For the Q1 2021 Earnings Conference Call for XBEN Incorporated. At this time, all participants are in a listen only mode. At 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.
Ziling Ma, Director of Investor Relations of the company. Please go ahead, Mr. Ma.
Thank you. Hello, everyone, and welcome to Xpeng's First Quarter 2021 Earnings Conference Call. Our financial and operating results We issued via newswire 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 will include our Co Founder, Chairman and CEO, Mr.
He Xiaopeng Vice Chairman and President, Doctor. Brian Gu Vice President of Finance, Mr. Dennis Lu and Managing Director of Strategy, Mr. Charles Zhang and myself. Management will begin with prepared remarks, and the call will conclude with a Q and A session.
A webcast replay of this conference call Will be available on the IR session of our website. Before we continue, please note that today's discussion will We'll 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 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 Please note that Exane's earnings press release and this conference call include the disclosure of unaudited GAAP financial measures as well as unaudited non GAAP financial measures. Expense The 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
Hello, everyone. Thank you for joining XBANK's 1st Heading into 2021, the electrification and its modification are accelerating the disruption of internal combustion vehicles. Notably, in March, the penetration rate of high energy passenger vehicles in China surpassed the 10% threshold for the first time. The India adoption in top few cities experienced a record high growth with the penetration rate reaching around 20%. Being part of this unprecedented disruption I strongly believe that XPeng is well poised to lead the development and transformation of the industry.
My belief is firmly underpinned by our long term strategic investment and the leadership in smart EV technology that we have been building out over the past years. Our strong momentum continued in the Q1 of 2021 With another quarter of record vehicle deliveries despite traditionally slower season demand and challenges of industry wide chip shortage, Our Toyota vehicle delivery number in the 1st quarter reached 13,340, representing 187.4 percent year over year increase consisting of 5,366 G3s And 7,974 P7s. According to the new car insurance registration data reported by China Automotive Technology and Research Center. In terms of volume, the G3 ranked number 1 amongst A Class BEV SUVs And the P7 ranked number 3 among B Class BEV sedans in Q1. We attribute this outstanding performance Our industry leading full stack in house developed software technology and our solid differentiated product strategy.
Fueled by strong delivery growth, our revenue reached RMB2.95 billion in Q1, Representing year over year and quarter over quarter growth of 616.1% and 3.5%, respectively. Meanwhile, our profitability continued to improve, highlighted by a gross margin of 11.2%, an increase of 3.8% from the prior quarter. On January 26, we began to push OTA updates for XPILOT 3.0 to our customers And started to recognize revenues from XPilot Software. As such, our vehicle revenues in the Q1 now include software revenues for the first Since mass deliveries of the P7 began in June 2020, we have delivered over 23,000 T7s as of March 31. And on a cumulative basis, the attach rate of Xceler3.0 has exceeded 20% as of March 31.
Such a catch rate further increased to approximately 25% in March 2021. I believe that XPILOT software monetization will become a recurring revenue model and generate profits in addition to our sales Going forward, building on our electric technology iterations powered by our full stack in house R and D capabilities And hardware software integration solutions will roll out XPILOT 3.5 and XPILOT 4.0. Our next generations of autonomous driving technology in the next few years, our ex pilots will make The advanced autonomous driving experience accessible across a wider range of road scenarios and ultimately bring about end to end highly automated driving. They will also help to further distinguish our brand leadership in the smart EV market. Next, I'd like to share our latest achievements in technology advancement for smart Since launching our navigation guided pilot For the highway, or NGP, in late January this year, NGP has assisted our customers in driving 2,300,000 kilometers, Which is approximately 1,000,000 kilometers a month with the NGP assisted mileage penetration rate exceeding 50% amongst those P7s That activated as of March 31, 2021.
The strong usage frequency not only reflects the broad applications of NGP, but also testify to the satisfaction and trust customers have in using it. In March, we successfully accomplished our NGP guided expedition that crossed highways from Guangzhou to Beijing. This expedition of over 3,000 kilometers marks the nation's longest of its kind. During the entire expedition, The NGP's hailing intervention was only 0.7x per 100 kilometers on average. Notably, More than 90% of autonomous lane changes, overtaking other vehicles, switching ramps and going through tunnels were executed successfully, which I believe outperformed all other mass produced autonomous driving system in the market.
