Xpeng Inc

NYSE:XPEV

Earnings Call Analysis

XPeng Reports Strong Q2 2024 Growth and Optimistic Q3 Guidance

In Q2 2024, XPeng saw revenues rise by 60.2% year-over-year to RMB 8.11 billion, driven by a 54.1% increase in vehicle sales. The gross margin improved to 14% from -3.9% a year ago due to cost reductions and a better product mix. Despite a net loss of RMB 1.28 billion, down from RMB 2.8 billion the previous year, the company remains optimistic. XPeng anticipates Q3 deliveries of 41,000 to 45,000 units, reflecting up to a 49% increase quarter-over-quarter, and projects Q3 revenues between RMB 9.1 billion and RMB 9.8 billion, marking growth of up to 20.8%.

Introduction

XPeng Inc., a leading Chinese electric vehicle (EV) manufacturer, presented a robust set of financial results for the second quarter of 2024. The company showcased significant revenue growth, improved gross margins, and partnerships indicating a bright future.

Revenue Growth

XPeng’s total revenues for Q2 2024 reached RMB 8.11 billion, marking a notable 60.2% year-over-year increase and a 23.9% rise from the previous quarter. This surge was fueled by vehicle sales amounting to RMB 6.82 billion, evidencing a 54.1% year-over-year increase. The popularity of the new models contributed heavily to these figures.

Improved Margins

The gross margin climbed to 14% in Q2 2024, from a negative 3.9% in the same period the previous year. This remarkable improvement was driven by technology-driven cost reductions and an enhanced product mix. The vehicle margin improved to 6.4% compared to the negative 8.6% of last year.

Strategic Collaborations

The partnership with Volkswagen notably benefited XPeng, boosting revenues from technical R&D services. They signed a master agreement to develop industry-leading EV architecture, expected to roll out for all locally produced vehicles by 2026. Such collaborations enhance XPeng’s strategic standing in the competitive automotive industry.

Operational Efficiency

Despite the rise in SG&A and R&D expenses, mainly due to expanding product lines and higher marketing costs, XPeng managed to significantly reduce its operational loss to RMB 1.61 billion from RMB 3.09 billion the previous year. Net loss similarly improved to RMB 1.28 billion.

Guidance and Outlook

XPeng anticipates Q3 2024 delivery volumes between 41,000 and 45,000 units, projecting a substantial quarter-over-quarter increase of up to 49%. Revenue forecasts for the same period are set between RMB 9.1 billion and RMB 9.8 billion, suggesting a growth of up to 20.8%.

Technological Advancements

XPeng remains committed to technological innovation, with significant investments in AI and autonomous driving technologies. The rollout of their version 5.0 high-level ADAS capabilities has seen a 20% increase in the option and penetration rate among users.

Global Expansion

XPeng has expanded its presence to 30 countries and anticipates further growth in global markets such as Europe, the Middle East, and Southeast Asia. They aim to double their international sales stores by the end of 2024.

Conclusion

XPeng’s improvements in revenue, margins, strategic partnerships, and global expansion paint a promising picture for the future. The company's efforts in technological advancements and operational efficiency position it well to tackle future challenges and market competition.

Earnings Call Transcript 2024-Q2

[Operator]

Gentlemen, thank you for standing by for the Second Quarter 2024 Earnings Conference Call for XPeng Inc. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host, Mr. Alex Xie, Head of Investor Relations and Capital Markets of the company. Please go ahead, Alex.

[Alex Xie, executive]

Thank you. Hello, everyone, and welcome to XPeng's Second Quarter 2024 Earnings Conference Call. Our financial and operating results were issued by our newswire services earlier today and available online. You can also view the earnings press release by visiting the IR section of our website at ir.xiaopeng.com. Participants on today's call from our management team will include our Co-Founder, Chairman and CEO, Mr. Xiaopeng; Vice Chairman and President, Dr. Brian Gu; Vice President of Corporate Finance and VW Projects, Mr. Charles Zhang; Vice President of Finance and Accounting, Mr. James Wu; and myself.

Management will begin with prepared remarks, and the call will conclude with a Q&A session. A webcast replay of this conference call will be available on the IR section of our website. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks, 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 applicable law.

Please also note that XPeng's earnings press release and this conference call include disclosure of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. XPeng's earnings press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. I will now turn the call over to our Co-Founder, Chairman and CEO, Mr. Xiaopeng. Please go ahead.

[He Xiaopeng, executive]

[Foreign Language]

[Technical Difficulty]

Hello, everyone. In the second quarter of 2024, XPeng delivered 30,207 smart EVs, up 38% quarter-over-quarter and up 30% year-over-year. Supported by technology-driven cost reductions, efficient operation and management and revenues from strategic Technical Cooperation with Volkswagen, our gross margin has further improved to 14%, placing us at the forefront of Chinese EV makers. More importantly, we completed a new round of organizational upgrades and internal restructuring, bringing on top talent, we are already adding value in marketing, style, design, AI and out of key areas.

