XPEV

Hello, ladies and gentlemen, thank you for standing by for the first quarter of 2026 earnings conference call for XPeng Inc. At this time, all participants are in 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 and Capital Markets at the company. Please go ahead, Alex.

Thank you. Hello, everyone, welcome to XPeng's first quarter 2026 earnings conference call. Our financial and operating results were issued by Newsfile Services early 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 our Co-founder, Chairman, and CEO, Mr. He Xiaopeng; Vice Chairman and President, Dr. Brian Gu; Vice President, Mr. Charles Zhang; Vice President of Finance Accounting, Mr. James Wu; and myself. Management will begin with prepared remarks, and the call will conclude with a Q&A session. A webcast replay of this 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. Certain 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 financials 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.

[Non-English content]

Hello, everyone. In the first quarter of 2026, we formally changed our official Chinese name from XPeng Motors to XPeng Group, reflecting XPeng's transformation from a smart EV company to a physical AI company. Within the XPeng Group ecosystem, our smart EV business will drive rapid growth, consistently contributing substantial profitability and robust cash flow. Today, physical AI applications stand on the cusp of transforming from mass production deployment to explosive growth at scale. We have proven that scaling law holds true in both autonomous driving and robotics, making the path to breaking technological ceilings through accelerating R&D investment undeniably clear. That is why at this pivotal moment, we choose to bet firmly on physical AI with increasing R&D on AI, and I believe physical AI applications represent one of the most significant global strategic opportunities of the next decade.

This year, I'll lead the team to bring Robotaxis and humanoid robots into mass production, while also building the commercial ecosystem around them. Our goal is to turn our leadership in physical AI technologies, including our next-gen intelligent assisted driving system, into a powerful new engine for revenue and profit growth, and ultimately create substantial commercial value.

[Non-English content]

In the first quarter, amid broad market volatility in China's domestic new energy vehicle market, we delivered a total of 62,682 vehicles. Even in a market downturn, our focus extends beyond scale. We also place greater emphasis on balancing delivery volume with operating quality, maintaining a long-term perspective. I'm very confident that deliveries will grow substantially quarter-over-quarter in each of the remaining quarters this year. I expect Q2 deliveries to reach between 100,000 and 106,000 units, reflecting quarter-over-quarter growth of over 60%. Starting with the GX, we plan to launch and begin deliveries of four all new SUV models within the next six months. These models have been defined and designed from day one as global vehicles. I believe XPeng is entering the strongest delivery growth trajectory in our history.

[Non-English content]

In April 2026, we launched the 2026 XPeng MONA M03, including a new Max version powered by our Turing AI SoC and an Ultra SE version supporting VLA 2.0. This also marks the completion of the Turing AI SoC upgrade across our entire model lineup. Through our full-stack in-house R&D capabilities from SoC to AI, we have made advanced computing power and technology more accessible. As a result, more than 85% of MONA M03's customers chose the Max or Ultra SE versions. The MONA M03 has remained China's top selling A-class pure electric sedan for 19 consecutive months. With its leading technology and stylish design rarely seen in the A-class segment, MONA has become the brand of choice for young users. We're confident that the MONA lineup will continue to achieve sustained success, not only in China but also in overseas markets.

[Non-English content]

On May 20th, we launched the GX, a flagship model built for the L4 era. It is also China's first pre-installed mass-produced Robotaxi model with full hardware redundancy, representing a new starting point for us to continuously expand our share in the SUV market. Among the initial firm orders for the GX, the Ultra flagship trim priced above RMB 350,000 accounted for over 80%, making the GX one of the most sought-after products in the premium luxury vehicle market. The GX's luxury is defined not only by its design, but more importantly by its leading technology and ultimate safety standards, setting a new benchmark for tech-defined luxury.

I'll spare no effort to work with our supply chain partners to ramp up GX production capacity and deliver vehicles to customers sooner. The three new models launching in the second half of this year will all be equipped with Turing SoC-powered VLA 2.0, featuring one vehicle dual energy capabilities, and will be launched for global markets. With deliveries of the GX and the upcoming three new models ramping up, I'm confident that XPeng Group's quarterly delivery volume will grow significantly quarter-over-quarter. The success of the GX marks a key step in elevating the XPeng Group brands. In the second half of this year, we'll build on this momentum by launching a series of technology products at high price points, including humanoid robots and flying cars, further strengthening our brand equity and profitability.

