XPeng Inc. (XPEV) Q4 2021 Earnings Call Transcript

XPeng Inc.  (NYSE: XPEV) Q4 2021 earnings call dated Mar. 28, 2022

Corporate Participants:

Alex Xie — Head of Investor Relations

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

Dennis Lu — Vice President of Finance

Analysts:

Tim Hsiao — Morgan Stanley — Analyst

Jeff Chung — Citi — Analyst

Ming Hsun Lee — BofA Securities — Analyst

Nick Lai — J.P. Morgan — Analyst

Bin Wang — Credit Suisse — Analyst

Xinchi Yin — CITIC Securities — Analyst

Jin Chung — CICC — Analyst

Presentation:

Operator

Hello, ladies and gentlemen, thank you for standing by for the Fourth Quarter and Fiscal Year 2021 Earnings Conference Call for XPeng Inc. At this time, all participants are in a listen-only mode. After management’s remarks, there will be a question-and-answer session. Today’s conference call is being recorded.

I will now turn the call over to your host, Mr. 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 fourth quarter and fiscal year 2021 earnings conference call. Our financial and operating results were issued by our 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 Investments. 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 and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that XPeng’s earnings press release and this conference call includes 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 measures to the unaudited GAAP GAAP measures.

I will now turn the call over to our Co-Founder, Chairman and CEO, He Xiaopeng. Please go ahead.

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

[Foreign Speech] Hi, everyone. We closed 2021 with another record quarter of deliveries. We delivered 41,751 units in the fourth quarter alone, growing 222% year-over-year. And our total deliveries for the full year of 2021 increased by 263% compared with 2020 and reached 98,155 units, making us the top ranked emerging EV maker in China. Our 2021 full-year revenue exceeded RMB20 billion.

[Foreign Speech] Heading into 2022, we are experiencing even higher demand for our products, which continue to outpace our production. To expedite delivery of large volume of order backlog carried over from 2021 and our newly-acquired orders early this year, we completed technology upgrades of our Zhaoqing plant during scheduled downtime over the Chinese New Year holiday. By adjusting our sales and delivery schedules, new orders that came in late February and the first half of March picked up quickly and have returned to the same robust level as the peak season in last December.

Starting from March ’21, we raised the prices across our product line up by RMB10,000 to RMB20,000, each in order to pass through the rise in cost of batteries and raw materials. Against the backdrop of higher oil prices, driving electric vehicles typically brings increasing cost advantages over ICE vehicles, allowing for greater growth opportunities in the mid-to-high-end BEV market, which is the target segment for our smart EVs.

This market also feature a very — a vast array of consumers, who attach more importance to EV quality and technology. Therefore 2022 will be a crucial year for each EV maker to validate their products competitiveness. Looking ahead, as we pursue rapid technology and product iterations, we’ll continue to strengthen the overall competitiveness of our products. I’m confident that our sales performance will continue to lead the industry.

[Foreign Speech] Even though, we experienced some hiccups in terms of our sales deliveries in certain areas of China, but because of our technology upgrade in our Zhaoqing plant, as well as our newly-acquired large volume of orders, we expect to welcoming a new level of large orders in March, which will be similar to our peak level last year and that will help us definitely to enhance our market share and maintain our leadership position.

[Foreign Speech] Our confidence about the sales volume potential of our core EV products has extended into 2022. We delivered over 60,000 P7s in 2021 placing it in the top 3 Class B EVs and above by sales volume, making it an undisputable blockbuster models and setting P7 as a new benchmark smart EV in China. With the build up of P7s production capacity and reputation, one of our goals in 2022 is to exceed 10,000 P7 deliveries in a single month.

[Foreign Speech] We officially commenced the mass deliveries of our P5 family sedan model in the fourth quarter of 2021, delivering close to 8,000 units in its initial quarter debut. With supply chain improvement in our City NGP launch, we can expect a more consistent ramp up in sales volume of the P5. As supply chain constraints ease off in the coming months, I’m confident, the P5 monthly sales volume will begin to approach that of the P7 in the second half of the year.

