XPeng Inc. (XPEV) Q2 2022 Earnings Call Transcript

XPeng Inc. (NYSE: XPEV) Q2 2022 earnings call dated Aug. 23, 2022

Corporate Participants:

Alex Xie — Head of Investor Relations

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

Hsueh-Ching Lu — Vice President of Finance and Accounting

Brian Hongdi Gu — Honorary Vice Chairman and President

Charles Zhang — Vice President of Corporate Finance & Investments

Analysts:

Tim Hsiao — Morgan Stanley — Analyst

Jeff Chung — Citi — Analyst

Bin Wang — Credit Suisse — Analyst

Ming Hsun Lee — Bank of America Securities — Analyst

Paul Gong — UBS — Analyst

Nick Lai — J.P. Morgan — Analyst

Jing Chang — CICC — Analyst

Presentation:

Operator

Hello, ladies and gentlemen. Thank you for standing by for the Second Quarter 2022 Earnings Conference Call of XPeng, Inc. [Operator Instructions]

I would now like to 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 second quarter 2022 earnings conference call. Our financial and operating results were issued via newswire services earlier today and are available online. You can also view the earnings press release by visiting the IR section of our website at ir.xiaopeng.com.

Participants on today’s call 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 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 and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under the applicable law.

Please also note that XPeng’s earnings press release and this conference call include the 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 financial measures to 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, Executive Director, Chairman and Chief Executive Officer

[Foreign Speech]

Hi, everyone. In the second quarter of 2022, XPeng delivered 34,422 vehicles, representing 98% growth year-over-year. For the fourth consecutive quarter, we ranked number one among emerging EV makers in China as measured by vehicle insurance registration volume. Starting from the second half of this year, we’ll launch a suite of industry-leading products and technologies developed in-house as well as next-generation smart EV models equipped with the state of the art technologies. These upcoming product launches will bring our customers an unparalleled driving experience through innovation in both electrification and smart technologies.

[Foreign Speech]

On August the 10th, we unveiled interior design of our new flagship G9 SUV and began accepting reservations. The pre-orders of G9 exceeded 22,000 within 24 hours. And this has exceeded the model that we launched previously, which were the P7 and G9 that were launched at the same period. And the orders of G9 keeps increasing, which shows the strong demand from our customers. On August the 26th, the G9 will join us at the Chengdu Auto. We plan to announce the G9’s price during its official launch in September and commence deliveries in October.

With the stylish design, superior control and driving performance, lavish comfort and other luxury features that benchmark against luxury SUVs price nearly RMB1 million, the G9 has already proven itself a veritable flagship model in the SUV segment. The G9 also showcases our leadership position in electrification technology innovations as the first model to offer our ground-breaking end-to-end high voltage charging technology, which is comprised of and onboard 800 volt high voltage platform and 480 kilowatt super charging station, bringing the ultimate charging experience to our customers.

With respect to smart technology configurations based on our industry-leading City Navigation Guided Pilot or City NGP, G9 will provide our next-generation full scenario advanced driving assistance system to market. The G9 will significantly expand the coverage of advanced level driving assistance system, making driving easier and safer. I believe the G9 will be the market’s best SUV under RMB500,000 and become one of the best sellers among medium to large-size SUVs.

[Foreign Speech]

I believe that based on our technological innovation and our platform systems architecture, we will actually innovate and accelerate the pace of our new product launches to round out our offering with vehicles priced between RMB150,000 to RMB500,000. In 2023, we plan to launch a new B Class model, which will help us expand our market share in this segment. We’ll also rollout a new C Class model next year to bring a compelling product to customers in need of additional cabin space with greater comfort. These two new models, in addition to the G9, will bolster our strong sales growth momentum to carry through next year.

Meanwhile, leveraging our top-notch electrification and smart technologies and our platform development system developed in-house to constantly upgrade product performance, the average selling price of our products will rise accordingly as our products’ superior features boost their competitiveness amongst same class and even higher class models. With our concerted efforts to advance our platform-based vehicle architecture and multiple technological improvement in manufacturing, such as integrated die casting techniques, we expect a meaningful vehicle margin expansion for the G9 as well as our new models coming next year.

