Q1 2023 Xpeng Inc Earnings Call

Participants

Alex Xie; Head of IR; XPeng Inc.

Charles Zhang; Former VP of Corporate Finance & Investments; XPeng Inc.

Hongdi Gu; Honorary Vice Chairman of the Board & Co-President; XPeng Inc.

Hsueh-Ching Lu; VP of Finance & Accounting; XPeng Inc.

Xiaopeng He; Co-Founder, Chairman & CEO; XPeng Inc.

Bin Wang; China Auto Analyst; Crédit Suisse AG, Research Division

Jing Chang; Analyst; China International Capital Corporation Limited, Research Division

Ming-Hsun Lee; Director & Research Analyst; BofA Securities, Research Division

Paul Gong; HK and China Autos Analyst; UBS Investment Bank, Research Division

Pingyue Wu; Auto & Parts Analyst; Citic Securities Co., Ltd., Research Division

Tim Hsiao; VP; Morgan Stanley, Research Division

Y.C. Lai; Head of Asia Auto Research; JPMorgan Chase & Co, Research Division

Presentation

Operator

Hello, ladies and gentlemen. Thank you for standing by for the First Quarter 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

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.xpeng.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 and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law.
Please also note that XPeng's earnings press release and this conference call include disclosure of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. XPeng's earnings press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures.
I will now turn the call over to our Co-Founder, Chairman and CEO, Mr. He Xiaopeng. Please go ahead.

Xiaopeng He

[Interpreted] Hi, everyone. Beginning in the first quarter of 2023, facing future competition, XPeng has centered around change. With 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 0 to 1 have stepped down. Nonetheless, more new talents, full of energy and entrepreneurial passion have quickly stepped up and taken on leadership position through both the 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 if today were XPeng's day 1 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 battle and create a virtuous product sales cycle, boost team morale, increase customer satisfaction and raise our brand reputation from the third quarter of 2023.
In the face of macroeconomic challenges and more intense competition, we achieved a month-on-month growth of new orders for the past 4 months. More excitingly, order intake for the higher end and NCM 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 sales growth.
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. It's debut was met with remarkable enthusiasm from attendees at the expo. The G6 features a stylish, esthetic 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 fast ramp up. We believe the G6 will emerge as one of the best-selling models in China's NEV SUV market segment within the RMB 200,000 to RMB 300,000 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.
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 Max stream 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 rollout, 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 already 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 in G9 increased substantially to more than 50%. We also plan to start the rollout of highway NGP 2.0 in June. Highway NGP 2.0 was developed based on the framework of XNGP. So it's code increased by 5x compared to the 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 getting stuck, 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.
By the end of the third quarter this year, we'll begin nationwide rollout 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 a 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 novice 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 1 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 3 cities we have launched sales of the Max stream of our models with XNGP will grow significantly.
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 facelift versions to be equipped with market-leading interior and exterior styling and design.
Since the first quarter, our sales, marketing and service capabilities has been upgraded in the concerted efforts under the leadership of our President Wang Fengying 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.
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 RMB 150,000 to RMB 250,000 price range market segment.
We believe the automotive industry landscape will be transformed by technology innovations and fierce competition over the next few 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, SEPA 2.0, boosts powerful competitive strength in R&D efficiency and technology innovations. With G6 mass production, the SEPA 2.0 architecture represent platform-based technology capabilities that we've built through consistent, intensive R&D efforts over the past 5 years, which will strengthen our leadership in technology over the next 3 years.
We are rolling out new products that offer more competitive cost and consistent customer experience based on SEPA 2.0. The new models in our R&D pipeline, which covers RMB 150,000 to [RMB 350,000] 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. It will shorten the 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.
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.
In terms of our cash flow, our cash on hand at the end of the first quarter of 2023 amounted to over RMB 34 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 with 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.
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 RMB 4.5 billion and RMB 4.7 billion. From the third quarter of 2022, even though we underwent 4 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 semifinals 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.

Hsueh-Ching Lu

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 RMB 4.03 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 RMB 3.5 billion for the first quarter of 2023, a 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 sales promotions and the expiry of new energy vehicle subsidies mentioned above.
R&D expenses were RMB 1.3 billion for the first quarter of 2023, representing an increase of 6.1% from RMB 1.2 billion for the same period of 2022 and an increase of 5.3% from RMB 1.2 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 RMB 1.4 billion for the first quarter of 2023, representing a decrease of 15.5% from RMB 1.6 billion for the same period of 2022 and a decrease of 21% from RMB 1.8 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 RMB 2.6 billion for the first quarter of 2023 compared with RMB 1.9 billion for the same period of 2022 and RMB 2.5 billion for the last quarter.
Net loss was RMB 2.3 billion for the first quarter of 2023 compared with RMB 1.7 billion for the same period a year ago and RMB 2.4 billion for the last quarter. As of March 31, 2023, our company had cash, cash equivalents, restricted cash, short-term investments and term deposits in total of RMB 34.1 billion. To be mindful of [events] 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.

Question and Answer Session

Operator

(Operator Instructions) Today's first question comes from Tim Hsiao with Morgan Stanley.

Tim Hsiao

(foreign language) 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 that Mr. Hu just mentioned, the group will happily focus on the volume growth or the company would prefer to leave some room for a cheaper version to follow on after the volume picking 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.

Xiaopeng He

[Interpreted] All right. Thank you for your question. We've considered internally these 2 possibilities. First of all, we will prioritize scale before considering pricing. And we definitely expect to have a long-term stable pricing. And 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.

Hongdi Gu

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 BOM 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 of events in our strategy.

