XPeng Inc. (XPEV) Q2 2022 Earnings Name Transcript

XPeng Inc. (XPEV -10.79%)
Q2 2022 Earnings Name
Aug 23, 2022, 8:00 a.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Contributors

Ready Remarks:

Operator

Hiya, girls and gents. Thanks for standing by for the second quarter 2022 earnings convention name of XPeng Inc. [Operator instructions] At this time’s convention name is being recorded. I might now like to show the decision over to your host, Mr.

Alex Xie, head of investor relations of the corporate. Please go forward, Alex.

Alex Xie — Head of Investor Relations

Thanks. Hiya, everybody, and welcome to XPeng’s second quarter 2022 earnings convention name. Our monetary and working outcomes have been issued by our newswire providers earlier right this moment and can be found on-line. You may also view the earnings press launch by visiting the IR part of our web site at ir.xiaopeng.com.

Contributors on right this moment’s name from our administration will embrace co-founder, chairman, and CEO; Mr. He Xiaopeng; vice chairman and president; Dr. Brian Gu; vp of finance, Mr. Dennis Lu; vp of company finance and funding, Mr.

Charles Zhang; and myself. Administration will start with the ready remarks, and the decision will conclude with the Q&A session. A webcast replay of this convention name might be accessible on the IR part of our web site. Earlier than we proceed, please word that right this moment’s dialogue will include forward-looking statements made below the protected harbor provisions of the U.S.

Personal Securities Litigation Reform Act of 1995. Ahead-looking statements contain inherent dangers and uncertainties. As such, the corporate’s outcomes could also be materially totally different from the views expressed right this moment. Additional info concerning these and different dangers and uncertainties included within the related public filings of the corporate as filed with the U.S.

Securities and Trade Fee. The corporate doesn’t assume any obligation to replace any forward-looking statements besides as required below relevant legislation. Please additionally word that XPeng’s earnings press launch and this convention name embrace the disclosure of unaudited GAAP and monetary measures in addition to unaudited non-GAAP monetary measures. XPeng’s earnings press launch accommodates a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures.

I’ll now flip the decision over to our co-founder, chairman, and CEO, Mr. Xiaopeng. Please go forward.

He Xiaopeng — Co-Founder, Chairman, and Chief Govt Officer

[Foreign language] Hello, everybody. Within the second quarter of 2022, XPeng delivered 34,422 autos, representing 98% progress 12 months over 12 months. For the fourth consecutive quarter, we ranked No. 1 amongst rising EV makers in China as measured by automobile insurance coverage registration quantity.

Ranging from the second half of this 12 months, we’ll launch a set of industry-leading merchandise and applied sciences developed in-house in addition to next-generation good EV fashions outfitted with these state-of-the-art applied sciences. These upcoming product launches will deliver our prospects an unparalleled driving expertise by innovation in each electrification and good applied sciences. On August tenth, we unveiled inside design of our new flagship G9 SUV and commenced accepting reservations. The preorders of G9 exceeded 22,000 inside 24 hours, and this has exceeded the mannequin that we launched beforehand, which have been the P7 and G9 that have been launched in the identical interval, and orders of G9 retains growing, which reveals the sturdy demand from our prospects.

On August twenty sixth, the G9 will be part of us on the Chengdu Auto. We plan to announce the G9 value throughout its official launch in September and commenced deliveries in October. With a stylist design, superior management and driving efficiency, leverage consolation and different luxurious options that benchmark in opposition to luxurious SUVs priced almost RMB 1 million, the G9 has already confirmed itself a veritable flagship mannequin within the SUV phase. The G9 additionally showcases our management place in electrification, know-how, innovation as the primary mannequin to supply our groundbreaking end-to-end high-voltage charging know-how which is comprised of an onboard 800-volt high-voltage platform and 480-kilowatt supercharging station, bringing the final word charging expertise to our prospects.

With respect to good know-how configurations based mostly on our industry-leading CD navigation guided pilots, or CD NGP, G9 will present our next-generation full situation superior driving help system to market. The G9 will considerably develop the protection of advanced-level driving help system, making driving simpler and savor. I consider that G9 would be the market’s finest SUV below RMB 500,000 and grow to be among the best sellers amongst them to large-size SUVs. I consider that based mostly on our technological innovation in our platform methods structure, we are going to truly innovate and speed up the tempo of our new product launches to spherical out our providing with autos priced between RMB 150,000 to RMB 500,000.

In 2023, we plan to launch a brand new B-class mannequin, which can assist us develop our market share on this phase. We’ll additionally roll out a brand new C-class mannequin subsequent 12 months to deliver a compelling product to prospects in want of extra cabin house with higher consolation. These two new fashions, along with the G9, will bolster our sturdy gross sales progress momentum to hold by subsequent 12 months. In the meantime, leveraging our high match electrification and good applied sciences in our platform improvement system, growing well being to continually improve product efficiency, the typical promoting value of our merchandise will rise accordingly as our merchandise superior options increase their competitiveness amongst similar class and even larger class fashions.