[Foreign Speech]

Starting from G9, XPeng’s commitment to long-term investment in proprietary electrification technology has bolstered our leading edge in this area, while significantly enhancing our customers’ experience. The G9 has leveled off XPeng’s electrification technologies to the next generation. What’s more, the G9 and subsequent new models will be fully compatible with high-power super charging system. And we will consistently enhance charging efficiency for customers through technological upgrades.

Our new models can not only achieve the best charging speed on XPeng’s self-operated high power super charging network, but also allow our customers to have better charging experience in third-party charging stations. Benefit from our leading high voltage platform, XPeng’s new models will be able to obtain a higher power allocation and longer lasting peak power at third-party charging powers than other EV models.

Besides, we have built our in-house capabilities in both the development and production of electrical motors where we also have been accelerating technology innovations. Looking ahead, we will continue to uphold our unique approach to incorporate powertrain system designed into one cohesive vehicle architecture, leveraging a growing suite of electrification technology innovation to provide consumers with smart EVs supporting longer range, faster charging and lower cost.

[Foreign Speech]

XPeng’s self-operated supercharging network will further compound our advantages in electrification technologies and establish competitive edges. Our well established, self-operated supercharging network already features one of the broadest coverage and the best customer experience among China’s independent EV brands. As of early August, the number of XPeng’s self-operated supercharging stations reached 1,000, which is a new milestone.

To fully support the mass delivery of our vehicle, models featuring 800 voltage high power charging, we in-house developed 480 kilowatts supercharging stations surpassing the industry’s benchmark in terms of performance and cost. Through technology innovations, our new generation supercharging station not only achieved the power three times higher than the industry’s mainstream 120 kilowatt supercharging station, but also make the cost at the same level of the previous generation supercharging stations.

XPeng’s supercharging system can charge up to 200 kilometers range in five minutes. This outstanding charging performance demonstrates our end-to-end high-power fast-charging capability constituted by EV battery capable of fast-charging on both high-voltage platform and supercharging station, underlying the best charging efficiency in our industry. We began building our self-operated 480 kilowatt supercharging stations in August. And we’ll soon step-up our development in major cities and along main highways nationwide.

By 2025, we hope to build another 2,000 high-power supercharging stations to provide the best-in-class charging experience for our consumers and customers. In the upcoming years, XPeng’s customers’ charging experience will be completely revolutionized across all scenarios, including vacation trips, returning to their home towns for the Chinese New Year or long-distance travels. The scenario of using EV to drive in the city and ICE for cross-country driving will be completely changed very soon.

[Foreign Speech]

Moving on to our smart technology advancement. We are very excited to see that customers’ acceptance of our advanced driver-assistance system is growing at a steady pace as is the positive influence of word of mouth among customers. As a result, our highway NGP mileage penetration rate in the second quarter reached over 65%.

Beginning in early May, we integrated our XPILOT software as standard configurations on mid-to-high-end versions of our models, allowing a broader customer base to experience our industry-leading, best-in-class, more advanced driver-assistance function at an affordable price. It has helped us cultivate trust in XPILOT, reshaping driver habits towards a human machine co-pilot pattern and provide a hardware platform support for more innovative intelligent functions in the future. Among orders received from early May to the end of July, the proportion of buyers who chose mid and high-end versions of our models equipped with XPILOT grew significantly to over 50%.

[Foreign Speech]

We’re also expanding the boundaries of smart driving at an accelerated pace as we rollout next-generation products that create greater value for customers. For instance, we have completed the development and testing process for City NGPs in the second quarter. During an array of tests through our challenging driving situations such as crowded downtown, streets and rainy nights, our P5 model equipped with only 30 TOPS of computing power in combination with its sensor hardware to achieve industry’s highest safety and driving efficiency levels among similar scenarios.

By taking the lead in exploring urban driving scenarios, we have amassed a tremendous amount of experience and developed deep insights into complex city road scenarios. Notably, the Autonomous Driving Computing Center we co-developed with Alibaba Cloud, Fuyao, commenced operations in early August. Fuyao’s computing power can reach 600 petaflops, making it the largest domestic autonomous driving computing center in China. It will provide the requisite foundation of computing power for deep learning training which empowers our full scenario advanced driver-assistance system and it will facilitate the future development of Level 4 autonomous driving algorithms. All of these advancements will greatly enhance our competitive advantages in smart technology.

