XPeng Inc (XPEV) Q1 2023 Earnings Call Transcript

XPeng Inc (NYSE: XPEV) Q1 2023 Earnings Call dated May. 24, 2023.

Corporate Participants:

Alex Xie — Head of Investor Relations

Xiaopeng He — Co-founder, Chairman, Executive Director and Chief Executive Officer

Dennis Lu — Vice President of Finance

Brian Hongdi Gu — Honorary Vice Chairman of the Board and Co-President

Charles Zhang — Vice President of Corporate Finance and Investments

Analysts:

Tim Hsiao — Morgan Stanley — Analyst

Bin Wang — Credit Suisse — Analyst

Paul Gong — UBS — Analyst

Nick Lai — JPMorgan — Analyst

Ming-Hsun Lee — Bank of America Merrill Lynch — Analyst

Unidentified Participant — — Analyst

Jing Chang — CICC — Analyst

Presentation:

Operator

Hello, ladies and gentlemen. Thank you for standing by for the First Quarter of 2023 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 of the company. Please go ahead, Alex.

Alex Xie — Head of Investor Relations

Thank you. Hello, everyone, and welcome to XPeng’s first quarter 2023 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 will include Co-Founder, Chairman and CEO; Mr. He Xiaopeng; Vice Chairman and President, Dr. Brian Gu; Vice President of Finance, Mr. Dennis Lu; Vice President of Corporate Finance and Investment, Mr. Charles Zhang and myself. Management will begin with the 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 and uncertainties is included in the relevant public filings of the company as filed with the U.S. Securities 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 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. He Xiaopeng. Please go ahead.

Xiaopeng He — Co-founder, Chairman, Executive Director and Chief Executive Officer

[Foreign Speech] Hi, everyone. Beginning in the first quarter of 2023, facing future competition, XPeng has centered around change. That in mind, I took action to make considerable changes to XPeng’s business plan, organizational structure and management team. As a result, some senior management who completed their mission on our journey from zero to one have stepped down.

Nonetheless, more new talents, full of energy and entrepreneurial passion have quickly stepped up and taken on leadership position through both internal promotions and external recruitment. I’m excited to see these new team members have fit in well in a short amount of time and made remarkable changes. I’m also very encouraged to see the passion and determination of all XPeng employees to change as of today were XPeng’s day one as we shifted the focus of our innovation towards cost, efficiency and customers.

It is very hard for the manufacturing industry to reverse the declining trend and set up a virtuous cycle, but we managed to start the reform with ourselves and rebuild the fundamentals of the company. Compared with competitors in the industry, such a reform makes me confident that we’ll be able to perform well consistently in each bottle and create a virtuous product sales cycle boost morale, increased customer satisfaction and raised our brand reputation from the third quarter of 2023.

[Foreign Speech] In the face of macroeconomic challenges and more intense competition, we achieved a month-on-month growth of new orders for the past four months. More excitingly, order intake for the higher end and CM versions of our new P7i model, which was just launched in March, has exceeded our expectations. The original production capacity we planned was not enough to cover demand. Compared with the previous P7 model, the P7i offers more streamlined SKU specifications with a more efficient go-to-market strategy.

Starting from June, we’ll work with supplier partners to significantly ramp up the production of P7i’s components and aim to accelerate deliveries of this popular new model with its aesthetically pleasing style design and distinguishing smart features, future drive — further driving P7i’s sales growth.

[Foreign Speech] Our latest production model debuted at the Shanghai Auto Show in April, the G6, which was our first production model that is built on XPeng’s next-generation technology architecture platform, SEPA2.0 or Fuyao in Chinese. was met with remarkable enthusiasm from attendees at the expo. The G6 features a stylish — design and best-in-class interior space, ensuring a comfortable ride. Fully equipped with a world-class 800 volt high-voltage SIC platform and a 3C fast-charging battery, the G6 is uniquely positioned within its segment, boasting ultra-long range as high as 755 kilometers ultra-high energy efficiency and ultrafast charging. More importantly, upon market delivery, the G6 will be equipped with XNGP, the industry’s leading ADAS.