[Foreign Speech] Next EV model in line for us is our flagship SUV model, the G9. As P3 production vehicle has successfully wrote off the production lines and we are on track to officially launch the G9 in the third quarter. The G9 represents the most advanced technology XPeng has ever developed, building on years of in-house developed software and core hardware. Consequently, the performance of our G9 is head and shoulders above popular SUV models in the same category. I firmly believe that G9 will become a blockbuster model in the medium-to-large size smart electric SUV market.

[Foreign Speech] Furthermore, we plan to launch the first production model built on our two newly established smart EV platforms respectively in 2023. These two new platforms comprising a platform tailored for C class vehicles and the other for B class vehicles will inherit and further advance XPeng’s robust capabilities in aesthetic design, electrification and smart technology, thus strengthening our product portfolio’s competitive advantages.

In addition, as we strive to make our platforms more scalable, by employing more highly-integrated design and state-of-the-art manufacturing processes such as ultra large integrated die casting technology. The new platforms will also enact powerful cost control abilities, as well as help us address a broader customer base in the mid-to-high-end market segments, which have tremendous growth potential going.

[Foreign Speech] Next, I would like to share some update on R&D of our smart EV technology. For our P7 and P5 models delivered in the fourth quarter, the attach rate of the XPILOT 3.0 software was close to 20%. Currently, the progress on the R&D of our City NGP, the key function of XPILOT 3.0 which is mainly deployed on P5, is well advanced. It’s beta version is undergoing a fast iteration process making continuous improvement in safety and user experience. We also plan to complete the development of our City NGP in second quarter of this year and plan to rollout in cities by batches once we receive the approval of the City HD map.

The XPILOT 3.5 that is built on our next-generation technology architecture has presented much higher than expected performance in the city driving scenarios. We are extremely proud of this. notably, among our mass produced P5, the number of driver interventions per 100 kilometers for City NGP is approaching that of highway NGP and the level of its overall user experience can be benchmarked against domestic top level taxi players and in some respect, we already have caught up and even exceeded those companies’ performances.

[Foreign Speech] Given the underlying next generation technology architecture of our XPILOT 3.5 and our close loop of data, we plan to officially launch the XPILOT 4.0 in 2023 to deliver advanced driving assistance experiences, spanning full scenarios of both highways and city roads. Simultaneously, we plan to progressively converge our autonomous driving hardware and software platform that enables advanced driving assistance systems for our future vehicle models. There will be at least four models, including both new models and facelift versions of existing models to support the XPILOT 4.0 in 2023.

With that our XPILOT 4.0 will boast a clear next generation leap against other mass produced advanced driver assistance systems. Simply put, under the premise of offering superior safety, the XPILOT 4.0 will feature a more comprehensive set of use scenarios, even wider geographical coverage and a better human vehicle interface and in-vehicle experience for both drivers and passengers.

In addition to that, we will control the cost of our production. We believe that our XPILOT 4.0 has the potential to spread high level advanced driver assistance system to an even broader customer base, accelerating the transformation from human driving to the era of advanced driver assistance driving. When this becomes reality in the future, the attach rate of the XPILOT software will naturally be significantly higher than its current level.

[Foreign Speech] We will continue to advance an improved product performance. Also, we will continue to be committed to our in-house full stack software development and a platform architecture approach to develop and upgrade our intelligent systems and powertrain systems for smart EV. Applying a platform architecture approach to our system management will propel innovations in our powertrain manufacturing techniques and processes, as well as a bond cost structure.

I have confidence in our ability to achieve structural improvement of gross margin for our new models, including G9 and ultimately improve overall gross margin. Our medium and long-term goals is to increase the level of our overall gross margins above 25%. At the same time, we’ll remain dedicated to our vision and execute on our founding strategy and operational literacy to continuously — to continually boost operational efficiency. Going forward, as we achieve economies of scale, while improving operating leverage, I believe our operating expense ratio will continue to trend downward.

[Foreign Speech] With that overview, I would like — now I would like to walk you through a few of our strategic initiatives and expectations moving forward. [Foreign Speech] We’ve rapidly expanded our sales and services network. As of the end of 2021, expense physical sales network comprised 357 stores across 129 cities, of which 209 were directly operated by us and 148 were franchise stores. In particular, during 2021. we strategically increased our investment in sales channels in lower tier areas in order to tap into pent-up demand and capture the great growth potential we see in non-tier 1 cities.

