Hello, ladies and gentlemen. Thank you for standing by for the 4th quarter fiscal year 2020 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. Charles Zhang, Managing Director and Strategy of the Company. Please go ahead, Mr. Chong.
Thank you. Hello, everyone, and welcome to the Q4 and the fiscal year 2020 earnings conference call at OFX. The company's financial and operating results or issued by our newswire services early today and are available online. You can also view the earnings press release by visiting the IR section of of our website atr.xiaofeng.com. Participants on today's call will include our Co Founder, Chairman and CEO, Mr.
Xiaoping He Vice Chairman and President, Doctor. Brian Gu Vice President of Finance, Mr. Dennis Lu and myself. Management will begin with prepared remarks and the call will conclude with a Q and A session. As a reminder, this conference is being recorded.
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 provision 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 relevant public filings of the company as filed with the U. S. SEC. The company does not assume any obligations to update any forward looking statements, except as required under the applicable law.
Please also note that Xfone's earnings press release and this conference call include disclosure of unaudited GAAP financial measures as well as unaudited non GAAP financial measures. Xfeng's earnings press release contains a reconciliation of the unaudited of non GAAP measures to the unaudited GAAP measures. I will now turn the call over to our Co Founder, Chairman and CEO, Mr. Xiaohong Luo.
Hello, everyone. Thank you for joining XBANK's 4th quarter fiscal year 2020 earnings conference call today. In the Q4 of 2020, we achieved another quarter of record high vehicle delivery, which reached 12,964 units, Up 303% year over year and 51% quarter over quarter. Vehicle deliveries for the full year of 2020 increased by 112% year over year to 27,041 units. Driven by strong delivery growth, we increased our revenue in 2020 by 151.8 percent to RMB5.8 billion.
More excitingly, we achieved a positive full year gross margin for the first time in the company's history, marking a significant milestone. I believe that 2020 signified the beginning of a new era in China's Smart EV development. During the year, our consistent execution of the past 6 years of full stack in house R and D strategy bolstered our ability to provide customers with differentiated smart EV products and lead the technology innovation of smart EVs in China. Next, I would like to go through our recent investments in smart AD technology innovation. In October 2020, we released our 2nd generation smart in car operating system through OTA, which features the first of its kind AllVoice in car system.
This is one of our key proprietary technologies that allow our customers to interact with our vehicles in natural language and continuous dialogue. In January February 2021, the average daily utilization rate where our AI voice assistant exceeded 90%. This illustrates the disruptive changes our self developed smart in car operating system is bringing to traditional in car interactions. On January 26, 2021. We have released the 1st OTA of XPILOT 3.0, our full stack in house developed autonomous driving system, which includes our navigation assisted highway autonomous driving solution for navigation guided pilots, NGP.
NGP has been activated in approximately 20% of all P7 delivered as of the end of February and has assisted our customers in driving for more than 1,300,000 kilometers. Leveraging field data from our customers and our closely data capability, we can continuously train our algorithms and implement fast iterations, providing our customers with an evolving autonomous driving system that is capable of handling complex road conditions in China. In February, The NGP assisted mileage penetration rate, which refers to the mileage assisted by the NGP as a percentage Also drivable mileage of NGP exceeded 50% amongst those P7s that activated the NGP. This is a very exciting figure. With the continuous advancements in our autonomous driving capabilities, we're confident that autonomous driving features will be a key consideration of our customers' purchasing decisions.
Later this month, we'll also kick off the NGP expedition from Guangzhou to Beijing to showcase the disruptive experiences our cutting edge autonomous driving system can In addition to that, we're also planning to release multiple OTA updates of pilot 3.0 in 2021, including memory parking and a further improved version of the NGP NPG to enhance our vehicles in terms of safety, functionality and performance. We'll deploy automotive grade LiDAR technology on our 3rd smart EV model, which we plan to deliver in the second half of this year. We believe our 3rd model will be the 1st mass produced smart EV equipped with LIDAR in the world. Leveraging our visual based perception capability complemented by Lida, we plan to roll out XPILOT 3.5, which will support NGP on major urban roads. We also plan to introduce XPILOT 4.0 built on our next generation autonomous driving hardware and software platform to be deployed on our 4th model, which will be launched in 2022.