I’m pleased to share with you that G6 test drives by media began last week. The feedback from media is that G6 is well ahead of other EV models by one generation in terms of ADAS capabilities. And its 800 volt platform with faster charging and lower energy consumption, which is an analogy to the 3G technology replacing 2G in mobile phones. The G6 will be officially launched in June and began mass deliveries in July, accompanied by a — We believe the G6 will emerge as one of the best-selling models in China’s NEV SUV market segment within the RMB200,000 to RMB300,000 price range.

We expect this model to drive substantial growth in XPeng’s third quarter delivery volume and significantly outperformed the industry’s growth in both year-over-year and quarter-over-quarter terms. This will mark the first inflection point in our sales growth following our strategic and organizational adjustment. Additionally, in the fourth quarter, we plan to launch a 7-seat electric MPV model, which we call X9 internally, and roll out more clearly defined configurations for existing models in order to further boost our sales growth.

[Foreign Speech] We also firmly believe that 2023 will mark an inflection point in the development of smart technologies for EV and the starting point of smart technologies widespread user adoption. We expect most of our potential customers to recognize value by 2024 to 2025. At the end of March this year, we rolled out our City NGP on maxstream [Phonetic] of multiple models for customers in Guangzhou, Shenzhen and Shanghai via OTA update. The customer feedback we received has been inspiring.

In the first month following the OTA roll out, City NGP’s mileage penetration rate reached over 60% and has become assisting driver for users’ daily commute. For the first time, I personally have also gotten used to driving with XNGP every day. It made me feel much more relaxed to drive. City NGP test drives are all available at all XPeng stores in Guangzhou, Shenzhen and Shanghai.

In April, the percentage of order of the Max stream of our P7i and G9 models in a total order of P7i and G9 increased substantially to more than 50%. We also plan to start roll out of Highway NGP 2.0 in June. Highway NGP 2.0 was developed based on the framework of XNGP. So it’s cold increased by 5 times compared to original version. Equipped with algorithms changing complex urban driving scenarios, Highway NGP 2.0 is able to offer a highway driver assistance experience close to that of L4, meaning high efficiency, consistent performance, no gating stock, no disturbance and also no intention to take over. By the end of 2023, the number of manual takeovers per 1,000 kilometers when using our Highway NGP is expected to be reduced to one or fewer.

[Foreign Speech] By the end of the third quarter this year, we’ll begin nationwide roll out of our XNGP across more cities without high-definition map coverage. This will be the first time for the mass production of City NGP or equivalent with our HD Map in China. Based on our experience, the mass production of City NGP in cities without high-definition map coverage is 100 times more difficult than the mass production of Highway NGP with high-definition map. It sets a new benchmark for our R&D teams, technologies and data capabilities.

However, it’s well worth it because it will considerably enhance our user experience once we achieve it. At present, our XNGP has the driving abilities equivalent to a driver. Moving forward, and supported by the large-scale data set generated in urban driving environment and strong back-end closed loop data training systems, we expect to introduce quarterly OTA updates for XNGP, which we expect to enrich its driving experience by one year each time, offering increased safety and generalization ability. And incorporate some capabilities of large language model or LLM into XNGP.

I firmly believe that as we continue to make breakthroughs in XNGP’s experience, scenario coverage and ownership costs based on data in the three cities we have launched sales of the Max stream of our models with XNGP will grow significantly.

[Foreign Speech] Good design really matters to young consumers. So since the end of last year, I have been directly managing the styling and design department and put more efforts and resources into improving our design capabilities. Recently, we invited several talented designers with experience in designing top-selling models to join XPeng. We also got healthy competition between excellent — external design teams and our in-house design teams to generate even more creative design ideas for new models. In addition to that, the LLM also is very helpful to our design improvement. I believe these changes will enable our new models and future safer versions to be equipped with market-leading interior and exterior styling and design.

[Foreign Speech] Since the first quarter, our sales marketing service capabilities has been upgraded and concerted efforts under the leadership of our President Wang Feng Yi, and also the whole company is making external and internal customer-centric transformation quickly. By enhancing our customer experience throughout the entire sales and service process and speeding up our response to customer demand since early this year through April, we have achieved consecutive improvement in our NPS, one of our core customer satisfaction indicators. Now as of April, our NPS has rebounded to Tier 1 level in industry.