[Foreign Speech]

Since this year, we have been very happy and excited to see the development of smart driving technology has been received — has received active support from governments at all levels. The Ministry of Natural Resources recently announced a pilot project that high-definition maps applicators in smart driving vehicles in six cities, including Beijing, Shanghai and Guangzhou. On this basis, we look forward to the public beta tests of the City NGP in the near future. The launch of City NGP showcases our capabilities as a pioneer in smart technology. We will leverage our competitive edges in talent, data and system efficiency to further cement our leadership position in autonomous driving technologies, broadening our advantages in coverage, overall experience, safety performance and cost.

[Foreign Speech]

I believe that the resolution of driving habits and car purchase decision-making driven by technology has begun. Our next-generation technology to be unveiled next year will upgrade the architecture in all fronts, paving the way for fast and widespread adoption of full scenario ADAS-enabled driving nationwide and making safe and convenient intelligent driving software a reliable partner for users.

I firmly believe that a full scenario ADAS will become a core deciding factor in consumers’ car purchase decisions and that consumer adoption of ADAS software will become mainstream after the adoption increase of full scenario ADAS in the future. Additionally, we have already commenced R&D for our robo taxi software based on a full scenario ADAS in an effort to utilize lower cost mass-produced smart EV models and act with strong generalization capabilities to lead the innovation.

[Foreign Speech]

Moreover, I would like to share recent developments of portfolio companies in our ecosystem. XPeng Robotics completed over $100 million in sales, a fund-raising in July. Upon completion of the fund-raising, XPeng Robotics will accelerate its R&D of bionic robots, while pursuing synergies with the smart EV technologies to create greater value. Also, XPeng AEROHT first manufacturing factory for production trial of flying cars officially came into service in July, marking a significant milestone in the development of XPeng flying cars.

[Foreign Speech]

According to China Passenger Vehicle Insurance Registration data, the EV penetration rate reached nearly 20% in the second quarter of 2022, while the EV penetration rate excluding A0 Class and A00 Class was only 14%, clearly indicating a vast market potential with long-term disruptive opportunities for us. Although market competition is becoming increasingly intense, I believe we will reap the rewards of XPeng’s steadfast long-term investment in electrification and core smart technologies for years to come as we bring more highly competitive new products to market.

With the G9, we have taken electrification, smart technology and platform development architecture to new heights. We will continue to propel innovations across software and hardware products bringing consumers smart EVs featuring an unparalleled combination of advanced technology building, designing and an exceptional smart driving experience. With the continuous advancement of our advantages in longer driving range, higher charging efficiency and broader charging network coverage, XPeng will accelerate the transformation from ICEs and PHEVs in the mid-to high-end market towards BEVs.

[Foreign Speech]

In the third quarter, we will work to overcome the impact of COVID-19 as well as seasonal factors. We expect to deliver a total of 29,000 to 31,000 vehicles in the third quarter of 2022 with estimated revenue of RMB6.8 billion to RMB7.2 billion.

[Foreign Speech]

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 second quarter of 2022.

Hsueh-Ching Lu — Vice President of Finance and Accounting

Thank you, Mr. He, and hello everyone. Now I would like to provide a brief overview of our financial results for the second quarter of 2022. I will reference RMB-only in my discussion today, unless otherwise stated.

Our total revenues were RMB7.4 billion for the second quarter of 2022, an increase of 98% year-over-year and equivalent to the level of the last quarter. Revenues from vehicle sales was RMB6.9 billion for the second quarter of 2022, an increase of 94% year-over-year and a decrease of 0.9% from the last quarter. The year-over-year increase was mainly attributable to higher vehicle deliveries, especially for P7 and P5.

Gross margin was 10.9% for the second quarter of 2022 compared with 11.9% for the same period of 2021 and 12.2% for the last quarter. Vehicle margin reached 9.1% for the second quarter of 2022 compared with 11% for the same period of 2021 and 10.4% for the last quarter. The quarter-over-quarter decrease was mainly attributable to battery cost increase, offset partially by the revenue increase as a result of selling price adjustment.

Our R&D expenses were RMB1.3 billion for the second quarter of 2022, an increase of 46.5% year-over-year and an increase of 3.6% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly due to, number one, the increase in employee compensation as a result of expanded research and development staff. And number two, higher expenses relating to the development of new vehicles to support our future growth.