We're consistently addressing gaps and solidifying our strength to foster well-rounded competitiveness with the market launch of MONA M03 in August, we're entering an intense product launch cycle in a period of rapid development. with a number of competitive new products and models to be introduced through the end of 2026.

With our AI technology advancement, targeting product innovations and technology-driven cost reductions, coupled with an enhanced global and domestic marketing and sales system, these new products will fuel our sustainable growth trajectory. We're confident of achieving substantial quarter-over-quarter delivery volume growth in Q3 and Q4, respectively, and of reaching a new delivery record in the fourth quarter.

[Foreign Language]

[indiscernible] 2024, we began preselling Mona M3 and was thrilled by consumers' enthusiastic response. So far as presale orders have surpassed last year's G6 presale orders in the comparable sales period. Price in the RMB 150,000 segment among the [indiscernible] sedan, MONA M03 stands out with its trending stylish design and unique smart cockpit, offering a best-in-class driving experience, which outperforms that of vehicles in the CNY 200,000 price range. Across many aspects MONA M03 is setting benchmarks and emerging as a top competitor in the A Class B [indiscernible] market segment.

We'll be hosting our tenth anniversary [indiscernible] and launching MONA M03 on August 27, with mass deliveries set to begin shortly thereafter. Our supply chain partners have geared up to support MONA M03 fast production ramp-up alongside us. I'm hopeful that the delivery pace of Mona M03 fast production ramp-up will set new XPeng records, which will help quickly enhance the reputation of this outstanding product through word of mouth and support a strong increase in sales.

Next, we'll officially launch our next-generation sedan, the P7+ in the fourth quarter. The P7+ features exclusive stabling in interior space with a 3 new wheel base and over 5-meter length, making it superior choice for family customers. Furthermore, P7+ will be our first model based on our next-generation ADAS hardware platform. not only beat our cost reduction targets in both ADAS-related hardware and overall vehicle bond, but also boast technology innovations and cost advantages that outperform our competitors.

With deliveries of 2 new models ramping up, we're optimistic about significantly expanding our market share. At the same time, I remain dedicated to bolstering our capabilities across supply chain, manufacturing, marketing, sales and customer delivery, which will feel a more efficient and scalable operational system, accelerating product launches and deliveries during our upcoming major product launch cycle.

[Foreign Language]

Looking ahead to the upcoming years, I believe that the impact of AI on vehicles will be even more significant than that of electrification for automotive industry. AI will fundamentally change the driving and riding experience and will reshape the business models in the auto and mobility sector. the advancement of the end-to-end and AI models is going to break through with the limitations of current ADAS technology, and their [indiscernible] will happen much faster than traditional going methods.

AI will [indiscernible] ADAS safety and driving experience, lower the cost and speed of the mass market adoption of ADAS. The combination of AI models with X NGP, which is non-HD reliant and has strong generalization capabilities is the only path to developing ADAS technology that delivers a seamless experience anywhere regardless of location or roots and can be scaled globally.

[Foreign Language]

Since July 30 AI-powered XRS version 5.2 has been made available to all XPeng owners taking XMGP to the next level by empowering a smooth experience anywhere regardless of city and roots. We are the first to deploy AI model technology that offers access to ADAS on all public roads for all users nationwide. The application of end-to-end AI large models in autonomous driving is easier said than done. One of the challenges is how to ensure safe closed loop testing was both an extremely high upper limit and a solid lower limit.

Our extensive data sets and years of experience in urban ADAS driving give us an edge in integrating these end-to-end AI models, providing a safer, more human-like driving experience for our users. We're gearing up to tackle smart driving challenges such as ETC [indiscernible] stations and parking gauge barriers with our XNGP capabilities. Our goal is to offer an unparalleled parking slot to parking slot ADAS experience and implement the end-to-end AI models to the next level as our second step.

[Foreign Language]

Even more excitingly, our next-generation ADAS hardware platform will debut on the P7+ in the fourth quarter, offering high-level ADAS at the most competitive form cost in China auto industry. In the near future, we'll offer XNGP on a more -- on more EV models, making XPeng, the world's first auto company to deploy high-level ADAS in a car model in the USD 20,000 price range. I'm optimistic that improved affordability will allow more younger users to buy and enjoy the latest AI technologies, expanding XNGP's active user base and high-quality data pool. This, in turn, will create a positive cycle strengthening our AI-powered ADAS capabilities and further reducing costs.

