Hello, ladies and gentlemen. Thank you for standing by for the second quarter 2021 earnings conference call for XPENG INC. 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 over to your host, Mr. Zilin Ma, Director of Investor Relations of the company. Please go ahead, Mr. Ma.
Thank you. Hello, everyone, and welcome to XPENG's second quarter 2021 earnings conference call. Our financial and operating results were issued by news wire services earlier today and are available online. You can also read the earnings press release by visiting the IR section of our website at ir.xiaopeng.com. Participants on today's call will include our Co-founder, Chairman, and CEO, Mr. He Xiaopeng; Vice Chairman and President, Dr. Brian Gu; Vice President of Finance, Mr. Dennis Lu; Managing Director of Strategy, Mr. Charles Zhang; 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 know that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from views expressed today. Further information regarding these and other risks and uncertainties is included in relevant public filings of the company as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please also note that XPENG's earnings press release and this conference call will include a 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.
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Hello, everyone. Thank you for joining XPENG's second quarter 2021 earnings conference call.
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In the second quarter of 2021, XPENG's vehicle deliveries reached 17,398, another quarterly record high, representing a 439% increase year-over-year. For the six-month period ended June 30th, 2021, XPENG delivered 30,738 vehicles, surpassing the total number of vehicles delivered for the full year of 2020. In July, our monthly deliveries exceeded 8,000 units, setting a new monthly record with an all-time high order backlog. With the rapid growth in deliveries, our second quarter profitability further improved, and our gross margin reached 11.9%.
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Our rapid delivery growth was driven by consumers' increasing demand for smart EVs and our leadership position in smart electric vehicle products and our fast product iterations.
In the second quarter, the attach rate of XPILOT 3.0 software reached 25%. Among the nearly 35,000 P7s that have been delivered as of the end of June 2021, close to 8,000 units were equipped with XPILOT 3.0. Also, in June, our highway NGP mileage penetration rate exceeded 60%, and NGP assisted our customers in driving for around 1.45 million km. The average monthly usage rate of NGP exceeded 65%. This is a clear demonstration of customers' increasing adoption and reliance on our advanced driver assistance system. With the rollout of XPILOT 3.5 earlier next year, and afterwards, XPILOT 4.0, our future advanced driver assistance system, built on our next-generation hardware platform, will be able to empower a broader range of end-to-end driving scenarios, including those not covered by HD maps. As a result, customer demand and reliance on advanced driver assistance system will continue to increase.
As we advance in developing cutting-edge technologies, safety will always remain our top priority. We have an unwavering commitment to enhancing driver safety education and providing hardware redundancy and software iteration to ensure our customers can safely use our advanced driver assistance system. To illustrate, XPENG is the first EV maker to implement a driver safety proficiency test for customers before they can activate our advanced driver assistance system. In addition, we are also the first in the industry, starting from our P5 model that equips LiDAR technology to be adopted in some of the configurations to increase redundancy of perception through hardware and sharpen its adaptabilities in handling corner cases to further safeguard driver safety.
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Our strategic focus on advancing fast product iteration allows us to further expand our addressable market.
In the second quarter, we began sales and deliveries of lithium iron phosphate, or LFP, battery-powered G3s and P7s, and their deliveries comprise more than 20% of total deliveries for each model. These new additions expand our price range and customer base. With the growing supply of LFP cells, we're confident with the increasing proportion of LFP models among our deliveries in the future. Moreover, the strong market response to our recently launched G3i, the new mid-cycle facelift version of the G3, exceeded our expectations. The production preparation and switching of G3i is expected to have impact on G3 and G3i's production and delivery for a few weeks. We plan to start deliveries at the end of August and will increase delivery scale in the next quarter.
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In July, we announced configuration details and the price range for our third production model, the P5, and its market reception has been overwhelmingly positive. We expect to officially launch the P5 and unveil its MSRP in mid-September and begin its deliveries in October. With P7, we have already demonstrated the unique driving experience brought by our full-stack in-house algorithm for advanced driver-assistance system that is capable of handling complex driving scenarios in China. Now with P5, we are bringing to our users a driving experience that will enable them to utilize advanced driver-assistance system in urban driving scenarios with ability to switch between different driving scenarios smoothly. I believe this is only the start of XPENG's journey to accentuate the development of our leading advanced driver assistant technologies.
