Exhibit 99.1

 

XPeng Inc. 小鵬汽車有限公司* （於開曼群島註冊成立以不同投票權控制的有限公司） (A company controlled through weighted voting rights and incorporated in the Cayman Islands with limited liability) 紐交所代號 NYSE : XPEV 港交所代號 HKEX : 9868 2021 中期報告 INTERIM REPORT * 僅供識別 For identification purposes only

CONTENTS
2 5 12 13 16 18 20 23 88 103 105
Key Achievements Management Discussion and Analysis Report on Review of Interim Financial Information Unaudited Condensed Consolidated Balance Sheet Unaudited Condensed Consolidated Statement of Comprehensive Loss Unaudited Condensed Consolidated Statement of Changes in Shareholders’ (Deficit) Equity Unaudited Condensed Consolidated Statement of Cash Flows Notes to the Condensed Consolidated Interim Financial Information General Information Corporate Information Definitions

2		XPeng Inc.

 

Key Achievements

OPERATIONAL AND FINANCIAL HIGHLIGHTS FOR THE SIX MONTHS ENDED JUNE 30, 2021

 

•

Deliveries of vehicles reached 30,738 in the six months ended June 30, 2021, representing an increase of 459% from 5,499 in the six months ended June 30, 2020.

 

•

Deliveries of the P7 were 19,496 in the six months ended June 30, 2021. XPeng started mass delivery of the P7 in late June 2020.

 

•

Among the total P7s delivered as of the six months ended June 30, 2021, 97% can support XPILOT 2.5 or XPILOT 3.0.

 

•

As of June 30, 2021, XPeng’s physical sales and service network consisted of a total of 200 stores and 64 service centers, covering 74 cities.

 

•

As of June 30, 2021, XPeng-branded super charging stations expanded to 231, covering 65 cities.

 

•

Total revenues were RMB6,712.2 million (US$1,039.6 million) for the six months ended June 30, 2021, representing an increase of 569.3% from RMB1,002.9 million for the six months ended June 30, 2020.

 

•

Revenues from vehicle sales were RMB6,394.7 million (US$990.4 million) for the six months ended June 30, 2021, representing an increase of 600.2% from RMB913.3 million for the six months ended June 30, 2020.

 

•

Gross margin was 11.6% for the six months ended June 30, 2021, compared with negative 3.6% for the six months ended June 30, 2020.

 

•

Vehicle margin, which is gross profit of vehicle sales as a percentage of revenues from vehicle sales, was 10.6% for the six months ended June 30, 2021, compared with negative 5.5% for the six months ended June 30, 2020.

 

•

Net loss was RMB1,981.1 million (US$306.8 million) for the six months ended June 30, 2021, compared with RMB795.8 million for the six months ended June 30, 2020. Excluding share-based compensation expenses and fair value change on derivative liabilities related to the redemption right of preferred shares, non-GAAP net loss was RMB1,792.7 million (US$277.7 million) for the six months ended June 30, 2021, compared with RMB1,414.2 million for the six months ended June 30, 2020.

2021 INTERIM REPORT		3

Key Achievements

 

•

Net loss attributable to ordinary shareholders of XPeng was RMB1,981.1 million (US$306.8 million) for the six months ended June 30, 2021, compared with RMB2,076.5 million for the six months ended June 30, 2020. Excluding share-based compensation expenses, fair value change on derivative liabilities related to the redemption right of preferred shares and accretion on preferred shares to redemption value, non-GAAP net loss attributable to ordinary shareholders of XPeng was RMB1,792.7 million (US$277.7 million) for the six months ended June 30, 2021, compared with RMB1,414.2 million for the six months ended June 30, 2020.

 

•

Basic and diluted net loss per American depositary share (ADS) were both RMB2.49 (US$0.39) and basic and diluted net loss per ordinary share were both RMB1.25 (US$0.19) for the six months ended June 30, 2021.

 

•

Non-GAAP basic and diluted net loss per ADS were both RMB2.26 (US$0.35) and non-GAAP basic and diluted net loss per ordinary share were both RMB1.13 (US$0.17) for the six months ended June 30, 2021. Each ADS represents two Class A ordinary shares.

 

•

Cash and cash equivalents, restricted cash, short-term deposits, short-term investments and long-term deposits were RMB32,871.2 million (US$5,091.1 million) as of June 30, 2021.

RECENT DEVELOPMENTS

Dual-primary Listing in Hong Kong

On July 7, 2021 (the “Listing Date”), XPeng successfully listed its Class A ordinary shares on the Main Board of the Hong Kong Stock Exchange. The Company issued a total of 97,083,300 Class A ordinary shares in the Global Offering. Net proceeds from the Global Offering, after deducting underwriting discounts and commissions, including the over-allotment option, were approximately HK$15,823 million, which will be used in accordance with the use of proceeds as disclosed in the Prospectus. Since the Listing Date and as at the Latest Practicable Date, the Company has not utilized any net proceeds from the Global Offering. For details of the use of proceeds, please refer to the section headed “General Information — (14) Fund Raising Activities”.

