Hello, ladies and gentlemen. Thank you for standing by for the Q3 2020 Earnings Conference Call for Xpeng Incorporated. Today's conference call is being recorded. I will now turn the call over to your host, Mr. Charles Zheng, Managing Director of Strategy of the Company.
Please go ahead, Mr. Zheng.
Thank you. Hello, everyone, and welcome to the Q3 2020 earnings conference call of Platform Inc. The company's financial and operating results were issued via newswire services early today and are available online. You can also view the earnings press release by visiting the IR section of our website at ir.xiaofeng.com. Participants on today's call will include our Co Founder, Chairman and CEO, Mr.
Xiaofeng 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 site. Before we continue, please note that today's discussion will contain forward looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the relevant public filings of the company as filed with the U.
S. Securities and Exchange Commission. The company does not assume any obligation to update any forward looking statements, except as required under the applicable law. Please also note that Xepeng's earnings press release and this conference call include discussions of unaudited GAAP financial measures as well as unaudited non GAAP financial measures. XPeng's 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. Xiaohong He. Please go ahead.
Hello, everyone. Thank you for joining Xpeng's inaugural earnings conference call today. On August 27, 2020, XBANK successfully listed on the New York Stock Exchange, a significant milestone marking the start of our new journey as a public company. On behalf of all the employees and myself, I'd like to extend our sincere gratitude and appreciation to all of the long time and new shareholders who have been supporting us. Today marks another milestone for XBANK as we reported our first quarterly results following our successful IPO.
We're pleased to be speaking with you today about our strong operating and financial performance in the Q3, in which total vehicle deliveries increased by 2 66% year over year to 8,578 units. In addition, we achieved positive gross margin of 4.6%, bolstered by significant revenue growth and mass deliveries of the P7. The P7 is our smart sports sedan, which is also our 2nd in mass production level model. Deliveries of the P7 have maintained fast growth momentum since our mass delivery began in late June. During the Q3, we delivered 6,210 P7s, of which 98% can support X pilot 2.5 or X pilot 3.0, our advanced autonomous driving systems.
It is worth noting that on October 20, the 10,000 P7 rolled off our production line in our own Jiaoxing facility. We now hold the record as the fastest emerging smart EV company to surpass the 10,000 vehicle production mark. All these achievements demonstrate our ever stronger capabilities across the entire EV spectrum in research and development, manufacturing, branding and sales and services. I believe Xpeng is the only Chinese car making company that is developing full stack autonomous driving software and smart in car operating system in house. On the 2nd X Sight Tech Day, which was held on October 24 this year, we showcased our first of its kind all voice in car system, which enables continuous driver vehicle dialogue interactions covering a broad range of scenarios.
It is one of our key proprietary technologies developed for and applied in our 2nd generation X Smart OS operation system. We also showcase our autonomous driving technology capabilities, bolstered by our in house developed navigation guided pilot system, also known as NGP, which enables autonomous driving on highways with features including autonomous lane changes, overtaking other vehicles and switching ramps amongst other things. Our goal is provide the most advanced navigation guided autonomous driving system in China. We plan to make the NGP system available to our customers via OTA earlier next year. In the Q1 of 2021, we plan to conduct an expedition for our NGP to cross over 2,000 kilometers of highway from Guangzhou to Beijing.
We believe this is just the beginning of how high level autonomous driving technology is transforming mobility in China. I firmly believe that dedication to full stack in house R and D is the key to enhancing our product differentiation and solidifying our core competitiveness. In terms of production, after our own Zhaoqing plant officially started mass production of the P7 in the first half of the year, in September, our 2nd manufacturing base broke ground in the Guangzhou Economic Development Zone with strong support from Guangzhou Government. We expect this new XPeng Smart EV Manufacturing Base to start production by the end of 2022. Together with our Zhaoqing manufacturing base, we have set a solid foundation for XPeng's long term growth strategy.