With our concerted efforts to advance our platform-based automobile structure and a number of technological enchancment in manufacturing, resembling built-in dye-casting methods, we count on a significant automobile margin enlargement for the G9 in addition to our new fashions come subsequent 12 months. Ranging from G9, XPeng’s dedication to long-term funding in proprietary electrification applied sciences has bolstered our vanguard on this space, whereas considerably enhancing our prospects’ expertise. The G9 has leveled up XPeng’s electrification applied sciences to the subsequent era. While extra, the G9 and subsequent new fashions might be totally suitable with high-power supercharging system and we are going to constantly improve charging effectivity for patrons by upgrades.

Our new fashions can’t solely obtain the very best charging velocity on XPeng’s self-operated high-power supercharging networks but additionally permit our prospects to have better-charging expertise in third-party charging stations. Advantages from our main high-voltage platform, XPeng new fashions will be capable to receive a better energy allocation and longer-lasting peak energy at third-party charging which can be the EV fashions — than different EV fashions. Apart from, we’ve got constructed our in-house capabilities in each the event and manufacturing {of electrical} motors, the place we even have been accelerating know-how improvements. Trying forward, we’ll proceed to strategy our distinctive strategy to reincorporate powertrain designs into one cohesive automobile structure, leveraging a rising suite of electrification know-how innovation to offer customers with good EVs supporting longer-range, quicker charging, and decrease price.

XPeng’s self-operated supercharging community will additional compound our benefits in electrification, applied sciences, and set up aggressive values. Our well-established self-operated supercharging community already options one of many broadest protection and the very best buyer expertise amongst China’s unbiased EV manufacturers. As of early August, the variety of XPeng’s self-operated supercharging stations reached 1,000, which is a brand new milestone. To want to completely help the mass supply of our automobile fashions that includes 800-voltage high-power charging, we in-house developed 480-kilowatt supercharging stations surpassing the {industry}’s benchmarks by way of efficiency and prices.

By way of know-how improvements, our new era supercharging station not solely achieved the facility larger than the {industry}’s mainstream 120-kilowatt supercharging station but additionally make the associated fee on the similar stage of the earlier era supercharging stations. XPeng’s supercharging system can cost as much as 200 kilometers vary in 5 minutes. This excellent charging efficiency demonstrates our end-to-end high-power fast-charging functionality constituted by EV battery, able to quick charging, onboard high-voltage platform, and supercharging station underlying the very best charging effectivity in our {industry}. We started constructing our self-operated 480-kilowatt supercharging stations in August, and can quickly step up our improvement in main cities and alongside foremost highways nationwide.

By 2025, we hope to construct one other 2,000 high-power supercharging stations to offer the best-in-class charging expertise for our customers and prospects. Within the upcoming years, XPeng’s prospects charging expertise might be utterly revolutionalized throughout all eventualities, together with trip journeys, returning to their hometowns for the Chinese language New 12 months, or long-distance travels. The situation of utilizing EV to drive within the metropolis and ICE, the cross-country driving, might be utterly modified very quickly. Shifting on to our good know-how development.

We’re very excited to see that prospects’ acceptance of our superior driver system is rising at a gentle tempo, as is the optimistic affect of phrase of mouth amongst prospects. Consequently, our freeway and GP mileage penetration price within the second quarter reached over 65%. Starting in early Might, we built-in our XPILOT software program as commonplace configurations on mid-to-high-end variations of our fashions, permitting a broader buyer base to expertise our industry-leading, best-in-class extra superior driver-assistance capabilities at an inexpensive value. It has helped us domesticate belief in XPILOT, reshaping driver habits towards a human machine co-pilot patent, and supply {hardware} platform help for extra modern clever capabilities sooner or later.

Amongst orders acquired from early Might by the tip of July, the proportion of patrons who selected mid and high-end variations of our fashions outfitted with XPILOT grew considerably to over 50%. We’re additionally increasing the boundaries of good driving at an accelerated tempo as we roll our next-generation merchandise that create higher worth for patrons. As an illustration, we’ve got accomplished the event and testing course of for metropolis and GPs within the second quarter throughout an array of exams all through difficult driving conditions resembling crowded downtown streets and wet, our P5 mannequin outfitted with solely 30 tops of computing energy together with its sensor {hardware} to realize the {industry}’s highest security and driving effectivity ranges amongst related eventualities. By taking the lead in exploring city driving eventualities, we’ve got amassed an incredible quantity of expertise and developed deep insights into advanced metropolis row eventualities.

Notably, the autonomous driving computing middle, we co-developed with Alibaba Cloud, commenced operations in early August. computing energy can attain 600 per swaps making it the biggest home autonomous driving computing middle in China. It’s going to present the requisite basis of computing energy for deep studying coaching, which empowers our full situation superior driver help system and can facilitate the longer term improvement of stage 4 autonomous driving algorithms. All of those developments will enormously improve our aggressive benefits in good know-how.

