Hello, ladies and gentlemen. Thank you for standing by for the second quarter 2025 earnings conference call for XPENG Inc. At this time, all participants are in a listen-only mode. After management's remarks, there will be a question and answer session. Today's conference call is being recorded. I will now turn the call over to your host, Mr. Alex Xie, Head of Investor Relations and Capital Markets of the company. Please go ahead, Alex.
Thank you. Hello everyone, and welcome to XPENG's second quarter 2025 earnings conference call. Our financial and operating results were issued by our news wire services earlier today and are available online. You can also view the earnings press release by visiting the IR section of our website at ir.xiaopeng.com. Participants on today's call from our management team will include our Co-founder, Chairman, and CEO, Mr. He Xiaopeng, Vice Chairman and President, Dr. Brian Gu, Vice President of Corporate Finance and VW Projects, Mr. Charles Zhang, Vice President of Finance Accounting, Mr. James Wu, and myself.
Management will begin with prepared remarks, and the call will conclude with a Q&A session. A webcast replay of this conference call will be available on the IR section of our website. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and 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 public filings of the company as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update forward-looking statements except as required 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.
[Foreign language]
Hello everyone. In Q2 2025, we achieved a record high performance across our core business and financial metrics, including deliveries, revenue, gross profit margin, and cash on hand. During this quarter, our deliveries reached 103,181 units, a 242% increase year-over-year. The Mona M03 Max immediately became a bestseller upon launch, accounting for over 80% of total Mona M03 sales and leading the way in bringing high-level ADAS technology to the mass market. Despite intense price competition, we stayed focused on steady, long-term sustainable growth, prioritizing scaling up whilst continuously strengthening the foundational systems. Our vehicle gross margin increased 3.8 percentage points quarter-over-quarter to 14.3%, marking the eighth consecutive quarter of improvement and raising the company's overall gross margin to 17.3%. Net losses narrowed further. Free cash flow in Q2 exceeded RMB 2 billion, and total cash on hand at the end of the quarter surpassed RMB 47.5 billion.
[Foreign language]
In July, we launched the G7, our first model featuring in-house developed Turing AI SoC. Over the past four weeks, it has become the top among its competitors, with the Ultra trim making up over 50% of sales. The Max Plus Ultra experience marks a new phase in high-level ADAS in the industry. Our Kunpeng Super Electric models will begin mass production in Q4, taking us to fully upgrade to a generation energy platform with intelligence and the new vehicle dual-energy system by [2026]. This platform will include vision-based ADAS, advanced AI models, the Turing AI SoC, 5G ultra-fast charging battery cells, and the Kunpeng Super Electric system. These innovations will give us a generational lead, allowing for greater modularity, better supply chain management, and scalability during our product cycle over the next two years, boosting our sales growth.
[Foreign language]
The race for AI-powered vehicles will continue indefinitely. To succeed, I aim to strengthen the company's core capabilities in four key areas. First, focusing on technology leadership by developing AI capabilities in the physical world across all domains. This includes full stack self-development within specific vertical areas and cross-domain integration. In vertical areas, we are dedicated to enhancing design, AI, and quality. Second, building organizational strength by attracting and retaining top talent suited to each role, implementing world-class management practices along with automated tools. Starting with the CEO, we will leverage AI to optimize the management, R&D, and collaboration, maximizing organizational compounding effects. The third focus is excelling in commercialization, shifting from creating user-centric products to developing commercially successful products and establishing a strong brand while reducing cost and increasing profitability. Lastly, our globalization approach is unique.
Having integrated the global market needs into our product planning years ago, we attract international users with superior technology and quality through long-term growth with patience.
[Foreign language]
Next week, the all-new XPENG P7, a premium intelligent sports sedan in the RMB 300,000 price range, will be officially launched. The P7 reflects our innovative spirit and core values, showcasing that exceptional design and advanced technology can set market trends rather than following them. With its distinctive style, thrilling performance, and generation-ahead leading AI technology, the P7 is the ideal vehicle for younger consumers. It highlights XPENG's future design approach for all models following P7, combining top-tier technology with superior aesthetics. We are investing more strategically in our styling team to ensure future models deliver innovative, emotionally impactful designs. Since its debut, user interest has vastly exceeded expectations, with pre-sales orders surpassing all previous XPENG models during the same period. I anticipate the new P7 will rank among the top three best-selling pure electric sedans in the sub-RMB 300,000 segment.