In terms of sales and service network, as of September 30, 2020, Xbank's physical sales and service network comprised of a total of 116 stores and 50 service centers, covering 58 cities. Additionally, our supercharging network continued to expand across the nation. As of September 30, 2020, XPeng Branded Supercharging Station has increased to 135, covering 50 cities. Furthermore, we announced an Xpeng sponsored free supercharging program at the Beijing Auto Show on September 26. The program has been initiated in 24 cities and will be expanded to at least 60 cities by the end of the year.
Xbank will strategically invest in the nationwide deployment of a supercharging network over the next few years. While continuously strengthening our leadership position in China's smart EV industry, we're also strategically developing opportunities in international markets. For example, in September, we shipped the 1st batch of Xpeng's G3s to Europe. The super long range version of the G3 is our smart SUV model adapted for European markets with the specification. The shipment marked our first step to tapping international markets.
In the Q3, we successfully completed our IPO, which had a total offering size of $1,700,000,000 Together with the $900,000,000 raised in Series C plus financing, our fundraising totaled nearly $2,600,000,000 in the 3rd quarter. With the support of substantial capital reserves, we intend to increase investments in branding, sales and service network, charging network as well as in technology advancement and model development. For the Q4 of 2020, we expect deliveries of our vehicles to be approximately 10,000 vehicles. Our ability to achieve remarkable performance is attributable not only to our strong in house R and D capabilities, but also to our effective strategies in market positioning, product planning, manufacturing capabilities and our operational roadmap. 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
noted, we delivered strong top line performance in the Q1 and paused the adjusted gross profit for the first time in our company's history. We have reached this milestone in large part due to our successful launch delivery of EP7, which also carries an increased average selling price compared with our prior model. Our August IPO and the New York Stock Exchange did not only provide funding for our long term sustainable growth, but also further strengthened our brand and our influence in the electric vehicle industry. Now, I would like to walk you through our detailed financial results for the Q3 of 2020. Total revenues were RMB2 1,000,000,000 for the Q3, representing an increase of 3 43% from RMB450 1,000,000 for the same period of 2019, and an increase of 2 37% from RMB591 1,000,000 for the Q2 of this year.
Revenues from vehicle sales were RMB1.9 billion for the Q3, representing an increase of 3.76 percent from RMB399 1,000,000 for the same period of 2019 and an increase of 2 51 percent from RMB541 1,000,000 for the Q2 this year. The year over year and the quarter over quarter increases were mainly due to the acceleration of deliveries of the P7 since we began its mass delivery in the late June this year. Gross margin was 4.6% for the 3rd quarter compared with negative 10.1% for the same period last year and also negative 2.7% for the 2nd quarter this year. Variable margin was 3.2% for the 3rd quarter compared to negative 10.8% for the same period a year ago and negative 5.6% for the Q2 last year. The increase was primarily due to better product mix, decrease in material cost and improvement in our manufacturing efficiency.
Research and development expenses were RMB635 1,000,000 for the Q3, representing an increase of 46% from RMB435 1,000,000 for the same period in 2019 and an increase of 99% from RMB320 1,000,000 for the Q2 this year. The year over year and quarter over quarter increase were mainly due to a significant amount of share based compensation expense recognized related to the share based awards we granted to our employees with the performance condition of an IPO. If we exclude this share based compensation expense, number 1, our research and development expense will be decreased year over year, primarily because we incur significant amount of expense relating to the development of EP7 in the same period last year. And number 2, the research and development expense were increased quarter over quarter due to increase of design and development expenses relating to the new product, which will be launched next year. Selling, general and administrative expenses were RMB1.2 billion for the 3rd quarter, representing an increase of 3 21% from RMB286 1,000,000 for the same period last year and an increase of 152 percent from RMB477 1,000,000 for the Q2 of 2020.
