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XPeng Inc. (XPEV -6.62%)
Q1 2022 Earnings Call
May 23, 2022, 8:00 a.m. ET
Operator
Hello, ladies and gentlemen. Thank you for standing by for the first quarter 2022 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 XieHead of Investor Relations
Thank you. Hello, everyone, and welcome to XPeng’s first quarter 2022 earnings conference call. Our financial and operating results were issued via newswire services earlier today and are available online. You can also view the earnings press release by visiting the IR section of our website at ir.xiaopeng.com.
Participants on today’s call from our management will include co-founder, chairman and CEO, Mr. He Xiaopeng; vice chairman and president, Dr. Brian Gu; vice president of finance, Mr. Dennis Lu; vice president of corporate finance and investment, Mr.

Charles Zhang; and myself. Management will begin with prepared remarks, and the call will conclude with a Q&A session. A webcast replay of this conference call will be available on the IR section of our website. Before we continue, please note that today’s discussion will contain forward-looking statements made under the safe harbor provisions of the U.S.
Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company’s results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the relevant public filings of the company as filed with the U.S.
Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under the applicable law. Please also note that XPeng’s earnings press release and this conference call include the disclosure of unaudited financial measures, as well as unaudited non-GAAP financial measures. XPeng’s earnings press release contains a reconciliation of the unaudited non-GAAP financial measures to unaudited GAAP measures.
I will now turn the call over to our co-founder, chairman, and CEO, Mr. He Xiaopeng. Please go ahead.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
Hi, everyone. In the first quarter of 2022, XPeng delivered 34,561 vehicles, representing 159% year-over-year growth. We continue to rank No. 1 among emerging EV makers in China, as measured by vehicle insurance registration volume.
Notably, our monthly deliveries once again exceeded 15,000 units in March, demonstrating a return to the same robust levels as the peak season last year despite the impact of the COVID-19.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
Heading into 2022, our products and technologies’ competitive edge, as well as our brand awareness continued to improve. The demand for our products was strong. In March, our monthly volume of new orders reached a new high. Meanwhile, our order backlog also hit historically high levels.
From March 21, we raised the price across our models by RMB 10,000 to RMB 20,000 in order to cover the cost increase of batteries and raw materials and chips. Following the price increase, consumer demand for the mid- to high-end BEV segment has remained resilient. We expect our new orders in May, excluding some cities impacted by the COVID-19, will return to the levels before the rise in price.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
According to the data released on Chinese passenger vehicle insurance registrations, the BEV penetration rate in March reached over 24% and, in particular, exceeded 30% in Shenzhen and Shanghai. While the industry is changed under the current impact of COVID-19-related restrictions and raw material price surges, the long-term trend of increasing BEV adoption and the strong growth trajectory will continue. I believe our relentless efforts to advance our product’s competitiveness, technological advancement, intelligent capabilities and quality in addition to the ever-growing brand awareness position us well as we work to gain market share in the mid- to high-end BEV market segment and pursue our strong growth strategy.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
Now turn to supply chain management, given the COVID-19 resurgence. Starting in early April, COVID-19 infection spiked in certain cities and the related lockdown policies have led to serious challenges to the auto supply chain. Based on our earlier judgment of the supply chain risk in 2022, we have stepped up our preparation for our supply chain and build inventory for some key components.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
During such challenging period, we heightened our focus on strengthening our core capabilities. We work to reinforce our supply chain system and R&D capability, advancing our core competencies to better position our company amid the ongoing challenges of industrywide auto part shortage and cost inflation. For example, we have established partnerships with a number of industry-leading battery suppliers since 2021 in order to diversify our battery supply, which we are on track to accomplish such diversification in the second quarter of 2022. This will help reduce the risk of supply location and supplier concentration, serving to directly boost our future delivery efficiency, including from the second quarter of 2022 on and the burn cost optimization in the long run.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
The chip supply challenge may persist longer. In terms of our chip-related supply chain management, we have started to gradually develop our in-house R&D capabilities for our powerful embedded systems hardware and underlying software platform since 2015, and we expect to deploy such event platform in a broader scale across our new models from this year. Our pursuit of developing such technologies in-house enables us to quickly address the chip supply shortage and enhance verification, integration and implementation of alternative chips much more efficiently. It also provides a highly flexible infrastructure technology platform for us to tackle the semiconductor chip shortage challenges and strengthen our cost control capability.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