Since this 12 months, we’ve got been very comfortable and excited to see the event of good driving know-how has been acquired — has acquired energetic help from governments in any respect ranges. The Ministry of Pure Sources just lately introduced a pilot challenge that high-definition maps applicate in good driving autos in six cities, together with Beijing, Shanghai, and Guangzhou. On this foundation, we sit up for the general public beta take a look at of the and GP within the close to future. The launch of Metropolis NGP showcases our capabilities as a pioneer in good know-how.

We’ll attain our aggressive edges in expertise, knowledge, and system effectivity to additional cement our management place in autonomous driving applied sciences, broadening our benefits in protection, over expertise, security efficiency, and prices. I consider that the revolution of driving habits and automobile decision-making pushed by know-how has begun. So our next-generation know-how to be unveiled subsequent 12 months will improve the structure in all fronts, paving a approach for details and widespread adoption of full situation ADAS-enabled driving nationwide and making protected and handy clever driving software program a dependable companion for customers. I firmly consider {that a} full situation ADAS will grow to be a core deciding think about customers’ automobile and that shopper adoption of ADAS software program will grow to be mainstream after the adoption enhance of each situation ADAS sooner or later.

Moreover, we’ve got already commenced R&D for our robotaxi software program based mostly on a full situation ADAS in an effort to make the most of lower-cost, must-produce good EV fashions and algorithms with sturdy generalization capabilities to steer the innovation. Furthermore, I wish to share latest developments of portfolio firms in our ecosystem. XPeng Robotics accomplished over $100 million in Collection A fundraising. Upon completion of the fundraising, XPeng Robotics will speed up its R&D of Bionic robots whereas pursuing synergies with Sensible EV applied sciences to create higher worth.

Additionally, develop [Inaudible] first manufacturing manufacturing facility for manufacturing trials, flying automobiles formally got here into service in July, marking a major milestone within the improvement of XPeng’s flying automobiles. automobiles. In accordance with China passenger automobile insurance coverage registration knowledge, BEV penetration price reached almost 20% within the second quarter of 2022, whereas BEV penetration price, excluding A0 class and A00 class was solely 14%, completely indicating an unlimited market potential with long-term disruptive alternatives for us. Though market competitors is turning into more and more intense, I consider we are going to reap the rewards of XPeng’s long-term funding in electrification and core good applied sciences for years to return as we deliver extra extremely aggressive new merchandise to market.

With the G9, we’ve got taken electrification, good know-how, and platform improvement structure to new heights. We’ll proceed to propel improvements throughout software program and {hardware} merchandise, bringing customers, good EV that includes, an unparalleled mixture of superior know-how, constructing and design, and an distinctive good driving expertise. With the continual development of our benefits in longer driving vary, larger charging effectivity, and broader charging community protection, XPeng will speed up the transformation from and PHEVs in mid-to-high-end market towards BEVs. Within the third quarter, we are going to work to beat the affect of COVID-19 in addition to seasonal components.

We count on to ship a complete of 29,000 to 31,000 autos within the third quarter of 2022 with estimated income of RMB 6.8 billion to RMB 7.2 billion. Thanks, everybody. With that, I will now flip the decision over to our VP of finance, Mr. Dennis Lu, to debate our monetary efficiency for the second quarter of 2022.

Dennis Lu — Vice President of Finance

Thanks, Mr. He, and hey, everybody. Now I wish to present a short overview of our monetary outcomes for the second quarter of 2022. I’ll reference RMB solely in my dialogue right this moment until in any other case said.

Our complete revenues have been RMB 7.4 billion for the second quarter of 2022, a rise of 98% 12 months over 12 months and equal to the extent of the final quarter. Revenues from automobile gross sales have been RMB 6.9 billion for the second quarter of 2022, a rise of 94% 12 months over 12 months and a lower of 0.9% from the final quarter. The year-over-year enhance was primarily attributable to larger automobile deliveries, particularly for the P7 and P5. Gross margin was 10.9% for the second quarter of 2022, in contrast with 11.9% for a similar interval of 2021 and 12.2% for the final quarter.

Car margin reached 9.1% for the second quarter of 2022, in contrast with 11% for a similar interval of 2021 and 10.4% for the final quarter. The quarter-over-quarter lower was primarily attributable to battery price enhance, offset partially by the income enhance because of promoting value adjustment. Our R&D bills have been RMB 1.3 billion for the second quarter of 2022 and elevated 46.5% 12 months over 12 months and a rise of three.6% quarter over quarter. The year-over-year and quarter-over-quarter enhance have been primarily attributable to, primary, the rise in worker compensation because of expanded analysis and improvement employees; and quantity two, larger bills regarding the event of recent autos to help our future progress.