[Non-English content]

In 2026, we are accelerating international expansion on the back of a growing lineup of high-quality, technology-led products and deepening localized operations. The P7+ overseas delivery launch in April pushed our monthly international deliveries above 6,000 units for the first time. Starting in Q2, international revenue is expected to exceed 20% of total revenue. In the second half of this year, we plan to introduce four models for global markets. Starting with the GX, every upcoming XPeng model will be built as a global vehicle. Our target is to achieve sustained monthly overseas deliveries of over 10,000 units in the fourth quarter, and to more than double full-year overseas deliveries. Starting this year, by embedding international market needs and certification requirements early in the vehicle development process, we will significantly shorten the time gap between domestic and overseas launches and accelerate our overseas sales momentum.

Our goal is to be recognized as a company committed to long-term localized operations in every market we operate in, building stronger ties with customers and partners across each region. To that end, we have established three localized production bases overseas since last year, and our Munich R&D center has become our fastest-growing research hub.

[Non-English content]

In April, ADAS mileage penetration on VLA 2.0-equipped XPeng vehicles surpassed 50% for the first time, signaling that advanced intelligent driving is becoming a core must-have feature for users. VLA 2.0, with its generational leap in intelligent driving, has become a key reason customers choose XPeng, creating a strong and lasting user mindshare moat in the market. The success of the VLA 2.0 first version also reinforces our belief that scaling data and model parameters can drive meaningful breakthroughs in real-world AI capabilities, strengthening our conviction in the scaling law for physical AI. We are set to accelerate our investment in scaling up. With the upcoming release scheduled for Q3 this year, it will substantially elevate our upper limit of our model's performance, further widening our lead in the industry.

VLA 2.0 features a high capability ceiling, operates without HD maps, offers exceptional ability to generalize, enabling rapid deployment across overseas markets while supporting pre-installed mass-produced Robotaxis at scale. Our goal is to become the undisputed number one in the domestic market and take a critical step towards true global leadership in L4 autonomous driving, including Robotaxis.

[Non-English content]

I'm pleased to see the accelerated rollout of the UN-led DCAS regulatory framework with Europe, our most important international market now beginning to open certification pathways for high-level ADS. Our VLA 2.0 is currently being tested in Europe, and we hope to receive regulatory approval in multiple countries next year, allowing us to deliver the technology to overseas customers and begin the global generalization of our VLA 2.0. Our recent research shows that global users' demand for assisted smart driving system, VLA, and full scenario multilingual conversational system, VLM, are far stronger than we had anticipated. In the second half of 2026, XPeng will lead and accelerate the intelligent transformation of China's automotive exports. In the process, I see substantial commercial opportunities emerging on both the B2B and B2C fronts.

[Non-English content]

Our fully redundant GX fleet is already undergoing L4 testing on public roads in Guangzhou. We aim to launch pilot passenger operations for our Robotaxi service in the city in Q3. The GX's L4 full redundancy hardware and software are decoupled from the vehicle platform, making them deployable across our entire lineup, including the MONA series. I believe our Robotaxi offering has a clear edge over incumbent Robotaxi companies in terms of ability to generalize, cost efficiency and scalability. These advantages position us to build a multi-stakeholder ecosystem where operating partners and XPeng work together to create and share commercial value. Following the overseas rollout of VLA 2.0, we'll also actively pursue bringing XPeng's cost-effective Robotaxi solutions to overseas and domestic markets.

[Non-English content]

The software and hardware development for our mass production humanoid robot, IRON, is progressing smoothly and is about to enter the ET2 software-hardware integration stage. The mass production version of IRON will be built to automotive-grade safety and reliability standards, and many of our existing automotive supply chain partners have also become component partners or suppliers for IRON. We have also recently completed development of our proprietary next generation dexterous hand, which is significantly more agile and substantially lower in cost. We have built in multi-dimensional data system to train IRON's brain and cerebellum models. With our training data and scaling rapidly and outcomes improving significantly. XPeng is the only robotics company in China with full-stack in-house R&D capabilities of both hard and software, spanning SoCs to physical AI foundation models, data generation to pre-training and post-training, joints to dexterous hands and next generation motion control for VLA and VLM.