The year over year and the quarter over quarter increase were mainly due to the share based compensation expense recognized for the reason mentioned above. Excluding the share based compensation expense, the increase mainly resulted from higher marketing and promotional spending to support the aluminum vehicle sales. Loss from operations was RMB1.7 billion for the Q3 compared with RMB761 million for the same period last year and RMB779 1,000,000 for the Q2 of 2020. Excluding the share based compensation expense, the non GAAP adjusted loss from operations was RMB823 1,000,000 in the Q3 compared with RMB761 1,000,000 for the same period last year and also compared with RMB779 1,000,000 for the Q2 this year. Net loss was RMB1.1 billion for the Q3 compared with RMB776 1,000,000 for the same period in 2019 and RMB146 1,000,000 for the Q2 of 2020.
Excluding the share based compensation expense and fair value change on derivative liabilities related to the redemption right of the adjusted net loss was RMB865 1,000,000 in the 3rd quarter compared with RMB751,000,000 for the same period of 2019 and also compared to RMB 770,000,000 for the Q2 this year. Net loss attributable to ordinary shareholders of Xiaoping was RMB2.0 billion for the Q3, compared with RMB982 million for the same period in 2019 and also compared with RMB1.1 billion in the Q2 this year. Fair value change on derivative liabilities related to the redemption rate of preferred share and accretion of preferred share to redemption value were non cash events, which will no longer recur after IPO. Excluding the share based compensation expense, the fair value change on derivative liabilities related to the redemption of the preferred share and accretion of preferred share to the redemption value, The non GAAP adjusted net loss attributable to ordinary shareholders of Xiaoping Incorporation was RMB865 1,000,000 for the Q3, compared with RMB751 1,000,000 for the same period a year ago and also compared to RMB770 1,000,000 for the Q2 this year. Basic and diluted net loss per ADS were both RMB5.0 7 for the Q3 of 2020.
Non GAAP basic and diluted net loss per ADS were both RMB2.16 for the Q3 of 2020. Each ADS represents 2 Class A ordinary shares. Now coming to our balance sheet. At the end of September 2020, the company had cash, cash equivalents, restricted cash and short term investment of RMB20 1,000,000,000 compared with RMB2.8 billion at the end of last year. The increase was primarily due to the next proceeds we received from company initial public offering in August this year and also the Series C plus financing.
Now for our guidance, as Xiaoping mentioned earlier, for the Q1 of 2020, we currently expect the delivery of vehicles will be approximately 10,000 units, representing a year over year increase of about 2 11%. We also expect the total revenue for the Q4 of 2020 will be approximately RMB2.2 billion, representing an increase an year over year increase of about 2 44%. The forecast reflects the company's preliminary estimates of market, operating condition and customer demand, which are all subject to change. This concludes our prepared remarks. We will now open for the call to questions.
Operator, please go ahead.
Thank you. If you wish to ask your question to management in Chinese, please immediately repeat your question in English. Your first question comes from the line of Bin Wang from Credit Suisse. Your line is open.
Okay. Actually, my question is about the autonomous capability. After you launch the NGP and memory packet in the Q1 next year? What will be the next big step in the second half of twenty twenty one or 2022? Thank
you.
So thank you for your question. Actually, after launching NGP and the memory parking next year, we have several big moves that we're going to launch in the coming future. Those are based on XPILOT 3.0. The first thing is the memory parking within a parking lot, which means that when your car arrives at the parking lot, it will automatically take you to the available spots for parking. Now the second big launch will be for major cities, 1st tier and 2nd tier cities, during the peak rush hours in the morning and in the evening.
And that is called the autonomous following. So the autonomous driving technology will allow your car to follow closely to the vehicles before you to make sure that you are not behind. Coming up, we also will launch an identification feature of traffic light within Chinese city roads and also an upgrade version of the NGP functions that allows us to transfer from highway scenarios to city roads. Coming up, we also have more autonomous features that will allow us to be more advanced in terms of the autonomous driving camera and g in China?