Deliveries in August 2021

Total smart electric vehicle (”Smart EV”) deliveries of XPeng reached 7,214 in August 2021, representing a 172% increase year-over-year. The August deliveries consisted of 6,165 P7s, XPeng’s smart sports sedan, and 1,049 G3s, XPeng’s smart compact sport utility vehicle (“SUV”). As of August 31, 2021, year-to-date deliveries reached 45,992, representing a 334% increase year-over-year. P7 deliveries continued to strengthen in August 2021 with a 209% increase year-over-year.

4		XPeng Inc.

Key Achievements

 

Launch of the P5

In September 2021, XPeng launched its third mass-produced model, the P5, a smart family sedan and the world’s first mass-produced light detection and ranging (LIDAR) equipped Smart EV. Customer delivery is expected to start in October 2021. The P5 is equipped with advanced driver-assistance system features powered by XPeng’s full-stack in-house developed XPILOT 3.5 advanced driver assistance system, which extends the Navigation Guided Pilot (NGP) function for highways and expressways to include major urban roads, traffic intersections and other complex city driving scenarios.

Launch of the G3i

In July 2021, the Company launched the G3i SUV, the new mid-cycle facelift version of the G3, with deliveries started in August 2021. Incorporating the P7’s proven family design language, coupled with a brand-new look, the G3i is equipped with an intelligent in-car operating system and a powerful advanced driver-assistance system.

2021 INTERIM REPORT		5

 

Management Discussion and Analysis

FINANCIAL REVIEW

Total revenues were RMB6,712.2 million (US$1,039.6 million) for the six months ended June 30, 2021, representing an increase of 569.3% from RMB1,002.9 million for the six months ended June 30, 2020.

Revenues from vehicle sales were RMB6,394.7 million (US$990.4 million) for the six months ended June 30, 2021, representing an increase of 600.2% from RMB913.3 million for the six months ended June 30, 2020. The year-over-year increase was mainly due to higher vehicle sales especially for the P7, which started mass delivery in late June 2020.

Revenues from services and others were RMB317.5 million (US$49.2 million) for the six months ended June 30, 2021, representing an increase of 254.4% from RMB89.6 million for the six months ended June 30, 2020. The year-over-year increase was mainly attributed to more income from services, parts and accessory sales in line with higher accumulated vehicle sales.

Cost of sales was RMB5,933.8 million (US$919.0 million) for the six months ended June 30, 2021, representing an increase of 471.1% from RMB1,039.0 million for the six months ended June 30, 2020. The year-over-year increase was mainly due to the increase of vehicle deliveries as described above.

Gross margin was 11.6% for the six months ended June 30, 2021, compared with negative 3.6% for the six months ended June 30, 2020.

Vehicle margin was 10.6% for the six months ended June 30, 2021, compared with negative 5.5% for the six months ended June 30, 2020. The improvement was primarily attributable to expansion of product portfolio, favorable material cost reduction and revenue recognition of XPILOT software sales.

Research and development expenses were RMB1,398.6 million (US$216.6 million) for the six months ended June 30, 2021, representing an increase of 121.8% from RMB630.6 million for the six months ended June 30, 2020. The year-over-year increase was mainly due to (i) the increase in employee compensation as a result of expanded research and development staff, and (ii) higher development expenses relating to vehicles and related software technologies.

Selling, general and administrative expenses were RMB1,751.6 million (US$271.3 million) for the six months ended June 30, 2021, representing an increase of 119.2% from RMB799.0 million for the six months ended June 30, 2020. The year-over- year increase was mainly due to (i) higher marketing, promotional and advertising expenses to support vehicle sales, and (ii) the expansion of our sales network and associated personnel cost, and commission for franchised store sales.

6		XPeng Inc.

Management Discussion and Analysis

 

Loss from operations was RMB2,347.1 million (US$363.5 million) for the six months ended June 30, 2021, compared with RMB1,428.4 million for the six months ended June 30, 2020. The higher year-over-year loss was mainly attributable to higher operating expenses as described above.

Non-GAAP loss from operations, which was defined as loss from operations excluding share-based compensation expenses, was RMB2,158.7 million (US$334.3 million) for the six months ended June 30, 2021, compared with RMB1,428.4 million for the six months ended June 30, 2020.

Net loss was RMB1,981.1 million (US$306.8 million) for the six months ended June 30, 2021, compared with RMB795.8 million for the six months ended June 30, 2020.

Non-GAAP net loss, which was defined as net loss excluding share-based compensation expenses and fair value change on derivative liabilities related to the redemption right of preferred shares, was RMB1,792.7 million (US$277.7 million) for the six months ended June 30, 2021, compared with RMB1,414.2 million for the six months ended June 30, 2020.