Through deep in-house software and hardware R&D and cross-domain innovation, IRON will deliver a more refined design, higher quality, and more comprehensive capabilities. I look forward to showcasing the next generation IRON in the third quarter, featuring multilingual communication, human-like full body motion, and gradually autonomous execution of professional tasks. We are targeting to achieve mass production of IRON by year-end, with its initial trial commercial deployment in XPeng showrooms, followed by commercial customer deliveries in China and overseas next year. I believe that once humanoid robots reach mass production, the data flywheel will drive technology iteration and sales growth at a pace that outstrips what we saw in EVs. Starting next year, revenues from humanoid robot hardware and AI models are expected to emerge as a key driver for revenue and growth for XPeng Group.

[Non-English content]

XPeng is now fully committed to advancing the mass production and global expansion of three physical AI applications: VLA 2.0, Robotaxi, and humanoid robots. We firmly believe these three areas present enormous potential in terms of both commercial scale and investment returns. Looking at our roadmap, the B2B market will be the first to take off, while international markets will generate greater commercial returns than domestic markets. Backed by the deep experience we've gained through our partnership with Volkswagen, along with a business model already proven through mass production, XPeng is well positioned to execute this next phase of growth. We are making the large-scale commercialization of physical AI a company-wide strategic priority and will move decisively towards large-scale deployment.

[Non-English content]

For the second quarter of 2026, we expect deliveries of 100,000-106,000 units, up 59.5%-69.1% quarter-over-quarter, with revenue of RMB 19.6 billion-RMB 20.8 billion, up 50.4%-59.6% quarter-over-quarter. Having passed the seasonal trough, we are entering a period of strong growth driven by four new models, increasing production capacity, and expanding international business. In the third and fourth quarters, we will continuously strive for higher sales targets. Concurrently, our operational quality will improve significantly. Our supplier payment terms remain at an industry-leading level. Gross margin demonstrates strong resilience against cost pressures, and economies of scale in our EV business continue to strengthen. I expect that the XPeng Group to build an entirely new business model anchored by our absolute leadership in physical AI technology with scale and network effects. Both XPeng vehicles, Robotaxis, and humanoids will become highly differentiated physical AI agents.

Moving forward, both the hardware sales scale and recurring AI model revenue are poised for high-speed expansion, unlocking immense returns on our AI R&D capital.

[Non-English content]

Thank you, everyone. I'll now turn the call over to our VP of Finance, James, who will walk you through our financial performance for the first quarter of 2026.

Thank you, Xiaopeng. Now let me provide a brief overview of our financial results for the first quarter of 2026. I'll reference RMB only in my discussion today, unless otherwise stated. Our total revenues were RMB 13.03 billion for the first quarter of 2026, a decrease of 17.6% year-over-year, and a decrease of 21.4% quarter-over-quarter. Revenues from vehicle sales were RMB 11 billion for the first quarter of 2026, a decrease of 23.5% year-over-year, and a decrease of 42.3% quarter-over-quarter. The year-over-year and quarter-over-quarter decreases were mainly attributable to lower vehicle deliveries. Revenues from services and others were RMB 2.03 billion for the first quarter of 2026, representing an increase of 41.2% year-over-year and a decrease of 36.1% quarter-over-quarter. The year-over-year increase was primarily attributable to the increased revenues from technical R&D services and parts and accessory sales.

The quarter-over-quarter decrease was primarily due to the reduction of technical R&D services revenues following a significant milestone catch-up in the prior quarter, as well as no revenue contribution from carbon credit trading in the current quarter. Gross margin was 20.6% for the first quarter of 2026, compared with 15.6% for the same period of 2025, and 21.3% for the fourth quarter of 2025. Vehicle margin was 12.1% for the first quarter of 2026, compared with 10.5% for the same period of 2025, and 13% for the fourth quarter of 2025. The year-over-year increase was primarily attributable to the cost reduction and improvement in product mix of models. The quarter-over-quarter decrease was due to higher unit vehicle costs resulting from increased memory chip and battery-related costs.