We're confident that XPILOT 4.0 will provide our customers with a new level of autonomous driving experiences. Each aforementioned technological advancement underpins our mission to drive smart EV transformation with data in technology, shaping the mobility experience of the future. Looking forward, as we upgrade our Xpilot and X smart in car operating system, We're committed to investing in the small DV technologies and leading technology innovation. As we solidify our core strength in technology, we'll strive to diversify our product portfolio to address additional customer needs and expand our market share. Later in March this year, we expect to start to deliver the P7 Wing edition that was unveiled in November at the Guangzhou Auto Show 2020.
This edition features sporty wing doors. It is also equipped with the XPELA 3.0 system as the standard configuration. It provides an exclusive and exhilarating mobility experience to
auto enthusiasts.
On March 3, we announced lithium iron phosphate or LFP battery powered G3 SUVs and P7 sedans. And we plan to start deliveries in April May, respectively, this year. We expect these two models to resonate across a broader In the Q2 of 2021, We'll unveil and begin selling our 3rd mass produced vehicle model. This brand new design will be the 1st mass produced smart EV equipped with Lyda and will support our X Pilot 3.5. Also, it will feature an innovative 3rd generation smart And connecting the vehicle to our everyday life in an even closer way.
Mass delivery of this new model will start and the Q4 of this year. Furthermore, we plan to begin delivering the mid cycle facelift version of the G3s in the late Q3 of 2021. In terms of sales and service network, as of December 31, 2020, XPeng's physical sales and service network consisted of 160 cell stores and 54 service centers across 69 cities in China. Of the 160 stores, 72 were direct stores operated by us. During 2020, we greatly increased the efficiency of our Stores, especially direct stores.
By the end of 2021, we plan to increase the number of sales stores to approximately 300, covering 110 Cities. In terms of our supercharging network, we also accelerated our efforts to expand our coverage across the nation. As of December, the X Men branded supercharging stations was 159, covering 54 cities. To further improve our customers' charging experience, we plan to significantly expand the number of Xpeng branded supercharging stations in our network to more than 500 by the end of 2021. Since we initiated the free charging program last The number of cities in this program has grown to 100 as of the end of December.
In 2021, we'll strive to expand our free charging service network to 200 cities and provide greater accessibility in a broader range of locations, including highways and airports. At the same time, we plan to substantially increase the number of XFAN branded supercharging stations and charging piles in selected popular destinations to facilitate more convenient and efficient charging services for our customers. In the 4th quarter, we also made positive progress in overseas markets. In December, we fully delivered the 1st batch of the European version G3s in Norway. In 2021, We'll continue to strengthen our capabilities of international operations in areas such as organization, product development, R and D, branding and distribution channels.
With the rapid growth in vehicle deliveries, we have been ramping up our capacity at the Zhao Jin To prepare for a monthly production capacity of 10,000 units within this year. Meanwhile, We have started construction of our Guangzhou manufacturing base and expect to commence production in the Q3 of 2022. Our Guangzhou and Jiaoxing smart EV manufacturing base will shore up our production capacity and allow us to to further capitalize on rising demand in the EV market. Looking into 2021, we remain dedicated to delivering smarter and more differentiated products to our customers in our relentless drive to implement fast software and hardware iteration and technology innovation. We'll also strategically make long term investments in branding, sales and service networks, charging networks, brand new modification system, our power chain technologies, production and supply chain capabilities, international operations and the R and D efforts into innovative product pipeline such as our flying vehicles to support our growth over the next few years.
Lastly, on guidance, For the Q1 of 2021, we expect our smart EV deliveries to be approximately 12,500 units and our total revenues to be approximately RMB2.6 billion. 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 Q4 of 2020.