Here, I would like to highlight the strategic importance of our capability of deploying our autonomous driving technology On mass produced vehicles, through those vehicles equipped with NGP capabilities, we're able to collect highly valuable cases When our customers are using NGP, we're now able to achieve fast iterations of our algorithm on a weekly basis based on our advanced With the growing number of P7s on the road, I believe Xpeng will have the largest and the fast growing smart EV fleet with close with data capabilities on China's real networks. Recruiting and retaining excellent technical talent is the foundation of our ability to lead innovations In technology and development in the smart EV industry, as of March 31, 2021, Our R and D team represent approximately 40% of our total headcount. With our firm commitment to build a strong R and D team, we aim to We'll be able to continuously introduce new vehicle models featuring more powerful hardware to support our fast iteration of software. At the Shanghai Auto Show on April 19, we unveiled Piesai, the world's first Mass produced, partly equipped with LIDAR. The market warmly welcomed the P5 with enthusiasm supporting Pre order reservations exceeded our expectations and surpassed 10,000 in just 53 hours following its debut.
The P5 is designed as the A plus class sedan with a roomier image space than most of the B class sedans in the market. Through more advanced autonomous driving systems and smart cockpit technology in a roomy space, we have created for our customers a completely new experience of a smart 3rd space beyond their homes and workplaces. Our customers can now use this space to take a nap, watch films, like in a private cinema and enjoy outdoor camping and more. We plan to start deliveries of the T5 in the Q4 of this year. Additionally, we plan to start internal user testing of XPILOT 3.5 with NGB autonomous driving capabilities on the major urban roads To improve software and engineering performance, we provide customers with the most powerful mass produced autonomous driving system available For China's road system at an attractive price point, such approach significantly differentiated us from many of our peers.
In addition, we are making solid progress in the research and development of our next generation autonomous driving hardware platform And next generation powertrain system, including high voltage and supercharging system. We look forward to updating you on these developments in due course. As the smart EV market continues to grow fast, We are accelerating the build out of our infrastructure facilities as part of our long term strategic road map and investment. As of March 31, XPeng's physical sales and service network consists of 178 sales stores and 61 service centers across 70 cities in China. Of 100 and 78 stores, 88 were directly operated by us.
Notably, in this regard, in April, we entered into a long term strategic partnership with China's biggest auto dealership company, The Zhongshan Group. Actually, this partnership will serve to provide both XBANK's industry leading smart EV products And Zhoushan's high quality services to consumers across China can further accelerate smart EV adoption. We remain committed to expanding our nationwide sales network to approximately 300 stores, covering more under intensity by end of the year. We also continue to expand our supercharging network. As of March 31, number of Xpeng branded supercharging station expanded to Additionally, our free charging program has been available on more than 1,000 supercharging stations As of April 30 this year, covering over 160 cities, we expect that there will be more than 500 ex brand branded super In terms of production, at our Zhaoqi factory, we have completed upgrading the production lines So that they can produce both the P7 and the aforementioned P5 concurrently.
We now are Conducting trial production runs of the P5 model, we believe our manufacturing costs will be meaningfully declined when we're able to produce the P7, P5 and mid Q3, the same production plant. In addition, with financial support from the Wuhan government, In April, we entered into a cooperation agreement with the City of Wuhan to build our 3rd factory there. The new manufacturing base will continue will contain both manufacturing and powertrain plants and have an annual capacity With funding support from local government in Wuhan and Guangzhou, we will expedite investment and Construction are our plans in these two cities. Once fully completed, XPeng's 3 factories located in Shaoxing, Guangzhou And Wuhan will have a total annual design capacity of 300,000 units. Moreover, With minimal factory revamps and increased work shifts, the potential peak output can come close to 500,000 units in total.
This provides us an excellent foundation for which we can capture widespread demand in the transformation towards smart TVs. Turning to our overseas development. In the Q1, we exported more than 300 G3s to Norway. We plan to start deliveries of the P7 to Norway in the second half of the year. Moving forward, As smart EV designer and manufacturer that knows China better than any of the peers, Xpeng will remain Focused on delivering differentiated and smart products built upon our industry leading autonomous driving technologies that meet vast market demand.