[Foreign Speech] Looking ahead into the next quarter, our top priority will remain clearly focused on rapid acceleration of our sales and EV market share growth. We have already implemented measures to flatten the management structure across our sales organization and establish a middle office that is more efficient and can more quickly respond to requests that come from the front line. The next step will be to take a more selective approach on our existing sales network in order to strengthen the competitiveness of our channel as a whole.

In addition to increasing operational efficiency across our Tier 1 and Tier 2 cities sales network, we’ll also introduce more high quality dealers in Tier 3 and Tier 4 cities to bolster our product road map and sales targets over the next few years in the RMB150,000 to RMB250,000 price range market segment.

[Foreign Speech] We believe the automotive industry landscape will be transformed by technology innovations and fears competitions over the next three years. In addition to great product proposition and new technology, the key to success also lies in cost reduction to the greatest extent and efficient involvement in R&D and operations.

Our next-generation technology architecture, SEPA2.0, both powerful competitive strength in R&D efficiency and technology innovations. With G6 mass production, the SEPA2.0 architecture represent platform-based technology capabilities that we build through consistent, intensive R&D efforts over the past five years, which will strengthen our leadership in technology over the next three years. We are rolling out new products that offer more competitive cost and consistent customer experience based on SEPA2.0.

The new models in our R&D pipeline, which covers RMB150,000 to RMB250,000 price segment, and a variety of new car types will be built on a suite of shared technology platforms, spanning powertrain system, electronic and electrical architecture, smart cabins and ADAS. For shortened future models R&D cycle by 20% and up to 80% of architectural components will be compatible between different models, both of which enable XPeng to substantially reduce R&D spending on new models and bond costs.

[Foreign Speech] Over the second half of 2023 through 2024, we are planning to map out a clear and practical plan to achieve our target of a 25% cost reduction by the end of 2024. And we expect to realize some benefits of cost reduction initiatives in part design and powertrain and vehicle hardware as soon as this year. In this round of industry revolution, I believe that cost control both for hardware and software and efficiency enhancement for both operation and products will be among the core competitive edges to win the ultimate competition.

Now this, the competition is mainly around volume or scale, but the next round of competition requires comprehensive competitiveness in scale, innovation, design, cost, efficiency, quality and global markets, all of which are indispensable.

[Foreign Speech] In terms of our cash flow, our cash on hand at the end of the first quarter of 2023 amounted to over RMB34 billion. I’ll further simplify our operations concentrate our R&D investment on what customers recognize and build our long-term competitive position by advancing our platform-based technology approach.

At the same time, we’ll continue to optimize our organizational structure and management process significantly to further improve our operating efficiency across the company. Beginning in July was the mass delivery of G6, along with other new product launches that will see a rapid sales growth, I expect our monthly deliveries to increase significantly in the third quarter compared with that in the second quarter. Furthermore, as our monthly delivery targets exceed 20,000 vehicles in the fourth quarter of 2023, I expect our cash flow generated from operations to turn positive accordingly.

[Foreign Speech] Now moving to our guidance, we expect our total vehicle deliveries to be between 21,000 and 22,000 units in the second quarter of 2023, representing 15% to 21% quarter-over-quarter growth. And the revenue to be between RMB4.5 billion and RMB4.7 billion. From the third quarter of 2022, even though we underwent four consecutive quarters of pain in terms of deliveries, I always believed that in every challenge lies an opportunity. It prompted us to reflect earlier on how to win the knockout phase in 2025 and how to get into the semi finals in 2027. Drawing on our more competitive new products and more effective sales channels, we will achieve substantial sales volume growth on a sequential quarterly basis in the third and fourth quarters of 2023.

Thank you, everyone. With that, I’ll now turn the call over to our VP of Finance, Mr. Dennis Lu, to discuss our financial performance for the first quarter of 2023.

Dennis Lu — Vice President of Finance

Thank you, Mr. He, and hello, everyone. Now I would like to provide a brief overview of our financial results for the first quarter of 2023. I will reference RMB only in my discussion tonight unless otherwise stated. Our total revenues were RMB4.03 billion for the first quarter of 2023, a decrease of 45.9% year-over-year and a decrease of 21.5% quarter-over-quarter. Revenues from vehicle sales were RMB3.51 billion for the first quarter of 2023, decrease of 49.8% year-over-year and a decrease of 24.6% from the last quarter. The year-over-year and quarter-over-quarter decreases were mainly attributable to lower vehicle deliveries and discontinuation of new energy vehicle subsidies.