Thank you, Xiaopeng, and hello, everyone. We are very We're pleased to have achieved solid results in our Q1 and throughout fiscal year 2020, which demonstrates our ability to effectively cater the industry growing market event for a compelling smart mobility experience. Our top line in the Q1 and for Full year expanded year over year with robust vehicle delivery performance. In particular, We increased gross margins sequentially in the 1st quarter and paused their first positive full year gross margin. Additionally, we had a strong cash position to ensure a solid financial foundation to execute our business strategies and to enhance our competitive advantages.
Now I would like to walk you through our detailed financial results for the Q1 of 2020. Total revenues were RMB2.9 billion For the Q1, representing an increase of 345 percent from RMB640 1,000,000 for the same period of 2019 and an increase of 43% from RMB2 1,000,000,000 for the Q3 of 2020. Revenues from vehicle sales were RMB2.7 billion for the Q1, RMB576 1,000,000 for the same period of 2019 and an increase of 44 Stand from RMB1.9 billion for the Q3 of 2020. The year over year increase was mainly due to mass delivery of the P7. The quarter over quarter increase was primarily due to accelerated vehicle deliveries for both P7 and G3 in the Q4 of 2020.
Gross margin was 7.4 percent for the Q1 compared with a negative 6.6% for the same period of 2019 and 4.6% for the Q3 of 2020. Vehicle margin was 6.8% for the 4th quarter compared with a negative 8.5% for the same period a year ago and 3.2% for the Q3 of 2020. The improvement was Research and development expenses were RMB460 1,000,000 for the 3rd quarter, down 29% from RMB652 1,000,000 for the same period in 2019 and down 28% and RMB635 1,000,000 for the Q3 of 2020. The year over year decrease was mainly Due to higher expenses relating to the development of the P7 a year ago, the quarter over quarter decrease was mainly due to the reduced Share based compensation expenses in the Q4 compared with 1 off large amount recognized in the 3rd quarter. Selling, general and administrative expenses were RMB918 million for the 4th quarter, Representing an increase of 133 percent from RMB395 1,000,000 for the same period a year ago and a decrease of 24% from RMB1.2 billion for the Q3 of 2020.
The year over year increase was mainly due to: number 1, higher marketing, promotional and advertising expense to of the 4th quarter. Number 2, the expansion of our sales network and associated personnel costs. This expense of fiscal sales and service center and also the commission for the franchise stores. The quarter over quarter decrease was mainly due to the Deals amount of share based compensation expense compared with a one off large amount recognized in the previous quarter, Offset partially by increase in marketing, promotional and advertising expense as well as personnel cost, lease expense and commission as as mentioned above. Excluding the share based compensation expenses, the year over year and quarter over quarter increase was mainly resulted from higher marketing, promotional and advertising to supporting vehicle sales and also the expansion of Our sales network and associated personnel costs and also the increased commission paid to our franchise dealers.
Lotos from operations was RMB1.1 billion for the 4th quarter compared with RMB1.1 1,000,000,000 for the same period of 2019 and RMB1.7 billion for the same quarter of 2020. Excluding the share based compensation, the non GAAP gross margin operation was RMB1 1,000,000,000 in the Q1 compared with RMB1.1 billion for the same period of 2019 and also RMB823 million of 2020. Net loss was RMB787 1,000,000 for the Q4 compared with RMB RMB1 1,000,000,000 for the same period a year ago and RMB1.1 billion for the Q3 of 2020. Excluding share based compensation expenses, The fair value change on derivative liabilities related to the redemption drive of the applicable shares, The non GAAP adjusted NAND loss was RMB713 1,000,000 for the Q4 of 2020 compared with RMB1.1 billion and also RMB855 1,000,000 for the Q3 of 2020. Net loss attributable to ordinary shareholders of Xiaoteng was RMB787 1,000,000 for the Q1 compared with RMB1.3 billion for the same period a year ago and also RMB2 billion for the Q3 of 2020.
