continued margin improvement. We still, I think hold the same view as I think communicated to all of you starting two years ago that we'll be breaking even at some point next year, probably towards the end of next year and that is still a view I hold. I think we hope to deliver on that. And also the improvement also will bring healthy cash flow for the company as well next year. So for example, by the end of this year, we estimate we're going to have over RMB4 billion on hand. And next year, over RMB40 billion be on hand, sorry my -- and next year, I think we will actually still continue to see healthy cash flow which allows us to have very comfortable capital base to bring us to breakeven.

Tim Hsiao: Great. Thanks for sharing the details and congrats again on the strong results. Thank you.

Operator: Thank you. Your next question comes from Ming Hsun Lee with Bank of America. Please go ahead.

Ming Hsun Lee: [Foreign Language] So my first question is related to export outlook. So in 2024, how do you expect the export sales contribution to your total revenue? And currently because of some overseas market, the charging infrastructure is not as good as China -- in China. Therefore, do you see any potential bottleneck for the EV penetration in certain countries? And in the longer term, will you see your EREV product to be the major product for the overseas market?

Brian Gu: Hey, Ming, it's Brian again. Yes, let me address your question on overseas market. First of all, I think we do see overseas market as a very robust growth market for us. It's still very early in the electrification process compared to the Chinese market. And also, I think given our current coverage of -- covering in most of these markets by the end of next year, I think we are hoping to be able to tap into that growth. As you mentioned, last year -- I mean, I would say this year, our overseas market percentage is -- has increased to around 15% of our sales. I think the next year, we expect the contribution will be similar, even though our domestic market growth is very, very significant, but we still think overseas growth will --I think has a very similar growth profile as well. And then also in terms of the Electric BEV versus extended range format. I think you're right. I think in some markets, we do recognize the lack of infrastructure could be a potential bottleneck for BEV penetration. However, I think these markets, I think currently the BEV penetration is still very low. So there is still ample growth opportunity for BEV models themselves. So we are also very hopeful the growth of BEV exports as well as the market penetration will increase as we expand into more markets. But at the same time, once we actually have extended range products, we think in some markets, particularly for markets like, let's say, Latin America or Central Asia or Middle East where charging facility or infrastructure is lacking for efficient and fast charging BEV products, some of the extended range product will actually be also attractive. So we're actually very, very optimistic that both BEV as well as the extended range products will be finding attractive growth opportunities in various global markets.

Ming Hsun Lee: Yes, thank you, Brian. [Foreign Language] So my second question is related to capacity. Could you advise your latest capacity and also your effective capacity in 2025? Do you have any plan to expand the new plant or you can just expand your current plant to meet the demand? And recently, do you also see any component shortage across your supply chain? Thank you.

Charles Zhang: Hey, Ming, this is Charles. First of all, I think as we mentioned in the earnings call that both our Guangzhou and Zhaoqing plant already turned a second shift. I think each of the plants can support approximately 200,000 to 300,000 per annum based on the two shifts. And also, I think as we communicated before, there are also ample reserved land and also existing the plant next to our Guangzhou and Zhaoqing manufacturing base. So we believe that we can expand our production capacity at fast speed and also with low capital intensity. And also we already had our long term production capacity planning until 2026. And so we believe that all these required manufacturing capacity has been well planned ahead. And also, given we have long-term planning for our own manufacturing capacity, we are also working with our suppliers also to expand the suppliers' capacity because as you know that we are pushing really hard on the platform, unify the platform and also the component sharing across multiple -- platforms and vehicles. So it is actually more efficient for our suppliers to expand their capacity with us.

Ming Hsun Lee: Thank you, Charles.

Operator: Thank you. Your next question comes from Bin Wang with Deutsche Bank. Please go ahead.

Bin Wang: [Foreign Language] My first question is about the gross margin of the vehicles. And actually in the third quarter, you got 2.2 percentage points margin expansion. Can you quantify each of the factors? How much came from the product mix, how much came from cost reduction, how much came from the high base, because second quarter [Indiscernible] and what would be the cost? And secondly, okay, you actually guide for the number four quarter? Do you think the vehicle gross margin can go to double-digit or not? Thank you.

James Wu: Hey, Bin, this is James. So to your question on the Q3 versus Q2 margin improvement, I'd say it's primarily driven by two aspects. One is, we continued engineering cost-reduction with regard to efforts on [VAVE] (ph) in combination of the battery cost reduction as we see the battery cost is coming down for the entire industry. You didn't mention the EOP impact. We did have some EOP impact in the second quarter, which is less in the third quarter, which is also driving an improvement of the margin. So that's for the quarter-over-quarter improvement. As we look into Q4, we mentioned earlier the P7+ delivery will start in Q4. This is a product that will embed our latest platform with the cost reduction targets achieved and representing a double digit gross margin as we communicated earlier. This is going to help us further improve our vehicle margin from Q3 into Q4. So as a trend, we do see margin continue to improve combined with larger scale. As Xiaopeng mentioned earlier, we expect our Q4 delivery to be exceeding prior quarters in the history, therefore helping us to thin our manufacturing cost, as well and improve overall margin.