XPeng’s manufacturing is mainly based in Guangdong. Thanks to the successful containment of the resurging COVID-19 outbreaks in the Guangdong province and government support from central and local authorities, the supply chain in key areas is gradually recovering. We have resumed double chip production at our Zhaoqing plant since mid-May and are making every endeavor to accelerate vehicle delivery to better serve our customers.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
I would also like to highlight that our long-term investment in smart EV technology supports our ability to build up customer trust and loyalty, as well as distinctive smart technology brand equity. Our highly NGP mileage penetration rate in the first quarter was nearly 70%. And by the end of the first quarter, our highway NGP had assisted our customers in driving more — driving for more than 24 million kilometers. These achievements will allow us to pave the way to make our next generation full scenario advance driver-assistance system available to a broader customer base.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
In February, we OTA released our LIDAR-enabled Valet Parking Assist function that offers automated parking across different floors in multi-storey parking lots, marking the industry’s first mass-produced solution ever. In the near future, we plan to OTA release the industry’s first mass-produced LIDAR-enabled adaptive cruise control and lane centering control function. It is built on augmented perception capabilities by adopting camera and LIDAR fusion, which enables better detection of drivable areas and surrounding traffic participants, making optimal decisions to ensure a safer and more comfortable driving experience.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
In mid-May, we successfully completed test of the latest engineering version of our city NGP in Guangzhou. Navigating through the very complex driving scenarios across a broader area of downtown Guangzhou, our city NGP demonstrated a smooth driving experience with high safety standards. We will continue to improve the customer experience of our city NGP through SaaS iteration of the software. As soon as we obtained the related approval for high-definition maps of city roads, we plan to launch the city NGP and progressively roll out to more cities.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
Once the city NGP is capable of handling end-to-end driving scenarios, we believe there will be a fundamental change to customers’ driving experience, bringing it to a man machine copilot stage. Leveraging our proprietary technologies of highway NGP, VPA-L, LCC.L and city NGP, along with our unique closed loop of data capabilities, I’m confident that our next-generation advanced driving assistance system from G9 will be superior to solutions offered by our peers in terms of safety, performance, cost and generalization.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
Our vision is to make the events driving the system available to a much broader customers. Ultimately transitioning to full autonomous driving will never simply stack up smart hardware components, we resolved to develop robust full scenario autonomous driving system with strong performance and a high level of safety at affordable cost, therefore, creating greater value for our customers and our company.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
With our in-house developed full stack software and core hardware at advanced level, our next step is to deeply integrate ADAS, smart cockpit, smart chassis, next-generation electronic and electric architecture and powertrain systems, lifting comprehensive capabilities of our future smart EV products while allowing us to provide brand-new smart product experience with lower cost.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
On May 9, we made our XPILOT software as standard configuration on mid- and high-end versions of our existing EV models. This will allow us to accelerate the penetration of XPILOT software, strengthen our capabilities to provide innovative functions through cross-domain integration and make our XPILOT more affordable through economies of scale. With the upcoming mass adoption of our XPILOT, as well as our advancement toward level four autonomous driving technology in 2026, we believe more business models to monetize new software and new ecosystem will emerge.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
Moving on to our product pipeline. Given the fact that the COVID situation is well contained in the Guangdong province, where our headquarters is located, the R&D of all new models is progressing well. In March, the P7 become the first BEV model among emerging Chinese EV makers to reach the benchmark production volume of 100,000 units. Meanwhile, its monthly delivery exceeded 9,000 units.
The G9 is our flagship SUV model. We plan to officially launch G9 in the third quarter, followed by mass deliveries in the fourth quarter. The G9 is powered by industry-leading 800-volt high-voltage powertrain platform next-generation events driving assistance — driver-assistance platform and electronic and electric architecture. We hope the G9 will become a benchmark model in its segment, both in comfort and luxury in addition to those industry-leading technologies.