This relentless effort will further our mission to shape the mobility experience of the future. Now moving on to our guidance. Excluding preorders reservations of the P size, we are already seeing a historical high of our order backlog. We'll strive to ramp up production and minimize the impact from industry wide chip shortage. In the Q2 of 2021, We expect our Smart EV delivery to be approximately 15,500 to 16,000 units And our total revenue to be approximately RMB3.4 billion to RMB3.5 billion.
Thank you, Mr. Martin.
With that, I'll now turn the call over to our VP of I'll now turn the conference over to Dennis Lu to discuss our financial performance for the Q1 of 2021.
Thank you, Xiaofeng, and hello, everyone. Xpeng's robust performance in the Q1 of 2021 Validates our strong capability to make differentiated smart EVs appear to various needs of the large and growing customer base. Thanks to our record breaking deliveries in the traditional weak season. In quarter 1, we witnessed a quarter over quarter increase in our top And further improvement in our profitability, in particular, our gross margin continued and our trend Screen sharing, hitting double digits in the quarter. Additionally, for the first time, revenue from our Expider software were recognized in top line And the effect in gross margin, making a significant milestone in our Chinese EV Industry.
Moreover, our Some financial condition and strong cash position enable us to better execute our growth strategies, cement competitive advantages And see tremendous growth opportunity in the smart EV sector. Now I would like to walk you through our detailed financials For the Q1 of 2021, total revenues were RMB2.95 billion for the Q1 of 2021, Representing an increase of 6 16 percent from RMB400 per 1,000,000 for the same period a year ago And an increase of 3.5 percent from RMB2.85 billion for the Q4 of 2020. Revenues from vehicle sales were RMB2.81 billion for the Q1 of 2021, representing an increase of 6.55 percent from RMB372 1,000,000 for the same period of 2020 And an increase of 2.7 percent from RMB2.74 billion for the Q1 of 2020. The year over year increase was primarily due to the derivative of VIP7, which started at the end of June last year. The quarter over quarter increase was primarily attributable to the revenue recognition of Expiter 3.0 software In the Q1 of 2021, since the functionality was fully delivered to the accumulated group of the software packages, Partially offset by the lower government subsidy for the new energy vehicle starting from January this year.
Gross margin was 11.2% for the Q1 of 2021 compared with negative 4.8% for the same period 2020 And 7.4% for the Q1 of last year. Vehicle margin was 10.1% for the Q1 of 2021 compared to negative 3% for the same period of 2020 and 6.8% for Q4 of 2020. The improvement was primarily attributable to the material cost Reduction and revenue recognition of the Expiter software sales. Research and development expenses were RMB535 1,000,000 for the Q1 of 2021, representing an increase of 72% from RMB311 1,000,000 For the same period of 2020 and an increase of 16% from RMB460 1,000,000 For the Q1 of 2020, the year over year increase was mainly due to number 1, the increase in employee compensation As a result, our expanded research and development staff number 2, high expenses relating to the P5 development And number 3, share based compensation expense recognized in the Q1 of 2021. The And number 2, high expenses related to the development of P5.
Selling, general and Administrative expenses were RMB721 million for the Q1 of 2021, representing an increase of 124 RMB322 1,000,000 for the same period 2020 and a decrease of 22% from RMB 918 million for the Q1 of 2020. The year over year increase was mainly due to number 1, Our sales network and associated personnel costs, lease expenses for the sales and service stores And commission for their franchised stores. And number 3, share based compensation expense is recognized in the Q1 of 2021. The quarter over quarter decrease was mainly due to lower marketing, promotional and advertising Expense compared with the peak sales season in the Q4 last year. Low from operations RMB904 million for the Q1 of 2021 compared with RMB649 1,000,000 for the same period of 2020 and RMB1.1 billion for the Q4 of 2020.
Excluding share based compensation expense, the non GAAP loss from operations was RMB814 1,000,000 For the Q1 compared with RMB649 1,000,000 for the same period of 2020 And RMB1.1 billion for the Q4 of 2020. Net loss was RMB780 RMB7 1,000,000 for the Q1 compared with RMB650 1,000,000 for the same period a year ago and RMB787 7,000,000 for the Q4 of 2020. Excluding share based compensation expense, the fair value change on derivative Related to the retention rate of preferred shares, the non GAAP adjusted net loss was RMB696 1,000,000 For the Q1 of 2021 compared with RMB645 1,000,000 for the same period a year ago and RMB713 1,000,000 for the Q4 of 2020. Net loss attributable to the ordinary shareholders of X Inc. Was RMB787 1,000,000 for the Q1 compared with RMB9 35,000,000 for the same period of 2020 and compared with 787,000,000 for the Q1 of 2020.