We aim to have our AI-powered XNGP equipped mass production smart EVs provide is driving experience equal to that of world-class robotaxis by the second half of 2025. This means just 1 manual takeover required for several hundred kilometers in urban areas, which is groundbreaking. In other words, we are going to offer Level 3 plus autonomous software and user experience on Level 2 ADAS hardware and at a level 2 ADAS price point. With an affordable cost structure, we believe consumers will quickly embrace AI powered cars just as we quickly switch from traditional fuel vehicles to electric vehicles over the past 5 years.

I'll share more details about our advancements in AI models, robotics, robotaxi and other cutting-edge technologies at our tenth anniversary Galante next week in our annual Tech Day on October 24.

[Foreign Language]

Starting from this year, our long-term strategy for international models in overseas markets is entering a period of faster growth and is playing a more significant role in driving both sales and product growth. In the second quarter, XPeng ranked first in export sales of mid to high-end all electric vehicles or BEVs priced above USD 30,000 among all Chinese BEV brands.

For the first time in our history, overseas sales accounted for more than 10% of our total sales. XPeng G9 has become the #1 mid to large-sized all electric SUV in Norway, Denmark and Israel and ranked the top 3 in the same class in Sweden and the Netherlands. We believe that in addition to new energy, AI is crucial for us to achieve high-quality globalization.

As of August 15, we completed our over-the-air OTA rollout of the latest AI-powered XOS for all of our international customers, offering an unprecedented China-made OTA experience for overseas market. Our unique and premium tech brand has gained worldwide consumer recognition by leveraging our product strength. As we enter the third quarter, we saw strength -- a very, very strong momentum in the initial overseas orders for the international version of XPeng G6.

Starting from August, we expect to begin deliveries of the left-hand drive and right-hand drive version of G6. As of July, we have expanded our presence to 30 countries and regions via dealer partners and established over 70 overseas cell source, including in Europe, the Middle East and Latin America. We plan to enter more right-hand drive markets in the second half of 2024, including the U.K., Australia and several countries in Southeast Asia.

Also, we expect to double the number of XPeng branded international sales stores in the second half of 2024. Over the next couple of years, I anticipate our overseas business will maintain its strong growth momentum, leading global sales of mid- to high-end smart EVs and enhancing our reputation as a global tech brand.

[Foreign Language]

We have achieved multiple significant milestones in our long-term strategic cooperation with Volkswagen over the past year as we [indiscernible] expanded our corporation scope. In July of this year, we signed a master agreement of EV architecture technical collaboration with Volkswagen Group to jointly develop industry-leading EV architecture for all locally produced vehicles built on Volkswagen's China made platform or CMP and MEB platform.

Beginning in 2026, all locally produced vehicles built on the CMP and the MEB platform will be equipped with this jointly developed EV architecture. Thanks to deep mutual trust and collaboration between the 2 teams, the first model equipped with the jointly developed E/E architecture is expected to go into mass production within 24 months.

I'm very much looking forward to expanding the scope of our technical cooperation and further strengthening our winning strategic partnership. I believe that the combination of China's [indiscernible] and XPeng's technology will create greater synergies and strategic value for us and our partners in this era of profound changes in the global automotive industry.

[Foreign Language]

I'm glad that we didn't let every crisis go to waste and that we learned from them rising above each one. After launching the G9 in September 2022 and experiencing sales fluctuations over the past few years, we have made significant strategic changes to our organization and planning. This has greatly improved XPeng's competitiveness and position us for rapid growth. We're now fully prepared to navigate the next decade of AI with steady progress.

As we enter our major production launch cycle, we anticipate that our total delivery volume will range from 41,000 to 45,000 in the third quarter of 2024, representing a quarter-over-quarter increase of 35.7% to 49%. Furthermore, we project that our third quarter total revenue will fall within the range of RMB 9.1 billion to RMB 9.8 billion, representing a quarter-over-quarter increase of 12.2% to 20.8%.

[Foreign Language] Thank you, everyone. With that, I'll now turn the call over to our VP of Finance, Mr. James Wu to discuss our financial performance for the second quarter of 2024.

[Jiaming Wu, executive]

Thank you, Xiaopeng. Now let me provide a brief overview of our financial results for the second quarter of 2024. I'll reference RMB only in my discussion today, unless otherwise stated. Our total revenues were RMB 8.11 billion for the second quarter of 2024, an increase of 60.2% year-over-year and an increase of 23.9% quarter-over-quarter. Revenues from vehicle sales were RMB 6.82 billion for the second quarter of 2024, representing an increase of 54.1% year-over-year and an increase of 23% quarter-over-quarter. .

The year-over-year and quarter-over-quarter increases were mainly attributable to higher deliveries. Revenues from services and others were RMB 1.29 billion for the second quarter of 2020, representing an increase of 102.5% year-over-year and an increase of 28.8% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly due to higher sales from maintenance services and increased revenues from technical R&D services related to the platform and software strategic technical collaboration with the Volkswagen Group.