As a result, we closed the year with our non-Tier 1 sales stores accounting for close to 80% of total expense stores and most of those performance and sales were achieved during the second half of the year. While we drove rapid network expansion throughout 2021, our monthly single store sales increased substantially on a sequential order basis, reflecting our sales model capability to make systemic enhancement, as well as sustain efficiency improvement. For 2022, we’ll continue to strengthen our sales network expansion and enhance same store performance.

[Foreign Speech] Regarding our supercharging network, XPeng branded supercharging facilities featuring wide coverage and a better user experience have already become a critical factor in XPeng’s competitive edge. As of January 17, 2022, the number of XPeng branded supercharging stations increased to 813 covering 337 cities nationwide.

Beginning in the second half of 2022, we’ll deploy next-generation high-capacity supercharging to further shorten users charging sessions significantly. We also plan to accentuate efforts in deploying supercharging stations alongside high-speed expressways to bring users better, more secure, long distance traveling experiences with XPeng’s vehicles.

[Foreign Speech] Along with these upgrades, we are actively progressing our overseas expansion initiative. To this end, we announced in February 2022, we had established partnerships with top-tier European dealers. By leveraging the well-established market presence of respected overseas dealers, we strive to build our international business development capabilities and have established the first branded European retail experience stores for our smart EVs in Stockholm, Sweden. We also plan to adopt a novel direct plus franchise retail model, which is what we are doing right now in China to expand our sales and service network in Europe.

[Foreign Speech] On February 9th of this year, XPeng were included in the Shenzhen and Shanghai Hong Kong Stock Connect programs. We officially became the first emerging EV maker stock to be assessable for direct investment by qualified investors in Mainland China. We’re delighted to share the growth opportunities in the smart EV industry with broader investor base from our home country. Shortly thereafter, on March 7th, XPeng was added to the Hang Send TECH index amongst 30 constituent stocks as one of representative stocks for the autonomous tech theme.

[Foreign Speech] Looking back on 2021, we have faced challenges stemming from industry-wide semiconductor and battery cell shortages. We would like to express our sincerest gratitude to our excellent supply partners for their great effort of XPeng — for their great support for XPeng. Amidst the challenges, we developed and qualified hundreds of alternative supply solutions to safeguard and stabilize our supply chain.

Entering 2022, the ongoing chip shortage and surge in price for raw battery materials continues to present a challenge for the whole industry. Nevertheless, these near-term obstacles cannot stop the long-term journey we are on where smart EVs are accelerating the disruption of ICE vehicles at an unprecedented speed and I believe this is going to be a good experience for us to continue to enhance our capabilities. I believe our ability to swiftly develop alternative supply solutions coupled with concerted effort with our suppliers will help us overcome these challenges.

[Foreign Speech] As we have been striving to navigate market dynamics amidst obstacles in the supply chain, the impact of COVID-19 recurrence and the seasonality factors, we expect our smart EV deliveries to reach approximately 33,500 to 34,000 in the first quarter of 2022. And our total revenues to be between approximately RMB7.2 billion to RMB7.3 billion.

[Foreign Speech] Thank you, everyone. With that, I will now turn the call over to our VP of Finance. Mr. Dennis Lu to discuss our financial performance for the fourth quarter of 2021.

Dennis Lu — Vice President of Finance

Thank you, Xiaopeng and hello, everyone. Now, I would like to provide a brief overview of our financial results for the first quarter of 2021. I will reference RMB only in my discussion today unless otherwise stated. Our total revenues were RMB8.6 billion for the first quarter of 2021, an increase of 200% year-over-year and an increase of 50% quarter-over-quarter. Revenue from vehicle sales were RMB8.2 billion for the first quarter of 2021, an increase of 199% year-over-year and an increase of 50% from the last quarter, mainly attributable to higher vehicle deliveries, especially for the P7 and P5.