SG&A bills have been RMB 1.7 billion for the second quarter of 2022, a rise of 61.5% 12 months over 12 months and equal to the extent of the final quarter. The year-over-year enhance was primarily attributable to: primary, larger advertising, promotional, and promoting bills to help automobile gross sales; and quantity two, the enlargement of our gross sales community and the related personnel prices and fee for the franchise retailer gross sales. On account of foregoing, loss from operations was RMB 2.1 billion for the second quarter of 2022, in contrast with RMB 1.4 billion for a similar interval of 2021 and RMB 1.9 billion for the final quarter. A change in loss from international forex transaction was RMB 0.9 billion for the second quarter of 2022, primarily ensuing from the revaluation affect of RMB-dominated property held within the U.S.

purposeful forex subsidiaries and fast depreciation of the RMB in opposition to the U.S. greenback within the second quarter of 2022. Internet loans have been RMB 2.7 billion for the second quarter, in contrast with RMB 1.2 billion for a similar interval a 12 months in the past and RMB 1.7 billion for the final quarter. As of June thirtieth, 2022, our firm had money, money equal, restricted money, short-term deposits, short-term funding, and long-term deposits in complete RMB 41.3 billion.

To be conscious of the size of our earnings name, I’ll encourage listeners to discuss with our earnings press launch for extra particulars on our second quarter monetary outcomes. This concludes our ready remarks. We’ll now open the decision to questions. Operator, please go forward.

Questions & Solutions:

Operator

Thanks. [Operator instructions] At this time’s first query is from Tim Hsiao with Morgan Stanley. Please go forward.

Tim Hsiao — Morgan Stanley — Analyst

[Foreign language] So my first query is concerning the know-how innovation and the way we’re going to translate that into our authorized gross sales as a result of XPeng is the chief in server know-how domains, for instance, like a CT NGP and A100-volt supercharging. So how might we maximize the traction of the technological innovation, particularly within the premium mass market, the place we discover customers could be much less tech-savvy and care extra about their pricing efficiency ratio and the way we count on? In order that’s my first query.

He Xiaopeng — Co-Founder, Chairman, and Chief Govt Officer

[Foreign language] Thanks for the query. Truly, we don’t discuss efficiency over value ratio that a lot. Reasonably, we put extra emphasis on the configuration versus pricing extra. If the configuration for a selected pricing is nice of our automobile, then the gross sales will naturally enhance.

Nonetheless, if you happen to take a look at the gross sales efficiency for the next six months and 18 months after the launch of a selected product, you truly should depend on the branding, the aftersale providers, the product high quality, and the distinctive competitiveness of our merchandise themselves. Let’s take P7, for instance. When you take a look at the primary six months of gross sales efficiency of that individual product after its first launch, the gross sales wasn’t that nice. Nonetheless, ever since we launched the NGP operate in addition to different high-quality configurations in accordance with the P7 mannequin, we undoubtedly see an enormous enhance within the gross sales.

For the previous 4 years, we’ve got been in a position to appeal to a big amount of consumers which can be within the configuration versus value ratio or that form of stability in new vitality autos. And ever since final 12 months, we observed that prospects start to pay increasingly consideration to the driving vary of recent entry autos, and likewise the security of driving and the charging expertise, and so forth. And consequently, due to our efforts and dedication into boosting our efficiency in these areas for the previous 4 years, we’re — we’re additionally in a position to achieve a whole lot of belief and love and help from our loyal prospects as nicely. And sooner or later, particularly going ahead as we proceed to develop our good applied sciences and electrification in several points by way of increasing the driving vary, driving security in addition to the charging community and the comfort of charging, we will benefit from the economies of scale benefiting from our earlier R&D efforts.

And consequently, we consider that we will progressively converge these prospects that we’re not so pleased with, for instance, charging expertise for brand spanking new and autos in addition to different points of the efficiency of recent engine autos and slowly transitioning them into adopting increasingly new vitality automobile, particularly these. And going ahead, particularly because the launch of G9, we consider that of eventualities ADAS know-how, we will increase our efficiency of our merchandise to an entire new stage. And ever since that, we will appeal to increasingly customers and that may translate into our gross sales efficiency. Along with that, I might additionally like to say that really, with our dedication and funding in our R&D know-how, we’re in a position to additional lower our price of producing and R&D sooner or later with the adoption of our platform-based automobile structure in addition to our new era of smartification and electrification applied sciences.

Let’s examine P9, for instance. That is our first flagship merchandise that really undertake the mature stage of those three areas of the applied sciences, which consequently, are in a position to deliver down our manufacturing prices in addition to our R&D prices as nicely. As a result of for the previous years, we have seen each single product that we launched have been specializing in advancing applied sciences and next-generation applied sciences. However sooner or later, we are going to start to reap the rewards of our earlier funding within the R&D.

And consequently, that may translate into a whole lot of discount in our R&D prices in addition to manufacturing prices and that may even contribute to the enhancement of our total high quality of the merchandise that we’re going to launch sooner or later in addition to enhancing the manufacturing effectivity and R&D effectivity as nicely. And since 2019, we have been investing in enhancing our manufacturing craftsmanship as nicely. Consequently within the upcoming two to 3 years, we consider that we are going to additionally welcome a brand new era of high quality increase by way of the general use a couple of of our — each the inside and exterior of our autos sooner or later in addition to the adoption of increasingly built-in direct costing applied sciences that may permit and obtain future improve of our product high quality. And consequently, as I discussed earlier, we will truly decrease our R&D and manufacturing prices in addition to enhancing our total product.