Gross margin was 14% for the second quarter of 2024 compared with negative 3.9% for the same period of 2023 and 12.9% for the first quarter of 2024. Vehicle margin was 6.4% for the second quarter of 2024 compared with negative 8.6% for the same period of 2023 and 5.5% for the first quarter of 2024. The year-over-year increase was primarily attributable to the cost reduction and the improvement in product mix. The quarter-over-quarter increase was primarily attributable to the cost reduction.

R&D expenses were RMB 1.47 billion for the second quarter of 2024, representing an increase of 7.3% year-over-year and an increase of 8.6% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly due to higher expenses related to the development of new vehicle models as the company expanded its product portfolio to support future growth. SG&A expenses were RMB 1.57 billion for the second quarter of 2024, representing an increase of 1.9% year-over-year and an increase of 13.3% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly due to higher commission to the franchise stores and higher marketing and advertising expenses.

As a result of the foregoing, loss from operations was RMB 1.61 billion for the second quarter of 2024 compared with RMB 3.09 billion for the same period of 2023 and RMB 1.65 billion for the first quarter of 2024. Net loss was RMB 1.28 billion for the second quarter of 2024 compared with RMB 2.8 billion for the same period of 2023 and RMB 1.37 billion for the first quarter of 2024.

As of June 30, 2024, our company had cash and cash equivalents, restricted cash, short-term investments and time deposits in total of RMB 37.3 billion. To be mindful of the length of our earnings call, I would encourage listeners to refer to our earnings press release for more details on our second quarter 2024 financial results. This concludes our prepared remarks. We'll now open the call to the questions. Operator, please go ahead.

[Operator]

[Operator Instructions] Your first question comes from Tim Hsiao with Morgan Stanley.

[Tim Hsiao, analyst]

[Foreign Language] So my first question is about the sales momentum of the new models because I experienced the third quarter volume guidance of 41 to 45,000 suggest that September delivery could be back to previous peak. This, together with the upcoming P7+ could [indiscernible] the company here in multi sales to a new high of around like 30,000. However, in light of relatively sure like momentum of the new models -- the models launched last year. How [indiscernible] for sales momentum this time offer the new models like M03 and the upcoming P7+. So that's my first question.

[He Xiaopeng, executive]

[Foreign Language]

Thank you so much for the question. Now this is actually one of the biggest challenges facing ourselves as well. For XPeng, I mean for myself in my office, I actually have a [indiscernible] hang up on the wall of my office, meaning that we are aiming for steady growth going forward. Now it's honestly, easier said than done, and it's very challenging to do that and achieve those kind of goals in such a competitive environment. Going into next year, we actually expect the market competition to be even more brutal than what we have seen recently.

And we have done a lot when it comes to the transformation of our organization, for example, the management of the supply chain, adopting the platform-based manufacturing and also enhancing the target and aims for our manufacturing quality for M03 and P7+. And also when it comes to the monthly OTA and [indiscernible] of our customer experience regarding new models and safety versions and everything. We also did an overhaul on our sales and marketing system. All of those are aiming to achieve a very long-term steady growth going forward, where we give our guidance and do preparation for the future development and sales. We are doing not only the rolling 12-month forecast facing -- taking into consideration the future competitive landscape. We also take into consideration the iteration of our new models and favorite versions and how to accommodate them in the competitive environment. So relative to the year before and 2 years beforehand, right now, we are definitely much more confident about our quarterly forecast and how to meet those targets and how to really implement our plans in order to achieve the maximum outcome.

[Unknown Executive]

Tim, this is Brian. Let me just add a couple of points here. First of all, I think you're right, when we gave the third quarter guidance at the high end of the guidance, we do assume that we will hit likely the 20,000 per month sort of volume delivery. -- which is going to be the high point of our delivery record historically. To achieve that, actually, there are actually a number of other catalyst, I think you should probably be aware.

One is that we are very encouraged by the [indiscernible] debut and also the reception. We think, given what we see in terms of the indicative order momentum, as well as the preparation that Xiaopeng just mentioned, we're very confident that [indiscernible] delivery in the first months starting in September will likely achieve fastest delivery record for all EV models made by EV start-ups. I think we will hopefully set the record for Mona.

Secondly, I think I want to also emphasize that the delivery number includes also significant growth of our overseas delivery volume as well. As you can see that the overseas delivery volume in the second quarter exceeded 10%. We anticipate the delivery from overseas will probably be above 15% in the third quarter, which also diversifies our overall order intake that give us further confidence in the delivery objectives that we set for third quarter and as well as the fourth quarter will be achievable.