Our gross margin was 12% for the first quarter of 2021 compared with 17% for the same period of 2020 and 14.4% for the last quarter. Full year gross margin reached 12.5%, an increase of 7.9 percentage points year-over-year. Vehicle margin reached to 10.9% for the first quarter of 2021 compared with 6.8% for the same period of 2020 and 13.6% for the last quarter.

The quarter-over-quarter margin reduction was primarily attributable to product mix changes. R&D expenses were RMB1.5 billion for the fourth quarter of 2021, an increase of 216% year-over-year and an increase of 14.8% quarter-over-quarter, mainly due to, one, the increase in employee compensation as we expanded research and development staff, and two, higher expenses relating to the development of new vehicles to support future growth.

SG&A expenses were RMB2 billion for the first quarter of 2021 and increased 120% year-over-year and an increase of 31% quarter-over-quarter. The year-over-year increase was mainly due to, one, higher marketing and advertising expenses to support vehicle sales, and two, the expansion of our sales network and associated personnel cost and commission for franchised store sales. The quarter-over-quarter increase was mainly driven by the expansion of our sales network and more sales commission in line with the higher vehicle sales.

[Indecipherable] loss from operation was RMB2.4 billion for the fourth quarter of 2021 compared with RMB1.1 billion for the same period of 2020 and RMB1.8 billion for the last quarter. Fair value gain on our long-term investments was RMB0.6 billion for the fourth quarter of 2021, affecting the fair value assessment –on our assessment on HT Flying Car Incorporation or Huitian after its Series A capital funding. As of December 31, 2021, we invested approximately RMB0.6 billion and owned approximately 18.8% of the equity interest in Huitian.

Net loss was RMB1.3 billion for the fourth quarter compared with RMB0.8 billion for the same period a year ago and RMB1.6 billion for the last quarter. As of December 31, 2021, our company had cash and cash equivalents, restricted cash, short-term deposits, short-term investments and long-term deposits in total RMB43.5 billion. We achieved a positive operating cash flow in the second half of 2021 and in the fourth quarter of 2021, our operating cash inflow was RMB1.3 billion.

To be mindful of the length of our earnings call, I will encourage listeners to refer to our earnings press release for the 2021 full-year financial results and further details. This concludes our prepared remarks, we will now open the call to questions. Operator, please go ahead.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Tim Hsiao.

Tim Hsiao — Morgan Stanley — Analyst

[Foreign Speech] So my first question is about the price hike because that’s been [Indecipherable] the prices. Could we get a rough stance about how the company laid the foundation of RMB10,000 to RMB20,000 or [Indecipherable] price hikes? What kind of cost inflation in batteries, raw material, chipsets had been pricing? So is price increase just the right amount to cover the contracts or also exact expense adjustment of more price hikes in the supply chain later this year?

Dennis Lu — Vice President of Finance

[Foreign Speech] Let me just answer your questions regarding the price realignment. Actually, we increased our price at about RMB10,000 to RMB20,000 for the whole car life in March 21 — starting from March 21. This reflects the projected components, especially on the battery cost increase. We haven’t finalized the battery price negotiation with our suppliers, but our quoting to churn and also the components, we anticipate we will have the cost increase in the raw material as well as the battery. So, we technically priced the — increased the price to cover the cost increase. Lastly, main driver of the price increase to basically to cover the potential cost increase for our components cost.

Tim Hsiao — Morgan Stanley — Analyst

[Foreign Speech] So my second question is about XPILOT attach rate because I think during the presentation, the Chairman has mentioned — just mentioned about 20% attach rate of XPILOT is seen to fair relatively low [Indecipherable] models we saw during the past quarter. But and we expect more meaningful increase in the adoption rate of XPILOT and what would be more ideal attach rate in your view in next one to two years? It seems likely you take up to 50%?

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

[Foreign Speech] Sorry, my end of the connection is not perfect, but I get the gist of your question. So, here is my response. Now, in regards to the attach rate of XPILOT 3.0 actually it all depends on the chip supply. So, when the supply recovers to the normal level, we believe that the attach rate will increase as well. I actually have more confidence in the attach rate improvement of XPILOT 4.0 because according to our data, our user’s habits and their satisfaction rate of using our XPILOT is actually very high as they get used to actually having the navigation assistance according to our — I mean, with the help of our City NGP function in our — in their daily life from one destination to another.