And so sooner or later, we consider that we will truly witness higher gross sales efficiency consequently.

Tim Hsiao — Morgan Stanley — Analyst

[Foreign language] My second query is concerning the platform technique. So following the launch of the G9 platform, I feel XPeng goes to launch new fashions subsequent 12 months based mostly on two platforms. So in mild of quicker iteration and extra intense competitors, what can be the cheap life cycle of our next-generation platform and what number of fashions we plan to construct on every of the platform all through their life cycle? In order that’s my second query. Thanks.

He Xiaopeng — Co-Founder, Chairman, and Chief Govt Officer

[Foreign language] Thanks in your query. Certainly, in 2023, we purpose to launch two new platforms to develop in complete six new autos sooner or later that is based mostly on our present platforms in complete. And in — we do estimate a median of three years life cycle for every single platforms or any system upgrades for these platforms. And we even have been discussing internally a whole lot of prospects to improve our present platforms to permit them to empower a subsequent era of smartification and electrification applied sciences sooner or later as nicely.

And so in future, we estimate that really, our merchandise have already entered into an excellent cycle of growing base on our platform-based automobile structure know-how of utilizing no less than three to 6 years of life cycle for these platforms, which can proceed to gasoline our future product improvement.

Tim Hsiao — Morgan Stanley — Analyst

[Foreign language] So thanks very a lot for sharing all of the perception. Thanks.

Operator

And our subsequent query right this moment comes from Jeff Chung with Citi. Please go forward.

Jeff Chung — Citi — Analyst

[Foreign language] So my first query is concerning the sturdy bike forward in ’22,’23. We’re going to launch our 4 new brand-new merchandise, the P7 and the G9, the midterm face elevate P7. So might you give us some perception on that, whether or not we will problem the annual gross sales run price at about 300,000 unit stage? And if sure, might you break down the portion between the outdated merchandise and the brand new merchandise and whether or not the present outdated product, P7, matured sustainable month-to-month run price may be maintained at 12,000 items? Thanks.

Brian Gu — Vice Chairman and President

Hey, Jeff. That is Brian. Let me reply your query. To start with, as that we do not give steering that far out, so I can not offer you a quantity.

However I may give you some coloration concerning how can we see the brand new fashions going to place and compete in our lineup. To start with, I feel we nonetheless see continued progress in our core product, for instance, P7. With the replace subsequent 12 months, we consider P7 will renew and continued sturdy efficiency. We now have hoped that G9 subsequent 12 months will exceed the month-to-month supply of P7, so you possibly can truly perform a little little bit of calculation of what quantity that may characterize.

The subsequent 12 months’s new fashions, the primary half will launch a B-class based mostly product, that is truly going to focus on even bigger market phase. It might in all probability think about that to be of sturdy rivals to the present mannequin large out there. So we consider that may truly even be a mannequin that may generate substantial numbers of supply and gross sales. Clearly, the fourth new product, the C-class product might be launched within the second half.

And given the premium and enormous format positioning, the quantity could also be restricted by way of contribution. However once more, it is nonetheless going to be concentrating on a brand-new phase that we didn’t cowl earlier than. So with that, you may get a way of what the possible type of peak stage month-to-month supply subsequent 12 months will appear like. And we’re very assured about our sturdy progress.

Jeff Chung — Citi — Analyst

[Foreign language] So my second query is concerning the GP margin within the second quarter. So I feel it is somewhat bit higher than consensus. And on the unfavorable facet, we had the P7 gross sales quantity declined by 3,500 unit Q-on-Q, and this was a high-margin product. And likewise after factoring the battery price hike Q-on-Q, evidently the GP margin was nonetheless fairly resilient.

So might you break down the main points a bit on the second quarter? And likewise, how about going to the third quarter, how can we see the margin pattern? Thanks.

Dennis Lu — Vice President of Finance

Jeff, let me reply your questions and Brian or Charles can complement later. You are proper. Within the first quarter, our automobile margin was 10.4%. Within the second quarter, the automobile margin was 9.1%.

So we dropped about 1.3 factors. This was higher than our unique expectation as a result of we have been in a position to value the battery price enhance. Nonetheless, attributable to some accumulating the orders, so the brand new value order was delivered till late Might. So we couldn’t totally recuperate the higher price by the worth adjustment, that is one distinction.

And the opposite one can be, as you talked about, the P7 combine within the second quarter was decrease than 50%, in order that has some combine affect. I may be detailed numbers to you. However principally, the margin discount was primarily attributable to, primary, the associated fee enhance, which weren’t recovered second quarter, after which the combo modifications. Trying ahead to the third quarter, I feel we will ship the brand new value holders ranging from July.

In order that’s excellent news in contrast with the second quarter. And extra importantly, we can have higher product combine by way of the P7 as a % of the whole deliveries in contrast with second quarter. So we’re anticipating the margin within the third quarter will enhance in contrast with the second quarter might be equal or very near the primary quarter stage for the second. That is all I can let you know for the second.