We also expect G9 to become a blockbuster model in the medium- to large-sized smart electric SUV market.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
In 2023, we plan to introduce two new models. One is based on our new B class platform and the other is built on our new C Class platform. We expect these two new models to feature several industry-first technology innovations in addition to their superior design. In combination with the existing models, our product portfolio will strengthen our presence and leadership in each of the subsegment of RMB 150,000 to RMB 400,000 price range.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
In addition, the development of our flying vehicle is well on track with XPeng Aero HT, a portfolio company in our ecosystem. According to its latest product design, the two-seat flying vehicle’s core is still a car that mainly drive on the road, while users may conduct safe flights with vertical takeoff and landing when road conditions are open and appropriate. It will deliver a brand-new mobility experience for our customers from 2026 or in the near future in suburban areas of cities where people can actually experiment a new combination of mobility experience.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
We’ll focus on the platform-based architecture and apply modular design and next-gen manufacturing processes when defining our new models to allow more models to share the same powertrain platform, ADAS and electronic and electric architecture, etc. I believe drawing on the success of the P7, we’ll be able to achieve structural gross margin improvement from the G9 and subsequent new models to be unveiled. Our medium- and long-term goal is to increase our company-level gross margin to above 25%.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
Now on the supercharging network front, XPeng’s self-operated charging stations featuring a wide geographic coverage and a better user experience have already become one of XPeng’s core competitive advantages. As of April 30, 2022, the number of XPeng self-operated charging stations increased to 954, including 774 self-operated supercharging stations and 180 destination charging stations. With the G9 mass delivery, we’ll deploy next-generation 480-kilowatt supercharging piles in the fourth quarter to provide a superior charging experience, enabling 200 kilometers range after a five-minute charge.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
Frankly, the macro environment this year is brought with challenges, but it is clear that these challenges do not change the long-term fast growth trends in the smart EV market. As BEV penetration rate continues to ramp up, independent domestic EV brands are gaining consumers’ mind share and making their foray in the mid- to high-end market segments. Smart technology and innovation are here to stay, accelerating the pace of the disruption of those incumbents and presenting an opportunity for industry leaders armed with outstanding competitive edges to shine. Leveraging our leading-edge R&D technology and strong optimization and execution capabilities, XPeng is well poised to capitalize on the opportunities to reshape the market, cementing our leadership position with growing market share.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
For the rest of the second quarter, we’ll continue to work hard to overcome the negative impact of the ongoing COVID-19 outbreaks and the supply chain pressures. For the second quarter of 2022, deliveries of vehicles are expected to be between 31,000 and 34,000 and the total revenues in the second quarter is expected to be between RMB 6.8 billion and RMB 7.5 billion.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
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 2022.
Dennis LuVice President of Finance
Thank you, Mr. He, and hello, everyone. Now, I would like to provide a brief overview of our financial results for the first quarter of 2022. I will reference to RMB only in my discussion today, unless otherwise stated.
Our total revenues were RMB 7.5 billion for the first quarter of 2022, an increased 153% year over year and a decrease of 13% quarter over quarter. Revenues from vehicle sales were RMB 7 billion for the first quarter of 2022, an increase of 149% year over year and a decrease of 14.5% from the last quarter. The year-over-year increase was mainly attributable to higher vehicle deliveries, especially for the P7 and P5, while the quarter-over-quarter decrease was associated with the less vehicle deliveries affected by the seasonal factors relating to the Chinese New Year holiday. Gross margin was 12.2% for the first quarter of 2022 compared with 11.2% for the same period of 2021 and 12% for the last quarter.
Repo margin reached 10.4% for the first quarter of 2022 compared with 10.1% for the same period of 2021 and 10.9% for the last quarter. The quarter-over-quarter decrease was primarily attributable to increase in raw material costs. R&D expenses were RMB 1.2 billion for the first quarter of 2022, an increase of 128% year over year and a decrease of 15.9% quarter over quarter. The year-over-year increase were mainly due to, No.
1, the increase in employee compensation as a result of expanded research and development staff, and No. 2, high expenses relating to the development on new vehicle models to support future growth. The quarter-over-quarter decrease was mainly explained by less design and development expenses, which were affected by the seasonal factor relating to the Chinese New Year holiday. SG&A expenses were RMB 1.6 billion for the first quarter of 2022, an increase of 128% year over year and a decrease of 18.5% quarter over quarter.
The year-over-year increase was mainly due to, No. 1, higher marketing, promotional and advertising expenses to support vehicle sales, and No. 2, the expansion of our sales network and associated personnel costs and commission paid to the franchise store sales. The quarter-over-quarter decrease was mainly associated with the seasonal factors I mentioned about.
As a result of the foregoing, loss from operations were RMB 1.9 billion for the first quarter of 2022 compared with RMB 0.1 billion for the same period of 2021 and RMB 2.4 billion for the last quarter. Net loss was RMB 1.7 billion for the first quarter compared with RMB 0.8 billion for the same period a year ago and RMB 1.3 billion for the last quarter. As of March 31, 2022, our company had cash and cash equivalents, restricted cash, short-term deposits, short-term investment and long-term deposits in total of RMB 41.7 billion. To be mindful of the dense of the 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.