SG&A expenses were RMB1.7 billion for the second quarter of 2022, an increase of 61.5% year-over-year and equivalent to the level of the last quarter. The year-over-year increase was mainly due to, number one, higher marketing, promotional and advertising expenses to support vehicle sales. And number two, the expansion of our sales network and the associated personnel costs and commission for the franchise store sales.

As a result of foregoing, loss from operations was RMB2.1 billion for the second quarter of 2022 compared with RMB1.4 billion for the same period of 2021 and RMB1.9 billion for the last quarter. Exchange loss from foreign currency transaction was RMB0.9 billion for the second quarter of 2022, primary resulting from the revaluation impact of RMB dominated assets held in the U.S. functional currency subsidiaries and rapid depreciation of the RMB against the U.S. dollar in the second quarter of 2022.

Net loss was RMB2.7 billion for the second quarter compared with RMB1.2 billion for the same period a year ago and RMB1.7 billion for the last quarter. As of June 30, 2022, our company had cash, cash equivalents, restricted cash, short-term deposits, short-term investments and long-term deposits in total RMB41.3 billion. To be mindful of the length of our earnings call, I would encourage listeners to refer to our earnings press release for more details on our second quarter 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 technology innovation and how we are going to translate that into our vehicle sales, because XPeng is the leader in server technology domains, for example, like a City NGP and 800 volt supercharging. So how could we maximize the traction of all the technological innovation, especially in the premium mass market where we noticed consumers might be less tech savvy and care more about their pricing performance ratio and hardware spec? So that’s my first question.

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

[Foreign Speech]

All right. Thank you for the question. Actually, we do not talk about performance over price ratio that much. Rather, we put our emphasis on the configuration versus pricing more. If this configuration for a particular pricing is good of our vehicle then the sales will actually increase. However, if you look at the sales performance for the subsequent six months and 18 months after the launch of a particular product, you actually have to rely on the branding, the after sales services, the product quality and the unique competitiveness of our products themselves.

Let’s take P7 for example. If you look at the first six months of sales performance of that particular product after its first launch, the sales wasn’t that great. However, ever since we launched the City NGP function as well as other high-quality configurations in accordance with the P7 model, we definitely see a huge increase in the sales.

[Foreign Speech]

Over the past few years, we have been able to attract a large quantity of customers that are interested in the configuration versus price ratio or that kind of balance in new energy vehicles. And ever since last year, we noticed that customers begin to pay more and more attention to the driving range of new energy vehicles and also the safety of driving — the charging experience, etc.

And as a result, because of our concerted effort and commitment into boosting our performance in those areas for the past few years, we are also able to gain a lot of trust and wealth and support from our loyal customers as well. And in the future, especially going forward as we continue to develop our smart technologies and electrification in different aspects in terms of expanding the driving range, driving safety as well as the charging network and the convenience of charging, we will be able to enjoy the economies of scales benefiting from our previous R&D efforts.

And as a result, we believe that we can gradually converge those customers that were not so happy with, for example, charging experience for new energy vehicles as well as other aspects of the performance of new energy vehicles and slowly transitioning them into adopting more and more new energy vehicle, especially BEVs. And going forward, especially since the launch of G9, we believe that with the adoption of full scenarios ADAS technology, we will be able to boost our performance of our products to a whole new level. And ever since that, we’ll be able to attract more and more users and that will translate into our sales performance. Thank you.

[Foreign Speech]

And in addition to that, I would also like to mention that actually with our commitment and investment in our R&D technology, we are able to further decrease our cost of manufacturing and R&D in the future with the adoption of our platform-based vehicle architecture as well as our new generation of modification and electrification technologies.

Let’s take G9, for example. This is our first flagship product that actually adopt the material level of these three areas of technologies, which as a result, are able to bring down our manufacturing costs as well as our R&D cost as well, because for the past years, we spent — every single product that we launched has been focusing on advancing technology and iterating next-generation technologies. But in the future, we will begin to reap the rewards of our previous investment in the R&D. And as a result, that would translate into a lot of reduction in our R&D costs as well as manufacturing costs. And that will also contribute to the enhancement of our overall quality of the products that we are going to launch in the future as well as enhancing the manufacturing efficiency and R&D efficiency as well.