With deliveries of the new P7, we aim for monthly sales to steadily surpass 40,000 units starting in September.
[Foreign language]
In Q4, we will introduce the X9 Kunpeng Super Electric Edition, our inaugural Kunpeng Super Electric vehicle, marking the beginning of our one-vehicle dual-energy era. With over 450 km of pure electric range and a combined range surpassing 1,500 km, this model will lead in range within its category. Moving forward, we plan to launch several more super electric models, each offering top-tier pure electric range and 5C ultra-fast charging capabilities that exceed those of comparable NEVs on the market.
[Foreign language]
What distinguishes us from automakers and software companies is our decade-long dedication to full stack in-house development of core hardware and software technologies. This commitment has enabled us to co-develop high-performance AI chips and foundational models for the physical world, achieving true cross-domain integration and speeding up iterations through extensive datasets and computing infrastructure, ultimately leading to AI super agents operating in the physical world. Beginning with the XPENG G7 and P7 launches in Q3, we are leading the way in [level 3] computing power. All Ultra trims across our entire model lineup will feature the three in-house developed Turing AI SoCs, providing a total computing power of 2,250 TOPS. This positions us as the global leader among mass-produced vehicles, with over three times the computing power of our latest flagship competitors. These Ultra trims also include in-vehicle VOA plus VOM models driven by Turing AI SoCs.
The scale of our in-vehicle models will increase by an order of magnitude, reaching billions of parameters, with VOA models running at twice the frame rate of competitors, truly exemplifying smarter brain, agile control, and elevating the safety and user experience of ADAS.
[Foreign language]
I expect XPENG's VOA plus VOM to become the safest driver and the most attentive smart assistant for users, simplifying and enhancing travel. We plan to roll out the initial VOA model to G7 Ultra owners soon, with rapid OTA updates over the coming months. Over 18 months, our Turing SoC powered VOA is expected to outperform industry mainstream urban ADAS solutions by over 10 x. We aim to meet supervised L3 safety, coverage, and user experience, marking a generational lead. Our L4-capable vehicles are scheduled for mass production in 2026, with pilot Robotaxi services launching in selected regions. Although aftermarket retrofits enable L4 in some vehicles, no mass-produced models currently have OEM integrated L4 hardware and software, a gap XPENG aims to fill in China. In addition, our latest humanoid robots also have made promising advancements.
With our Turing SoC, VOA, and VOM, we are quickly moving toward a mass-produced version featuring initial L4 capabilities in robotics, and we are actively preparing for mass production in the second half of 2026. During XPENG AI Tech Day, I will unveil the new generation of robots to everyone.
[Foreign language]
We have introduced the industry's first AI chip dedicated to foundation models for smart cabins, providing over 12x the effective computing power of the living cabin processors. Powered by the Turing AI SoC, our VOM model is designed to act as a smart assistant in AI-enabled vehicles. It not only collaborates with VOA to enhance assisted driving, but also functions as a robust in-vehicle intelligent agent. Looking ahead, it is expected to master multiple languages, communicate empathetically, and offer proactive services, greatly improving the user experience of future AI-driven vehicles. I believe our combined independent large model chips plus VOM solution will lead a paradigm shift in the next generation intelligent cockpit technology, encouraging more OEMs to adopt and reference it. Our AI technology demonstrates strong generalization abilities worldwide, not just in China. We welcome partnerships with top global players to explore opportunities for collaboration on our Turing AI SoC.
[Foreign language]
In the first half of 2025, our overseas business continued to show strong growth and built a top brand reputation. In the first half of the year, overseas deliveries exceeded 18,000 units, increasing over 200% year-over-year. XPENG now ranks as the best-selling Chinese NEV startup brand in 10 markets, including Norway, France, Singapore, and Israel, and with lead in sales of mid to high-end Chinese BEVs across Europe. In July, we delivered the first locally produced XPENG X9 in Indonesia, marking a key milestone in our move toward global local manufacturing. By the second half of 2026, we aim to fully launch the entire Kunpeng Super Electric lineup in international markets, including Ultra trim, expanding our global total addressable market significantly.