Gross margin was 1.7% for the first quarter of 2023 compared with 12.2% for the same period of ’22 and 8.7% for the first quarter of 2022. Vehicle margin was minus 2.5% for the first quarter of 2023 compared with 10.4% for the same period 2022 and 5.7% for the first quarter of 2022. The year-over-year and quarter-over-quarter — decreases were mainly experienced by increased promotions and the expiry of new energy vehicle subsidiary mentioned above.

R&D expenses were RMB1.3 billion for the first quarter of 2023, representing an increase of 6.1% from RMB1.2 billion for the same period of 2022 and an increase of 5.3% from RMB1.23 billion for the first quarter of 2022. The year-over-year and quarter-over-quarter increases were mainly due to higher expenses relating to the development of new vehicle models.

SG&A expenses were RMB1.4 billion, for the first quarter of 2023, representing a decrease of 15.5% from RMB1.6 billion for the same period of 2022 and a decrease of 21% from RMB1.8 billion for the first quarter of 2022. The year-over-year and quarter-over-quarter decrease is mainly due to lower commission paid to franchisee stores and lower marketing and advertising expenses. As a result of foregoing, loss from operations was RMB2.6 billion for the first quarter of 2023 compared with RMB1.9 billion for the same period of 2022 and RMB2.5 billion for the last quarter.

Net loss was RMB2.3 billion for the first quarter of 2023 compared with RMB1.7 billion for the same period a year ago and RMB2.4 billion for the last quarter. As of March 31, 2023, our company had cash, cash equivalents, restricted cash, short-term investments and time deposits in total of RMB34.1 billion. To be mindful of the of our earnings call, I will encourage listeners to refer to our earnings press release for more details on our first quarter financial results.

This concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Today’s first question comes from Tim Hsiao with Morgan Stanley. Please go ahead.

Tim Hsiao — Morgan Stanley — Analyst

[Foreign Speech] So my first question is about the pricing strategy. So how should we think about expense price strategy for G6 and the upcoming models? Given the severe pricing competition, will actually intend to price the model more aggressively when bringing the model to the market to ensure the company can stay much ahead of peers in terms of price performance ratio? Especially, I think Mr. Hu just mentioned, the group will happy focus on the volume growth or the company would prefer to lease on learning for a cheaper version to follow on after the volume taking off in order to effectively respond to peer’s pricing adjustment and to better balance our near-term profitability? So that’s my first question. Thank you.

Xiaopeng He — Co-founder, Chairman, Executive Director and Chief Executive Officer

[Foreign Speech] All right. Thank you for your question. We’ve considered internally these two possibilities. First of all, we will prioritize scale before considering pricing. And we definitely expect to have a long-term stable pricing. Now also, we will take into consideration the cost structure of our products, including the inflation of, for example, the LFP batteries and other parts. Taken into consideration those factors together with our cost control measures, we definitely consider long-term stable pricing at a more competitive level for G6 and also other upcoming models. But in a nutshell, you will — we will prioritize the scale.

Brian Hongdi Gu — Honorary Vice Chairman of the Board and Co-President

Yes, Tim, let me just add here. So Tim, let me just add here, this is Brian. I think, first of all, the scale, we believe, will lead to a better profitability ultimately because obviously, a number of costs can be amortized and reduced in a more efficient manner. And also, as you heard in our previous description is that we aim to significantly lower the overall cost and bond for our vehicles in the coming months or the coming year. So with better scale and our aim of achieving better costs saving on these products, I think the profitability will naturally return. So that’s how we view the sequence events in our strategy.

Tim Hsiao — Morgan Stanley — Analyst

Got it. Super clear. Thank you, Brian. [Foreign Speech] So my second question is about the supply risk. Because the P7 supply bottleneck will be resolved in June. But if there is any negative we across to the supply ramp up to G6. In the meantime, G6 will be the first model built on the new architecture within a limited casting? Would that result in slower pace of production ramp-up after June launch? So should we take that into consideration? Thank you.