[Tim Hsiao, analyst]

[Foreign Language]

My second question is about the XNGP or high-level ADAS. The constant investment in [indiscernible] large models has further enhanced expense and systematic authorities and AI smart driving technology and much faster than national-wide rollout of XNGP. However, when it comes to return of investments, when do you expect such a massive and constant investment could translate into a real barrier to peer competitors and translate into a meaningful upside to experience new car sales? Will there be any [indiscernible] or metric we can monitor in the following quarters? So that's my second question.

[He Xiaopeng, executive]

[Foreign Language]

Thank you for your question. Since the rollout of our version 5.0, we've collected a lot of very exciting and encouraging data, including 2 aspects. The first one is the option rate and also penetration rate of using our high-level ADAS capabilities, at least 20% increase from before the rollout of 5.0. And the second thing is that we used to encounter challenges in test driving in some stores in some areas and regions. And right now, across all of our dealer shops, you can freely use the XNGP and this is made available to all of our dealer shops right now, which will allow our consumers to have first hand experience of how capable our ADAS capaability is.

And right now, among all Chinese EV makers XPeng is the only actual end-to-end AI models implementers, although other competitors or peers of ours also claim that they are moving towards that end goal, but we do face multiple challenges. The first one is that as we increase the upper of our ADAS capabilities with the adoption of the end-to-end AI models, we also need to secure a solid bottom limit of that capability as well that requires a lot of changes in reform, which we have implemented in our technology and architecture.

And the other challenge is that previously, we might not be able to roll out our capability across different locations around the country. And right now, even though we are able to do it and also provide a human-like driving experience for multiple locations and in a wider range of areas, we do experience some setbacks in a small range of cities or routes where rule base and also small model kind of technological routes may produce a better outcome for now. But we believe the trend is that, first of all, this year is definitely a turning point for adopting these end-to-end AI models to implement and also to enhance our ADAS driving capability.

And going forward, in the near future, we believe that when we are able to upgrade to a more comprehensive version, we can expect to see a great outcome when it comes to commercialization. And that means that starting from P7+, which is really a great outcome of the theologically driven cost reduction on this platform using this technological architecture will allow us to offer affordable high-end ADAS capability to a wider range of consumer, which can improve our industry-leading ADAS capability

[Tim Hsiao, analyst]

Great. Thanks a lot for sharing those details and looking forward to the meaningful sales take off throughout the rest of the year. Thank you. .

[Operator]

Your next question comes from Ming-Hsun Lee with Bank of America.

[Ming-Hsun Lee, analyst]

[Foreign Language]

My first question is related to your cost reduction strategy. So right now, you have joint procurement with Volkswagen, you will reduce the usage of [indiscernible] in the future? So in what area do you think you can achieve more cost reduction going forward? And a short-term question related to your third quarter gross margin spend. So targeted factors include more export and also volume sales grow a lot, but the negative factor is more sales from Mona. So how do we expect the trend of the third quarter gross margin?

[He Xiaopeng, executive]

[Foreign Language] All right. Thank you for your question. Now XPeng used to prioritize technology without really considering the development of other aspects, which are also very crucial for our company's success. Now starting from the second half of this year, we're going to focus more on our commercialization capability. Right now, we have both technology and our products that are doing really well. But starting from the second half of this year, we're going to see more translation of our reform and restructuring of the whole business model in order to meet the market demand and also the market competition as well.

Cost reduction is a big aspect of it. On top of that, we also have cost restrictions that are driven by our technology, by our supply chain [indiscernible] and also by our strategic partnership with Volkswagen as well. So in the second half of this year and also going into 2025 and '26, you can expect to actually see a lot of good news when it comes to our quarter-over-quarter improvement as well. So overall, at the end of the day, we are confident that XPeng can become a company that has a more superior GP margin than the rest of its peers.

[Unknown Executive]

So Ming on your second question regarding the margin trend instead of being specific on Q3, I'll just speak generally about the second half. So you're right, there are a couple of things that's going to take place in the second half. As you mentioned, the export volume and percentage is going to likely go up. Starting Q3, most likely we will start to recognize some revenues from the EA collaboration with Volkswagen. In the meantime, we also will see significant growth in terms of volume, which will help to [indiscernible] out the manufacturing DNA allocations as well as improving manufacturing cost.

On the other side, as you mentioned, there's incremental volume coming from Mona, which we expect to be a high-volume model and the other thing into Q4, as we introduce P7+, which will be the first model that come out of our new platform to achieve the cost reduction that we have communicated earlier. We do expect the P7+ margin to be very healthy into the double digits. So all in all, I'd say from a trend perspective, we expect the overall margin to be stable and maintained at mid- to low teens as you see in the second quarter. Thanks

[Ming-Hsun Lee, analyst]

[Foreign Language] So the P7+ you first level to use the [indiscernible] solution. [indiscernible] what would be the progress for you to improve your capability in [indiscernible] driving through this pure vision technology.