For example, from their home to their offices or from their offices to a shopping more etc., that definitely will give them the trend of keeping the habit of using this sort of assistance from the XPILOT. So, by that time, the attach rate of our XPILOT will be even higher than the current level and in my own understanding, actually, the XPILOT 4.0 attach rate will exceed 50%, but again that’s — that actually will depend on the future market statistic and we’ll see.

Tim Hsiao — Morgan Stanley — Analyst

[Foreign Speech]

Operator

And your next question comes from the line of Jeff Chung with Citi.

Jeff Chung — Citi — Analyst

[Foreign Speech] So my first question is about the worst-case scenario, this year’s full year sales volume and production capacity if we assume a further disruptions in chip shortages. Second question is about the G9 and P7 GP margins and is it necessary for us to also set a monthly sales target for G9 going forward?

Dennis Lu — Vice President of Finance

[Foreign Speech] Yeah, let me answer the question for you. Can you hear me? So, first of all, we obviously, as our policy don’t give guidance on the sales number as well as Individual model numbers, but I would say that obviously this quarter represent a quarter that’s in the low season, as well as disruption from our COVID measures in China. So, I would probably consider appropriate base for extrapolating for the full year. We are confident with our new model launch, as well as further market momentum. The sales number should be higher than in the first quarter. So, that’s the first answer to your question.

Second question is that, on G9, we do have high hopes. This will be blockbuster in its class, which is the premium SUV class and you could also find benchmarking — benchmark models in that class and we think it should be one of the top players in that category. And then I think — in that being — I think it should approach it might be the P7 level.

The third question is whether the P7 and G9 interchangeable from a supply chain perspective, I think we hope by the time that G9 is started, volume delivery towards the second half or the fourth quarter, the supply chain issue will get alleviated, but I think right now both models representing high gross margin products for us in the high teens. So I think for us, those are models that we will obviously make sure that it has adequate chip suppliers for production.

Jeff Chung — Citi — Analyst

[Foreign Speech] So, it is above the order backlog. After we raised the MSRP price, we saw a significant surge in new orders. So, roughly speaking, right now the waiting time to get a car ranging from 16 months to 20 months, which implies around four to five — I believe for the order backlog. So, I just want to clarify on these numbers. Thank you.

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

[Foreign Speech] I think there is a mix of good and bad news with what’s happening right now. Obviously, the bad news is the resurgence and recurrence of the pandemic, which really affect our supply chain, especially in cities such as Shanghai because this is really the headquarter of all of the key suppliers of our company. And the good side of the story is that we are actually improving our overall capability in enhancing our battery cell supply and so obviously there is a lot of disruption in the — interruption in the market and also there’s a lot of risk, but we will do our best and be fully committed to speed up the delivery times — lead time. [Foreign Speech] Overall, I believe that the actual outcome would be better than expected.

Alex Xie — Head of Investor Relations

Next question please.

Operator

And your next question comes from the line of Ming Lee with Bank of America.

Ming Hsun Lee — BofA Securities — Analyst

[Foreign Speech] So, my first questions is regarding the battery supply situation. Currently, you have three suppliers, but you are still looking out for LFP battery supplier. So, you also [Indecipherable] the current situation. Now with the deal [Indecipherable]. [Foreign Speech] So my second question is regarding the new platform in your capacity breakdown for [Indecipherable] in the future. Thank you. That’s my question.

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

[Foreign Speech] In response to your first question, first of all, we are very different from other new energy vehicle makers in a sense that we actually collaborated with multiple suppliers of batteries. And so, in the past what we experienced is that there has been a lot of demand LSP batteries [Technical Issues] so in the past what we experienced that the market demand for — LSP demand actually has surpassed our supplier’s capacity for batteries supply. So that’s why we experienced a lot of challenges in the supply chain. But going forward, we actually have been able to gradually alleviate this problem and we are very confident that we can continue to improve the situation. And for the second half of this year and for the coming year, we are very confident that the overall supply chain shortages can be relieved to a certain extent.