Bin Wang: So can we have a double digit gross margin in the number fourth quarter possible?

James Wu: The overall margin will improve. As you can see, we have overall margin in Q3 as reported, and you can expect that to improve in the fourth quarter.

Bin Wang: Okay. Thank you. [Foreign Language] The question is that recently media reported that a Taiwan foundry company may not be able to doing the OEM for China chip suppliers actually for the 7-nanometer. Were it any potential impact for our upcoming chips? Thank you.

Charles Zhang: Hi, Bin, this is Charles. I think that the mass production of our Turing SOCs still progress well and we haven't seen any impact on our development of the Turing SOC.

Bin Wang: Okay. Thank you.

Operator: Thank you. Your next question comes from Tina Hou with Goldman Sachs. Please go ahead.

Tina Hou: [Foreign Language] Thanks for taking my question. So my first question is regarding long term cost-reduction of EV. So if we look at it from an angle of the powertrain, the ADAS bond, including both smart cabin as well as autonomous driving as well as for maybe potentially the car body and interior exterior, so how much potential further cost reduction do you think there is in the longer term? Thank you.

He Xiaopeng: [Foreign Language] [Interpreted] Thank you. Thank you for this question. Actually, we've been -- we've never stopped thinking about that and our understanding and our possible solution to it has been changing over the years. I remember about 1.5 year ago during the earnings call, I actually made a promise of achieving significant cost reduction. At that time, I actually summoned my courage to make that promise and I'm very happy and proud that we are able to actually deliver what we promised at that time. And in the coming three to four years, obviously, there are a lot room for improvement when it comes to cost reduction. A lot of things are very obvious, for example, supply chain optimization, scale -- economy of scale and also technology-driven kind of cost reduction. But specifically, we can do a lot more things as well. For example, on the one hand, we can do something that we call super integration, meaning that we can actually combine different capabilities of different parts together and make something that is significantly different from what we traditionally have or we can also learn and adopt the Apple model, which is to empower the Tier-1 suppliers or help them together develop the capabilities of Tier-2, Tier-3 suppliers' advantages, leveraging their already existing logistics capability and a lot of other details that can help us to improve efficiency and cut costs. In addition to that, we also can look at, for example, saving and cost control and in the electronic -- electric materials, etcetera. I mean these are just some examples, the tip of iceberg here really. And as a company that's constantly driven by technology innovation. We also can look at the upgrade of our manufacturing process, our craftsmanship in the coming three to four years. We're not going to stop until we achieve the optimal level of cost-cutting. Now in the future AI Tech Day and also in the future earnings call, you can expect to hear our reporting of every year's cost control outcome. And I don't think it's not just going to -- I don't think that it will come from only the scale or supply chain control optimization, but more likely being driven by technological innovation. Thank you.

Tina Hou: [Foreign Language] And so second question is regarding our 2025 new model pipeline and also volume outlook. Could we get more details in terms of the four new models, which quarter will they come out? And then what kind of price range, what kind of body type and also our overall volume outlook for 2025? Thank you.

Brian Gu: Hey, Tina, it's Brian. I think, first of all, we are not providing obviously annual guidance as we've done in the past. So I think right now, all I can say is that next year, we actually are very confident that we can continue the momentum we're seeing in the second-half of this year and also looking at the growth profile, I think it will be more moderate growth, compared to this year, but still I think it will be second-half of slightly heavier than the first-half. In terms of the model, I think we gave you the total number. We're not at the moment, I think ready to share specific models and exactly when they will be launched, but we mentioned that there will be four new models. One of those will be extended range model. And also in addition to those four models, we will have few refresh of current models. So -- and that will be spread over the next four quarters. So you'll expect to see a new model and refreshment potentially every quarter.

Tina Hou: [Foreign Language] So for the four new models, our expectation should not be lower versus MONA as well as P7+.

Brian Gu: Well, I think we are very, very confident that the models we launch will be leading their respective categories. Obviously, different segments and different categories will have different volume expectations, but we do feel like our bottles will be very competitive in their respective segments.

Tina Hou: [Foreign Language] Thank you very much.

Operator: Thank you. Your next question comes from Nick Lai with J.P. Morgan. Please go ahead.

Nick Lai: [Foreign Language] Quite fine. Let me translate my question very quickly. Yes, I mean at the moment, third quarter export overseas market accounted for about 15% of our sales volume, but we understand from other competitors that for those who have overseas exposure, the possibility of profit margin is generally about 1.5 times to 2 times higher than the same car sold in China. Is that -- is it fair to say the same pattern will apply to XPeng? And likewise, how do we educate of this customer that level two, level three functionality is something very nice and that they need to have in the future?