Tim Hsiao

Got it. Super clear. (foreign language) So my second question is about the supply risk. Because the P7i supply bottleneck will be resolved in June. But if there is any negativity across to the supply ramp up to G6. In the meantime, G6 will be the first model built on the new architecture within the body of aluminum die casting? Would that result in slower pace of production ramp-up after June launch? So should we take that into consideration?

Xiaopeng He

[Interpreted] Thank you for your question. Now G6 is different from G9 in a sense that we actually are well prepared for its delivery. We've given it 2 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 is different from P7i in a sense that we have a really well prepared supply chain 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, we've been in this particular -- using this technology for the -- for over a year. And right now, the development has been very satisfactory, and we expect to have no severe challenge in using this technology on G6. Thank you.

Operator

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

Bin Wang

(foreign language) My first question is about battery. Recently the copper price has declined. So what's the impact for your battery sourcing and the margin in the second quarter?

Hsueh-Ching Lu

Bin, this is Dennis. Thank you for your question. Actually, in the first quarter, we see the battery cost reduction compared with quarter 4 last year, we have about 5% reduction. And then in the second quarter, we see further reduction about 10% to 12% over the quarter 4 last year. So that's about 5 to 7 percentage points increase compared with the quarter 1. 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 3 to 4 percentage margin improvement. That's from the material side. But the other big chunk would be the revenue side, that will also impact the margin as well. So this a brief answer to your questions.

Bin Wang

My second and last question is about your full year volume guidance. Previously, you actually guided that in this year, you target more than 30% growth. Do you maintain the same target if you maintain in price in the second of this year? The -- on average monthly volume will be 20,000, (inaudible) the full year volume target change or not?

Xiaopeng He

(foreign language).

Bin Wang

(foreign language).

Hongdi Gu

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 in the fourth quarter, given the continued growth and also additional model sort of mix -- favorable changes we think that 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.

Operator

And our next question comes from Paul Gong with UBS.

Paul Gong

Two questions as well. The first question is regarding the new orders intake on the P7i as well as our preparation. (foreign language) So my first question is regarding the P7i, 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 demand or underestimated the P7i demand?

Xiaopeng He

[Interpreted] All right. Thank you for your question. Now regarding our supply chain preparations for P7i, definitely, we experienced some challenges due to, for example, the supply chain and also, for example, the ups and downs 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 market 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 estimates 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.

Hongdi Gu

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 6 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

(foreign language) 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 MPV end of this year, normally MPV 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 MPV vans.

Xiaopeng He

[Interpreted] 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 so. 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 to point out.
Another thing is that right now, among the targeted group, 25 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 MPV 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, when we -- when we roll out this new model, you can expect to hear about -- our answer by that time.

Operator

And our next question comes from Nick Lai with JPMorgan.

Y.C. Lai

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

Xiaopeng He

[Interpreted] 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. She joined us as of the end of January, and it's been about 4 months now, and she'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 different operations. Right now, we have one big line of business or our operational team that actually coordinates different projects, different lines of business that allowed us to actually improve our Net Promoter Score or NPS for several 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 newer tools, doing different project-based operation and also flatten our organizational structure overall.
Now also in our sales and we have done a lot of training to really improve the skill 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 instill more of the (inaudible) 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.

Hongdi Gu

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 older product mix continue to be the 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, given all these cost reduction measures as well as the further volume and scalability coming into play, that's where we see the trend.

Operator

And our next question comes from Ming Lee with BofA.

Ming-Hsun Lee

(foreign language) My first question is regarding the -- your expectation on the reasonable lithium component price in the next 1 to 2 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 LFP battery sales -- cars will continue to increase?

Xiaopeng He

[Interpreted] 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 RMB 200,000 should be a reasonable range for it.
Now right now we are working with our supplier partners in a very flexible manner, meaning that we're 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, which means that 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

(foreign language) Also my second question is regarding your new software, the XNGP. How it helps 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

Ming, this is Charles. I'll address the question. First of all, I think as you know that we launched the City NGP in 3 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 3 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 that we continue to see the upside of the penetration rate of the Max stream of our new models.
To answer your second half of your question, I think our plans to decouple our XNGP from HD map, starting from the softening from the end of Q3. So therefore, I think that because we -- our ability to decouple our XNGP from the HD maps. So therefore, I think that we are able to roll out our XNGP without the requirement of the government approval, et cetera. So therefore, I think we are expecting that towards the end of the year, we can offer XNGP services probably in a few dozen cities in China and more cities over the next couple of quarters.

Operator

And our next question comes from Pingyue Wu with Citic Securities.

Pingyue Wu

(foreign language) 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 XPeng. And also, we know that data is very important. And while the short-term sales pressure (inaudible) our technology improvements?

Xiaopeng He

[Interpreted] 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 to 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 rollout.
So it's quite challenging to reach that milestone of the actual rollout. And so I believe that definitely, for XPeng, we have very solid technology in our architecture that actually support multiple sales 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 sales cycle 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 that 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.

Operator

And our next question today comes from Jing Chang with CICC.

Jing Chang

(foreign language) So my first question is about as Mr. He 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 main idea is about the premium market above RMB 300,000 and the market below RMB 150,000?

Xiaopeng He

[Interpreted] 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 2x 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 into 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 modularized -- we're going to launch a lot of modularized sort of development on the same platform, we expect to have about 10 models in our 2025 lineup. And we still really prioritize the RMB 200,000 to RMB 300,000 price range, and that will be our main market segment. We will have very limited number of offerings in below RMB 200,000 and also above RMB 300,000 price segment.

Operator

Thank you. This concludes our question and answers. And now I'd now like to turn the call back over to the company for closing remarks.

Alex Xie

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 [PSM] Financial Communications.

Operator

Thank you. This concludes today's conference call. You may now disconnect your lines. Thank you.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]