Xiaopeng He — Co-founder, Chairman, Executive Director and Chief Executive Officer

[Foreign Speech] Thank you for your question. Now G6 is different from G9 in the sense that we actually are well prepared for its delivery. We’ve given the two months between the SOP to the final delivery. So we made the announcement in January, we expect to have the deliveries in July. And so in Q3, definitely, we expect a much faster ramp-up for the delivery of G6 compared to P7 or G9 in the past. And also G6 different from P7i in a sense that we have a really well prepared supply to support the future delivery.

And in terms of the technology application for the integrated aluminum die casting technology, definitely, it’s been a challenge for the whole industry facing the low yield rate of that particular technology. However, which has been in this particular — using this technology for the — for over a year. And right now, the government has been very satisfactory, and we expect to have no severe challenge in using this technology on G6. Thank you.

Tim Hsiao — Morgan Stanley — Analyst

[Foreign Speech]

Operator

Thank you. And our next question today comes from Bin Wang with Credit Suisse. Please go ahead.

Bin Wang — Credit Suisse — Analyst

[Foreign Speech] My first question is about battery restarting the recent copper price has declined. So what’s the impact for your battery sourcing and the margin in the second quarter? Thank you.

Dennis Lu — Vice President of Finance

Bin, this is Dennis. Thank you for your question. Actually, in the first quarter, we see the battery cost reduction compared with quarter four last year, we have about 5% reduction. And then in the second quarter, we see further reduction about 10% to 12% over the quarter four last year. So that’s about 5 percentage points to 7 percentage points increase compared with the quarter one. Having said that, we also have the marketing spending, variable marketing spending.

So in terms of material cost, especially for the battery cost will improve the margin by, for example, the battery costs would be — will account for about 40% of the total cost. So 7 percentage points would translate into like three to four margin improvement. That’s from the material side. But the other big chunk would be the revenue side, that will also impact much well. So this a brief answer to your questions.

Bin Wang — Credit Suisse — Analyst

Thank you. My second and last question is about your volume guidance. Previously, you actually guided this year, you target more than 30% growth. Do you maintain the same target if you will maintain in price in the second of this year? The on average monthly volume will be 200,000 to lower the full year volume target change or not? Thank you.

Xiaopeng He — Co-founder, Chairman, Executive Director and Chief Executive Officer

[Foreign Speech]

Bin Wang — Credit Suisse — Analyst

[Foreign Speech]

Brian Hongdi Gu — Honorary Vice Chairman of the Board and Co-President

Hey Bin, regarding the volume growth, we still expect we’re going to be growing faster than market this year. obviously, the market growth this year is going to be tempered given what’s going on in the industry. But what we see most importantly is that third and fourth quarter, we expect our growth will be significantly higher than the market growth. And also, we believe that with the G6 volume delivery starting in the third quarter, we would like to aim to achieve monthly delivery over 15,000 vehicles per month in the third quarter as one of the targets. And then the fourth quarter, given the continued growth and also additional model sort of mix — changes we think we can actually also target over 20,000 per month in the fourth quarter as our peak sales. So these are our goals in the second half.

Bin Wang — Credit Suisse — Analyst

Thank you so much. Thank you, that’s all my question.

Operator

Thank you. And our next question comes from Paul Gong with UBS. Please go ahead.

Paul Gong — UBS — Analyst

Thanks for taking my questions. Two questions as well. The first question is regarding the new orders intake on the P7i as well as our preparation. [Foreign Speech] So my first question is regarding the T7i, the orders versus our preparation on the supply chain. Can you quantify a little bit what was the order implied like monthly level? What is our production preparation for that? And why we have overestimated G9 and underestimated P7i demand? Thank you.

Xiaopeng He — Co-founder, Chairman, Executive Director and Chief Executive Officer

[Foreign Speech] All right. Thank you for your question. Now, regarding our supply chain preparation for P7i, definitely, we experienced some challenges due to, for example, the supply chain and also, for example, the ups and of the pricing for NCM batteries. But right now, we have well prepared because for May and June, we already expect ramp-up in battery production capacity to supply to prepare for our deliveries of P7i in the future.