Operator
Thank you. [Operator instructions] Your first question comes from Tim Hsiao from Morgan Stanley.
Tim HsiaoMorgan Stanley — Analyst
[Foreign language] So I’ve got two questions. So the first question, just want to quickly follow up on expense previous spec change. The company now makes the XPILOT standard features for Sedan P5 and P7 models, which will surely go out to the user experience in the adoption rate. But could you share a little bit about the company’s new software strategy and the plan? We plan to restart charging users with XPILOT software in the future with AP from like XPILOT 2.0.
And is that going to be a bit challenging to resume the fee collection if most of the peers have followed us to launch free software ecosystem business model? And my second question is about the margin trajectory. Could you please update when the contribution for the orders with new prices will kick in? I recall management mentioned it might be late June, but I’m not sure if there’s any further changes amid recent supply chain disruption. As battery cost would likely be further climbing in the second quarter, do you have enough, the low-cost inventory for component battery, to compete the low-price orders delivery in both April and May or we can leverage our more diversified battery supply chain? So those are my two questions. Thank you.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
So thank you. Very good question. Currently speaking, in terms of our pricing on top of our ADAS technology, as well as our software, I believe that, among all of the emerging EV makers in China, we are doing the best in terms of our penetration rate, adoption rate, as well as the final results. However, we did notice a trend in the market, which is that if you separate the charging for the software as well the hardware from the perspective of the customers or the consumers, it rather — it is actually better to do a combined or a bulk charging package that combines the usage or the adoption of the hardware together with the software rather than doing it separately.
So if we can do this kind of integrated pricing model for both the software and the hardware, it would be actually very beneficial for our future upgrade of the software in terms of the adoption of the ADAS technologies, the upgrading of our smart cockpit, smart chassis, as well as the overall software performance together combined with the hardware performance. Right now, we are in the mid-level of ADAS technology application. In the future, I believe in the near future, when we are able to really move toward a higher level of ADAS technology application, which we internally call the man machine co-driving experience, we believe, at that point in time, we should be able to do a lot more OTA upgrades of our software with this kind of integrated pricing model that combine both the hardware and software so that we can increase and enhance the overall experience for our products, for our overall user experience, as well as — be very beneficial for the overall company gross margin as well. And so we believe this kind of integrated pricing model for both the hardware and software together will be more beneficial and sustainable for the long run.
And in the future, we believe that more monetization or capitalization that based on the software usage or adoption will emerge as we continue to accumulate more data and more user experience based on the launch of our software and hardware together. For example, there are different kinds of monetization that can be based on the time spent or the used time spent with our software or based on the mileage that our consumers or our customers use on our products or services. Overall speaking, we believe that this kind of integrated pricing model will actually be more beneficial and sustainable in the long run that allow us to further optimize our user experience.
Brian GuVice Chairman and President
Hey, Tim. This is Brian. Let me just add a couple of comments. First of all, we have been witnessing the various software monetization.
It has been implemented by various companies in China. And so far, I think it is quite clear that the separate charging and also subscription-based models has not been very prevalent in the China market. In some ways, I think, it has limited the broader penetration of the utilization of these technologies. We believe that at this stage of the market, our core focus is to make sure that we provide optimal service package that can be widely used that increasing the penetration and coverage and witnessing the stickiness of our technology is probably the first priority before we actually implement various different monetization strategies.
So that’s why I think we are adopting the current standardized charging model. But I think in the long run, when we actually see advanced main technology, see more broader utilization and also stickiness and dependence of this technology, I’m sure we’ll be able to have much more robust monetization and variations that we can use for the Chinese market. And I’ll hand over to Dennis for the second question.
Dennis LuVice President of Finance
Tim, this is Dennis. Yes, in the previous earnings call, we mentioned we will be able to deliver most of the new price orders probably sometime in June, maybe in the second half of June. Because the COVID impact, especially in the Shanghai area, now we are looking to deliver the lowest price protected orders until June. So most of the new price order will be delivered probably starting in very late June and some starting in July.
That’s the present assessment of the delivery.
Alex XieHead of Investor Relations
Next question, please.
Operator
Thank you. Your next question comes from Nick Lai from J.P. Morgan.
Nick LaiJ.P. Morgan — Analyst
[Foreign language] My two simple questions. First is on monthly production. You mentioned you’re guiding second quarter production of 31,000 to 34,000 units, and that translates into roughly about 11,000 to 12,500 units per lot. Does that mean potentially we have production loss somewhere about top of 20% in the rest of 2Q? And is it possible that this production loss can be recovered in third quarter? And maybe an update on chip supply? And the second question is really on battery supply pricing with the supplier.