[Foreign language]
As deliveries of G7 and the new P7 ramp up, we forecast Q3 deliveries to be 113,000 - 118,000 units, reflecting a year-over-year growth of 142.8%- 153.6%. Revenue is projected to reach between RMB 19.6 billion and RMB 21 billion, representing an increase of 94% to 107.9% year-over-year. Starting in Q4, we will introduce the one-vehicle dual-energy strong product cycle, complemented by Turing AI-driven smart driving solutions, which will significantly strengthen our generational lead. We are confident in leading the market at scale, whilst advancing operational efficiency toward sustainable profitability. Over the next three years, our focus will be on expanding market share both domestically and internationally, maintaining steady growth, and harnessing disruptive AI innovation to enhance value for users worldwide.
[Foreign language]
Thank you, everyone. With that, I will now turn the call to our VP of Finance, Mr. James Wu, who will discuss our financial performance for the second quarter of 2025.
Thank you, Xiaopeng. Now, let me provide a brief overview of our financial results for the second quarter of 2025. I'll reference RMB only in my discussion today, unless otherwise stated. Our total revenues were RMB 18.27 billion for the second quarter of 2025, an increase of 125.3% year-over-year, and an increase of 15.6% quarter-over-quarter. Revenues from vehicle sales were RMB 16.88 billion for the second quarter of 2025, an increase of 147.6% year-over-year, and an increase of 17.5% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly attributable to higher vehicle deliveries. Revenues from services and others were RMB 1.39 billion for the second quarter of 2025, representing an increase of 7.6% year-over-year and a decrease of 3.5% quarter-over-quarter.
The year-over-year increase was mainly attributable to the increased revenues from parts and accessory sales, in line with higher accumulated vehicle sales. The quarter-over-quarter decrease was mainly attributable to fluctuations in revenues from technical R&D services. Gross margin was 17.3% for the second quarter of 2025, compared with 14% for the same period of 2024 and 15.6% for the first quarter of 2025. Vehicle margin was 14.3% for the second quarter of 2025, compared with 6.4% for the same period of 2024 and 10.5% for the first quarter of 2025. The year-over-year and quarter-over-quarter increases were primarily attributable to the ongoing cost reduction and improvement in product mix of models. R&D expenses were RMB 2.21 billion for the second quarter of 2025, representing an increase of 50.4% year-over-year and an increase of 11.4% quarter-over-quarter.
The year-over-year and quarter-over-quarter increases were mainly due to higher expenses related to the development of new vehicle models and technologies as the company expanded its product portfolio to support future growth. SG&A expenses were RMB 2.17 billion for the second quarter of 2025, representing an increase of 37.7% year-over-year and an increase of 11.4% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were primarily attributable to the higher commissions paid to the franchise stores driven by higher sales volume. Moreover, the quarter-over-quarter increase was also due to the higher marketing and advertising expenses. As a result of the foregoing, loss from operations was RMB 0.93 billion for the second quarter of 2025, compared with RMB 1.61 billion year-over-year and RMB 1.04 billion quarter-over-quarter.
Net loss was RMB 0.48 billion for the second quarter of 2025, compared with RMB 1.28 billion year-over-year and RMB 0.66 billion quarter-over-quarter. As of June 30th, 2025, our company had cash and cash equivalents, restricted cash, short-term investments, and time deposits in total of RMB 47.57 billion. To be mindful of the length of our earnings call, I would encourage listeners to refer to our earnings press release for more details on our second quarter 2025 financial results. This concludes our prepared remarks. We'll now open the call to questions. Operator, please go ahead.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. For the sake of clarity and order, please ask one question at a time. Management will respond, and then feel free to follow up with your next question. Your first question comes from Tim Hsiao with Morgan Stanley. Please go ahead.
[Foreign language] So my first question is about the grand position and the product pricing because XPENG average selling price has declined over the past two years given the product mix. How are you going to reverse the trend and effectively upgrade the brand positioning and the sales mix of high-end models? And where are we going to see more meaningful ASP upgrade and it can accelerate that can help to accelerate XPENG's profit improvement? That's my first question.
[Foreign language]
Thank you very much for your question, Timothy, and the answer is as follows: as you can see for our sales, it has always been in the range of RMB 100,000 - RMB 500,000. Internally, we are also looking at this, and we are approaching this from a few different directions. Number one is with respect to the different layout of our products. Number two is to leverage technology to increase premium. Number three, using emotions to increase premium. Number four, using the brand to increase premium. If you look at the P7 that is soon to be launched, and this is in the price range of above RMB 300,000, and the soon to be unveiled X9 will be in the range of RMB 400,000.