Now looking back for the past several quarters, basically, the whole industry experienced challenges in terms of estimated their deliveries and preparing for that kind of demand due to a number of factors, including the supply of different parts, the cost of different parts and also the overall environment of the industry. As a result, starting from Q4 going into Q1 this year, we have actually started a series of policies in our guidance and also — as that is more cautious and reserved in order to work better with our suppliers to reduce the gap in between the estimate of the deliveries and the actual preparation of the capacity. Going forward, we also will do better in optimizing our — the matching with the future delivery estimates with our suppliers in terms — and also our production capacity overall so that we can actually do better in integrated these several aspects. Thank you.

Brian Hongdi Gu — Honorary Vice Chairman of the Board and Co-President

Hey Paul, just to — obviously, your question on the color of P7i, clearly, we — our order momentum is far exceeds our capacity increases in the last couple of months. We think you can actually tell by the average wait time for the product in our stores is stretched to over six weeks or even longer. We actually think with now, hopefully, the supply chain ramping up by June, they will elevate some of these wait time pressure which also, in turn, will help generate further momentum for the sales. So that’s what we see today.

Paul Gong — UBS — Analyst

[Foreign Speech] So my second question is regarding the brand units. We understand XPeng is pretty popular among young people. And right now, we are facing the young people with unemployment rates over 20%, does that impact our demand? And also when you come out with NPV end of this year, normally NPV are either for the commercial use or for the older families or more mature families? So how shall we match the young brand image of XPeng versus the NPV launch. Thank you.

Xiaopeng He — Co-founder, Chairman, Executive Director and Chief Executive Officer

[Foreign Speech] All right. Thank you for your question. Now XPeng’s positioning is to really target young consumers, which is like who is also tech-oriented. And our sweet spot is really consumers between 25 years old to 35 years old. And right now, I mean, if I remember this correctly, the unemployment rate is really talking about fresh graduates from colleges, that is over 20%. I don’t recall seeing — I don’t recall reading anywhere that it’s 20% unemployment rate for young people, so that is the differentiation here I would like point out.

Another thing is that right now, among the targeted group, 25 years to 35 years old, we really don’t see a lot of impact on ourselves towards this particular consumer group regarding the overall — the market environment. The second thing — the second part of your question, how do we really connect the 7-seater SUV with younger consumers. This is a very good question. We have done a lot thinking and discussion internally. And as of the — I mean, by the end of this year, we’ll roll out this new model, you can expect to hear about our answer by that time. Thank you.

Paul Gong — UBS — Analyst

Thank you very much. Thank you.

Operator

Thank you. And our next question comes Nick Lai with JPMorgan. Please go ahead.

Nick Lai — JPMorgan — Analyst

[Foreign Speech] Just the first question is really about the sales and marketing and channel strategy, given you have the new model G3 in the third quarter ramping up and also new NPV starting to ramp up in 4Q. Look about the new product strategy at and so on. Can you elaborate a bit more on the outset — And the second question is really about GP margin trend and outlook in the second half. I understand we do not provide any guidance. But how should we think about the margin level in the second half given the competition even our pricing and point strategy? Thank you.

Xiaopeng He — Co-founder, Chairman, Executive Director and Chief Executive Officer

[Foreign Speech] All right. Thank you for your question. Let me take the first one. Regarding the changes that have been brought about by President Wang since end of January, I mean, it has been really tremendous. He joined us as of the end of January, and it’s been about four months now, and he’s done a lot of changes. For example, starting from the organization, we grouped together the trading team and also the sales team together, and we have also changed our big middle office into a more swift and adaptable kind of smaller front office that allow us to be more agile.

And the second change is that we used to have multiple lines running dual operations. Right now, we have one big line of business, our operational team that actually coordinates different projects — lines of business that allow us to actually improve our Net Promoter Score or NPS for some months in a row. And another big change happened actually to our marketing team. We have been doing a lot of things to improve the overall efficiency by using multiple dealer tools, doing different project based, operation also flatten our organizational structure overall.

Now also in our sales and we have done a lot of training to really improve of our salespeople, especially in terms of introducing the different SKUs and different variation of our models in the market. Another big change also happened in the — or to be expected is on our channel — sales channel and distribution, both in China and also in the overseas market. And in Q3, you can expect to hear more about those big changes to come.