Thank you.
Brian GuVice Chairman and President
Hey, Nick. It’s Brian. Let me answer your first question. First of all, you’re correct.
Our quarterly guidance for the delivery this quarter reflect a bottleneck in the supply chain, which has been impacted in April, as well as May and likely in June as well. So this is actually a number that reflected that we cannot obviously have the full output even with the capacity of the factory running at a full capacity. It’s still limited by the supply chain constraints. We envision that if the supply chain resumes normally, we’ll be able to catch up with the volume in the third quarter because we have sufficient capacity to ramp up production at a time.
So I think we’re confident that as soon as the impact in Shanghai area and some other area that resumes normally, we’ll be able to produce enough output to accelerate the delivery and to meet the customer demand, which we’re seeing is very robust.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
So yes, let me just address the question regarding the chips visibility. So if there was any COVID resurgence in China right now, I think the majority of our peers or all of the new EV makers in China right now will be actually restricted by the capacity or the supply of the chips in general. According to our latest calculation, every single unit or every single product of ours will need an average of 5,000 chips. And for some parts of the car, that will require about a dozen or several dozens of the same chips for just one part of the car.
And for some of the main chips, actually, for example, three kinds to five kinds of the main chips, their capacity is actually OK and their supplier is actually OK. But the main shortage actually comes from some of the smallest and the cheapest ones, the chips, and their capacity is very, very limited. And the visibility is also very limited in China as well. April, I would say I was performing actually quite well in terms of the capacity and the supply of the chips in this regard.
However, believe that in China, I mean, the visibility to chips in general going forward is still very, very limited and how its impact on our capacity is also going to last for a while. Now from 2020 on, we begin to notice the crisis in shortage of chip supplies in general. And by 2021, we thought that while maybe a crisis can be resolved or at least alleviated to some extent by the end of 2022, but now our latest judgment is that the situation is going to — I mean the crisis is going to still last for a while, maybe ahead into 2023 or even longer. Now there are several resolutions there.
For example, signing long-term contracts with our chip supplier can be one of them. And the other is, really, as I mentioned in my previous remarks, that we need to build a very capable team, technological team that have very strong capability in building embedded architecture that allow our platform to be very, very flexible in adapting to the supply shortage of chips. For example, we can — we should be able to adapt to, for example, the shortage in chips in some parts of the platform or some parts of our product, and we can change flexibly according to the supply of different chips and different parts of the units. And then as I mentioned earlier, in April, we did actually quite OK in terms of the visibility of the chips.
And sometimes we only have one week’s visibility into the future in terms of our chip and how it affects our capacity. So overall, I would say the situation, it’s still not very positive at the moment. Thank you.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
All right. Let me address the second half of your question with regards to the capacity and the pricing of battery supplies. Now in 2021, our battery supply was greatly restrained that resulted in a lot of issues for us in terms of our deliveries, as well as our overall capacity of production. From 2020 on and also from — I think, from this year and all the way to the first half of 2023, I think the battery supply situation will actually become better.
And since from last quarter — well, from Q4 last year, all the way to the first month into 2022, we begin to notice that there are a lot of pricing increase in terms of the supply of battery, mainly due to the increase of raw materials of making those new energy batteries, which include a lot of price increase in lithium materials. And we noticed that kind of price increase in China, domestically speaking, but not so much in the overseas market. We believe that the pricing of lithium, the raw material overall, remained the same as the situation back in the first half of 2021. And because of the current COVID resurgence, as well as the price increase in lithium materials, I think, overall, the situation remains very hard.
But the whole industry is not just for ourselves, but then the situation can begin to result or the pricing of batteries will continue to reduce slightly from the second quarter of this year on. Now for the second quarter of this — I mean for the second half of 2022, we should be able to see some adjustment or some optimization of our battery supply because we are able to adopt multi suppliers of our batteries, which really can be beneficial in resolving some of the issues that resulted from like cost batteries supplied from previous quarters. And we — from Q2 on, we believe that we would begin to actually see a lot of progress in this regard. And the second thing is, with multiple suppliers of batteries, we can do better cost optimization of our products as well.