Excluding share based compensation expenses, fair value change on derivative liabilities related to the redemption rate of people shares And accretion of the applicable shares to redemption value, the non GAAP net loss attributable to the ordinary shareholders of XPeng Incorporation was RMB696 1,000,000 for the Q1 of 2021 compared with RMB645 1,000,000 for the same period of 20 And also RMB713 1,000,000 for the Q4 of 2020. Basic and diluted net loss of American Depository shares were both RMB0.99 for the Q1 of 2021. The non GAAP Basic and diluted net loss per ADS were both RMB0.88 for the Q1 of Each ADS represents 2 Class A ordinary shares. Now turning back to balance sheet. As of March 31, 2021, our company had cash and cash equivalents, restricted cash, short term deposit, Short term investment and long term deposits in total of RMB36 RMB200 1,000,000,000 compared with RMB35.3 billion as of December 31 last year.
To be mindful of the events of our earnings call for our Q1 financial results, I will encourage listeners to refer to This concludes our prepared remarks. We will now open to the call to questions. Operator, please go ahead.
The first question comes from the line of Jeff Chang with Citi.
Hi, excellent, Michel. This This is Jie from CBA. So I have two questions. So first question is about the software. Could you break down software revenue and gross profit In Q1 this year, more specific, how much software revenue was derived From Q1 this year, how much from the rest of the 2020 and the GP margin?
How should we see this For income and profitability in the second quarter and the second half, this is my first question. Second question is about the vehicle GP margin. It seems that the G3 equipped with LFP It's accretive to the GP margin. So how much better compared with the LCM battery? Secondly, in the 1Q announcement, You mentioned that the Q1 cost of goods sold came down Q on Q due to a lower material cost.
Could you quantify a bit in terms of what kind of materials leading to a lower cost? And how will you see the cost trend into the second quarter?
Number 1 is the software. Actually, in Q1, Our total revenue from the XPILER 3.0 software was about RMB80 1,000,000. Among that, 50 some million was from those contracts we purchased the customer purchased last year And the other around 30,000,000 is from those software we sold this year. So in general, the software accounts For about 2.5 percentage points of the margin, among the 2.5 Points, 1.5 will be contributed from those contracts we sold last year and the other one percentage point is From those countries we saw in the Q1, because we have a very good NGP In from the Guangzhou to Beijing, we actually are seeing the software and also the hardware for the X We'll be even higher in the Q2. But again, in the Q1, the total revenue or the total Margin includes around 3,000 units of those software we the customer purchased last year.
So the second quarter will not As high as 2.5%, but definitely it will be higher than 1 percentage points for the Q1. That's number 1. The second question is For the G3, yes, actually, we have a material advantage compared with The LFP battery versus the NTM battery, I cannot tell you exactly number. We are seeing, for example, we maintain the same MSRP, same available marketing. However, we have the better material cost, so that will improve our G3 margin as well.
We started the delivery of the LFP G3 in Apple. So we will foresee the Margin improvement for T3 in the Q2. And number 3 is for the material cost reduction. Yes, we have the material Good news compared with the quarter 4. The good news is primarily from the battery cost reduction.
We Actually, we negotiate with our battery supplier to get the battery cost reduction. That basically was the negotiation was Pretty early this year, so we have some material cost reduction. The percentage will be from 5% to 10% In terms of the cost reduction versus the level at the end of last year. I hope I answered your questions.
Thank you. No more questions. Thank you.
The next question comes
First question is, could you give us an update on the LiDAR testing and validation with Livox? Is it meeting your performance requirements? And are you confident that the P5 with a lighter on it We'll be hitting the streets in the Q4. And then second question is on the reservation number. I know you disclosed it shortly after the release.
Could you maybe provide us an update? And if it's not the exact number, I know you don't give that, but some sense of relative to your own expectations, How much higher is this number tracking?
I'll translate.