In 2026 to 2027, t hese will be our two major product sales cycles, and there will be multiple different cars to be launched in the market, and their sales price will be above the RMB 300,000 range at the moment. Number two, using technology, and technology has always been our strength, including Ultra trim versions as well as Robotaxis. Starting from next year, you will see our investment being increased, and we believe that this will further drive up our premium. Number three, using technology. We know that ADAS has always been our strength, apart from the strength of technology. We have another strength, which is aesthetics. Becoming or making aesthetically more beautiful cars will also be able to drive the sales volume. Finally, which is leveraging our brand.
I believe that in 2026 and 2027, these will be the two years of establishing more of a global brand of XPENG, and the speeding up or acceleration of our brand will pick up. As a result, I do believe that you will see the ASP of our products will increase. So will the gross profit as well as the net profit. Thank you.
[Foreign language] My second question is about smart driving. The carriers we noticed that since the beginning of this year, several car makers have launched [MTN] smart driving solutions and new vehicles powered by [Turing] chips and VOA models. How should we think about XPENG's technology advantage in smart driving against such a backdrop of competition? Specifically, when could XPENG's Turing chip on Ultra trim effectively differentiate with a much better software experience versus our competitors? That's my second question. Thank you.
[Foreign language]
Thank you for your second question. Actually, if you look at the current players in the market when it comes to software and basically all the tier one players, I would say that everyone is roughly the same. For those either with computing power or the ones without the sufficient computing power, they would have computing power plus LiDAR to make up or bridge the gap. In a way, we know that with computing power plus model and plus data, these three factors will be able to provide better results. We know that this was an idea or a principle that people have in mind. However, at XPENG, we have been able to validate this idea. As you can see, our total computing power has already achieved 2,250 TOPS. In the meantime, if you look at our peers, they are still at 100- 700 TOPS.
Once we talk about this when it comes to data as well as model scaling and in terms of our frame rate, which is running at 2x of our competitors, this again shows our smarter brain as well as better control for motion. In the meantime, for your next question about Ultra trim and when we would be able to ensure that there is a gap between us as in we leading the race ahead of our peers and for the Ultra trim versions, we will start with our initial VLA launch and hopefully we will bring this to the same level as Max for now. By the end of this year, we would be able to see a significant improvement or difference between us and our peers.
If we're talking about huge differences between us and our peers, I would say that that time will come in next year, not long after this year, and roughly around when you will see the pilot runnings of our Robotaxis. With L4 as well as Ultra trim, they come from the same source of the same model. Basically, the only difference is that there is no cloud and control, there is no hardware redundancy. With the Ultra trim plus our Turing AI SoCs, I do believe next year you will be able to see that our product will be leading ahead of our peers by 10 x or even more.
Thank you very much for sharing all the great details and exciting progress. Thank you.
Your next question comes from Meng [San] Li with Bank of America. Please go ahead.
[Foreign language] So my first question is related to your cooperation with Volkswagen because recently you just announced to broaden your cooperation with Volkswagen's EVA and expand into more vehicle models including ICEV. Could you give us more color and guidance regarding the future revenue from the cooperation with Volkswagen?
Thank you, Meng. This is Charles here. Last week we announced our fourth cooperation with Volkswagen. Basically, we're expanding our electrical and electronic architecture collaboration from the battery electrical EV in China into the ICE and the PHEV of Volkswagen brand in China. We believe that's a major expansion of our scope of the collaboration with our partner. I think that through this collaboration, we are really creating a very significant strategic value for our partner. I believe that Volkswagen is probably the only global auto company that possesses the technology that has one EE architecture platform across all the powertrain, so through which you can see the value creation that we created by both parties. Obviously, I think from XPENG's side, we're also benefiting from such collaboration.
In terms of the second part of your question regarding the value of the potential creation from our partnership with Volkswagen, as you may be aware of, right now, since Q1 2024, we have started to recognize the IP licensing revenue from the G9 platform collaboration and later on the ERFS collaboration. We believe that in the past couple of quarters, the revenue from such collaboration has been relatively stable within a certain range. For the second half this year, we see some potential growth potential in such revenue from the past two collaborations. In terms of the newly entered expanded EEA collaboration, the revenue will start to be recognized once those Volkswagen's ICE and PHEV vehicles start SOP. That's basically the third recurring revenue stream on top of the previous two revenue streams. I hope this clarifies your question, Meng.