I think in the mid-term, the battery pricing will continue to actually reduce from the current high level, but probably not — probably they won’t be able to reduce to the low level as we saw in previous years. However, we are very confident that XPeng is benefiting from our supercharging technology as our SIC charging materials adoption, also some of the optimization in our technology advancement in reducing the wind resistance, in reducing the overall weight of our product, as well as to overall high efficiency of utilizing the batteries, as well as adopting multiple supply of batteries can benefit us in the long run and can allow us to continue to serve our customers with enough actually production of our products going into the second half of this year. And we believe that from the second half of 2022 on, we should be able to continue to boost ourselves of new products benefiting from the above factors that I just mentioned. Thank you.
Alex XieHead of Investor Relations
Next question, please.
Operator
Thank you. Your next question comes from Bin Wang from Credit Suisse.
Bin WangCredit Suisse — Analyst
[Foreign language] My question is about the margin outlook in the second quarter or the second half of this year because we see the different factors. Is it [Inaudible] the higher-priced products can only kick in, in the third quarter that’s why second quarter maybe stand decline compared to first quarter in the gross margin? And the No. 3 quarter, second half can assume the gross margin can reach out high when the high pricing products start to help. And the second part, you recently changed the software pricing.
What’s the impact of low gross margin in the second quarter and third quarter? That’s No. 1 question. Inventories about new products, as you mentioned, there will be a large-sized products and large products in the 2023. And so what’s the pricing range? What’s the margin? Can they be above the 20% gross margin because you are guiding a target 25% margin in 2025 or mid-term? Thank you.
Dennis LuVice President of Finance
Wang Bin, this is Dennis. Let me address your first question. Yes, you’re right. Because of the COVID impact, our second quarter volume was impacted compared with our original projection.
So our second quarter gross margin will be impacted as well. We will further investigate the impact and also take some action to recover the margin in the second quarter. And going to the third quarter, yes, we will deliver new price orders. So our margin in the third quarter will rebound — will improve.
However, we are seeing — we will have further margin improvement in the quarter four when we had new model delivery to the market. So our margin in second quarter will be slightly impacted by the delivery — the new price order, and then third quarter will improve, and then first quarter will further improve. That’s our present projection.
Brian GuVice Chairman and President
Yeah. And Bin, let me finish. Just to answer your second question. Yes, the products that we’re going to introduce next year, which will include a product coming from a C Class platform will be at a premium to the current portfolio of products that we have, including the G9.
So you can expect that will be close to or even exceeding the RMB 400,000 price range. And for such a product, that we certainly hope it will have high gross margin. So 20% will be very important benchmark for us to target our product design. But for that product, I think, assuming a 20% or above product margin is actually reasonable.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language] And also, internally speaking, our expectation for these two new products is that their capability or the overall performance combined will be actually more superior than two P7s combined.
Bin WangCredit Suisse — Analyst
[Foreign language]
Brian GuVice Chairman and President
Right now, we’re not giving guidance, given the lack of visibility of the, I would say, material prices, as well as the overall environment. But we are hopeful that the rebound will be pretty robust from second quarter levels.
Bin WangCredit Suisse — Analyst
Thank you.
Alex XieHead of Investor Relations
OK. Next question.
Operator
Thank you. Your next question comes from Jeff Chung from Citibank.
Jeff ChungCiti — Analyst
[Foreign language] OK. I have three questions. One is due to backlog rolling from the first quarter, how many volume sold in the second quarter will be valued at SRP price hike? This is No. 1.
No. 2 is the newly generated order backlog since the 1st of May. Could you tell us then on the trend, on the newly generated order backlog? And the final question is about the first quarter vehicle margins. Could you break down the vehicle margins without the software? And also separately, could you tell us the first quarter software margin? And for an apple to apple comparison, if we strip off the raw material price hike, what should be the first quarter vehicle margin would have been? Thank you.
Brian GuVice Chairman and President
So, Jeff, this is Brian. Let me answer your second question first, which is the new order trend, and then I’ll leave the number question to Dennis. First of all, as we said in our CEO presentation that we actually saw the order — new order recovery in May in areas that’s not affected by COVID lockdown in certain cities is already near the pre-price increase levels, which is a very encouraging sign because, obviously, we see that demand is genuine and also, it’s actually rebounding pretty nicely. It took us probably a little bit over a month to build up that demand pool.
Obviously, we saw the month of April, we saw slow demand recovery. But in May, actually, the order level is actually quite robust. And I would think it was increasing relaxation of COVID measures in large markets that we target, which are important markets to us. We see the overall order momentum will be quite strong.
Then I’ll hand over to Dennis on the other two.