And also in terms of our branding as well, we are going to actually more of the ones and all the also the youth into our brands so that you can hear more about XPeng and be more clear about our positioning. So overall, I would say that definitely, we have done a lot of changes overall. And it all originated from our DNA of XPeng, but at the same time, you are seeing a new sort of a facelift version of our brand as well.

Brian Hongdi Gu — Honorary Vice Chairman of the Board and Co-President

And Nick, this is Brian. For your question on the margin. So for the second quarter, we think given the modest volume increase as well as the old product mix continue to be selling. I think there’s still going to be margin pressure despite some of the battery cost savings that Dennis mentioned. But with the second half, the increased delivery volume increase with P7i, G6 as well as the new MPV by the end of this year. We think the overall gross margin will improve gradually with obviously changing of these product mixes. But the most significant margin increase will happen, I think, next year in all these cost reduction measures as well as the further volume and scalability coming into play, that’s where we see the trend.

Nick Lai — JPMorgan — Analyst

Yes. Thank you.

Operator

Thank you. And our next question comes from Ming Lee with BofA. Please go ahead.

Xiaopeng He — Co-founder, Chairman, Executive Director and Chief Executive Officer

Hi, Ming. We cannot hear you. Please speak louder please.

Ming-Hsun Lee — Bank of America Merrill Lynch — Analyst

[Foreign Speech] My first question is regarding the — your expectation on the reasonable lithium company price in the next one to two years, if supply is more than demand? And will you consider to change your battery repricing frequency to follow closely to a spot raw material price? And also, what is your current volume sales breakdown by LFP and NCM battery? Do you think that the battery sales cars will continue to increase?

Xiaopeng He — Co-founder, Chairman, Executive Director and Chief Executive Officer

[Foreign Speech] Thank you for your question. It’s really hard to estimate the future ups and downs of the lithium pricing. But in the short-term, I believe that the inflation of the lithium pricing should be temporary. And by the second half of the year, we expect to have a lower pricing for this material. But what is going to be the targeted or the right range — price range for this material, it’s very hard to say. But personally, I believe that within RMB200,000 should be a reasonable range for it.

Now we are working with our supplier partners in a very flexible manner, meaning that we actually taking to consideration the inflation or the fluctuation of raw material pricing in the market before determining the sourcing price of our products, which can really help us to optimize our cost structure. Now going into the future, definitely, we will launch a series of technological innovations to actually reduce the use of batteries, but supporting a wider or longer driving range, we’re going to use more of LFP or other similar battery technologies in order to reduce our overall raw material costs while increasing or enhancing the safety of our products and driving up the — driving range of our products to a satisfactory level of our customers.

Ming-Hsun Lee — Bank of America Merrill Lynch — Analyst

[Foreign Speech] Also my second question is regarding your new software, the XNGP. How it help to increase of your more orders or more foot traffic to your stores? And then besides that, since you mentioned that you will roll out the XNGP service to more than 10 cities in second half this year. So do you think you can also get the approval from City government very quickly? Or there still could be some potential bottleneck?

Charles Zhang — Vice President of Corporate Finance and Investments

Ming, this is Charles. I’ll address the question. First of all, I think as you know that we launched the City NGP in three cities in China at the end of March, namely Shenzhen, Guangzhou and Shanghai. So I think that’s why I think — if you visit our stores in those cities, right now, our customers can all drive the XNGP. And also, we heard that also customers actually requested to test drive the XNGP, which drive up the penetration rate of the Max stream of our P7i and G9 to more than 50% in those three cities in April. And we believe that as we’re rolling out XNGP to more cities, and also we continue to improve our XNGP customer experience every quarter, and we continue to see the upside of the penetration rate of the Max stream our new model.

To answer your second half of your question, I think our plans to decouple our XNGP from starting from the softening from the end of Q3. So therefore, I think that because we — our ability to decouple our XNGP from So therefore, I think that we are able to roll out our XNGP without the requirement of the government approval, etc. So therefore, I think we are expecting that towards the end of the year, we can offer XNGP services probably in a few 1,000 cities in China and more cities over the next couple of quarters.

Ming-Hsun Lee — Bank of America Merrill Lynch — Analyst

Thank you, Charles.