And since 2019, we’ve been investing in improving our manufacturing craftsmanship as well. As a result, in the upcoming two to three years, we believe that we will also welcome in new generation of quality booster in terms of the overall use of our, both the interior and exterior of our vehicles in the future as well as the adoption of more and more integrated die casting technologies that will allow us to achieve future upgrade of our product quality. And as a result, as I mentioned earlier, we will be able to actually lower our R&D and manufacturing costs as well as enhancing our overall product quality. And so in the future, we believe that we will be able to actually witness better sales performance as a result. Thank you.

Tim Hsiao — Morgan Stanley — Analyst

My second question is about the platform strategy. So following the launch of the G9 powered by hardware platform, I think XPeng is going to launch two new models next year based on two platforms. So in light of faster iteration and more intense competition, what would be the reasonable life cycle of our next-generation platform? And how many modules we plan to build on each of the platform throughout their life cycle? So that’s my second question. Thank you.

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

[Foreign Speech]

Thank you for your question. Indeed, in 2023, we aim to launch two new platforms to develop in total six new vehicles in the future that’s based on our current platforms in total. And we also estimate an average of three years’ life cycle for each single platform before any system upgrades for those platforms. And we also have been discussing internally a lot of possibilities to upgrade our current platforms to allow them to empower our next-generation of modification and electrification technologies in the future as well. And so in the future, we estimate that actually our products have already entered into a very good cycle of developing based on our platform-based vehicle architecture technology of using at least three to six years of life cycle for those platforms which will continue to fuel our future product development.

Tim Hsiao — Morgan Stanley — Analyst

[Foreign Speech]

Thank you very much for sharing all the insight. Thank you.

Operator

And our next question today comes from Jeff Chung with Citi. Please go ahead.

Jeff Chung — Citi — Analyst

[Foreign Speech]

So my first question is about the strong motorcycle ahead in ’22, ’23. We are going to launch our four new brand, new product, the P7 and the G9, the mid-term facelift P7. So could you give us some insight on that, whether we can challenge the annual sales run rate at about 300,000 unit level? And if yes, could you break down the portion between the old products and the new products and whether the current old product, P7, G3i and P5, matured sustainable monthly run rate can be maintained at 12,000 units? Thank you.

Brian Hongdi Gu — Honorary Vice Chairman and President

Hey, Jeff, this is Brian. Let me answer your question. First of all, as you know that we don’t give guidances that far out. So I cannot give you a number, but I can give you some color regarding how do we see the new model is going to position and compete in our line-up. First off, I think we still see continued growth in our core product, for example, P7. With the update next year, we believe P7 will renew and continue its strong performance. We have hope that G9 next year will exceed the monthly delivery of P7. So you can actually do a little bit calculation of what number that will represent.

The next year’s new models, the first half we’ll launch a B Class-based product, and that’s actually going to target even larger market segment. You could probably consider that to be a strong competitor to the current model line in the market. So we believe that will actually also be a model that can generate substantial numbers in terms of delivery and sales.

Obviously, the fourth new product, the C Class product will be launched in the second half. And given the premium and large format positioning, the number may be limited in terms of contribution. But again, it’s still going to be targeting a brand new segment that we did not cover before. So with that, you can get a sense of what are the likely sort of peak level monthly delivery next year will look like. And we’re very confident about our strong growth.

Jeff Chung — Citi — Analyst

[Foreign Speech]

So my second question is about NGP margin in the second quarter. So I think it’s a little bit better than consensus. And on the negative side, we had the P7 sales volume declined by 3,500 units Q-on-Q, and this was a high margin product. And also, after factoring the battery cost hike Q-on-Q, it seems that NGP margin was still quite resilient. So could you break down the details a bit on the second quarter? And also, how about going to the third quarter, how do we see the margin trend? Thank you.

Hsueh-Ching Lu — Vice President of Finance and Accounting

Hi, Jeff. Let me answer your questions and Brian or Charles can supplement later. You are right, in the first quarter, our vehicle margin was 10.4%. In the second quarter, the vehicle margin was 9.1%. So it dropped about 1.3 points. This was better than our original expectation because we were able to price the battery cost increase. However, due to some accumulated orders. So the new price order was delivered until late May. So we could not fully recover the battery cost, it’s really a price adjustment. That’s one difference.