And then, in response to your second question, basically we differentiate the concept of planned capacity and the actual deliveries of our — or the actual carried out or executed capacity. And so we do have planned capacity for a single plant of ours and through multiple shifts of working, we can actually maximize those capacity. And so what we are doing right now is that we are trying to coordinate different plants in producing different models on different platforms because we haven’t been able to — we are not in a position to announce the exact number in terms of the capacity of each single plant yet. I can just give you a rough idea that the single plant capacity will surpass 0.5 million.

Ming Hsun Lee — BofA Securities — Analyst

[Foreign Speech]

Alex Xie — Head of Investor Relations

Next question please.

Operator

Your next question comes from the line of Nick Lai with J.P. Morgan.

Nick Lai — J.P. Morgan — Analyst

[Foreign Speech] My question is really about the cash. By the end of last year, we’ve add about RMB33 billion cash on balance sheet and how should we think about the use of cash in terms of capex, R&D spending and op margins? That’s the first question.

Dennis Lu — Vice President of Finance

Nick. Hi, Nick, this is Dennis. Let me respond to your first question. Yeah, you’re right, we — actually, we have about RMB43 billion cash in hand As of the end of last year and our — as I mentioned that we actually WE achieved operating cash flow breakeven or positive cash inflow in the second half of the last year. So, our plan is to continue to improve the efficiency and also to improve the capital spending. So, we are projecting — we are trying very hard to continue the positive breakeven operating cash flow this year.

And other than that, we also had some spending on the capex. For example, we continue to have new project. We will the facility and equipment for the new project and we also had the investment in terms of the capacity — new plant capacity. So that’s our plan for the usage of our cash in hand. Operating wise, we will try to be breakeven positive and capital expenditure will continue to improve the efficiency of spending, while supporting the project development also to support that capacity development for this year.

Nick Lai — J.P. Morgan — Analyst

[Foreign Speech] My second question really about a quick update on [Indecipherable] mentioned on the previous conference call. Thank you.

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

[Foreign Speech] Now, we actually plan to test the robotaxi sort of capability and performance by Q4 this year on G9. We didn’t actually announce or make any statement regarding achieving level 4 by 2024. Our estimate is that we can actually achieve or work towards the goal of autonomous driving by 2026. Now in terms of the exploration in the robotaxi model, right now, we are — we need to do a lot more testing to be able to find out the business logic behind robotaxi and to gather more data from the actual execution of the capability and also to understand better the regulatory environment in this regard. But currently with our observations in the XPILOT development as well as the gathering of the data, we are very confident and very, very excited about the future of robotaxi. And we estimate that we can actually achieve a high level of autonomous driving sooner than expected.

Nick Lai — J.P. Morgan — Analyst

[Foreign Speech]

Operator

And your next question comes from the line of Bin Wang with Credit Suisse.

Bin Wang — Credit Suisse — Analyst

[Foreign Speech] Okay, my question is about new products for 2023 because we actually see that we have got some products from the new branch platform. So it has been one product from each platform or actually it’s one product from two platforms. Meanwhile, as mentioned, in our full price group, the available for City NGP has impacted. If you can update current P5, P7 and G9 and upcoming [Indecipherable] upcoming City NGP with the hardware upgrade. Thank you.

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

[Foreign Speech] Hi, this is Xiaopeng, next year, we plan to launch two new products on two platforms and both of them will support the deployment of XPILOT 4.0. Thank you.

Bin Wang — Credit Suisse — Analyst

Right. Thank you.

Operator

Your next question comes from the line of Xinchi Yin with CITIC Securities.

Xinchi Yin — CITIC Securities — Analyst

[Foreign Speech] My two questions is about G9 and the capex. So, the first question is could you please provide more details about G9 and what’s the wheel base of G9 and will there be six-seat version or a seven-seat version? And my second question is about capex. So what’s the capex budget on Guangzhou and Wuhan respectively? What’s the progress updates of two factories? Thank you.

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

[Foreign Speech] Hi, this is Xiaopeng. Now, let me respond to your first question. In terms of G9, what I can do — what I can announce right now is going — G9 is going to be a five-seat medium to large size SUV. It won’t be a six-seater or seven-seater. And in terms of the details, such as wheel base etc., we will actually launch — we will give you more details in our official announcement when we have the information. Thank you.