R&D expenses were RMB 2.91 billion for the first quarter of 2026, representing an increase of 46.8% year-over-year, and an increase of 1.1% quarter-over-quarter. The year-over-year increase was mainly due to higher expenses related to the development of new vehicle models and AI-related technologies as the company expanded its product portfolio to support the future growth. SG&A expenses were RMB 1.88 billion for the first quarter of 2026, representing a decrease of 3.2% year-over-year, and a decrease of 32.5% quarter-over-quarter. The year-over-year and quarter-over-quarter decreases were primarily due to the lower commission to the franchise stores.

As a result of the foregoing, loss from operations was RMB 1.87 billion for the first quarter of 2026, compared with RMB 1.04 billion year-over-year, and RMB 0.04 billion quarter-over-quarter. Net loss was RMB 1.78 billion for the first quarter of 2026, compared with net loss of RMB 0.66 billion year-over-year and net profit of RMB 0.38 billion quarter-over-quarter. As of March 31st, 2026, our cash position was RMB 42.09 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 first quarter 2026 financial results. This concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead.

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. For the sake of clarity and order, please ask one question at a time. Management will respond, then feel free to follow up with your next question. Your first question comes from Tim Hsiao with Morgan Stanley. Please go ahead.

[Non-English content] My first question is about GX, because we noticed the new model has been selling very well since its launch on May 20th. Could management share the current order book, your steady state sales volume target, and how we should think about the vehicle gross margin? Thank you.

[Non-English content]

Thank you for the question. Now, honestly, the performance of GX sales is above our expectation. It's been performing really well. We also observed some interesting data regarding the sales numbers of GX as well. Currently, if you look at the BEV flagship version, right now the lead time has surpassed 30 weeks. Even under the expectation of converting more to the Ultra version, it's still growing very, very fast. On the other hand, our flagship model with initial orders over 80% of the total orders, continue to grow in the mix as well. We also observed something very interesting. For example, the Max version is right now less than 5% of the mix, which is a little bit lower than our expectation. Extended range version initially actually was performing less popular than our BEV version.

Right now it's approaching the level of BEV popularity, especially with our increased promotion and marketing campaign in the western and northern part of China, which is very, very promising. We definitely have high hopes for GX for it to be one of the top selling vehicle models in the above RMB 300,000 price range market for NEVs high-end luxury big six-seater.

To be honest, we are working very closely with our supply chain partners to support the capacity ramp-up, and we definitely want our top quality products to come with top quality service and after sales services as well to support the sustainable GX deliveries. Our priority right now not only is about the deliveries of the product, but also the sustainability with GX being a flagship model of XPeng Group. Now being a flagship model, obviously the GP margin of GX is quite good. As I mentioned earlier with the media, only one SKU under the GX series is performing with a lower GP margin than our expectation, but majority of SKUs of GX is actually having a higher than expectation kind of GP margin performance. Thank you.

[Non-English content]

I also would like to add that starting this new year, all of our new vehicles when it comes to their configuration and also their pricing, it will be under the consideration of their commercial value. Commercial consideration will be one of our key priorities starting this year. The second thing is that we are looking for long-term sustainable sales performance, rather than having a big beginning and subsequent diminishing sales. We are looking for a better quality in terms of supply chain management and the modular management quality of the whole supply chain system to secure our supply and also production capacity ramp-up to support our vehicle delivery. Starting with GX, we are expecting to achieve a better balance between commercial value and also scale as well as long-term stable sales. Thank you.

[Non-English content] My second question is about Robotaxi. Could you please update us on your domestic operations and overseas expansion plans?

Has the recent regulatory tightening in China had any adverse impact to the progress? How do you view the impact of that to the Robotaxi business, to the group's B2C passenger vehicle sales? That's my second question. Thank you.