Moreover, with the P5, we're able to offer our industry leading advanced driver assistance system and smart cockpit technology to the broader family sedan market, with an attractive pricing range from RMB 160,000-RMB 230,000, further accelerating the EV disruption of the traditional ICE and non-intelligent automobile market.
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Here I would like to share some of my predictions for the future. First, in China, vehicles priced between RMB 150,000 and RMB 400,000 will constitute the largest segment in EV market and show the fastest growth rate. Furthermore, the disruptive forces that smart EV brings to traditional mobility in this segment will also be the most vigorous and the swiftest. Second, high- level or advanced driving assistance system will trigger qualitative changes in users' mobility experience. First, as China is poised to take the lead in the development of smart EVs around the world, China's smart EV makers will be in excellent position to expand globally. In order to be able to capitalize on such opportunities, on July 7th, XPENG completed our dual primary IPO on the Hong Kong Stock Exchange and raised HKD 15.8 billion .
Looking ahead, we plan to further increase investment in intelligent technology innovations, branding and marketing, service facilities across our supercharging, sales channel network and global expansion. Our differentiated products and technological path we chose, along with investment in human capital and global expansion, not only bolster our leading position in the current landscape, but also underscore our long-term vision and strategic deployment.
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Looking forward, in a few years' time, we will accelerate the pace of our new product deployment development. Starting from 2023, we plan to launch at least two or three new vehicles every year supporting XPILOT 3.0 or above. We intend to make these future new models, including hardware, software and services, simultaneously available in China and in international markets. We'll also broaden our primary price range in China from between RMB 150,000 and RMB 300,000 to between RMB 150,000-RMB 400,000, making our cutting edge smart EVs accessible to a broader customer base.
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As we accelerate our effort in technology innovations and product design and development for more new models, we are committed to growing and developing our R&D team. As of the end of second quarter 2021, our R&D headcount exceeded 3,000. A nearly 50% increase compared to the beginning of this year. By the end of 2021, it will increase to more than 4,500. We also plan to increase the number of engineers dedicated to Research and Development of autonomous driving technology, spanning software, hardware, big data and navigation map for international markets. We estimate the total number of engineers working in our autonomous driving software, hardware, and relative supporting infrastructure teams to exceed 1,500 by the end of this year.
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In this June, the penetration rate of BEVs in China's market has surpassed 10% for the first time. I believe the Chinese smart EV market is navigating through an inflection point for the next level of growth, which arrived earlier than expected. To tap into this booming opportunities, we will accelerate the construction of our infrastructure facilities, underpinning our long-term strategic roadmap and investments. As of the end of June, XPENG's physical sales network consisted of 200 sales stores across 72 cities in China. Of these sales stores, 110 were directly operated by us. To keep pace with our rapid development delivery growth, we plan to lift our guidance of the number of sales stores from 300 to more than 350 stores by the end of 2021.
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We also continue to rapidly expand our supercharging network. As of June 30th, the number of XPENG-branded supercharging stations grew to 231, covering 65 cities. Recently, the first batch of 11 XPENG-branded supercharging stations has been deployed on the Shandong section of the Beijing-Shanghai Expressway and the Henan section of the Beijing-Hong Kong-Macau Expressway. We'll move forward to deploy our supercharging capabilities across the entire Beijing-Shanghai, Beijing-Guangzhou, and Beijing-Hong Kong-Macau Expressways, further enhancing our ability to serve our customers in long-distance driving. We plan to have more than 500 XPENG- branded supercharging stations operational by the end of this year, accelerating the expansion of our charging network across lower tier cities.
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In terms of our international expansion, as of this June the 30th, we had exported approximately 500 G3s to Norway. In August, we plan to export P7 to the Norwegian market as well. We'll continue our efforts in Norway and other European markets to further strengthen our local operations through sales, delivery, and customer service enhancements. Our target is to prepare ourselves for the overseas markets in both left and right-hand drive countries within the three years' time of 2020-2022, and accelerate our penetration into international markets with our upcoming smart EV models equipped with XPILOT 4.0, starting from 2023.
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Turning to our production. With our G3i and P5 commencing production, our Zhaoqing factory is now able to produce the G3i, P7, and P5 concurrently. In August, we added a second production shift at the Zhaoqing factory. With the increase in production output, we expect our monthly delivery volume to potentially reach 15,000 in the fourth quarter. That said, supply chain challenges, particularly those pertaining to chip shortage, remain the biggest production hurdle we're facing. With the support of the Zhaoqing municipal government, in August, we kicked off the Phase Two expansion of our Zhaoqing factory, which we expect to increase annual design production capacity at the site from 100,000 to 200,000 by the end of the first half of 2022.