[He Xiaopeng, executive]

[Foreign Language] Well, actually, regarding your question, I would say that more details to be disclosed on the future product launch conferences and also on our 1024 Tech Day, please stay tuned. But what I can say for now is that first of all, without relying on census and [indiscernible] high definition map that already in itself -- [indiscernible] itself allow us to reduce our cost significantly.

And on the other hand, with the adoption of the end-to-end AI models using this vision based technological approach allow us to greatly enhance our ADAS capability as well. Again, if you're interested, please stay tuned for more details in our future events.

[Operator]

Your next question comes from Bin Wang with Deutsche Bank.

[Bin Wang, analyst]

[Foreign Language] [indiscernible] achieve the high end of the 45,000 units in the third quarter, which means in the September, we can achieve more than 20,000. So can you provide a breakdown by products, specifically how much Mona in September, if we achieve the high end.

[Gui Hongdi, executive]

Ben, this is Brian. At the moment, we do not provide a breakdown of specific model mix for the delivery of coming months. But I would say, as I said before, we anticipate very strong delivery for Mona in September. We likely achieve the record for EV delivery by EV startup or new players as you can imagine. So we hope to achieve that record. .

Secondly is that it also consists of a significant percentage from overseas, which will be mostly G9 and G6. As you know, that G6 is starting delivery this month and next month. So that will also mean there's contribution from these mainstream models from our lineup. So other than that, I don't think we will provide any more details on the mix.

[Bin Wang, analyst]

[Foreign Language] My question is the second one is about new products. You mentioned very similar cycle. Can you elaborate a little bit about the product for next year.

[Gui Hongdi, executive]

Bin, again, on this call, we are not able to provide specific guidance on model launches next year or a number of new as well as updated models. I think we will provide that information probably in a later stage. But what we can say, as we said before as well, is that we anticipate this fourth quarter a very strong product cycle. So it will be many, I would say, many is more than what we [indiscernible] this year that has launched this year. So more than this year, definitely as a number of vehicles of new models and revised or updated models for next 2 years.

[Operator]

Your next question comes from Paul Gong with UBS.

[Paul Gong, analyst]

[Foreign Language] So my first question is regarding the export outlook. At this stage, we're glad to see the company is pushing for the exports, however, we are seeing the rising protectionism in the DMs, including the upcoming extra tariff. And we are also seeing in other markets the rising competition even among the Chinese [indiscernible] is escalating. How do you foresee these challenges? How do you overcome it.

[Gui Hongdi, executive]

Paul, this is Brian again. Very good question. I think you're right. Obviously, global opportunity is immense, but also there's a lot of challenges along the way. We also noticed the tariff updates in the European market, et cetera. But what I would say, a few points. One is that we so far have been very successfully launching our product in Europe as well as other global markets, positioning those products as premium sort of EV brand.

If you look at our sale price,of G6 as well G9 in global markets, which is available today already, you can see that we actually are priced higher than some of the comparable competitors we actually faced in China, which means that we actually can achieve a better and more premium position for global markets. Secondly is that in Europe, specifically, we obviously have to deal with the tariffs. But I think given the efforts by our team, the pricing, as I mentioned, as well as using a collaborative relationship with local partners, we still can achieve, I would say, good marginal contribution from those sales. So we're actually dealing with that at the moment, which already started, I think, the regime back in July. So we have been dealing this in the last 1.5 months already.

And then looking outside of Europe, I think we actually also see huge opportunities for Middle East, including Israel, Southeast Asia, which is the market that we will be launching our right-hand driving models as we speak this month and next month. And also, we see significant growth opportunities in other parts of the world. So with additional sort of a product launch as well as a better, I would say, more premium positioning of our product globally as well as building extensive relationship and distribution channels around the world, we are confident that we can achieve the volume as well as some of the profit contributions we anticipate from global operations.

[Bin Wang, analyst]

[Foreign Language] So my second question is regarding the robotaxi. I recall a few years ago, once there was a moment that XPeng also had a little bit plan for the robotaxi, but subsequently, it has been modified. I understand just you mentioned that you hope your volume produced models to achieve the similar effect versus robotaxi operation in overseas markets in the second half of 2025. But just want to listen to you guys why as an industry leader in the autonomous driving, you are not a big fan of robotaxi operation. .

[He Xiaopeng, executive]

[Foreign Language]

This is a very good question. Actually, when it comes to robotaxi development, not only in China but globally speaking, the technological approach is quite different from what we adopt right now, which is the end-to-end AI models architecture. Now the focus of robotaxi right now in the market is to focus on offering safe and good customer experience within a small area or region, whereas our target is to offer a full domain or all domain kind of human-like driving experience that definitely define the differences between our focus right now versus robotaxi.