Dennis LuVice President of Finance
Yes. Jeff, let me address your first question. We don’t provide very precise — for example, the new price order deliveries, the old price order deliveries. But in — at home, the majority of deliveries were the old price protected.
And also in May, majority would be the old price, especially for the P7. Majority of P7 would be the price protection because the backlog is — we need some time to deliver those orders. For your third question, yes, the first quarter, the reason why we can maintain the same gross margin level as quarter four last year was because, No. 1, we have mix improvement.
Our P7, the product mix — product line mix in the first quarter was about 56%. In the quarter four last year, it was about 50%. So that’s a mix improvement. And next one is the variable marketing kind of rationalization.
We technically reduced our variable marketing spending to increase the overall margin. Having said that, we will also impact by two key factors. No. 1 is the NEV reduction, the new energy vehicle reduction, which is about 20% — the subsidy level, about 20% compared with the 2021.
The other one, the big chunk would be the battery cost. I cannot provide the detailed number, but that is a big offset of our — like the mix improvement and also the variable marketing reduction. So all in all, we were able to maintain the quarter four margin level for the moment.
Alex XieHead of Investor Relations
Next question, please.
Operator
Thank you. Your next question comes from Ming Lee from Bank of America.
Ming LeeBank of America Merrill Lynch — Analyst
[Foreign language] So regarding your autonomous driving software. So in the future, will the sales of the software be included in the car price? Or you will still consider to charge the consumer on a one-off or a monthly installment basis? And also, because this time, you give the software a standard configure, but in the meantime, you also pencil free charging and also pencil subsidy for installing charging pile. So is it a margin nature event for your business? And second question, regarding the supercharging technology. So is the 480-kilowatt hour charging pile and also 800 voltage battery, the ultimate battery technology, charging technology? Or in the future, do you expect even further advanced charging technology? Thank you.
Dennis LuVice President of Finance
Ming, let me address your first question. Yes, when we build those software into the vehicle together with the price and, at the same time, we get to eat up the supercharging — free supercharging and also the kind of the destination charge, the home charger and including the installation. And at the same time, we also adjust the price a little bit to cover some of the costs. So overall, the margin impact would be neutral.
And more importantly, with more customer using the software, we will be able to increase the scale and also to dilute the same kind of R&D expense. So overall, that’s a good strategy for us. In terms of the next product, G9 and also the future product, we haven’t really decided yet or subject to further internal discussion. Whether we will continue such practice, we will have another arrangement.
That is subject to our internal discussion. And when we introduce a product, we will also mention that. Now, second question.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
All right. Let me address the second question of yours. Actually, this year, we have made this plan to launch the 480-kilowatt hour charging facility by the fourth quarter. And originally, before heading into 2022, we had planned to actually launch two kind of charging facilitation.
One is 260 kilowatt, the other is 480. But after evaluating the macro environment of this year, we make the final decision of launching 480 kilowatt by Q4 this year that allows for charging for five minutes that lasts for 200 kilometers of driving experience. However, if you actually charge for 10 to 15 minutes, it can give you even a longer driving range, but we haven’t had the final testing results yet. That’s why we are not releasing the number.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
And so for the upcoming year, we believe that with our building of the 480-kilowatt supercharging facility, as well as our 70-kilowatt destination charging, we should be able to actually launch quite a powerful charging network that’s going to cover a wider geographical area in China. And in the coming year, we believe that we are going to welcome a new kind of era optimization, as well as electrification. Now in terms of the improvement of electrification, we believe that as our technology continues to develop in terms of reducing wind resistance, including enhancing the — using the efficiency of the electric system, the power chain, as well as our battery with also the further enhancement of the supercharging infrastructure, we will be able to welcome in a stage where an era where we actually have a higher charging efficiency or effectiveness compared to the traditional gas stations for ICE vehicles, which means that, in the future, the market adoption rate for new — or a new EV will actually be higher because consumers will begin to actually see a great enhancement in using every single dollar for charging their electric vehicles with less usage of power consumption.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
And so the second part of my answer is actually, by the second half of 2023, we expect to see a new development that is revolutionary for electric — for optimization of our technology, which means that, by that time, we should be able to cover the full scenarios of driving and, overall, we can enhance user experience and also the safety standards for using our products as well. And by that time, which means that we should be able to integrate the insulation of our latest technology in the hardware, as well as our software. Together with our combined installation or prefiguration of both the hardware and software together as a standard configuration of our products when we reach the stage of a consistent sales of those kind of pre-installed configuration, we should be able to actually optimize the overall standards for safety, as well as our driving experience because we will be able to put in a lot of the embedded functions that we want to install in our products to optimize the user experience. And overall, that can save a lot of the usage of our hardware and overall to increase the usage efficiency and effectiveness of our hardware in general.