Yeah, Charles. Thank you. [Foreign language] So my second question is related to Robotaxi business. I think the Chairman already mentioned this corporation detail business. In the future, we will launch the 2B version of vehicles to differentiate from your current product for the consumers. Also, for your current cars, is they able to provide Level 4 functions next year when you provide the OTA service? Thank you.
[Foreign language]
Thank you for your question. In the future, in my view, there will be two types of vehicles. The first type will be L4-enabled or L4-capable vehicles with people driving those. The second type will be L4-capable vehicles with no people driving it. Of course, this will take years to achieve. We also know that with L4, this will need to obtain the permission and approval by different policies and regulations. In 2026, for XPENG, we will try out the L4 in different pilots. Of course, the precondition is that we are running these pilot schemes after we have obtained the relevant approvals.
In terms of the questions that you have asked, there are areas that I'm not really in a position to answer today, but what I can try to answer is that, number one, for XPENG's vehicle, we are the front market or the mass-produced vehicles with the no map, non-HD map model. That is to say we do not need LiDAR to scan the whole map, the whole city. In the meantime, as I have mentioned earlier, we do not have the software redundancy, nor do we need the cloud to take over to manage this. What we strive to achieve between our future products and Robotaxi is that they would be models of the same sources. However, there are differences, for instance, for our Robotaxis. There will be functions such as when the passengers on the street wave their hands, the Robotaxis will stop.
For our own vehicles to consumers, obviously, there are no such functions. When there is a passenger on the street waving their hands, our own vehicles will not be stopping. This is all about strengthened learning of the whole process. We ourselves, obviously, will carry out our own trials and our own operations. When all of these have passed, we will be seeking out and speaking to partners and looking at how to expand this further.
[Foreign language] Charles, that's all my question.
Your next question comes from Ping Yue Wu with CITIC. Please go ahead.
[Foreign language] Let me translate the questions. First, congratulations on the successful launch of the pre-sales of the new P7, and it's a very highly original design. It's also appreciated by customers who are also leading the area. Could you please share more about the reason behind the P7's strong order performance and how do we forecast itself? Is it going to be a high volume model just like the first generation of P7 or our latest P7 Plus? Thank you.
[Foreign language]
Thank you very much for your question. For P7, yes, indeed, next week P7 will be officially launched into the market. Certain detailed data, I'm not going to be elaborating on those today. However, there are a few points that I can comment on. Number one is that the attention and interest that we have received in P7 has indeed far exceeded our expectation from end of last year to earlier this year. In terms of the pre-sales orders, as you have stated, it has exceeded all our historical data sales for different other series of cars such as Mona, etc. If you look at the purchasers and the users, consumers who have purchased P7, it is also quite interesting, there is a very high percentage of male consumers.
In addition, in terms of the age brackets of those who have placed an order for P7, so far it is the youngest age brackets that we have, and their professions are also quite interesting. This is what we have witnessed so far from the pre-sales orders. For P7, it is not only that it is an aesthetically beautiful car, it is also a very strong, sturdy car. Whether you are running on racetracks or running on highways, what we have received feedback from the users as well as from the media reviews is that the chassis that we have worked together with Volkswagen is rather strong. We are getting very good positive feedback from the users, from the media. Our aim is to become the top three in the pure battery vehicles, in the pure battery electric vehicles in the price range of RMB 200,000- RMB 300,000.
Of course, we don't know whether we can achieve a better ranking for that, but we will strive to do so.
[Foreign language] My second question is about the Robotaxi, and as we renewed our announcements of our Robotaxi strategy, and what opportunities such as technology or regulatory success do we see currently? Thank you.
[Foreign language]
Thank you for your question, and as you can see, for XPENG, we are an OEM company, which makes us essentially different from Robotaxi software providers or Robotaxi service providers. For L4, of course, in order to sell this to the customers and for the customers to be able to drive such cars, there are issues that we need to resolve or we need to go about, for instance, for regulation issues and technology iterations, etc. As you have stated, once we cross over those humps, and once people are able to purchase L4 vehicles, in terms of the upper limit of the growth, that has greatly improved. That is number one point. Number two, for Robotaxis to operate within a certain region, I do think that there will be such possibilities.