And the other one would be, as you mentioned, the P7 mix in the second quarter was lower than 50%. So that has some mix impact. I cannot bring the detailed numbers to you, but basically, the margin reduction was primarily due to, number one, the cost increase which were not recovered in the second quarter and then the mix change.

Looking forward to the third quarter, I think we will be able to delivery the new price orders starting from July. So lots of good news compared with the second quarter. And more importantly, we will have better product mix in terms of the P7 as a percent of the total deliveries compared with second quarter. So we are anticipating the margin in the third quarter will improve compared with the second quarter, will be equivalent or very close to the first quarter level. For the moment, that’s all I can tell you for the moment.

Charles Zhang — Vice President of Corporate Finance & Investments

Yeah. And then, Jeff, let me comment on your sort of point about product cycle and also the current sort of whether — both from the margin as well as from growth rate, how do we see the current situation. As Dennis mentioned, the margin, because of the mix change as well as stabilization of battery and also our orders now reflective of the few price change as well as our sort of incentive mix change, we see third quarter margins should be stabilized and have had better than the second quarter. And also because we are starting to launch new products, obviously, G9 being delivered in October will be the first of the few new products that we can launch, we start to see growth being sort of generated from these new product launches as well as going to fourth quarter, we feel like the seasonality is in our favor.

So we do think there is a strong chance and strong confidence that we are going to a growth cycle led by our new product launches this — end of this year as well as throughout the next year as well as I think with these new models, also representing better margin due to the platform design as well as higher price points compared to our ASP. So those are the observations I can make at the moment.

Jeff Chung — Citi — Analyst

[Foreign Speech]

Operator

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

Bin Wang — Credit Suisse — Analyst

[Foreign Speech]

My question is all about there was a promotion in the — started from mid of July. So what’s the low inflow in terms of both the volume guidance in the third quarter? So basically, if you have a bigger promotion, you should have a better volume. So did it mean you have a little bit conservative model guidance means that you already plan to cancel the promotion of this month? Meanwhile, you also give a pretty positive guidance about the margin in the third quarter, which will be returned to the level of the first quarter. Did you also assume promotion will disappear starting from say with obviously this month and next month? Thank you.

Brian Hongdi Gu — Honorary Vice Chairman and President

So Bin, this is Brian. To answer your question, first of all, the third quarter delivery guidance is considered all of the information to date. So, it will include the — obviously, all of the promotion and price adjustments that we made in the past. I think the guidance sort of reflected the fact that we are entering to a relatively slow season. And also, we can see that some of the traffic in the stores are less than what we have seen before because of post-COVID situation. And also, I think there is a part also due to that before the new model launch and deliveries, there are a little bit of people waiting to compare to existing purchases. So all of that I think you will see both from our experience as well as from peers’ performance as well.

On the margin front, I think what I would say is that the promotions we offer to the models actually is less than the price increases that we made in the second quarter. So net-net, actually, the margin on the products is actually slightly better in this current sort of pricing environment or pricing mix. So we are seeing improvement in third quarter or stabilization in third quarter margins. I don’t think we have actually guided to back to the first quarter level yet, but I think we see stabilization improvement in the third quarter versus second quarter.

Bin Wang — Credit Suisse — Analyst

Okay. Thank you.

Operator

Our next question today comes from Ming Lee at BofA. Please go ahead.

Ming Hsun Lee — Bank of America Securities — Analyst

[Foreign Speech]

So my question is regarding the battery technology, because you just mentioned that the charging speed is much faster than the current battery. So do you own the patent and the technology or your supplier own it? And can they supply such kind of battery to other OEMs? And also, what is the reason for you to manufacture that battery on yourself?

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

[Foreign Speech]

Thank you for your question. In regards to supercharging, now there are several aspects of the consideration in the technologies behind the supercharging. First of all, you have to look at the battery themselves and the management of the battery, the battery pack as well as whole vehicle manufacturing and design as well as the charging piles. Now we do conduct collaboration in terms of the R&D of the development of the batteries with our suppliers and our partners. And so we share some of those patents in those areas. However, we have in-house R&D capabilities and we own the patent of our management of the batteries as well as the design and manufacturing of the whole vehicle and the charging piles as well. So that’s to the first part of your question.

In regards to the second part of your question, which is about the reasons behind or the rationale behind the in-house development and research of our motors, it is because it’s very important for us to control the quality for the development of the motors to uphold the highest standards of the, for example, quality of our products as well as to maintain the level of technology, a level that we aim to achieve. And so in order to achieve that, we have to do the R&D in-house. Thank you.