I have a question about the network expansion plan. What's your number you guide in the end of this year and 2021? And what's the breakdown between the self owned and third party?
So I'll take these questions. By end of the year, we forecast that we'll have 150 stores covering 72 cities. And by end of this year, we will have 68 service centers.
For the
guidance for next year, we are still in the process of making the guidance. So we'll give you updates as we have them.
Thank you.
Your next question comes from the line of Ming Li from Bank of America. Your line is open.
My question is regarding our sales store expansion strategy in Guangdong province and also outside Guangdong province, especially nowadays your store expansion is very aggressive. And I also want to know, what's your long term expectation regarding your sales breakdown between Tier 1 cities and the low tier cities? Thank you.
Because XPeng is headquartered in Guangzhou, that's why a lot of people believe that we are mainly focused of ourselves in Guangdong. However, we have recognized that the situation and we are quickly expanding in other 1st tier cities such as Beijing and Shanghai, also to other tier cities, 2nd tiers and 3rd tier cities. And that is part of our strategic roadmap of expansion in the future. And this year, we are doing a lot better in terms of sales performance in other provinces outside of Guangdong. So our next step for us is to continue on improving and producing our product quality and through our marketing and our marketing and sales, we'll be able to reach more a greater extent, a greater higher level, higher quality of users.
And outside of Guangdong, we are quickly expanding to 1st tier cities, 2nd tier cities and 3rd tier cities through our expansion of stores numbers, service centers numbers and our supercharging network. And those are those will remain part of our priorities in the coming quarter and next year. And after IPO, we'll be able to reorganize our company in a systematic manner and make our procedures and steps of production more efficient. And those will be reflected in our sales performance in the coming quarters.
Your next question comes from the line of Jeff Chang from Citigroup. Your line is open.
So I got three questions. My first two questions is the battery bottleneck issue. So how do we have a battery bottleneck supply issue? And how do you see this improve going forward? And my second question is about the same store sales growth between the new store and the old store.
So could you give us a breakdown in the 3rd quarter on the total sales volume from new stores and old stores before June and after June opening? And then also what is that ratio into October? Thank you.
Regarding your first question Regarding your first question about
the battery bottleneck, I
think after pandemic, the new vehicle the new energy vehicle industry is on the rise. Also in the European market, we see sales recovery in terms of the whole of European market. Also since last end of last year and earlier this year as a result of the pandemic, a lot of the battery makers are doing their best to expand their capacity of production. And so right now, we are encountering a very temporary supply bottleneck in terms of battery supplies. And lately, we are indeed restricted in terms of production as a result of the battery supply bottleneck.
However, in the future, with our active very proactive communication with all the battery makers and our good relationship with a good partnership with the battery makers and with better planning coming forward in terms of production, I believe we can resolve this bottleneck in a very quickly manner. And in the coming 6 months to 12 months, a lot of people have apprehensions about this battery supply and thinking that we are facing a risk of shortage in supply. However, I disagree with that. I'm actually very confident in the dairy supply because a lot of the dairy makers are now preparing very actively in their production capacity. And I believe as a result of the fierce competition amongst these diary makers, we will be able to benefit from it in terms of supply.
Regarding the second question about the breakdown on Q3 sales, actually, I would like to give you a little bit of context. All of our sales are made after our customers signed all of the vehicles are produced after the customers signed the agreement or the sales contract. So basically, all of the numbers, all of the deliveries that you saw in Q3 are the result of the previous contract that we signed about a month or 2.5 months ago. And from our development, actually, we observed something interesting. We used to think that it usually takes maybe 6 months for a new store to mature, but now we realize that it's actually much, much quicker.
And as we develop more self owned factories of production, as we solve the battery supply problems and optimization in that area, we believe from Q4 forward, we'll be able to achieve an even higher efficiency in our product deliveries.
Jeff, this is Brian.