Brian Gu — Vice Chairman and President

Yeah. After which, Jeff, let me remark in your type of level about our product cycle and likewise the present type of climate each from a margin in addition to from progress price, how can we see the present state of affairs? As Dennis talked about, on margin due to the combo change in addition to stabilization of battery. And likewise, our orders at the moment are reflective of the gasoline value modifications in addition to our type of incentive combine change, we see third quarter margin must be stabilized and defend higher than the second quarter. And likewise as a result of we’re beginning to launch new merchandise, clearly, G9 being delivered in October would be the first of the few new merchandise that we will launch, we begin to see progress being type of generated from these new product launches in addition to going to fourth quarter, we really feel just like the seasonality is in our favor.

So we do assume there’s a sturdy likelihood and powerful confidence that we’re going to a progress cycle, led by our new product launches this — finish of this 12 months in addition to all through the subsequent 12 months in addition to I feel with these new fashions, additionally representing higher margin as a result of platform design in addition to larger value factors in comparison with our ASP. So these are the observations I could make for the time being.

Jeff Chung — Citi — Analyst

[Foreign language]

Operator

And our subsequent query right this moment comes from Bin Wang with Credit score Suisse. Please go forward.

Bin Wang — Credit score Suisse — Analyst

[Foreign language] My query is all about there was a promotion within the begin from mid of July. So what is the low by way of each the quantity steering within the third quarter? So principally, in case you have a much bigger promotion, you need to have a greater quantity. So did it imply you might have somewhat bit conservative on the steering is that you just already plan to cancel the promotion of this month or this month? In the meantime, you additionally give a reasonably optimistic steering concerning the margin within the third quarter, which might be returned to the extent of the final quarter. Might you additionally assume your promotion will disappear begin from, say, with clearly, this month and subsequent month? Thanks.

Brian Gu — Vice Chairman and President

So Bin, that is Brian. To reply your query, to start with, the third quarter supply steering is taken into account all the knowledge to this point. So it should embrace the — clearly, all the promotion and value changes that we made up to now. The — I feel the steering type mirrored the truth that we’re getting into to a comparatively sluggish season.

And likewise, we will see that a number of the visitors within the shops are lower than what we have seen earlier than as a result of post-COVID state of affairs. And likewise, I feel there is a half additionally attributable to that earlier than the brand new mannequin launch and deliveries, there are somewhat bit of individuals ready to match to current purchases. So all that, I feel you will note each from our expertise in addition to from friends efficiency as nicely. On the margin entrance, I feel what I might say is that the promotions that we provide to the fashions truly is lower than the worth will increase that we made within the second quarter.

So web, truly, the margin merchandise is definitely barely higher on this present type of pricing surroundings or pricing combine. So we’re seeing enchancment in third quarter or stabilization in third quarter margins. I do not assume we’ve got truly guided to — again to the primary quarter stage but, however I feel we see stabilization within the third quarter versus second quarter.

Bin Wang — Credit score Suisse — Analyst

OK. Thanks.

Operator

Our subsequent query right this moment comes from Ming Lee at BoA. Please go forward.

Ming Lee — Financial institution of America Merrill Lynch — Analyst

[Foreign language] So my query is concerning the battery know-how. Since you simply talked about that the charging velocity is way quicker than the present battery. So do you personal the patent and the know-how or your provider on it? And might they provide such form of battery to different OEMs? And likewise, what’s the motive so that you can manufacture the on your self?

He Xiaopeng — Co-Founder, Chairman, and Chief Govt Officer

[Foreign language] Thanks in your query. With reference to supercharging, now there are a number of points of the consideration within the applied sciences behind the supercharging. To start with, it’s important to take a look at the battery themselves and the administration of battery, the battery pack in addition to the entire automobile manufacturing and design in addition to the charging piles. Now we do conduct collaboration by way of the R&D of the event of the batteries with our suppliers and our companions.

And so we share a few of these patents in these areas. Nonetheless, we’ve got in-house R&D capabilities, and we personal the patent of our administration of the batteries in addition to the design and manufacturing of the entire automobile and the charging pilots as nicely. So to the primary a part of your query. Regarding the second a part of your query, which is concerning the causes behind or rationale behind the in-house improvement and analysis of our motors.

It’s as a result of it is crucial for us to regulate the standard for the event of motors to uphold the best requirements of the, for instance, high quality of our merchandise in addition to to take care of the extent of know-how stage that we purpose to realize. And so with the intention to obtain that, we’ve got to do the R&D in-house. Thanks.

Brian Gu — Vice Chairman and President

Let me simply add, to reply your second query, the reason being higher efficiency. As a result of our self-designed or truly has a really compact design and likewise effectivity that enables us to lengthen the vary of the autos higher than what we will get available on the market.

Ming Lee — Financial institution of America Merrill Lynch — Analyst

Thanks, Brian. Sorry, a fast follow-up query. Relating to the brand new mannequin in 2023, Brian simply talked about that the product could possibly be comparative product of fashions. So can I say it is going to be barely smaller than G9 and price-wise, might be barely decrease.