Brian Gu: Hey, Nick, it's Brian. I think let me address your first question in terms of overseas markets profitability contribution to us. I think there are a couple of areas to think about. One is that, yes, in general, I think the price of selling our models overseas are higher than domestic prices. There is additional cost obviously and potential tariff and duties that we have to pay. But the margin in general is slightly higher than the domestic gross margin. But also to be mindful is that the margins that we achieve in a lot of these overseas markets actually are margins that are wholesale margins because we are working with importers or distributors in those countries where we are not responsible for retailing and distribution of those products. So a lot of those are margins actually it's essentially direct contribution to us rather than just the gross margin. So that -- there's a distinction. But I think going into next year, I think clearly, we are in a need to dealing with changes in tariff, changing potential new markets, have different regimes. So we need to obviously have a more flexible approach to that structure. But this year, I think the contribution has been pretty positive. And I think Xiaopeng addresses your second question.

He Xiaopeng: [Foreign Language] [Interpreted] Thank you. Yes, indeed, different countries are different. They have different users, different preferences, different regulations. My comparison, for example, Europe versus China, typically China as a market has a younger group of consumers that are really attracted by EVs, whereas in Europe, the majority of the users are in middle aged and above. But also we see a lot of similarities between China and other parts of the world outside of EU as well. But here for this discussion, I'm going to focus on the differences between Europe and China. Now right now, what -- when it comes to the capabilities being delivered to our Europe's customers, I think they really love smart cabin, fast and ultra-fast efficient charging, our high quality services, after-sales services and also the valet parking, auto parking, LCC, ACC. These are the sort of most daily commonly accepted and preferred ADAS features that are being loved by European customers. And when it comes to other parts of ADAS features, because of the limitation or because of the regulatory environment in Europe, typically, the implementation of those features in Europe is about 12 months behind what we can see in China right now. But as a company that is being driven by technology with heavy investment and very strong capabilities in software and hardware, we are very, very confident in adopting the same set of solutions, but using different combinations for different market in order to build our global presence as a premium brand going forward, and right now, as has been proven by market feedback that we are actually able to do that. So in the future, when it comes to landing or implementing our solutions in different countries, we're going to focus more on not only product and services quality but also the operations across different regions to customize for local consumers. Thank you.

Nick Lai: [Foreign Language] My second question is really about the trading policy from top-down standpoint, what's our view on the continuity of the policy into '25? And likewise, our product sales volume has been very strong, especially for M03 and P7+ if we place orders today and we only get the cut sometime in first quarter next year, what's our marketing strategy for the customer who get a cut only in first quarter? Thanks.

Charles Zhang: Hi, Nick, this is Charles. I think we believe that our newly-launched product like M03 and also the P7+ are very competitive in terms of the product capabilities. And I think that the customer chose the product because I think there is no alternative product or less or very limited options available to them in the price range. So we believe that we will continue to see the strong momentum for the order -- orders for the M03 and also P7+. I think that more importantly, I think that the -- we have very significant -- huge -- significant order backlog for both M03 and the P7+. I think this is also very different from a lot of our peers. We will be carrying probably tens of thousands order backlog for both M03 and the P7+ into the Q1. So we believe that that will be a foundation of our growth in 2025.

Nick Lai: Thanks. [Foreign Language] My question is -- thank you, Charles. My question is for the customer who buy P7+ or M03, if they only get a car in first quarter 2025, will XPeng consider reimburse then, provide additional incentive? Thanks.

Alex Xie: Hi, this is Alex. So first of all, we do not have any specific insights about the government subsidies. We expect auto sector will still be supported by any of the potential stimulus policy as a priority of any of the economic policy. And regarding the customer expectations, I think they have quite reasonable expectations for the delivery time. As you can see the delivery time for the P7+ is eight to 11 weeks. So I don't think our customers, they are expecting to see sort of delivery with -- before the December this year for most of the customers who put their orders right now to have reasonable expectations. We don't think they will change their decision because of the subsidies. They chose XPeng cars because of the unique value proposition we bring to these customers in these segments, P7+ more than M03, they exceeded the competitiveness of all our peers models. So we don't really expect to see a material impact from any potential continuation or discontinuation of subsidies which are focused on our product competitiveness as well as strengthening our channels.

Nick Lai: Thanks, very clear. Thank you.

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

Alex Xie: Thank you once again for joining us today. If you have further questions, please feel free to contact XPeng's Investor Relations through the contact information provided on our website or the Piacente Financial Communications.

Operator: This concludes today's conference call. You may now disconnect your line. Thank you.