So we have tested multiple lighters of different brands, and we compare them by different parameters in terms of their human cost, Craftsmanship, their cost and also their capability of being mass produced. And so the lighter that we use on P5 is actually DJI, Dajiang, And we are very open to other options. So by 2022 to 2023, the new models that we are launching may adopt different brands That make that produce lightest. So basically, we're very confident that right now with our capabilities of all round full stack sensing Performance on our vehicle and also on our production capabilities, we can actually be complementary to some of the lighter technology Shortage for lighter technology, there's advantage out there. However, in the long run, we hope that we can achieve a good balance between the cost The technology and their capability of being mass produced at the same time, we can achieve well balanced and move different performances across different parameters.
So we are very confident that by Q4 this year, we can launch P5 equipped with LiDAR. And regarding your second question And also getting the feedback from our frontline sales force, the same period last year when we first launched P7, They do feel some pressure from the market regarding the price of P7. However, this year, with the launch of P5, every single feedback has been very positive regarding The launch of P5, so we're really confident that the actual performance in terms of orders and deliveries of P5 will be very, very encouraging.
The next question comes from the line of Tim Chau with Morgan Stanley.
Hi, management team. Congratulations So my first question is about the components. Because compared to other EV startup peers, Exane this year apparently had much more new models in faceplate, especially in second half. So while we expect the chip shortage by easing second half, but what else has Xpeng done to ensure other major component For either faceplate or new launches, we'd have sufficient component supply later this year. Especially, I think there are a lot of new models We'll also be coming to the market in the second half.
My second question is just a quick follow-up on the guidance. What kind of visibility do we have so far down chip supply? How much inventory do we have at the moment To support the production plan throughout the whole second quarter and meet the guidance of the sequential volume growth into the sequential volume
Regarding the shortage in chipsets, basically, it is now a big Challenge for all the automakers out there and nobody out there can really promise that they can solve the problem in a short time. And for smart EV manufacturers, I think Q2, upcoming Q2 will be the most challenging timing. And we hope that by Q3 this year, things will get better. However, if not, then Q1 next Maybe things will become the tension may become more released. So in order to prevent ourselves into Getting into a difficult situation, we have spun several measures.
For example, we have made a lot of preorders with our existing suppliers. We communicate directly with the supplier, the head of Different suppliers of chipsets to make sure that we have enough inventory and orders coming places to support our future development and production. And also because we have Lot of full stack automated R and D technology that allow us to be really flexible in adapting to different chipsets in manufacturing vehicles. We are able to actually look out for new partners and new manufacturers of chipsets so that we can actually become more adaptive to market change and to this Chips had shortage. So in the long run, we believe that and we have confidence that this can be resolved, but we can't promise anything right and wrong.
Hey, Tim, this is Brian. I just want to add, in terms of the guidance we gave for this quarter, we have considered the constraints The chip shortage situation that Xiaopeng described, so that reflected the constraint Numbers, without constraints, obviously, the delivery number will be higher than what we have given out. But on the other hand, I think the ship shortage Visibility is still not very clear, so it will be subject to the changes, so we keep a very close eye on the situation.
Now in terms of other components as we deliver more new models In Q3 or Q4, this year, we are going to face some constraints in terms of other components other than chip shortage. For example, one important thing is the battery supply. Right now, we are using LPS for some of our vehicle models. And the ramp up of the adoption of LFP, sorry, will take about 1 quarter. And so by Q3 this year, we estimate that We will reach a comfortable level of adopting the new LFP batteries.
And also, the market demand for LFP battery is Actually, larger than expected, and that is why in Q3, Q4 this year, we are going to be able to reach a more A comfortable level of production adopting this new battery. And as was mentioned by Brian before, our guidance for this year later on actually included the calculation of All of those components that I've mentioned.
Great. Thank you, Mr. Ho and Brian. Thank you.
The next question comes from the line of Nick Lai with JPMorgan.
Yes, it's Nick here. Capitalization, Kami Sao. My two simple questions. The first question is margin In light of chip shortage and volume to price hike, I guess management, Brian and Mr. He have already answered part of that question regarding chip supply.
And so maybe just on the margin outlook, in light of the rising raw material price, can you give us some indication or guidance How we mitigate the touch count of material price headwind? And the second question regarding This is Maozio. I'm in Xpilot 3.0. At the moment, our customer paid off about RMB 20,000 Together, XPILOT 3.4 service, I'm curious as we launch or as we roll out XPILOT 3.5 or 3.4
Nick, This is Dennis. Let me handle the first question. Actually, in our Q1 margin, we did not have the Mature impact on the margin due to the achievable, the raw material. So not in the Q1. But looking at the Q2, we do have some impact due to the raw material, for example, the Clearly, I do mean those raw material, some slight cost impact to our margin.