[Non-English content]

Thank you for the question. Thank you for mentioning the recent tightening of the autonomous vehicle regulation in China. However, it hasn't placed any adversity to our rhythm of development yet. From our perspective, after 2028, we're going to expect a huge commercial opportunity for Robotaxi. Right now we are doing step by step to prepare for that opportunity both in and out of China. Our current plan is that we are going to do a lot of deployment and trial within China as well as the international market with VLA 2.0. We are confident that we can achieve success. In China, we are actually in the midst of conducting rapid research and development experimentation using our current vehicle models.

In 2027, we're going to launch an economy car model to demonstrate and validate how to start the Robotaxi business model in this area in China. We are sure that we have the capability to achieve a high level of success. We want to clarify that with XPeng, first of all, we want to focus on the products and we can take a commission from working with our operational partners. We are not going to directly involve ourselves in the operation. Hence, we expect to have many domestic and international partners in the operation for Robotaxi. The second thing is that we are going to work not only in China, but also globally. We believe that global Robotaxi has lots and lots of commercial potential and value to tap into. Thank you.

[Non-english content]

Regarding the second question that you asked about the impact of our B2B business to the B2C business, let me just add a few of our thoughts. First of all, we believe that the current testing and R&D and experimentation actually, on Robotaxi has a positive impact on our B2C side of the business. Our VLA model is going to offer all kinds of intelligent driving assistant strategies. For example, the speed mode, for example, the less human intervention mode, et cetera, that we can borrow from Robotaxi. I believe that as for the future, the market is going to digress and actually transition into a period where policies and regulations and market situation is going to be more open with the B2B side versus B2C side being two different market segments. That is our expectation for the future. Thank you.

[Non-English content]

Thank you. Your next question comes from Nick Lai with JPMorgan. Please go ahead.

[Non-English content] My first question is, Chairman He talked repeatedly about VLA 2.0 and medium and long term strategy, including production roadmap and the OTA.

I wonder if Chairman can also share with us the major trends and advantage that we can anticipate from here. Thanks.

[Non-English content]

Thank you. I believe that within this year of 2026, XPeng VLA or VLA plus VLM capability is going to have two key milestones or experience two key development phases. The first phase will actually happen in Q3 August this year. During this period of time, VLA is going to have our second version, which will appear as smarter and more communicative, and also have better generalization capability with less MPI or human takeover or intervention penetration. Whereas in the past, with our VLA 1.0 version, it mainly focused on the basic capabilities of safety engineering and also basic experience. We were not able to increase the feeling of the capability significantly. However, by August and Q3 this year, we're expecting a lot significant performance improvement on that front.

On the other hand, with the combination of VLA and VLM, we're expecting not just ADAS capability, but also better language communication capability and something that approaches the capability of the so-called butler-like kind of experience in-car. We are going to achieve gradual implementation through the OTA or three OTA releases in August this year and also at the end of this year. Thank you.

[Non-English content]

I think that with gradual R&D development, we will be able to achieve L4 software capability on an L2 hardware in the future. By that time, we expect to see tremendous changes in terms of the business model and all shape or form of the whole business. This is something that we are in the work of. We are not going to discuss the detail about it today. Thank you.

[Non-English content] My second question is related to humanoid robot in terms of cost advantage compare with competitors.

In 2027, XPeng plans to export humanoid robot to overseas market. Can we also share more about that long-term strategy? Thanks.

[Non-English content]

Thank you. We actually encounter all kinds of differences during the mass production of humanoid robots between, you know, the structure of a robot versus an EV, especially, you know, when it comes to different aspects of consideration. Clearly, there is a lot of areas where we need to address, you know, when it comes to the mass production of humanoid robots, for example, the safety. The hardware of humanoid robots are quite different from cars. Currently the available robots in the market do not concurrently consider safety and security of the simulation. Also, you know, of the humanoid robots and how humanoid robots will interact with humans, you know, across all kinds of scenarios. At the same time, the vast majority of the existing products out there do not consider reliability, stability, and maintainability of the robots as well.

If you look at the level of mass scale structure production of the humanoid robots, a lot of it is actually consumer product grade versus our expectation of being car grade safety and production quality. At the same time, a lot of our competitors do not consider the supply chain, you know, capability development. When humanoid robots achieve a certain level of mass production, how do you secure supply chain capability and safety? At the same time, if you deploy your SoC in a chip, you know, in the humanoid robot, is the data stored locally or are they on the cloud? If they are on the cloud, we can see privacy, safety and security, etc. That's why since the beginning of last year, 2025, we already started a series of overhaul of our design and also a preparation of humanoid robots.