Operator

Thank you. And our next question comes from [Indecipherable] with CITIC Securities. Please go ahead.

Unidentified Participant — — Analyst

[Foreign Speech] Thank you for the question. And I have a question for autonomous driving. And a lot of Chinese and foreign OEMs are doing the research and produce autonomous driving, how do we see the leadership of — And also, we know that data is very important. And while the short-term sales pressure on our technology improvements? Thank you.

Xiaopeng He — Co-founder, Chairman, Executive Director and Chief Executive Officer

[Foreign Speech] Thank you for your question. One thing that I would like to make clear is that for XNGP, when it’s used within a city and urban scenario, it’s actually quite different then Highway NGP when it’s used on a highway setting, especially within the cities, we’re talking about areas without high-definition maps. So it’s very hard to really judge how much ahead in the competition, we are compared to our peers.

Because right now within the industry, we only see a couple of companies that are able to claim that have — they have similar technologies, but they are really limited scenarios where there is a high definition maps available. Whereas for XPeng, we are actually able to roll out our XNGP software in areas without high-definition maps. And we also have the capability to actually roll out it further to 50 to 200 cities.

So that is definitely very, very advanced. That’s the only thing I can say. And typically, it takes about 12 to 18 months to be able to use the XNGP similar functionality from the testing phase of the gray scale testing to the actual roll out. So quite challenging to reach that milestone of the actual roll out. And so I believe that definitely, for XPeng, we have very solid technology in our architecture that actually put multiple cell cycle, including data cycle within the XNGP software itself. And so I would say XNGP, on average, is leading ahead of competition by about 12 months’ time.

And the second part of your question is about significance of data to the actual performance of the technology. Now I would say data definitely means a lot, and it’s very valuable to autonomous driving. However, right now, based on our current cell scale and adoption rate and also the deliveries in the near-term, we believe that data here is not going to cause a big issue or really pose a lot of difference because right now, we are still doing vision-based or vision-centric kind of data gathering.

And in the future, we expect to have actually more data coming from, for example, language processing language input and that will also help us to actually have a better performance in the software execution. And I think that right now, our capabilities to support that kind of data processing is sufficient. Definitely, in a longer-term, data will really means more when you have more autonomous driving cars on the road than can actually contribute to your data set, but it’s in a much longer future. And so right now, it’s very hard to say where or when the inflection point will be. Thank you.

Operator

Thank you. And our next question today comes from Jing Chang with CICC. Please go ahead.

Jing Chang — CICC — Analyst

[Foreign Speech] So my first question is about, as Mr. Xiaopeng has just mentioned that we hope to sell more than 20,000 units per month in the first quarter. So can you help us to break down our major model structure, including a sales percentage of G6, G7 and G9. So that we think is the successful sales volume of G6, and how to further improve the sales performance of G7 and G9?

And my second question is about, can you help us to further explain the overall product planning by 2025. So how many models are planned in our strategy and the main focus price range? And what our new idea is about the premium market above RMB300,000 and the market below RMB150,000? Thank you.

Xiaopeng He — Co-founder, Chairman, Executive Director and Chief Executive Officer

[Foreign Speech] Thank you for your question. But it’s really hard to provide a very definitive or clear answers since it has something to do with our future planning. And what I can only say about Q4 is that I think I would only be satisfied if we can achieve, for example, for G6 deliveries, we expect it to be at 2 times of P7. And also, we expect to wrap up our G9 deliveries as well. So right now, we really cannot provide a clear sales breakdown for the monthly sales target of 20,000. Now going forward, in 2025, we definitely already have the pipeline in place. We very clear plans for our future portfolio. What I can only say for now is that we are going to optimize our cost structure and also we are going to a lot of modulize — we’re going to launch a lot of modulized development on the same platform, we expect to have about 10 models in our 2025 lineup. And we’re still really prioritized the RMB200,000 to RMB300,000 price range, and that will be our main market segment. We will have very limited number of offerings in below RMB200,000 and also above RMB300,000 price segment. Thank you.

Operator

Thank you. This concludes our question-and-answer session. I’d now like to turn the call back over to the company for closing remarks.

Alex Xie — Head of Investor Relations

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

Operator

[Operator Closing Remarks]