Construction for our Guangzhou factory remains on track, and we expect the main structure to be completed in the first quarter next year, and mass production to begin in the third quarter 2022.
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In summary, we'll continue to strive to overcome the various challenges before us stemming from chip shortage, cell structural shortage, COVID-19 resurgence in some parts of the world, and production transition from G3 to G3i. In the third quarter of 2021, we expect our smart EV deliveries to be between approximately 21,500 and 22,500 units, and our total revenues to be between approximately RMB 4.8 billion and RMB 5 billion. I look forward to sharing with you our latest progress on technology innovations on our third XPENG Technology Day on October the 24th this year.
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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 second quarter of 2021.
Thank you, Xiaopeng, and hello, everyone. Our outstanding performance in the second quarter continued to reflect XPENG's leadership in China's booming smart EV industry, where we continue to introduce innovative technology, differentiated products, and premium service. Fueled with strong delivery performance, our revenues in the second quarter grew 537% compared with the same period of 2020. We also witnessed the further improvement in our financials. In particular, our gross margin continued the upward trend and reached 11.9% in the second quarter. Now, I would like to walk you through our detailed financial results for the second quarter of 2021. I will reference RMB only in my discussion today, unless otherwise stated.
Total revenues were RMB 3.8 billion for the second quarter of 2021, representing an increase of 537% from RMB 591 million for the same period 2020, and an increase of 28% from RMB 2.95 billion for the first quarter of 2021. Revenues from vehicle sales were RMB 3.6 billion for the second quarter of 2021, representing an increase of 562% from RMB 541 million for the same period of 2020, and an increase of 28% from RMB 2.8 billion for the first quarter of 2021. The year-over-year increase was mainly due to higher vehicle delivery, especially for the P7. The quarter-over-quarter increase was also attributable to higher P7 sales as a result of seasonality, channel expansion, and increase in brand equity.
Revenues from service and others were RMB 177 million for the second quarter of 2021, representing an increase of 256% from RMB 49.7 million for the same period 2020, and an increase of 26% from RMB 141 million for the first quarter of 2021. The year-over-year and quarter-over-quarter increase were mainly due to more income from service, parts, and accessory sales, in line with higher accumulated vehicle sales. Gross margin was 11.9% for the second quarter of 2021, compared with a - 2.7% for the same period a year ago, and 11.2% for the first quarter of 2021 respectively. Vehicle margin was 11% for the second quarter of 2021, compared with - 5.6% for the same period 2020, and 10.1% for the first quarter of 2021. The improvement was primarily attributable to better product mix and material cost reduction.
Research and Development expenses were RMB 864 million for the second quarter of 2021, representing an increase of 170% from RMB 319 million for the same period of 2020 and an increase of 61% from RMB 535 million for the first quarter of 2021. The year-over-year and quarter-over-quarter increase were mainly due to, one, the increase in employee compensation as a result of expanded Research and Development staff, and two, higher expenses related to the development of vehicles and related software technologies. Selling, general, and administrative expenses were RMB 1 billion for the second quarter of 2021, representing an increase of 116% from RMB 477 million for the same period of 2020, and an increase of 43% from RMB 721 million for the first quarter of 2021.
The year-over-year and the quarter-over-quarter increase were mainly due to, one, higher marketing, promotional, and advertising expenses to support vehicle sales, and two, the expansion of sales network and associated personnel costs and commission for the franchise store sales. Loss from operation was RMB 1.4 billion for the second quarter of 2021, compared with RMB 779 million for the same period of 2020 and RMB 904 million for the first quarter of 2021. Excluding share-based compensation expense, non-GAAP loss from operations was RMB 1.3 billion for the second quarter of 2021, compared with RMB 779 million for the same period of 2020 and RMB 814 million for the first quarter of 2021. Net loss was RMB 1.2 billion for the second quarter, compared with RMB 146 million for the same period a year ago and RMB 787 million for the first quarter of 2021.