Excluding the share based compensation expense, the fair value change on derivative liabilities related to the redemption line of Phipot's shares and also the accretion of Phipot's share to redemption value. The non GAAP net loss attributable to ordinary share Holders of Xiaotong was RMB713 1,000,000 for the Q1 of 2020 compared with RMB1.1 billion loss for the and period 2019 and RMB 865 1,000,000 for the Q3 of 2020. Basic and diluted net loss per ADS We're both RMB1.05 for the Q1 of 2020. Non GAAP basic and diluted net loss per ADS were both to $0.95 for the Q4 of 2020. Each ADS represents to Class A ordinary shares.
It is worthwhile to know that the calculation of earnings per share For the ADS, it's based on the weighted average number of the ADS. For example, 747,000,000 ADS were used for the Q1 of 2020, while 377 1,000,000 ADS has been used for the fiscal year 2020 and all year end ADS count was 789,000,000 at the end of the year. Turning back to the balance sheet. At the end of 2020, our company has The cash and cash equipment, restricted cash, short term deposits and also the short term investments in RMB35.3 billion compared with RMB2.8 billion as of December 31, 2019. To be mindful of the events of our earnings call for other full year financial results, I will encourage listeners to refer to our earnings press release for further details.
This concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead.
Thank you. At this time, I would like to remind everyone in order to ask a question, press the number 1 on your telephone keypad. 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,
Hello, everyone. Vincent Tian from Morgan Stanley. Congratulations on the strong results and thanks for taking my questions. So my question is about the guidance. Because based on your latest guidance, we are looking for around 5% sequential pricing erosion in the Q1.
So could you please elaborate more about underlying factors, Especially, I think previously, the management mentioned Sonaeve XPILOT 3.0 revenue would be recognized in the Q1. So isn't that ASP accretive? Why are we still expecting ASP to be down quarter over quarter?
Okay. Thank you for your question. I think in quarter 4, we delivered close to 13 and units. In the Q1, because of the seasonality issue, the February was which was Very slow, typically, like lowest amounts in a year. So our guideline for the moment is 12,500 units.
So you can see that 500 units like volume and mix impact. And yes, you're right, We have included the Expired 3.0 for those vehicles, those customers who have activated The functionality we have included in our Q1, many in January and in February. Due to the volume and mix impact, we have seen there was some minor impact on the overall revenue compared with the Q4
Okay, thanks. My second question is about More like the impact from the components of our guidance. So we are going to launch The LP version piece happened in the 2nd quarter. So I just want to know that with the increased battery variety, How to ease the battery bottleneck in the 2nd quarter or the other way around? In the meantime, it appears the another traditional year and highlighted the impact on hiccup caused by component tightness.
So what's our assessment of the potential impact to expand the company's 2nd quarter shipments? Thank
you. Yes, indeed. I think for the coming 6 months, battery I will remain very important for our OEMs out there. And for our new models of P7s and GPs for their Q2 deliveries, I think That would be very challenging in terms of battery supplies because we are adopting this new LTF batteries and then we're working very closely with battery suppliers to solve this challenge. I believe in the long run, we will be facing ramp up in terms of our battery supply.
And by Q3 and Q4 In the coming year, we'll be able to solve the supply issue. And with our past experience of successful delivery Of the 500 kilometers version, the range version of Q3, we are very confident that we can solve this kind of challenge of adopting LSP as a new battery for our vehicles in the coming year.
Tim, this is Brian. Let me just to add to what Xiaofeng just said on this LP battery version of our products. We are seeing actually very healthy and very strong demand for that product as we see actually just since we just recently launched, we already see Up to like 20% of our P7 actually have the LP version battery orders, which is actually very interesting and very exciting. The supply issue, I think, as Xiaofeng mentioned, I think we actually expect this to gradually sort of resolve as we actually head towards the second half of the Q2 and I think that this volume will be picking up as we see. So for the Q2 actually we are very confident that we can see actually quite healthy growth over the Q1 overall for the deliveries.