Having the full stack hardware and software capability of whole humanoid robot allow us to actually have more comprehensive skill set and capability preparation for humanoid robots to release its potential and commercial value in the future. I would say that for now, except for batteries, all the other parts of humanoid robot that we produce are in-house full stack self-developed. In the future, for sure, we believe that we can come up with a more scalable and economical solution to humanoid robots. However, today the cost structure of humanoid robots is actually very similar to that of a car. Thank you.

[Non-English content]

[Non-English content]

The second point that I would like to make is about the overseas market. I think just like EV, all of our models developed and are these considered as global vehicles and our robots are considered as global robots as well. Potentially, if you look at the overseas market, there's actually a bigger commercial value to replace human workers with humanoid robots. There's lots of commercial potential to tap into globally speaking. At the same time, when you look at the regulatory side of things in terms of the hardware and software and also data privacy, we also have prepared sufficiently in our humanoid robot design as well. When we look at our current VLA 2.0 usage, we're looking at 200 million uses per hour that are for the VLA models outside of the cloud.

If you were to consume everything or do the computing on the cloud, you're looking at the consumption of data 100 GB per hour, which is enormous. So we actually have to start from day one, consider how we incorporate that kind of data consumption or model usage in our humanoid robots that are maybe designed or locally deployed as well. So the entire system for our humanoid robot has been designed for the global market since day one. We expect to actually see more potential progresses internationally as our domestic R&D system continue to evolve going forward. Thank you.

[Non-English content]

Thank you. Your next question comes from Tina Hou with Goldman Sachs. Please go ahead.

[Non-Englis content] My first question is regarding our Robotaxi business. Wondering what is our plan in terms of expanding to more cities outside Guangzhou and the timing of that. Also accordingly, what has been the progress of our licensing approval? Thank you.

[Non-English content]

Thank you, Tina, for your question. Our Robotaxi deployment for experimentation right now is limited only in Guangzhou where we already got the license of. Our plan for Robotaxi is that we are going to test the water here in Guangzhou. After we successfully develop the technology, the product and the business model here in Guangzhou, we then can expand our business partnerships in the whole of China and also outside of China. We expect to work with multiple partners for their own localized operations. Since we made the announcement to right now, we have received lots of inquiries and lots of interest both in and out of China from our potential business partners. They are keeping a close eye on our future progress in the upcoming year.

I believe that after 2027, when we were able to launch our new economy car model for Robotaxi, after we are able to announce maybe a better total solution for Robotaxi in the future, we believe that we can actually increase our commercialization capability for Robotaxi in and out of China in the future. Thank you.

[Non-English content] My second question is regarding our second quarter gross margin. On the one hand, we have higher volume as well as better model mix with GX. On the other hand, we have some headwind from higher raw material and some component costs. Just wondering what would be the guidance for vehicle gross margin as well as the company blended gross margin? Thank you.

Hi Tina, this is James. As you can see, first of all, in the first quarter, our total gross profit is pretty close to the prior quarter, Q4 of last year. In that we did see some level of cost increase, as mentioned in the earlier script, around the memory chip cost increase as well as the battery raw material cost. That is partially included in Q1, and we continue to expect that to be included in the following quarters in the year. You did mention that we have launched the GX, the full-size SUV in the second quarter, and we will start to deliver that in the following quarters as well. The GX gross profit is among the highest in our portfolio. From a product mix perspective, we'll start to see a better mix in Q2 as well as in the second half of the year.

All of that considered, we expect the Q2 total gross margin to be around the same level as Q1. Hopefully that answers your question.

[Non-English content] Thank you.

Thank you. Your next question comes from Ming-Hsun Lee with Bank of America. Please go ahead.

[Non-English content] So management, could you elaborate more about your long term overseas markets growth driver? Especially for your overseas production profitability versus your export business model.