Excluding share-based compensation expense and fair value change on derivative liabilities related to the redemption right of the approved shares, the non-GAAP adjusted net loss was RMB 1.1 billion for the second quarter of 2021, compared with RMB 770 million for the same period of 2020 and RMB 696 million for the first quarter of 2021. Net loss attributable to ordinary shareholders of XPENG INC. was RMB 1.2 billion for the second quarter, compared with RMB 1.1 billion for the same period 2020, and compared with RMB 787 million for the first quarter of 2021. Excluding share-based compensation expense, the fair value change on derivative liabilities related to the redemption right of the preferred shares, and accretion on the preferred shares to redemption value, the non-GAAP net loss attributable to ordinary shareholders of XPENG INC.
was RMB 1.1 billion for the second quarter of 2021, compared with RMB 769 million for the same period of 2020 and RMB 696 million for the first quarter of 2021. Basic and diluted net loss per ADS was RMB 1.5 for the second quarter of 2021. The non-GAAP basic and diluted net loss per ADS was RMB 1.38 for the second quarter of 2021. Each ADS represents two Class A ordinary shares. Turning back to the balance sheet. As of June 30th, 2021, our company had cash and cash equivalents, restricted cash, short-term deposits, short-term investments, and long-term deposits in total of RMB 32.9 billion, which excludes the Hong Kong IPO proceeds of RMB 13 billion, compared with RMB 35.3 billion as of December 31st, 2020. With that, now I would like to turn this call to Zilin Ma.
To be mindful of the length of our earnings call for our second quarter financial results, I would encourage listeners to refer to our earnings press release for further details. This concludes our prepared remarks. We will now open the call to the questions. Operator, please go ahead.
Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. To ask a question, please press star one on your telephone keypad. To withdraw your question, press the pound key. Your first question comes from Tim Hsiao with Morgan Stanley. Your line is open.
Thanks for taking my questions and congratulations on the great results. I've got two questions. The first question is about the component supply. I think the near-term chip shortage now is well anticipated. Should we be concerned about similar supply crises into next year, especially XPENG will need to secure their key component supply for four models in total, with volume likely doubling? I just want to know that how could XPENG cope with such challenge into next year? Will the company consider investing or forming strategic alliances with some parts makers like for chip or battery, to ensure we can get sufficient supply? My second question is about the demand of P5. [audio distortion]
This emergency happening in Nanjing where we face a serious lockdown. If it so happened that one of your Tier 1 or Tier 2 suppliers is located in one of those lockdown cities, there's nothing you could do about it. Those will be considered as unexpected elements that affect our shortage and add to our challenge.
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For the first kind of challenge, which is the core components or chip shortage, we can do several things to prepare for it. For example, the first one is we can make orders way ahead of time so that we can better prepare for chip shortage. The second thing is we can work with some top tier suppliers in terms of chipset production and development. We can work with them in several ways. First of all, we can sign collaboration deals. We can invest in some of those core suppliers. We can work with local governments in terms of bulk purchasing or pre-ordering of the chipsets or chips that we need. Chip shortage is a big challenge faced by the whole industry.
As a company equipped with leading technology of its kind, XPENG actually has a very, very favorable position to play in this value chain because a lot of the chip suppliers consider us as their VIPs, thanks to our fast development and fast iteration of our models. Also, we are actually very flexible in a sense that we don't have a large deliveries backlog yet. That allow us to be really flexible in selecting different suppliers in order to fulfill our chip demands. We also can look to the overseas market for more chip supply.
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In regards to the second question, which is about the market demand of P5, if you ask me to compare it with P7, I would say that actually we see an even stronger demand compared to P7 of the same developmental stage. Also, we are able to actually better plan ahead for the pre-ordering of P5. Right now, the pre-order has started since two months ago, and every month we are seeing the demand come in more and more as expected. That allow us to actually deliver what we guarantee by 4Q this year.
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In order to fulfill the core components or core parts demand for P5, we actually have prepared for this since the beginning of this year. That is why, by comparison, we actually face a smaller challenge compared to the fulfillment of the order for P7 and G3.
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Thank you.
Thanks for sharing the insight. [Non-English content]
Your next question comes from Bin Wang with Credit Suisse. Your line is open.
[Non-English content] Actually, I got three questions. Number one is about new products. Actually, I would know the number five, number six products, given your competitors actually has been announced pretty aggressive new product line. For example, one will actually offer three products this year, and then the other one should get in more than 10 products in the next few years. Basically, detail about number five, number six products. Second question is about your margin, because it seems that if you, excluding the software income in the 2020, actually, the Q-on- Q in the second quarter actually increased around 2.7%, according to my calculation. Can you break down the driver for the 2.7% gross margin increase? In meanwhile, what's your guidance for the second half this year about the gross margin change?