Brian Hongdi Gu — Honorary Vice Chairman and President

Hey, Ming. Let me just add. To answer your second question, the reason is better performance, because our self-designed motor actually has a very compact design and also efficiency that allows us to prolong the range of the vehicles better than what we can get on the market.

Ming Hsun Lee — Bank of America Securities — Analyst

Thank you, Brian. Sorry, a quick follow-up question. Regarding the new model in 2023, Brian, you just mentioned that the product could be comparative product of model-wise. So can I say it will be slightly smaller than G9 and price-wise will be slightly lower. So it has a large addressable market. Thank you.

Brian Hongdi Gu — Honorary Vice Chairman and President

Yes. That’s what it will likely to be positioned.

Ming Hsun Lee — Bank of America Securities — Analyst

All right. Thank you.

Operator

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

Paul Gong — UBS — Analyst

Yeah, hi. Thanks for taking my question. Just two questions. The first one, still want to discuss a little bit more on the Q3 guidance. Do you see it is more like a supply side constraint or demand side constraint? So is it like the supply chain or do you see the — really it’s a demand side temporary due to the seasonality? And the second question is regarding the potential cannibalization. So you are going to have a B segment SUV as well as a C segment model next year. Given you already have the medium-sized sedan and SUV, P7 and G9, how do you see the cannibalization versus each other?

[Foreign Speech]

Brian Hongdi Gu — Honorary Vice Chairman and President

Hey, Paul. So on the first question, I think I mentioned earlier that we see the weakness mostly due to seasonal weakness, but also post-COVID control measures, there is lack of traffic. And also ahead of the new model launches, there is a little bit of a comparison and wait-and-see attitude, which you saw I think in other models or other peers as well. But from our own perspective, also there is a level of orders not pairing with the supply chain because of the mismatch in some of the older models. So those are the reasons that I think we have currently provided such a delivery estimate view. So that’s to answer your first question.

Second question you had on the new models versus our current line-up. We feel like, first of all, there is very minimal overlap in cannibalization. What I answered before this question, the new B Class model product in terms of size and in terms of price points will be different compared to G9. It will be positioned also very differently and competing with a very different segment. And also, next year, the new models are not sedan models. So it does not compete with P7 as well. So there is minimal cannibalization from our model positioning and line-up.

Paul Gong — UBS — Analyst

Okay. Thank you very much.

Operator

And our next question today comes from Nick Lai with J.P. Morgan. Please go ahead.

Nick Lai — J.P. Morgan — Analyst

[Foreign Speech]

Let me quickly translate my question. The first question is really an update on chip supply condition as well as any production impact from parts shortage currently in China? That’s the first question related to production and supply question. And second question is really on second quarter or first half. We booked about RMB890 million FX loss, can you explain a little bit more on that? Thank you.

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

[Foreign Speech]

Let me address your questions. First of all, in regards to the chip and battery shortage, definitely since last year, we have been greatly challenged by these two problems in the supply chain. However, since we believe that the problem — the shortage in these two raw materials will be greatly released by the beginning of next year. Now for the first half of this year, there were a total of about 10 types of chipsets that were in high risk of supply shortage. And so far, we have seen a reduction in the number of the types of shortage that face high risk of supply shortage. And as I mentioned previously, there is a total of 5,000 different types of chips included in every single vehicle. And so definitely, chip shortage will still be a big problem. But however, we are very excited and glad to see that the supply shortage is being relieved. And definitely, by the beginning of next year, the problem will be much less stressed and dire for us.

Now in regards to the second part of your question, because of very early measures and communications, we are not being challenged or troubled or concerned with the power shortage or a power supply shortage in, for example, provinces such as Sichuan [Phonetic]. Thank you.

Hsueh-Ching Lu — Vice President of Finance and Accounting

Hey, Nick, this is Dennis. Let me further explain the so-called the currency loss — exchange loss from the foreign currency transaction, because when we had the U.S. IPO and the Hong Kong IPO, major money was raised and kept in the U.S. subsidiaries. So the functional currency is U.S. dollar. And through kind of intercompany lending, the U.S. subsidiary lend money to the domestic — I mean, the company, the subsidiaries in China through the kind of intercompany lending.