However, to say that Robotaxis will be rolled out on a global scale, I think it is difficult at this stage, at least. I would also say that, globally speaking, for Robotaxis to be rolling out, it is also getting further expanded at the moment. We know that in the past, people would need to rely on navigation to use their cars and to drive the ADAS system. In the future, would people be able to rely on ADAS without navigation? Would people be able to update their OTAs by simply relying on the same source code? Those are questions and challenges that at XPENG we hope that we would be able to strive to resolve in the future.
[Foreign language] Thank you so much.
Your next question comes from Tina Hou with Goldman Sachs. Please go ahead.
[Foreign language] Thanks management for taking my question. The first question is regarding vehicle gross margin. We see that on a quarter-over-quarter basis, it's up by 3.8%, which is much bigger versus previous quarters. Could management help us break down the different factors contributing to this sequential improvement? Thanks.
Hi Tina, this is James. Thanks for the question. You're right. I think you mentioned three aspects in terms of the product mix change, cost reduction, as well as scale. I think all three factors come into play. What I would say is the majority of the impact is still on the product mix side. If you remember, the Mona M03 accounts for a pretty significant delivery percentage in the first quarter, and that percentage has reduced through the second quarter as we transition Mona into the new version, whereas our new G6 and G9 has increased its product mix in the second quarter of 2025. What we've seen is the new G6 and G9 has a very healthy gross margin thanks to the improvement technology, as well as the specs that we offer to our customers that they like.
In the meantime, we have achieved a higher level of platform communication through our engineering efforts. All of that has helped us to achieve a healthier gross margin for our new model year changes. In the meantime, as you mentioned earlier, scale also comes into play. We have delivered slightly higher volume in the second quarter as well. Last but not least, we have continued our effort through our supply chain optimization, which helped us to further optimize our material costs as well in the second quarter. Thank you.
[Foreign language] My second question is regarding the operating expenses. For R&D expense, is management still keeping the RMB 8.5 billion R&D annual guidance? Also, in terms of the sales and marketing expense, because we're seeing just around RMB 200 million in increase from Q2 to Q1 with the new model launch schedule. If we look at Q3 and Q4, it seems that the new model launch schedule is very similar, the intensity is very similar to the second quarter. Should we expect, excluding the channel fees, the sales and marketing expense should be quite similar to the second quarter? Thanks.
Got it. This is James again. With regard to the expenses, I'll answer in two parts. From an R&D perspective, you're right. We have been expanding our investment in the R&D segment, particularly to try to basically bring the AI capabilities from the digital world to the physical world. As well as, as Xiaopeng mentioned earlier, we will start to launch one car with two dual energy platforms in the fourth quarter of this year. We have basically increased our engineering workforce and capabilities throughout this year, as well as into the second half. In the meantime, our AI technology investment will help us to enhance our leadership in this area, which includes autonomous driving, robotic investment, as well as our enhancement of the engineering workforce. Also, the cloud-based computational power is something that we have continued to invest as well. This is on the R&D side.
With regard to the sales expenses, you're right, the second quarter has a slight increase versus the first quarter, partially also because of our higher deliveries in the second quarter as we pay commissions to our franchise stores. It is part of that as well. We have product launches in Q2, as you mentioned, but remember, we have more significant product launches in the third quarter. For example, the G7, which is a brand new SUV, as well as the new P7. These two launches, I would say, would be more significant and probably would require higher marketing and advertising expenses in the third quarter. Going into the end of the third quarter and into the fourth quarter, we'll be launching the X9 Kunpeng Super Electric platform as well in our X9 product, which we will also provide and deploy sufficient resources to make the successful launch as well.
In that regard, we will continue to invest and make sure the marketing and advertising expenses are appropriate to support the product launches in the second half. Thank you.
[Foreign language] Thank you very much, James.
Your next question comes from [Zhao Li Li] with Jefferies . Please go ahead.
[Foreign language] So my first question is about your product strategy. The next P7 has made a significant leap in the [efficacy] design. Does this signal a shift in XPENG's product strategy towards prioritizing design? Should we understand this not just as a short-term adjustment, but as a core component of the company's long-term strategic transformation?
[Foreign language]
Thank you very much for your question. The overall answer to your question is yes. Last year we were looking at this, and we were thinking that technology has always been our strength, and we have always focused on autonomous driving and invested a huge amount of money and resources in the area. However, we have lacked in the other areas, and therefore in the beginning of 2024, we started to think that we should shift more focus onto design as well. For the past 24 months, as well as the next whatever months to come, and in the near short-term future, I would say that the company's target is to ensure that our product does not have any shortcomings.