Last question is about, linked to the second question, about the software attach rate and product attach rate in the first quarter, second quarter, and the second half guidance. Thank you.
Hey, Bin. It's Brian. Let me just address your first question. Obviously, we can't detail the fifth or the sixth product at the moment. What we can share with you is that we are intending to develop a new platform for the fifth and sixth product. That platform we aim to be probably the largest in terms of the quantity and addressable market. It will be a platform that is targeted in the mid to high-end, that we're selling right now. At the same time, I think, around the same time that we will be also rolling out a high-end product in the same year that will probably be above the current price range, increasing it to over RMB 400,000 or even above. That's another product that we aim to launch in the 2023 timeframe.
You can see that in addition to the G3, the P7, and P5, we will have a new platform that will have both the right-hand and left-hand driving capability targeted both domestic and international market, will be a very large volume driver. At the same time, we'll be launching a product that will be especially higher than our current high-end, RMB 400,000 and above. Let me turn to Dennis to talk about the margins.
Yes, Bin, you are right. If we take out the software margin impact, we actually had about 2.3 percentage points margin improvement quarter-over-quarter. Among that, around 1.1 percentage points-1.2 percentage points was driven by better product mix. In the second quarter, we had more P7 in our total sales. In the first quarter, our P7 accounted for about 60% of the total sales. In the second quarter, the P7 increased to about 66%. We had the mix improvement. The other big pie is the material cost reduction. As we mentioned in the previous earning call, we have reached the battery cost negotiation starting from the first quarter. In the first quarter, we also have some inventory, which we purchased in quarter four last year.
The cost reduction impact for the first quarter was not 100%, but in the second quarter, we basically have the 100% usage for the lower battery cost. That accounted for about 1.1 percentage points-1.2 percentage points in terms of margin contribution as well. This is a big part of the margin improvement by the causal factors.
Yeah, Bin, Charles here. To address your third question regarding the software attach rate. In Q2, our software attach rate increased from around 20% last quarter to around 25% this quarter. We believe the increase in software attach rate was mainly driven by the high utilization rate and also the overwhelmingly positive feedback from our customers. For example, in June, our monthly NGP utilization rate exceeded 65%, and also the NGP mileage penetration rate in June also exceeded 60%. Looking forward, I think starting from Q4, and we will start to recognize the revenue from the XPILOT 3.0 from our P5. Thank you.
How about guidance? Second half guidance. Thank you.
Your next question comes from Nick Lai with JP Morgan. Your line's open.
Hi. It's Nick from JP Morgan. Thank you for taking my question. Two simple questions. First is related to financial, and second is related to policy guideline. On the financial, you mentioned earlier, as of June, you have nearly RMB 33 billion in the cash on balance sheet. Can you remind us what are our strategy using that level of cash? You mentioned earlier that we are launching two, three new model per year from currently onward. Also, Brian just mentioned we are going to launch a new production platform and also sales marketing interest in 2Q. Aside from very strong top line, can you help us understand how should we think about profitability or margin in light of a lot of expansion or investment going forward at both cost level and OpEx level? That's the first question.
The second question is, the Chinese government, MIIT, announced recently a policy guideline regarding data control, data security in autonomous driving business, and how should we interpret that and what does that mean to our business operationally and financially? [Non-English content]
Thank you. This is Brian. Let me just address your first question regarding our cash reserve and then the future use of those cash. Including the Hong Kong IPO raise, our cash balance actually exceeds RMB 4.6 b illion at the moment. As we stated in our Hong Kong IPO prospectus, we actually intend to use the proceeds mostly for R&D as well as sales marketing expansion. What I can say at this moment is that we are seeing a tremendous opportunity in China. The acceleration of the market is actually faster than what we expected in the beginning of the year. I think as the leading company in this segment, we want to maintain our leadership by further invest into R&D, infrastructure, sales marketing, brand building, and other sort of related efforts.