Dennis Lu — Vice President of Finance

Okay. The second question, this is Dennis Lu, let me handle this. In our Guangzhou plant, total capital expenditure is somewhere around RMB2.5 billion to RMB3 billion and among that the construction and the land actually is funded by the government. And government provide the loan to us for interest. And in terms of facility, actually government is funding 50% of your interest cost. So, we will pay 50% of the interest cost in terms of the paydown. The plan is the — in terms of the construction has been completed and now we are doing the equipment and facility for the new plant — new production. So, this is to support the new vehicle production.

In terms of Wuhan plant is bigger than the Guangzhou plant. So, the total capital expenditure, the original project was above RMB4 billion — above slightly higher than RMB4 billion and among that the government will fund the interest of the around RMB3 billion and that will be — the interest will be funded by the government and the rest will be funded by XPeng itself. The plant is under construction, including the equipment and also the facility and the hardware to support new production as we mentioned for next year. So that’s the status of the plant construction and also the capital spending at the plant.

Xinchi Yin — CITIC Securities — Analyst

[Foreign Speech]

Alex Xie — Head of Investor Relations

Next question release.

Operator

And your final question comes from the line of Jin Chung with CICC.

Jin Chung — CICC — Analyst

[Foreign Speech] My first question is about our battery [Indecipherable] but what are the positive or some negative effects of our multiple suppliers, especially on our financing standards and also our purchase costs? [Foreign Speech] And second question about the gross profit margin and also expense ratios guidance this year and considering the current cost and our price — product price increase, how can you expect our gross profit margin this year? And also about the expense ratio, our expectation of our R&D and [Indecipherable]

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

[Foreign Speech] Hi, this is Xiaopeng. Let me respond to your first question. Having multiple suppliers for our battery cells definitely gives us a lot of value, mainly in two respects. The first one is to definitely make sure that we have enough supply and the second is help us to optimize or enhance our cost control capability. Now for the first benefit, because we have multiple models that definitely are really popular in the market and we received a lot of orders last year, but due to the supply shortage in batteries, especially in LFP batteries, we were not able to actually fulfill or deliver those orders last year. And the actual sales of our models or our products containing LFP batteries was actually a lot smaller than the actual orders that we received. And this year with our concerted effort with our supplier partners, we hope that — and we are very confident that we can alleviate the situation this year.

And the second benefit which I mentioned earlier is the cost control capability enhancement. As the raw materials for batteries and for a lot of the core components continue to increase, the whole industry experience a lot of cost increase risk, but because of our multiple supplier partner network and this model, we are able to actually release this sort of stress within. I think one quarters to three quarters’ time and this year we will continue to — our suppliers to better control our costs. That’s all, thank you.

Dennis Lu — Vice President of Finance

And for the second one, the margin. Firstly, we don’t provide the margin guidance for the future, but according to the information we have on hand, actually, in the first quarter, we used majority of the battery stock, which we acquired or we purchased last year. So, the cost increase did not really hit us on the full-quarter basis. So, we anticipate some material cost. Good news on the battery and also we have greater product mix the P7 — actually the mix is higher in quarter four last year. And for the second half because we have increased the price and then after we delay that loss price protection orders, probably starting in late May or June, we will have capability to cover the cost.

So, all in all, we anticipate the quarter one and quarter two margin would be equivalent now even slightly better in the quarter four margin level. And for — starting from June, we — actually price would affect the new price at which you would be able to cover the cost. And more importantly, we have G9, which will be sold in the second half. So, we anticipate the second half margin would be better than the first half. That’s kind of the general assessment for the margin thus far. Thank you.

Jin Chung — CICC — Analyst

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Operator

As there are no further questions, I’d like to turn the call back over to the company for closing remarks. Since there are no further questions, I would like to turn the call back over to the company for closing remarks.

Alex Xie — Head of Investor Relations

So thank you once again for joining us today. If you have further questions, please feel free to contact XPeng’s Investor Relations through contact information provided on our IR website or the XPeng Group Investor Relations.

Operator

[Operator Closing Remarks]