So yes, just to summarize, by the end of this year or by the second half of next year, we should be able to welcome in lots of revolutionary changes in terms of the electrification, as well as optimization in our industry. And the second part of your question is also about the next generation of our charging facility. Yes, we are still in the R&D process. We are constantly developing our technology in order to develop the next generation of supercharging facility that can allow for fast charging of five minutes and that supports an even longer range of driving.
Yes, that’s all for my answer. Thank you.
Alex XieHead of Investor Relations
We will take the last question.
Operator
Thank you. Your next question comes from Jing Chang from CICC.
Jing ChangCICC — Analyst
[Foreign language] So I have some follow-up questions regarding to company adjustment to charging and software activation charges. So the first is regarding to pricing strategy of new model after the integration of software and hardware. We have saw the price difference of different versions of our current model. Taking P5 as an example, the price of P version and E version is RMB 32,000 and RMB 18,000 higher than the key version.
So now about to cover the increase in hardware cost. On our new models such as new — such as G9 will take the benefit of software into account into the pricing strategy that has suppressed difference between different versions of the model we have widened. My second question about, this year, we can see a supply of new models priced at RMB 250,000. It has been increased significantly.
And from all those, you have emphasized their new electrification technology such as C2C and C2D. And we have also heard that more advanced technology will be applied to our new models such as G9 and next year’s new model in the short term, especially in this year and the first half of next year. Do you worry about that competing products will have a great impact on our sales of P5 and P7?
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
So about the first question of yours, yes, in the future upcoming models of ours, including P9 and other new models, we plan to enhance the price gap between different considerations. For example, for higher-end products or higher-end configurations, the price will be higher because they embed or incorporated a lot of our ADAS function, as well as the high — or advanced software. But on the other side of coin is that for lower configuration products, we are actually able to sort of lower the pricing because we will use a better BOM cost optimization for the adoption of lesser events kind of hardware for those kind of low configuration, which can be very beneficial for individual consumers, as well as for us as a company. Now in May, after the adjustment of our pricing that include both the software and hardware, we actually have seen a spike in orders for mid- to higher-end configurations for P5.
That gives us a lot of confidence in going forward because in the future with this kind of new pricing strategy or incorporation of both hardware and software into the one configuration, we should be able to further enhance our overall capacity — I mean, capability in optimizing the user experience, the driving experience, as well as optimizing our gross margin and in adopting more high-level ADAS technologies into our future products.
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
[Foreign language]
Unknown speaker
And regarding P7 or P5, actually ever since our — the launch of city NGP on P5, we’ve been able to actually recognize our leadership position of this model in the market because if our peers were to develop similar products with the same sort of performance, configuration in the coming several years, the pricing of their products will be much higher than ours for P5. And also, we are going to release more information regarding our automation and smart designs for the upcoming products and the current product portfolio in the future when we have them ready. Actually, reviewing the sales performance when we first launched it in July back in 2020, all the way to the — in March 2021 when we launched a highway NGP for P7, we were able to see a strong growth in the total sales or the order number of this particular model with the adoption of NGP. And also for Q1 this year, we were able to record a history — historically high level of 9,000 units of monthly sales for this particular product.
So I would say that overall, we are very confident about our judgment of the positioning of these kind of products in the market in terms of its own positioning, in terms of the product quality, our market share, as well as for the OTA relief in the future that will strengthen our leadership position of this product. Thank you.
Alex XieHead of Investor Relations
Operator, we are ready to conclude this call.
Operator
Thank you. And this includes the Q&A session. I would now like to turn the call over back to the management for closing remarks.
Dennis LuVice President of Finance
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 Group investor relations.
Operator
[Operator signoff]
Duration: 88 minutes
Alex XieHead of Investor Relations
He XiaopengCo-Founder, Chairman, and Chief Executive Officer
Unknown speaker
Dennis LuVice President of Finance
Tim HsiaoMorgan Stanley — Analyst
Brian GuVice Chairman and President
Nick LaiJ.P. Morgan — Analyst
Bin WangCredit Suisse — Analyst
Jeff ChungCiti — Analyst
Ming LeeBank of America Merrill Lynch — Analyst
Jing ChangCICC — Analyst

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