You can see that we will increase the investment pace of our business in all these areas. For example, in the area of R&D, we think this year we will further accelerate the use of R&D funding. We expect the R&D expenses for the whole year will approach about RMB 4 billion. That will be an increase from early in the year. Also in the sales marketing, I think given that expected launching of our new models in third and fourth quarter, we will be also increase the spending on market, sales marketing, infrastructure build-outs, brand, as well as other areas and charging facilities, et cetera. We intend to increase the delivery target for our business. As Xiaopeng mentioned in the script earlier, in the fourth quarter, we aim to achieve on a monthly delivery, a peak number of above 15,000 vehicles per month.
That's actually is the acceleration of current pace of delivery that we're seeing. Based on what we see today in the supply chain and the constraints, we are confident we can hit that level in the fourth quarter. Let me turn now to Dennis. Turn now to He to talk about the data and the regulatory issue that you mentioned.
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In regards to your second question regarding data security, we are actually very happy to see this new regulation coming out from the Chinese government because it's going to be very beneficial, not just for the whole industry, but especially for [Xiaopeng], because XPENG has been always very stringent on its data protection and also on its safety safeguarding. Since our inception, we've been investing a lot in the R&D of the data security and also safety safeguarding. We not only fulfill the requirements and regulation in China, but also in Europe and across the world as well. In terms of the whole industry development in this regard, we believe that a lot of the OEMs and other competitors out there are focusing on building their advantage on different modules.
Really, the challenge lies in the combination of different modules and also how to coordinate different modules to make sure that the whole set of your intelligence or driver assistance systems fulfill all of those safety requirements and data security protection requirements. The most challenging part actually comes in the safety safeguarding and also the manageable modules that really requires a full stack in-house R&D capabilities, which XPENG always possessed. Also, in terms of the software OTA, which also is an important matrix in regards to your data protection and also safety safeguarding, we are very, very cutting edge in this development as well. For example, we are the first OEM, or EV OEM, in the industry that actually conduct a driver proficiency test before allowing them to use our driver assistance system.
We are also the first company of its kind that adopted this LiDAR technology on top of our visual technology to make sure that we protect the driver's safety as our top priority. Definitely we see this new regulation as a beneficial news for not just the whole industry, but especially for OEMs such as us that actually possess the in-house full stack R&D capability. Thank you.
All right, your next question comes from Ming Lee with Bank of America Securities. Your line is open.
Thank you, [Ming-Hsun Lee] . I have two questions. The first question is regarding your international expansion plan. I think yesterday we just saw a news that you also started to ship P7 to Norway. In the future, will you continue to adapt the wholesale business model, or you will start to open your own brand stores through the retail model? Besides that, you also mentioned that starting from 2023, all of your models will be able to use the international standard and to ship worldwide. In your view, what's the most difficult and the challenges when you need to localize your component, and what kind of components or software is the most difficult to localize? That's my first question. The second question, actually, just to follow the previous, the regulation issue.
Actually, I think it's a good thing to see a strict regulation, and the new regulation actually give a guidance for all the auto company to comply with. I think in the near term, is it possible that OTA become more difficult? When your software and hardware are able to provide Level 4 autonomous driving functions, but the regulation probably only allow you to provide Level 3 functions. In this case, how do you see the possibility on this? Will this narrow down XPENG's advantage?
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And the next question comes from Edison Yu.
Sorry. Let me respond to the question because we were actually on mute. On the first question, you're talking about the international strategy for sales marketing. Currently, we actually are aiming to try both, in terms of working with distributors locally as well as opening our direct own stores. We're actually going to try a hybrid model in Europe. For example, in Norway, we are working with a leading distributor right now. Also we have plans to open up our own stores in large cities or capital cities in the European countries that we target. We're experimenting a mixed model. Obviously, that's something that we will need to decide what is the best model for us. I think currently it's a hybrid model. Your second question is on the OTA and also the data security, right?
For me, your second question, I think this is the same question that was asked before, right? The question about the new regulation, how that impacts our ability to innovate as well as stay ahead. I think as Xiaopeng mentioned in the answer earlier, obviously we're welcoming the regulatory sort of framework. I think as a leading company in this, we will benefit from a higher standard, higher bar for such practice. I think for us, we don't see this actually will slow down our innovation, nor will it actually narrow the gap between us and the followers. We actually think the increased regulatory tension on this area will actually further strengthen the top players and create more barriers for the followers to come. That's our view.
Got it. Thank you, Brian.
All right, your next question comes from Edison Yu with Deutsche Bank for line open.