So this is kind of the RMB-dominated assets held by the U.S. subsidiaries. So in the future, the money should be returned back to the U.S. so to convert back to the U.S. dollar. So when RMB has the appreciation, we will get the revaluation benefits. And in the second quarter due to the rapid RMB depreciation against the U.S. dollar, there is a revaluation impact, negative depreciation impact held in the second quarter. So in the future, if the currency change, we will do that on a monthly basis. So if RMB appreciates against the U.S. dollar, that will have the positive gain on the foreign currency transaction. So you are right, that’s the trend.

Brian Hongdi Gu — Honorary Vice Chairman and President

Hey, Nick, just to make it clear. First of all, it’s non-cash. It’s not — doesn’t mean that we have converted the cash. It’s just the valuation because of the currency exchange rate differences result in such sort of swings. Obviously, every quarter, we have to value the assets using our functional currency, and that’s why there is differences resulting from that, because the RMB exchange rate reacted pretty, I would say, significantly in the last quarter.

Nick Lai — J.P. Morgan — Analyst

Yeah, understood. It’s non-cash item. Thank you, Xiaopeng and Brian. Thank you.

Operator

And our next question today comes from Jing Chang [Phonetic] with CICC. Please go ahead.

Jing Chang — CICC — Analyst

[Foreign Speech]

This is my first question. How do we look at the competition, patent and consumer preference of the market pressed at RMB300,000 compared with peer model? Can you share what we think are our major advantages and disadvantages, whether there would be a new version of P5 next year? And how should we expect the monthly sales volume at?

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

[Foreign Speech]

Thank you. Thank you for your question. Now in regards to the competitive landscape within the price range of RMB200,000, we believe the competition will continue to be very intense for this year and the coming year as well. And there were two types of competition out there really. The first type is regarding the driving range as well as the performance over pricing ratio. And the other is about the overall design and the smartification features for those kind of products. And for P5, its advantages is definitely in regards to the — it’s very outstanding in terms of overall design, its smart features as well as its immersive and very immense sort of cabin space as well. And we have observed a very steady sales performance for P5.

In regards to P5 sales performance guidance for 2023, we would you argue about guidance with that kind of level of details in terms of specific quantity of sales expectation, but because there are some new updates for P7, we definitely believe that maybe it will have a small impact on the sales performance of P5. But overall, we expect to see very good performance in terms of the sales for P5 overall. And also with the — as we observed for P7 with the newly launched City NGP, we observed a boost in the sales performance. And we expect to see the same situation happens for P5 as well, which means that the — with the launch of a higher level of smart features such as city level NGP, the sales performance for P5 will grow. Thank you.

Jing Chang — CICC — Analyst

[Foreign Speech]

My second question is, how do you think about the timing of the mass usage of supercharging? Will it be popularized quickly or will it need to gradually penetrate over a few years? In addition, how should the high-voltage platform increase the purchase of manufacturing cost of the vehicle? Can it achieve record price — can it be penetrated to a lower price model?

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

[Foreign Speech]

Now in regards to the construction and the adoption of our supercharging network, definitely, it’s developing quicker than expected. This quarter, we started the aggressive construction of our network. And by Q4 this year, we believe that we will have another one of new stations equipped with the supercharging facilities. And by 2023, our supercharging network will be constructed even at a higher space — at a higher pace.

Now for example, G9, with its highest configuration model, fully compatible with the 4C supercharging facility, all the other configurations and other models actually G9 — other versions of G9 actually support 3C supercharging function. And in the future, because our platforms right now will support this high-voltage and high-power supercharging facility, we believe that our future models will all be equipped with this kind of functionality, which means that we can be able to do better supply chain control to equip our future products with this kind of facility and allow us to achieve better economies of scale as well as cost controlled effects.

Now there are two things that we need to focus on when we talk about the supercharging network construction. One is development and the design of our vehicle products to support this kind of high-voltage supercharging function. And the other is the construction of our supercharging network and the charging piles. And by the second half of 2023, we believe that you will — we expect to see a very well established supercharging networks that can fully promote the adoption of our supercharging — quick charging facility. Thank you.

Jing Chang — CICC — Analyst

[Foreign Speech]

Operator

And ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference 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 KSM Group Investor Relations.

Operator

[Operator Closing Remarks]