Got it. Thank you very much, Mr. Heo O'Brien and Dennis.
Your next question comes from Edison Yu of Deutsche Bank. Your line is open.
Hi, thanks for taking the questions. First, kind of more near term. I know you just said 2Q should see sequential growth. Can you give us kind of an idea of not only 2Q, but in the second half as well? Obviously, not trying to pin you down to a number, But just assuming demand is there, what kind of monthly sales run rate could we see?
And is there any sort of limitations due to the
So, Harrison, this is Brian, again. We obviously don't want to give out long range guidance as per company policy. But what we can see, as Xiaofeng described in the opening remarks that we actually have new product introductions every quarter for the next three quarters. So we actually see growth Picking up on a sequential basis, fairly healthy. And in terms of supply constraints, Right now, we have visibility for about 2 to 3 months of semiconductor supply, which I think on a long range basis, we are monitoring very closely as to whether that will Very closely as to whether that will impact our supply chain overall.
So far in the foreseeable period, we don't The impact, but that's something we're actually paying a lot of focus on. At the same time, I think, we given our volume is relatively small compared to Some larger OEMs that's facing much bigger crisis. I think we are more nimble to address this issue, This is definitely something we'll be monitoring very closely.
Great. The second question unrelated. So I wanted to ask about XPILOT. So As we think about the next generation offering, would you consider moving to a subscription only model for the features? And if not, would you expect the pricing of it to go up since now you're equipping it with LiDAR?
Thank you.
Yes, based on our newer generations of X Pilots, we'll definitely increase the pricing for different configurations. But Whether or not it's a subscription model or a one off payment model, it will depend on our customers' feedback and also our overall strategy. But generally speaking, definitely DSP will go up for higher versions of XPILOT.
Thank you.
Your next question comes from Geoff Chung of Citi. Your line is open.
So my first question is how should we see the sales mix between RFP and the NCM powered BEV going forward and the differences in margin outlook and guidance on the changing the full year sales target. So this is my first question.
For the LP battery, we are In the obviously, it's still recent days that on the P7 version, the LP version actually is close to 20% of the new orders. And then on the G3, I think it's around 10% of We believe that that mix will probably going to increase as we Continue the promotion in introducing these new LP battery products. Another very interesting, I would say, mix on the ALP battery versions is that since we got rid of The low end configuration without the autonomous driving and assisted driving systems, actually the percentage of these Our battery version P7 that's incorporating our XPathis 3.0 hardware is actually much higher in percentage And the entire P7 population, which also can potentially translate to higher software penetration for these products, Which is actually quite exciting. In terms of growth for March and the full year, I think I already gave the comments earlier. I don't know whether you're looking for anything
Yes. Just the margin outlook, if we take off the software portion. Just considering the hardware, the vehicle portion, could you give us some the roughly level between the margin trend On the vehicle powered by LFP and on vehicle powered by NCM, because some OEM actually And achieve a higher margin from the RFP power of the BEV. So I just want to know what
Thanks Jeff. This is Dennis. For the margin actually the The LFP product, there are two purpose. 1 is to improve sales. The other one actually is to reduce cost.
So definitely this product will improve sales as well as will improve our margin. I cannot give you the Basically the number or the amount of the margin improvement, but this product will bring us better margin for these 2 Yes, both P7 and G3.
Okay. Thank you. And my second question is on the autopilot revenue and income. So considering the previous P7 equipment for Autopilot 3.0, the software income And also the Q1 income will be combined together in the Q1 earnings this year. But a while ago, the management seems to give rather conservative guidance on the software income.
So I just want to know the why. And secondly, could you give us some color on the attach rate on the Autopilot 3.0 right now and also going forward as well as the Autopilot 3.5 penetration level in the future. Thank you.