And the other thing is that based on our previous experience of operating [indiscernible] vehicles, we understand that right now, when it comes to the industry target for robotaxi cost still is the #1 priority, apart from regulation and also the mass adoption rate and penetration of this technology. The majority of robotaxi developers right now do not really balance these 2 aspects really well, namely cost and customer experience.

[Foreign Language]

Now, there are several things that we can comment on when it comes to robotaxis. First of all, we are definitely considering the future for developing robotaxi, but this is very, very different from the L4 ADAS capability or experience. The second thing is that we're not considering involving ourselves in the operation of robotaxi, but rather focusing on producing high-quality products or vehicles, robotaxi vehicles with the partnership with vehicle or mobility operators in the future, globally speaking.

And another thing that I want to complement here is that Robotech, when it comes to development of Robotaxi, XPeng definitely has our unique kind of differentiation and consideration as well. We've put in a lot of thought into the future of robotaxi and is actually quite different from the pure ADAS for everyday use and it's a different way of or different kinds of mobility. And in the future, when time allows, we're going to share more of our thoughts in this regard. Thank you.

[Operator]

Your next question comes from Tina Hou with Goldman Sachs. .

[Tina Hou, analyst]

[Foreign Language] My first question is regarding our production preparation for Mona M03 because previously, with I think the supply bottleneck was mainly related to the LIDAR. However, with M03, we don't have LIDAR. So this should have a much faster ramp up. So just wondering how much are we preparing for in the next few months?

Second question is regarding our R&D expense. So we guided for 7 billion to 7.5 billion previously. But looking at our first half tracking and looking at last year's first half, second half seasonality, it seems like it's tracking just below RMB 6 billion. So wondering whether we have any like added R&D spending into the second half.

[Unknown Executive]

Tina, this is James. I'll try to answer both of your questions. On Mona production capacity, obviously, we've seen what we have experienced in the past. Launches with regard to G6 and X9. These are great lessons we've learned. So what we have done is we have started preparing the Mona production preparation way ahead of time versus the previous cases. So we've anticipated the supply constraints from some of the key components, and we have set sufficient plans to prepare solutions for those issues that we have experienced in the past.

So far, we haven't seen any signs of issues with regard to our supply chain and production capacity. So we continue to expect we will achieve the planned production and delivery as we have communicated earlier.

Your second question about the engineering expense, yes, from the first half, if you look at our engineering expenses, it's relatively flat and comparable to last year. But as we mentioned earlier, we are entering into a pretty heavy product cycle and a lot of the engineering expenses with regard to design and product development has already kicked in. So we expect the engineering expenses to ramp up in the second half of the year.

For the full year, we still remain our earlier guidance of about RMB 7 billion for the full year in terms of engineering expense. Thank you.

[Operator]

Your next question comes from Pingyue Wu with Citic Securities.

[Pingyue Wu, analyst]

[Foreign Language] So my first question is, I actually went to see [indiscernible] in the first time and it was of very good quality. But people only fill this quality when they see the car in person. So do we have done sales action to make less more people to see the car in [indiscernible].

[He Xiaopeng, executive]

[Foreign Language]

Yes, indeed. Well, when it comes to sales and marketing, technical approaches, it is quite different between functional or performance-oriented cars versus affordable cars. Now when it comes to Mona, definitely, its capability is more superior to most of the other comparable cars of this class, especially when it comes to static and dynamic construction capabilities. Since our rollout of the car in -- across our different stores, since the beginning of August this year, we've received a very unprecedented and very reception from responses from the consumers, which again, resonate with what you mentioned in your question, you have to see and fill it to know how good a car it is.

So after our official product launch later this month, we plan to not only do a lot of off-line sales and promotional activities, but we're also going to do a lot of seating online as well in order to encourage more customers to test drive it for themselves. And we believe that M03's sales performance will be even more superior than G6 of the same comparable sales period.

[Foreign Language]

And also one thing that I would like to add is that because we are very confident of the performance and capabilities of M03 when it comes to static and dynamic production capability. We believe that once it is launched and officially delivered, word of mouth will serve to our favor, which will also allow more people to become interested in this car and actually test drive it in our dealer shops across the country.

And again, there are a lot of sales and marketing possibilities when it comes to promoting this kind of affordable vehicles for the market.

[Pingyue Wu, analyst]

[Foreign Language] My second question is we actually do a lot of reform from 2022. And after 2 years, how do we evaluate our ability in sales and marketing right now.

[He Xiaopeng, executive]

[Foreign Language]

Thank you for the question. Two years ago, when we started our reform, we started without planning, not only when it comes to product launch, but also the planning for the whole business, especially in sales and marketing system as well. And then we break it down to our technological development, our sales and marketing system, our customer services. And right now, I think we've achieved the first stage of success where we actually have different aspects of improvement when it comes our products and also our competitiveness.