And also in terms of chip, we are also sourcing some alternative chip and also probably to help our supplier to get chip. So There are some material some cost increase, but in total, these two components The impact will be less than 1 percentage points in terms of margin. The amount is Somewhere around RMB1000 to RMB1500, but less than 1% of the margin impact to the Q2. For the 3rd We need to close the monitor, but the situation probably will be released in the Q3.
So let me take the second part of your question. Actually, in my opinion, paying by on demand model or a subscription model will It actually cost our customer more than paying a one off fee for that software and service charge. Going forward, we are also considering other service charge
The next question comes from the line of Ben Wong with Credit Suisse.
My question is about At time starting capability, after XPEN North 3.5 as part of what's the comparison between the FIDO solution and Huawei solution compared to HPEON's Express 3.5 Open NGP. Thank you.
Now actually, in terms of XPILOT 3.0 and its functionality, we will have An official release when we launched the P5 later on this year. However, right now, I can comment on different solutions and different criteria for evaluating different solutions. Basically, we have to balance Several things or several aspects. First of all, you have to look at the combination of different functionality. 2nd of all, you have to combine the you have Look at their integration of the hardware and software and the overall cost of using the solution.
The third aspect is that you have Look at the scenario of the usage or the scope of the usage of that particular solution. Last but not least, you also have to take into consideration The data feedback from the users, whether or not they consider it a good experience to use that particular solution. Now in the market right now, you might come across some videos Solutions that claim that they're doing very good in certain aspects, but that is only in certain functionality or At a very high cost, right now what Aspen is trying to do is that we are coming up with solutions for autonomous driving that can balance all of those At a reasonable cost, so that we can deliver the most superior experience in terms of autonomous driving to our Customers, and we are launching different versions, and we want to go into the future where we can actually use these technology to support not just GP, but also to cover all of the urban roads in China and then later on to alter range, of traffic roads in scenarios in China and even go Thus that, you go to the global scenario and scope.
And so that is, an art, if I may, to balance all these
The next question comes from the line of Ming Lee with Bank of America.
Okay. My question, I have two questions. The first question is regarding the mid period G3 upgrade. So when will you start to do this? And will you use the contract manufacturing business model?
Or you will Use your own capacity to measure it. And if you manufacture by yourself, will it be margin neutral or is slightly helpful And the second question is regarding the LFP battery orders. Last During your earning call, you mentioned that around 10% of orders of G3 is for LFP battery version and the 20% orders of P7 is for LFP battery version. So after 2 months, do you see any structural change regarding your other
Okay. About the newer version of Q3, we actually wouldn't do any upgrade in terms of its autonomous driving capability because we hope that by the next time, another new upgrade of Gifu will able to support a higher level of autonomous driving. And regarding the second part of your first question, if we were to produce the next version or next model of Geely in our own factory, definitely the margin will be improved And it will also impact other models' gross margin as well in a very positive manner. And the second question regarding the demand for LPF Battery, right, basically, we've seen more demand for that battery than expectation. So for G3 and P7, that number, that order for LPS, LFP battery definitely have surpassed that.
We have surpassed that was disclosed in last conference call. And so right now, we are in the process We're negotiating with a lot of the battery suppliers and hopefully that they can ramp up their capacity of production of that battery so that we can support that order demand For Q3 this year, in the long run, we are very confident that actually demand for LFP will continue to go up, And we are very confident that it will help us to drive up the margin in general. Thank you.
So, Ming, this is Brian. Let me just add on the LP battery front, what we see is that the increased demand is actually additive to our Existing demand was the NCM battery powered models. In fact, we have not seen the number of NCM models decline As a result of the launching of NFP batteries, we believe that LP battery actually expanded our customer base And the reach because of the wider pricing. And also, I think given the capacity ramp up, we think the mix We'll reach probably a steady state percentage high sometimes in Q3 and that's where we think we will see
As there are no further questions, now I would like to turn the call back over to the company for closing remarks. This does conclude today's conference call. You may now disconnect your line. Thank you.