So it has a big addressable market. Thanks.

Brian Gu — Vice Chairman and President

Sure. That is what is going to more likely to be positioned.

Ming Lee — Financial institution of America Merrill Lynch — Analyst

All proper. Thanks.

Operator

And our subsequent query right this moment comes from Paul Gong with UBS. Please go forward.

Paul Gong — UBS — Analyst

Sure. Hello. Thanks for taking my query. Simply two questions.

The primary one nonetheless wish to focus on somewhat bit extra on the Q3 steering. Do you see it’s extra like a provide facet constraint or demand-side constraint? So is it like the availability chain? Or do you see the — actually it is a demand facet non permanent as a result of seasonality? And the second query is concerning the potential cannibalization. So you are going to have B-segment SUV in addition to the C-segment mannequin subsequent 12 months. Given you have already got the medium-sized sedan and SUV, P7 and G9, how do you see the cannibalization versus one another? [Foreign language]

Brian Gu — Vice Chairman and President

Hey, Paul. So on the primary query, I feel I discussed earlier that we see the weak point principally attributable to seasonal weak point, but additionally post-COVID management measures, there’s lack of visitors. And likewise forward of the brand new mannequin launches, there’s a little little bit of a comparability and wait-and-see perspective which you noticed, I feel, in different fashions or different friends as nicely. However from our personal perspective, additionally, there’s a whole lot of orders not pairing with the availability chain as a result of the mismatch in a number of the older fashions.

So these are the explanations that I feel we’ve got at the moment offered such a supply estimate view. In order that’s — to reply your first query. Second query you had on the brand new fashions versus our present lineup. We really feel like, to start with, there’s very minimal overlap in cannibalization.

What I answered earlier than this query, the brand new B class mannequin product by way of dimension and by way of value factors might be totally different in comparison with G9. It will likely be positioned additionally very in a different way and competing with a really totally different phase. And likewise subsequent 12 months, the brand new fashions usually are not sedan fashions. So it doesn’t compete with P7 as nicely.

So there’s minimal cannibalization from our mannequin positioning and lineup.

Paul Gong — UBS — Analyst

OK. Thanks a lot.

Operator

Our subsequent query right this moment comes from Nick Lai with J.P. Morgan. Please go forward.

Nick Lai — JPMorgan Chase and Firm — Analyst

[Foreign language] Let me rapidly translate my query. The primary query is basically an replace on chip situation in addition to any manufacturing affect from partial at the moment in China? That is the primary query associated to manufacturing and provide query. And second query is basically on second quarter half. We booked about RMB 890 million FSOs.Can we clarify somewhat bit extra on that? Thanks.

He Xiaopeng — Co-Founder, Chairman, and Chief Govt Officer

[Foreign language] Let me tackle your questions. To start with, regarding the chip and battery scarcity, undoubtedly since final 12 months, we’ve got been enormously challenged by these two issues within the provide chain. Nonetheless, since we consider that the issue — the scarcity in these two uncooked supplies might be enormously launched by the start of subsequent 12 months. Now for the primary half of this 12 months, there have been a complete of about 10 sorts of chips that have been in excessive threat of provide scarcity.

And up to now, we’ve got seen a discount within the variety of the sorts of scarcity that face excessive threat of provide scarcity. And as I discussed, beforehand, there’s a complete of 5,000 various kinds of chips included in each single automobile. And so undoubtedly, chip scarcity will nonetheless be a giant downside. However nevertheless, we’re very excited and glad to see that the availability scarcity is being relieved, and undoubtedly by the start of subsequent 12 months, the issue might be a lot much less stress and dire for us.

Now regarding the second a part of your query, due to very early measures and communications, we aren’t being challenged or troubled or involved with the facility scarcity or an influence provide scarcity in, for instance, provinces resembling. Thanks.

Dennis Lu — Vice President of Finance

Hey, Nick. That is Dennis. Let me additional clarify the so-called the forex legislation change loss from the international forex transaction. As a result of once we had the U.S.

IPO and the Hong Kong IPO, main cash was raised and stored within the U.S. subsidiaries. So the purposeful forex is U.S. greenback.

And thru form of intercompany lending, the U.S. subsidiary lend cash to the home — I imply, the corporate, the subsidiaries in China by the form of intercompany lending. So that is form of the RMB-dominated property held by the U.S. subsidiaries.

So sooner or later, the cash must be returned again to the U.S. So to transform again to the U.S. greenback. So when RMB has the appreciation, we are going to get the revaluation advantages.

And within the second quarter as a result of fast RMB depreciation in opposition to the U.S. greenback, there’s a revaluation affect, unfavorable depreciation affect held within the second quarter. So sooner or later, if the forex change, we are going to try this on a month-to-month foundation. So if RMB appreciates in opposition to the U.S.

greenback, that may have the optimistic achieve on the international forex transaction. So that you’re proper, that is the pattern.