And by Q3, Q4 this year, you will begin to see how it translates into our sales performance, and it's driven not only by our product launch which we prioritize but also from a comprehensive development of our all-rounded capabilities, including what we mentioned previously, sales and marketing and also customer services as well.

Now right now, across the management capabilities, we also focus on developing our [indiscernible] management across Tier 2, Tier 3, Tier 4 cities, we have implemented some new strategies to better serve our customers after sales and also when it comes to car insurance, et cetera. We also focus on training our sales staff to improve their overall capability and working efficiency as well. So we are very confident of our future development, not only in China but also globally speaking, we believe that in the midterm, our target has become one of the top players in the China auto-making industry when it comes to our sales and marketing capability. Thank you.

[Operator]

Your next question comes from Yuqian Ding with HSBC.

[Yuqian Ding, analyst]

[Foreign Language] So my first question is about the gross profit margin. So can management help us to break down the overseas margin and also domestic part, especially the wholesale bits what's the impact of the profitability over there. If not specific, at least could they give us a little bit reference versus the group average gross paper margin. And also to clarify, Brian said in the second half of the year, roughly the margin level would be mid- to low teen percent relatively stable. Does that mean the positive benefit of the margin support coming from the software part will largely absorbed by the product mix coming down and also increasing channel discount.

[Unknown Executive]

Yes. This is James. I'll try to answer your question. First, as Brian mentioned, we are expanding on a global basis pretty rapidly. So we would expect the overseas sales, both in terms of absolute volume as well as percentage of total volume increasing in the second half compared to the first half. With regard to margin overseas, in conclusion, it is healthy, good margin. When you look at overseas markets, right, it's quite different when it comes to different countries. And we have different business models in different countries, including direct sales model, dealership model as well as distribution model.

So the way to understand margin and income and impact to the bottom line is quite different across these different models. But in sum, I would say, from a variable profit or contribution margin perspective for our overseas business, it is quite good, and it's helping us to improve the overall profitability of the company. All right.

Then your second question regarding the margin trend in the second half. I just wanted to clarify that we didn't really refer to the software margin for the second half. What we were talking about earlier was a variety of different components that will come into play in the second half, including higher volume mix changes in terms of overseas and domestic, income from the VW collaboration will likely to increase as well as additional new vehicle models with regard to Mona and P7+. So overall, as I mentioned, the margin will maintain and stable in mid- to low tens, but from a vehicle margin perspective, we are anticipating moderate growth compared to what we've seen in the first half.

[Yuqian Ding, analyst]

[Foreign Language] So the second question is really about the autonomous driving differentiation. So autonomous driving technology, everyone is developing that. Everyone is talking about leveraging the big data loop engineering capability and processing powers to get it down. But will the industry running into the stage that the technology development curve is running flattish in terms of the development slope. So everyone can do the autonomous driving service, but no one is really sticking out. So if we're talking about next year is the [indiscernible] moment, so how -- could you help us to envision how the singularity and the breakout could happen? Does that mean because we're getting maturing technologies or we're selling more vehicle or because of the technology is getting better, we are finding diversified revenue model. Thank you.

[He Xiaopeng, executive]

[Foreign Language]

Well, it will be very challenging for me to try to respond to your question without involving technical terms or language, but I'll do my best. First of all, the previous model or a technological approach that was widely adopted industry for ADAS is so-called all-knowing perspective, relying on high-definition maps and also rule-based architecture to develop their ADAS autonomous driving capability.

Now the main challenge for that approach is that you have actually numerous corner cases where you actually have to examine them one by one. And the customer experience, the driving experience itself is not perfect. For example, most of the ADAS vehicles on the market available right now is driving at about 40 to 50 kilometers per hour and also their late changes and turn making looks very, very robotic, it's not a human-like kind of driving experience, whereas the AI approach, our end-to-end AI models approach allow us to actually learn from excellent, and I want to focus on the [indiscernible] here, excellent or high-quality experienced driver or human-like driver, someone like yourself when it comes to the driving habits and the performance across different areas of the country.

But obviously, they also encountered the challenge of serving different corner cases because it's not rule based. For example, if you encounter straight animals, for example, straight [indiscernible] on the road, it's not going to try to avoid it because it's not something that they've learned before, whereas in a rule-based approach, maybe there is a rule there at that state that you have to avoid hitting those animals. So there are pros and cons of different approaches, but I believe the development of the capabilities based on this AI end-to-end model is going to be a lot more significant and a lot quicker than the previous rule-based approach. I hope, I answered your question.

[Operator]

That does conclude our question-and-answer session. I'd like to turn the call back over to the company for closing remarks.

[Unknown Executive]

Thank you once again for joining us today. If you have further questions, please feel free to contact XPeng's Investor Relations team about the contact information provided on our website for the XPeng Financial Communications. Thank you.

[Operator]

This concludes today's conference call. You may now disconnect your lines. Thank you.