Hey, Jeff. This is Brian again. So I think I mentioned earlier that the entire P7, the Activation of our XPathis 3.0 represents over 20% of the entire PSAM population, Which we have delivered over 20,000 units already. And upon introduction of OTA in the NGP in January, We saw actually the penetration slightly going up, which is very encouraging. We also saw the utilization rate of that product is at a very high level, over 50%.
So we're actually very confident that as we go into more and more product that's having the XPILO three point architecture Embedded in the vehicle, we see the penetration rate will continue to increase. That's the trend that we're foreseeing. It's difficult to predict the XPILOT 3.5%, the penetration rate. But for the 3rd product that we're going to introduce in the 4th quarter, We actually kind of have the product mostly in the configuration have either 3.0 or 3.5 ex pilot Which means that the majority, let's say, over 80% of the models for the 3rd product will be able to charge software revenue and because they have the hardware configuration, so we anticipate the penetration rate for that product will be higher than P7.
So
I would just like to add to that. Basically right now, If you look at our current XPILOT upgrading, you will notice the trend that we've been upgrading them quite aggressively and rapidly. Basically, in the future new models launched By Xpeng, all of them will be equipped with newer version of XPELA, and we plan to remove all of the older versions. For example, latest upcoming third model that's going to be launched by XFENG will be equipped with XPILOT 2.5 or above. So all of those will be chargeable version of XPILOT.
And for our 4th upcoming model, as you buy launch to be launched by our company, it will be equipped with XPILOT 4 point 0. So as a result, with the development and investment of our software and technology and also This kind of investment and R and D effort into autonomous driving and with future reduction in cost of these hardware preparation To support such XPILOT Technologies, we believe in the future, all of the new vehicles launched by Paint will be equipped with not only the hardware and architecture that are able to support And newer versions of XPELOS, but also we will forecast more and more revenue income from the software in XPELOS. Thank you.
Thank you management. I have no more questions for me. Thank you.
Your next question comes from Bin Wong of Credit Suisse. Your line is open.
Yipi, do you want to repeat any English for the other people to understand the question?
Sure. Actually, I just want to know whether you actually speed up your R and D for time saving because if you compare to your plan announced in the last October. We actually financed the XPEL of 3.5 actually we are only launching in 2022, but in fact in the Operating market, you mentioned maybe end of this year, you already achieved the Expedited 3.5. For the same issue, actually, you also announced you will realize an Asphalt.0 in 2022, this seems to be earlier compared to your last in the technology day you got on 2023. So that actually cannot assume you we have speed up the R and D capability.
And meanwhile, actually, in the old driving, that actually As per 3.5, it doesn't mean you can already achieve the 90 degree turning in the vehicle, but also you actually look like the Trust me, actually, because if you really speak up to R and D, we do have a big drop in R and D expense for the upcoming 2 or 3 years. Thank you.
Thank you for your question. Indeed, in 2020, based on our efforts, our R and D efforts in particular into We actually gained confidence into our future R and D effort and future launching of XPELA 3.54.0 and even 5 So yes, we plan to bring up the bring ahead the schedule of launching fewer I mean in the future, And also the data that we collected from our customers, which is very which has been very positive. So that's to the first part of your To the second part of your question, I believe that in the future, lighter technology, milliwade technology and cameras will be part of the center configuration of the hardware That supports a safer driving experience for future autonomous driving technology in general because that will give us Better computing power that allow us to not only navigate among level 1, level 2 highways, but also In a broader sense, of the urban growth in across China and in other regions of the world. However, We believe that in order to achieve a full level of autonomous driving, there is still a long way to go, not only in China, but all over the world.
But we definitely have confidence that And yes, we are going to significantly increase our R and D spending this year and for upcoming years as well. Mainly, we'll be focusing on All of the areas surrounding autonomous driving, including the software upgrade of the data and computing and also the internationalization of autonomous driving and also an exploration into the Level 4 autonomous driving strategy and also come to the hardware upgrade in relation to
Thank you.