We try and improve the areas that we are doing okay, and further adding on strengths to our existing areas that we already outperform others, which means that we are now currently giving more weightings and giving more attention to the styles and aesthetics of our products. In the past, when we look at styles or when we look at aesthetics and design of a car, it comes at last. We first start with the engineering, we first then look at the cost and the positioning of the car, and finally it comes to the design and style and aesthetics of a car. Now it is the reverse. Sometimes we look at the style and aesthetics of a car first. We then decide on the engineering, the cost, and the positioning of this vehicle.
In Shanghai currently, we have two buildings that are dedicated to work on the design and styles of our vehicle. In Guangzhou, we have one building, so that's three buildings in total. Globally, we are also building more different centers to help us with the designs. Overall, I would say that we are looking at providing our users with a better physical product, as well as a better overall user experience. For the P7, you can see that this is a process that we have been able to do so, and that is also the target that we strive to achieve.
Thank you. That's very helpful. [Foreign language] My second question is regarding the policy response. As we noticed that China's anti-involution policy has become a key regulatory direction in the auto sector. How is XPENG adjusting the business operations in response to this policy, and what specific impact will this have on your operations and market positioning?
Hi, this is Brian . Let me address this question. First of all, I think we noticed the recent policy announcements around anti-involution measures. I think this is actually a culmination of a number of discussions that aim to improve the Chinese economy competitiveness as well as healthiness. I think that's good for the long run. I think as an industry, we need to have a healthy competition. At the same time, we need to have the ability to reinvest into new technology, reinvest into building better quality products. This is actually the right direction. From our perspective, we actually always focused on achieving the most innovative technology and products for our customers through relentless innovation, relentless development. I think this is actually, I would say, coincides with this new policy direction.
We feel like by focusing on our target customers, by delivering the best quality, the best technology, and in a product that actually has broader appeal, it ultimately will be the right solution and will earn the right recognition both from customers as well as from our partners, as well as from our regulators. I think in that regard, we will continue to focus on full stack innovation, continue to focus on building innovative, also broadly appealing products to our customers. At the same time, also be able to maintain a disciplined, an orderly, I would say, operations. For example, you probably noticed that Xiao Peng is actually one of the earliest OEMs to respond to the government's request of improving sort of payment terms. We have really been making sure that our partners, our suppliers are all benefiting from this new trend.
We believe that ultimately it will lead to a more healthier ecosystem and industry for our company.
Thank you. That's very helpful.
The next question comes from Ben Wang with Deutsche Bank. Please go ahead.
[Foreign language] My question is about the G7 SUV. The company seems to be facing some difficulty in the in-cabin and copy-related chips. When this issue can be resolved, and what's the normalized monthly volume assumption the company currently has? Thank you.
Hey, Ben, just to clarify, there's no issue with G7. We announced that we will deploy the specific Turing AI SoC for infotainment in October, then we roll out the VOA and the VOM models for the G7 customers.
[Foreign language] My second question is about the vehicle gross margin guidance for the third quarter. Previously, the guidance is that only in the fourth quarter, vehicle gross margin can go to high teens because the second quarter vehicle gross margin has been higher than the market expectation. Do we expect in the third quarter we already can achieve the high teens vehicle gross margin? Thank you.
Hi, Ben, this is James. With regard to the vehicle margin, yes, we have improved significantly in Q2. The reasons I have explained before. In the long term, we have always focused on taking into account the overall competitive landscape as well as improve our scale as our strategic priority. Overall, we'll take that as our overall guidance from a pricing as well as margin perspective. What I would emphasize is going into the second half as we launch the brand new P7 as well as the X9 Super Electric version, I would focus on Q4, which we have communicated earlier that we are aiming at profitability in the fourth quarter, and that target has not changed. We have, as you remember, mentioned that we hope to achieve high teens profitability, overall profitability in the fourth quarter as well, and that target has not changed as well.
Both of that will help us to solidify our target to achieve break even in the fourth quarter. Basically, that's my answer to your question. Thanks.
Thank you.
Thank you. That concludes our question and answer session. Now I'd like to turn the call back over to the company for closing remarks.
Thank you once again for joining us today. If you have further questions, please feel free to contact XPENG's investor relations through the contact information provided on our website or the piece in financial communications.
This concludes today's conference call. You may now disconnect your line. Thank you.