Brian Gu — Vice Chairman and President

Nick, simply to clarify. To start with, it is noncash. It is not — does not imply that we’ve got transformed the money. It is simply the valuation due to the forex change price variations end in such type of swings.

Clearly, each quarter, we’ve got to worth the property utilizing our purposeful forex, and that is why there’s variations ensuing from that. As a result of the RMB change price reacted fairly, I might say, considerably within the final quarter.

Nick Lai — JPMorgan Chase and Firm — Analyst

Yeah. I perceive. Xiaopeng, Dennis, and Brian, thanks.

Operator

And our subsequent query right this moment comes from Jing Chang with CICC. Please go forward.

Jing Chang — CICC — Analyst

[Foreign language] That is my first query. How can we take a look at the competitors, patent and shopper desire of the market pressed at RMB 200,000 in contrast with peer mannequin? Are you able to share what we predict are our main benefits and downsides, whether or not there can be a brand new model of outlined subsequent 12 months? And the way ought to we count on the month-to-month gross sales quantity at?

He Xiaopeng — Co-Founder, Chairman, and Chief Govt Officer

[Foreign language] Thanks. Thanks in your query. Now regarding the aggressive panorama inside the value vary of RMB 200,000, we consider the competitors will proceed to be very intense for this 12 months and the approaching 12 months as nicely. And there are two sorts of competitors on the market, actually.

The primary sort is concerning the driving vary in addition to the efficiency over pricing ratio. And the opposite is concerning the total design and the smartification options for these form of merchandise. And for P5, its benefits is certainly regarding the — it is very excellent by way of total is in addition to immersive and their immense type of cabin house as nicely. And we’ve got noticed a really regular gross sales efficiency for P5.

With reference to P5 gross sales efficiency steering for 2023, we might you argue about steering with that form of stage of particulars by way of amount of gross sales expectation, however as a result of there are some — some new updates for P7, we undoubtedly consider that perhaps it should have a small affect on the gross sales efficiency of P5. However total, we count on to see excellent efficiency by way of the gross sales for P5 total. And likewise with the — as we observe for P7 with the newly launched NGP, we noticed a lift in gross sales efficiency, and we count on to see the identical state of affairs occurred for P5 as nicely, which signifies that the — with the launch of a better stage of good options resembling city-level NGP, the efficiency for P5 will develop. Thanks.

Jing Chang — CICC — Analyst

[Foreign language] My second query is how you concentrate on the timing of the mass utilization of supercharging. Will or not it’s popularized rapidly? Or will it must progressively penetrate over a couple of years? As well as, how ought to the high-voltage platform enhance the acquisition of producing price of the automobile? Can it obtain report — can or not it’s penetrated to a cheaper price mannequin?

He Xiaopeng — Co-Founder, Chairman, and Chief Govt Officer

[Foreign language] Now regarding the development and the adoption of our supercharging community, undoubtedly, it is growing faster than anticipated. This quarter, we began the aggressive development of our community. And by This autumn this 12 months, we consider that we are going to have one other one among new stations outfitted with the supercharging amenities. And by 2023, our supercharging community might be constructed even at a better house — at a better tempo.

Now, for instance, G9 with its highest configuration mannequin, totally suitable with the supercharging facility, all of the configurations, and different fashions truly G9 — different variations of G9 truly help three supercharging operate. And sooner or later, as a result of our platforms proper now will help this high-voltage and high-power supercharging facility, we consider that our future fashions will all be outfitted with this sort of performance, which signifies that we will be capable to do higher provide chain management our future merchandise with this sort of facility and permit us to realize higher economies of scale in addition to price managed results. Now there are two issues that we have to concentrate on once we speak concerning the supercharging community development. One is improvement and the design of our automobile merchandise to help this sort of excessive voltage supercharging operate.

And the opposite is the development of our supercharging community and the charging piles. And by the second half of 2023, we consider that you’ll — we count on to see a really well-established supercharging community that may totally promote the adoption of our supercharging — fast charging facility. Thanks.

Jing Chang — CICC — Analyst

[Foreign language]

Operator

And girls and gents, this concludes our question-and-answer session. I might like to show the convention again over to the corporate for closing remarks.

Alex Xie — Head of Investor Relations

Thanks as soon as once more for becoming a member of us right this moment. You probably have additional questions, please be happy to contact us one’s investor relations by the contact relation offered on our web site or the KSM Group Investor Relations.

Operator

[Operator signoff]

Length: 0 minutes

Name individuals:

Alex Xie — Head of Investor Relations

He Xiaopeng — Co-Founder, Chairman, and Chief Govt Officer

Dennis Lu — Vice President of Finance

Tim Hsiao — Morgan Stanley — Analyst

Jeff Chung — Citi — Analyst

Brian Gu — Vice Chairman and President

Bin Wang — Credit score Suisse — Analyst

Ming Lee — Financial institution of America Merrill Lynch — Analyst

Paul Gong — UBS — Analyst

Nick Lai — JPMorgan Chase and Firm — Analyst

Jing Chang — CICC — Analyst

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