Let me just add on this point on the battery situation. It is not a bottleneck in a way that we don't have sort of access to the battery capacity. It is actually when you have sudden jumping demand in the short term, you need to revise up your production, it will actually be very difficult. But at given time, I think the capacity issue will be digested very quickly. So I just want to give you this context.
It's not like we don't have access, just like if you don't have the flexibility to really change capacity dramatically in the near term.
Treatment on the software income into 2021? And how do we transfer the PANDAS revenue from the software income into 2021. And then if this PAN up revenue overlapped with the new software revenue income in the first half next year? So would there be an inflection point to see a massive increase in the revenue and net profit going forward? Thank you.
Jeff, this is Dennis. Let me answer your question. Yes, so far, we have received some orders. For example, the hardware vehicle has facility or equipment to support the autonomous driving on the 3.0. We do see some orders, the payment of the software, but that's our kind of prepay, customer prepay money, that's not in our revenue.
We need to wait until we OTA the functionality, then we can book that into our revenue. And the plan is to book lots into the revenue starting from next year. And we actually we have for example, as of today, we have about 40% of our customer, they pick up the hardware and among the hardware, they have about 60% to 70% of customer, they buy the software. So this will translate a significant amount of the software revenue starting from next year. But I need to clarify, so far we have expired 2.53.0.
The 2.5 is free of charge. We only charge the customer with the 3.0, the autonomous driving 3 point 0. And going forward, in our Q4 models, we will have more modernization of the software. Example, we may upgrade to 3.5 or even 4.0, the software packaging. At that time, we probably were reevaluate the pricing, maybe we'll increase the software revenue.
But all in all, the software revenue will be kind of considerable portion of our overall revenue going forward.
Your next question comes from the line of Paul Gong from UBS. Your line is open.
So my first question is regarding the gross margin. Is it right that Q3 GP margin improvement is mainly a result of the product mix? Our P7 GP margin is significantly higher than G3. Is G3 still in negative gross margin zone in the Q3? So my second question is regarding the extra pricing of XPIL3.0.
My understanding, if I recall correctly, that is priced at RMB 30,000. Is it how do we think about the split between the hardware cost coverage versus software revenue? And how do we foresee the hardware costs going forward? Thank you.
Okay. Let me handle the margin question. Yes, we have the quarter over quarter margin improvement. The major contributor is from the beta product mix, which means more P7 in the Q3 compared with the Q2, only minimal volume. And then we have the reduction in material cost, including the battery and non battery material cost reduction.
And we also have manufacturing efficiency improvement due to the scale, the economy of scale. We don't disclose individual vehicle line margin, but we are seeing improvement on both models. We don't disclose individual model, but the overall both models margin are improving. So that's the first one. And then the second one on the autopilot, so far we charge customer with 1 of 20,000 for the Expiter 3.0.
One off, if customer chooses to pay that in installments, they will need to pay 12,000 a year for 3 years, then they can get the laptop time, the kind of service. We are seeing opportunity on the hardware because of the technology improvement and also the more volume, more scale. So both hardware and software will have the efficiency in terms of the cost and that will further improve the margin for the software as well as the vehicle margin going forward.
Paul, you're right. I mean, I think our hardware on Xpilot 3.0 has more expensive than the version that has only the XPILOT 2.5. And also the price difference covers the hardware costs as well as having some margin there as well. And we expect the cost of those hardware can continue to go down as we produce more and more of these XPIDER 3.0 equipped vehicles.
Okay. Thank you.
Your next question comes from the line of Zhai Wu from Bank of China. Your line is open.
Good evening, management. Thanks for taking my questions. I have a question in terms of our sales distribution. Different from other 2 peers, we have the sales modes of self built and dealership. And how do we compare these two modes in terms of marketing efficiency and customer experience?
And could you give us the breakdown of these two modes and what's our plan in future? Thanks.