[Non-English content]

First of all, since you asked two questions, I'm gonna address the first one first. Regarding our overseas market expansion or development. First of all, it's one of our most important four strategies, and in the coming five years, we expect to have maybe 50% of our revenue and profit coming from the overseas market. As we approach into the second half of the year with the launch of our four new models upcoming, we believe that we are going to be able to tap into the overseas market even more following 2027 and 2028. Because in the past, we mainly had two models serving the international market.

When it comes to our EV future and also robotics future, we have always considered overseas market as one important component or important market for us. When it comes to our capability development, doesn't matter if it's hardware, software, our distribution channels, our servicing network, including localized charging capabilities, supercharging capabilities, as well as our profitability considerations, overseas has always been in the roadmap of development. With our dedicated and committed R&D spending starting many years ago, we believe that we are well poised to tap into the overseas market development future, especially in the coming few years. Thank you.

[Non-English content] Hey, Ming, this is Brian. Let me just add here. Yeah, Ming, let me just add here. First, if you look at the international sales volume contribution in the latest month, I think we already see it represent close to 20% of our volume. As you saw in last year, international sales is roughly 10% of our global volume. You can see a significant increase in terms of the proportion that international sales is now represented in our global sales. Second point is on the profitability of our international vehicle sales is significantly better, even with obviously some of the tariff issues we faced, some of the cost increases we saw this year, still, I think the international business generates significantly better gross profit as well as net profit contribution to our bottom line.

Also, you probably saw that the new models that Xiaopeng mentioned for the global markets has yet to be launched. We anticipate that momentum will carry on throughout the year. I think the contribution at the 20% levels will be consistent throughout the year, because obviously China we saw significant growth expectation as well. In terms of really dealing with tariff and other challenges, we are increasing our investments locally. I'm actually currently in our partner Austria right now to make sure that we have capacity to tackle the unexpected growth for our Europe as well as global markets. I think it is going to be, I would say, very exciting contributing to our overall momentum as well as our profitability.

Thank you. Your next question comes from Ping Yue Wu of CITIC Securities. Please go ahead.

[Non-English content] Thank you for taking my question. I'm Ping Yue Wu representing CITIC Securities and also CITIC Securities International. My first question is regarding the overseas production. We've seen significant progress on XPeng overseas production localization this year. Could you share more color on what percentage of vehicles for overseas market will be produced at local plants this year and next year?

Does the localization rate vary materially by region? Thank you.

Yeah. This is Brian. Let me address that question again. On the localization production, right now we have two plants in Southeast Asia, in Indonesia and Malaysia, mostly addressing local demand. Also we have the partnership with Magna International in Austria, where we manufacture vehicles for the European market. All three of these manufacturing layouts will see increased capacity this year, as well as the new models being produced in those local markets. I would say that for the Southeastern Asian countries, it's mostly for the local markets, and obviously Austria is for Europe. I would say the Austrian operation will be a very important capacity contributing to our European sales.

I expect the majority of our European sales will have local manufacturing at this production. Elsewhere where I think we don't have manufacturing facilities yet, I think it will continue to maintain the current business model. I think as we increase our volume as well as market share in some of these large markets, we are actively looking at ways to increase our production capacity as well as localization efforts to make sure we satisfy the localization content rules as we move into a more deepened local production model.

[Non-English content] My second question is about humanoid robot. Management team just mentioned that XPeng is aiming for mass production of humanoid robots by year-end and store deployment in first quarter 2027. Could you share a few specific examples of what functions the robot will perform in XPeng's retail store and also in the client application?

Additionally, could you elaborate on what is the specific application scenario can we see in the external corporate customers and what are pricing strategy? Thank you.

[Non-English content]

Thank you for the question. Our humanoid robots are actually different from the existing or available robots out there because we want to place them in an environment where they can actually interact with humans. When we consider the business model or the potential application scenario for our humanoid robots, the first responsibilities that they can carry could be tour guides or assisted shoppers. For example, in our offline stores or dealer shops, we can have these humanoid robots to introduce the cars and introduce our products for you. Then there will be our human salesperson that come along and do the test drive with you and sign the order or sales order for the car. I think robots can really help with the basic information introduction and do some performance of the product introduction, et cetera, to achieve a higher efficiency.