Thank you.
Your next question comes from Ming Li of Bank of America. Your line is open.
My question is regarding the international expansion, especially in Europe countries. Because for some hardware or HD Map, because of initial security reasons. So you probably need to change the vendor or change software, etcetera. So What kind of challenge and bottleneck do you see for your international expansion, especially the smart cabin and the autonomous driving are your strengths?
Yes. Actually, I've had many years of experience into expanding into the overseas market. I've been doing that since my first entrepreneurial project, which was back in 2010. So my opinion on overseas expansion is maybe quite different from other I think it takes a lot of time and efforts to build a solid foundation in order to grasp the international opportunities Right there. In the future, our strategy on overseas expansion is in general will be very similar to our domestic market ones.
Basically, we'll focus On our product portfolio and our operation and organization, in those three areas, I think it would Very similar in our domestic market and international market so that in the future it can speed up our process of internationalization. And basically, OptiX Pilot 2.5 will be able to synchronize the launching of future X pilot versions, both in the domestic market and in the overseas market as well. And we plan to launch maybe in the European market and also in some very developed market ex pilot 4.0 and above in the future at the same time as we launched it in the domestic market. Now in terms of our smart cockpit, right now we are doing everything in house and we already dedicated a large team of R and D people in our last year in this regard and in the coming year, we're going to build an even bigger team That focus on the R and D smart pocket, usually it will take maybe a longer time such as 12 months to build a good And our technological foundation that allow us to really apply it in all of our products and allow us to have a good foundation to expand overseas.
But once the foundation is built, we believe that in the future development is going to be very impressive in terms of the speed of expansion, the reduction of cost And also the core technological and the high quality the technological foundation and the quality of our smart coffee products. And so in the future, our overall strategy is that we are going to be a very powerful platform that are able to launch of their rich product line that has a very solid autonomous driving capability. And also, we are going to have a very strong and powerful sales and marketing team that supports our overseas market expansion in the future. Thank you.
Your next question comes from Paul Gomp of UBS. Your line is open.
Hi, management. Thanks for taking my question. My first question is regarding on the R and D headcount. I recall during the IPO, you had like 1500 R and D people, roughly 1 third On the autonomous driving, now you have more financial resources than ever. And I think Xiaopeng also mentioned that you are going to You increased R and D significantly this year.
Do you have any target of the headcount for the R and D heading towards later of this year?
Indeed, we plan to greatly increase the headcounts And not only the R and D, but also our sales and service teams as well. So by the end of this year, we forecast that the R and D team will double in its And also we're going to also increase the R and D people that are that will be surrounded around our ecosystem as well. Thank you.
Let me translate my question. The second Two questions regarding the monetization of your autonomous driving. Given the price gap between the XPAN of 2.53.0, The penetration is just 20% so far for P7 on the ex Primo 3.0. In view, you have spent a fixed cost on the R and D of the software. And is it worthy for you to consider to narrow down the price gap between the 2.5 and 3.0 and try to monetize NIS in the near term but harvest more data to further improve that.
Actually, we don't have any current plans to shorten or narrow the price gap between different versions of XPILOT software offerings because we are dedicating our R and D efforts in to the core AD technological developments. And we believe that in the future, we're only going to have newer and newer or higher and higher versions of And in the future, older versions or lower versions of ex pilots will be removed from our product portfolio. And we believe that as we advance into Exploration into higher level of AD Technologies. Actually, not only will us be able to upgrade our Our Ping Xi for software higher level softwares, but also across the ecosystem, we are going to have so many opportunities across different scenarios And then allow us to really provide better experience for our customers and also a lot of monetization opportunities in the future. Thank you.
Thank you very much.
Thank you.
As there are no further questions, Now I'd like to turn the call back over to the company for closing remarks.
Thank you once again for joining us today. If you have any further questions, please feel free to contact us. Thank you. Thank you, everyone.
This concludes today's conference call. You may now disconnect your line. Thank you.