Currently, we have 116 sales points sales stores. Amongst them, 46 are cell phones, 70 are partners with other dealership or franchise stores. Now in my understanding, as we begin to build a brand, it is more efficient to have your own self owned stores so that you can educate the market and do more branding in terms of your development. And as you mature, as the brands get more and more well known in the market, it is more efficient to have partnerships with other dealerships so that you can have a high efficiency in generating sales. And right now, we believe that both of those channels are very important in contributing to our sales.
And so in the future, we are going to set up different kind of stores according to the location, according to the type of cities that we are in.
Can I explain this by this way that in Tier 1 cities in Tier 1 cities, we will have developed more in depends on our own self built stores and in low tier city, we will use dealership? And with the expansion of our brand names and we will use more in self
So as I mentioned before, we have to take into consideration many different elements. For example, the brand awareness, the acceptance level of new energy vehicles of the market and of our customers. So right now, we don't have any preference over which kind of stores that we're setting up for 1st tier cities or to 3rd tier cities. It all depends on specific situations.
I have seen SG and A expenses in Q3 surged substantially. Could you give us some reasons about the the increase in SG and A expenses and the guidance in future for SG and A? Thank you.
Okay. I use English. Yes, we have the quarter over quarter increase in SG and A and the increase is primarily for the branding spending, the channel expansion channel development and also kind of advertisement to supporting vehicle sales, that is the primary higher spending on the SG and A. And going forward, as you are aware, we are still in the kind of in the middle, in early phase in terms of the channel development and to build more strength in our brand to support higher run target next year. So we foresee the marketing and sales expense will continue to maintain at this kind of level or slightly increase in the near future.
We at the same time, we will also manage other for example, for some spending, we don't need to grow in line with SmartLine. We'll definitely control that. But for some spending, that is to investment for future. We will continue to spend a little bit money on that area to support the future growth.
Thank you.
Your next question comes from the line of Nick Lai from JPMorgan. Your line is open.
Okay, let me translate my question in English. The first question is the level of backlog order. And currently, you have waiting time of about 4 to 5 weeks. And what's our strategy to shorten that waiting time? And the second question is really regard to the new factory in Guangdong and what is the capacity and the CapEx?
Can you give us some guidance? Thanks.
So Nick, first of all, as you probably heard during our IPO process, we don't disclose backlog information as a policy. But I think in terms of the wait time, actually it depends on the specific model you're ordering. My understanding is that 4 weeks to 6 weeks are the standard sort of delivery time these days for our P7. But we actually trying very hard to shorten that delivery time, because I think obviously that will improve user experience, our customer satisfaction. We actually are stepping up our production as we speak.
Also at the same time, we're reducing the time lag in terms of transportation and logistics as well as delivery cycle. So I think hopefully we can actually control the delivery time shorten that within the 4 weeks as we
So let me just add to that. Actually, for some hot models, we're going to do a really short time or a quick preproduction of those models to increase them to shorten the wait time and also through our optimization of our delivery procedures or process, we believe in the coming quarters or 2, we will be able to greatly shorten the wait time.
And your question on Guangzhou plant, right now, the design capacity for the second plant, we are planning to have 100 ks annual production. In terms of the cost of building that, we estimate this could be close to RMB3 1,000,000,000 in terms of total cost, including the equipment. And obviously, as you heard from our previous announcement that the government supported financing package is more than enough to cover the construction and equipment cost of that plant expansion. In terms of your question on Haima relationship, our counter manufacturing agreement with Haima will end by the end of next year. We're obviously maintaining a very frequent dialogue with Hima to how to best optimize that relationship.
So if there's any decision or conclusion, we'll obviously disclose to the public.
As there are no further questions now, I'd like turn the call back over to the company for closing remarks.
Thank you once again for joining us today. If you have first questions, please feel free to contact us, Kohnzei Investor Relations, through the contact information provided on our website or the Investor Relations. Thank you.
This concludes today's conference call. You may now disconnect.