In addition to that, once that capability is more sophisticated, we then can open up more opportunities or collaboration with our partners in the ecosystem who may have different kind of various job requirements that we can work with to place on the shoulders of our humanoid robots. We also can work with the ecosystem partners to generate data for pre-training and post-training to create different models for different humanoid robots for different scenarios. For example, in the retail space, there is opportunities for them to be a cashier person, for example, or assisted shopper with a more sophisticated level of capabilities. That's our plan. Thank you.

[Non-English content]

When it comes to the commercialization of our humanoid robots, we are still in the discussion phase of it, even though the BOM structure of a humanoid robot is very similar to that of a car, but our ASP, the retail price of a humanoid robot is more expensive than a car naturally. The GP margin, in terms of the hardware of a humanoid robot, it will be more superior than that of a car. We have incorporated multiple Turing chips in our humanoid robot with thousands of TOPS of computing power. Even though we have that in the hardware, we believe that there is still a lot of commercial value for the software usage in terms of the cloud usage of their humanoid robots computing power.

For the software commercialization step or the software licensing fee revenue, I think humanoid robots have a better potential than cars. Now on the other hand, if you look at things from our potential customers, for example, business owners perspective, if they are small business owner, when they make the human decision of buying a humanoid robot, what they prioritize is the payback period, right? I think in the overseas market, the payback period can be much shorter than that of what you would achieve in China. It would make more sense economically for overseas business owners to buy a humanoid robot. We have always been thinking, the rationale of how our customers use the humanoid robot, why they would purchase it, and how our humanoid robot can add value to them. Thank you.

[Non-English content] Thank you.

Thank you. Your next question comes from Yuqian Ding with HSBC. Please go ahead.

[Non-English content] I've got two questions.

One on the mid to long term strategy, and second is the financial in the near term. The first question is, we noticed the company changed the name to XPeng Inc, and it is shaping like a physical AI platform company. Can management share a bit of more discussion and strategic thinking about the business model evolving into mid to long run? How do we compartment the strategic divisions commercialization timeline? How does into the mid to long term the revenue structure change? [Non-English content]

[Non-English content]

Thank you for the question. This is a broad question and I'm trying to share with you my brief answer. First of all, right now our main revenue stream definitely comes from the scale economy. Basically, it comes from our hardware and comes from our ecosystem. I think globally speaking, very few car manufacturers can actually build a software platform and form the next network effect based on the economies of scale of their hardware. The network effect includes both, for example, the software fee, software revenue, and the entire multilateral network effect, which we actually have the potential to achieve. Going forward, we believe that the whole entire intelligent agent emergence will produce the so-called ant cluster effect. Basically, it's like the interaction between ant colonies, where you have network effect in the decentralized and centralized clusters.

What we're trying to say is that these three effects are going to have their impact on our business model. With these three effects playing together, interacting together within XPeng, we are going to actually enhance our competitive mode. With this system, we actually have a very optimistic expectation for our future business strategy and our value creation. Thank you.

[Non-English content]

Let me just add that in the short to medium term, we will prioritize more on the scale effects of our brand equity and also gross profit. With the scale of globalization and enhanced GP margin, we will be able to have a positive effect on our overall profitability. With sufficient profitability, we will be able to support adequate R&D investment, which will also bring about new technological competitiveness and competitive modes to the company.

[Non-English content] My second question is about the service revenue. Can management share the trend about this year, especially in terms of the scope? Is that possible we can expand our partnership from China to outside of China?

Yuqian, this is Charles. I think that we continue to maintain the guidance that the total revenue generated from the technology and the services and IP licensing revenue in 2026 is comparable to that of 2025. As you may be also aware of that, starting from Q2, we will start a delivery of the Turing SoC to our partner, Volkswagen, at scale. I think that we continue to believe that the monetization of technology commercialization through such type of collaboration, it is a very attractive business to us. I think that given all the proprietary technology we have in-house, I think that we are quite open mind on expanding such commercialization opportunities of our technologies.

Got it. Thank you, team.

Thank you. As there are no further questions, I'd like to turn the call back over to the company for closing remarks.

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

Thank you. This concludes today's conference call. You may now disconnect your lin