Thank you for taking our questions. As to first one, it seems you're making a bigger push into the premium end going forward. I'm just curious if you could share how you will go about this differently than the sort of existing models or the more mass market models. Will you be implementing better service or will there be some sort of brand differentiation with this kind of premium offering? Second question is just about the XPILOT 3.5 pricing. I think in the past, you've talked about as the feature set grows, the price should go up. Wondering if you could provide any details there? [Non-English content]
I'll answer your second question first. We actually intend to have a higher pricing for XPILOT 3.5. It should be priced at a premium to the current XPILOT 3.0. Obviously, the XPILOT 3.0 will still be available to vehicles with the hardware. In the foreseeable models, we'll actually have the current pricing maintained for the XPILOT 3.0 and slightly premium price for XPILOT 3.5 to reflect additional features.
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In response to your first question, I think P7 has already proven our capability of entering the premium market, especially the one priced at about RMB 300,000. Actually, last month, our delivery of P7 actually surpassed that of all the A4. That says a lot about our capability of entering the premium market. In the future, we target the even higher price range at about RMB 400,000-RMB 500,000 even. By entering those premium markets, we plan to actually offer standardized data-driven and technology-driven kind of differentiation that set us apart from our competitors, not by offering other kinds of service. In the long run, we expect to see actually a new development coming out from our R&D that actually allow us to really be different from other market offering by 2023-2025. By that time, you will actually see what I'm talking about.
By that time, you will actually see that we will have something that actually showcase our core R&D capabilities and actually allow us to build an even stronger competitive edge or competitive mode against other competitors in the market. Because this actually involves some confidential information about our key product development logic in behind, allow me to keep it confidential at the moment, and when the time allows, time permitting, I will give you and share with you more information in this regard. Thank you.
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I can actually give you one example as some of the flying cars that we are developing in pipeline that we are R&D'ing. At the moment, we plan to actually target an even more premium market price as about RMB 500,000 to RMB 1 million. That would be actually one of our flagship products by that time as we enter the premium market.
Thank you.
Your next question comes from Paul Gong with UBS. Your line is open.
Yeah. Hi. Thanks for taking my question. My first question is regarding your distribution network. I think you mentioned you are going to expand your number of stores from 200 to 350 by end of this year. May I double-check on this number? When you are expanding, are you mainly opening your own direct operating stores, or are you going to more leverage with the third-party distributors or the dealers? A related question on this is, in terms of challenge, do you think there is currently more limitation from the coverage of the network or the efficiency of the network? Where do you foresee the further improvement? My second question is regarding the number of models. It seems like you are going to accelerate the launch of new models from 2023.
I think XPENG shares many of the similarities with Tesla, but Tesla has right now only four models despite of a longer track record and much higher volume. When you are planning this number of models, what is your main considerations to build up so many models? Will this give more challenges to your distribution network, given many of the stores do not necessarily have that many of the positions to have several cars?
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In response to your first question, definitely by the end of the year, we plan to open 360 distributor stores, and we will have both directly operated and self-operated and also partnership stores. The ratio of our directly run stores will increase.
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Since several months ago, we already saw a great improvement on the single store profitability. Since last year, we already saw that happening across different models that we actually launch and sell. Across the board, we see a lot of our stores are making profits. That is why when we look at the deployment of our new stores, we will look at, first of all, the infrastructure of that particular city, meaning that whether or not we have the supercharging support in that particular city, and also how developed the sales network is that support that particular city. With those two core components of infrastructure and all those network, we see great improvement in their sales performance in a few months' time.
That is what we are going to actually heavily invest in for the second half of the year to actually further expand our distribution network.
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Now, in response to your second question, I would like to talk about two things. The first thing is XPENG will still continue to focus on high-quality products, which means that all of the models that we are in, we expect them to achieve the number one or number two of its market share of its kind. For example, P7 has already achieved number two in terms of sales in Class B sedan, and G3 is ranked number one or number two in the market of its kind. In the future, going forward, when we have more models in our pipeline, and when we launch more models, we are going to adopt a different store distribution or showcase strategy.
We are going to actually look at the local market and local cities and analyze the market demand in selecting which models to showcase in the showroom and in the stores. In some of our flagship stores, where we have more space, we will actually be able to showcase the whole selection of our models. Thank you.
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 of the TPG Investor Relations. Thank you.
Thank you, everyone.
Thank you.
Thank you all. Bye.
This concludes conference call. You may now disconnect your line. Thank you.