Net loss attributable to ordinary shareholders of XPeng was RMB1,981.1 million (US$306.8 million) for the six months ended June 30, 2021, compared with RMB2,076.5 million for the six months ended June 30, 2020.

Non-GAAP net loss attributable to ordinary shareholders of XPeng, which is defined as net loss attributable to ordinary shareholders of XPeng excluding share-based compensation expenses, fair value change on derivative liabilities related to the redemption right of preferred shares and accretion on preferred shares to redemption value, was RMB1,792.7 million (US$277.7 million) for the six months ended June 30, 2021, compared with RMB1,414.2 million for the six months ended June 30, 2020.

Basic and diluted net loss per ADS were both RMB2.49 (US$0.39) and basic and diluted net loss per ordinary share were both RMB1.25 (US$0.19) for the six months ended June 30, 2021, compared with RMB11.45 per ADS and RMB5.72 per ordinary share for the six months ended June 30, 2020.

Non-GAAP basic and diluted net loss per ADS, which were defined as non-GAAP net loss attributable to ordinary shareholders of XPeng divided by weighted average number of shares used in calculating basic and diluted net loss per ADS were both RMB2.26 (US$0.35) and non-GAAP basic and diluted net loss per ordinary share, which were defined as non-GAAP net loss attributable to ordinary shareholders of XPeng divided by weighted average number of shares used in calculating basic and diluted net loss per ordinary share were both RMB1.13 (US$0.17) for the six months ended June 30, 2021, compared with RMB7.80 per ADS and RMB3.90 per ordinary share for the six months ended June 30, 2020.

2021 INTERIM REPORT		7

Management Discussion and Analysis

 

LIQUIDITY AND CAPITAL RESOURCES

The Group has been incurring losses from operations since inception. The Group incurred net losses of RMB1,981.1 million and RMB795.8 million for the six months ended June 30, 2021 and 2020, respectively. Accumulated deficit amounted to RMB13,303.6 million as of June 30, 2021. Net cash used in operating activities was approximately RMB2,562.5 million and RMB1,212.7 million for the six months ended June 30, 2021 and 2020, respectively.

The Group’s liquidity is based on its ability to enhance its operating cash flow position, obtain capital financing from equity interest investors and borrow funds to fund its general operations, research and development activities and capital expenditures. The Group’s ability to continue as a going concern is dependent on management’s ability to execute its business plan successfully, which includes increasing market acceptance of our products to boost its sales volume to achieve economies of scale while applying more effective marketing strategies and cost control measures to better manage operating cash flow position and obtaining funds from outside sources of financing to generate positive financing cash flows. In August and December 2020, with the completion of its initial public offering and follow-on offering on NYSE, the Company received the net proceeds, after deducting the underwriting discounts and commissions, fees and estimated offering expenses, of RMB11,409.2 million and RMB15,980.2 million, respectively.

On July 7, 2021, the Class A ordinary share of the Company was listed on the Main Board of the Hong Kong Stock Exchange. In connection with the listing, 97,083,300 new Class A ordinary shares of the Company were issued and allotted at the offer price of HK$165 per Class A ordinary share. Net proceeds from the listing, after deducting the underwriting fees and commissions, including the over-allotment option, were approximately HK$15,823.3 million.

As of June 30, 2021, the balance of cash and cash equivalents, restricted cash, excluding RMB8.5 million (December 31, 2020: RMB35.6 million) restricted as to withdrawal or use for legal disputes, short-term deposits, short-term investments and long-term deposits was RMB32,862.7 million (December 31, 2020: RMB35,306.6 million).

The following table provides information regarding our cash flows for the six months ended June 30, 2021 and 2020:

 

		Six Months Ended June 30,
		2021				2020
		(RMB in thousands)
Cash, cash equivalents and restricted cash at beginning of the period			31,541,533				2,407,743
Net cash used in operating activities			(2,562,481	)			(1,212,667	)
Net cash used in investing activities			(13,519,733	)			(165,240	)
Net cash provided by financing activities			1,409,745				868,329
Effects of exchange rate changes on cash, cash equivalents and restricted cash			(276,918	)			(2,857	)
Net decrease in cash, cash equivalents and restricted cash			(14,949,387	)			(512,435	)
Cash, cash equivalents and restricted cash at end of the period			16,592,146				1,895,308

8		XPeng Inc.

Management Discussion and Analysis

 

INTEREST-BEARING BANK AND OTHER BORROWINGS

In May 2017, Zhaoqing Xiaopeng Automobile Co., Ltd.* (肇慶小鵬汽車有限公司) obtained a facility, specified for expenditures of the construction of Zhaoqing manufacturing plant, of up to RMB1,600.0 million from Zhaoqing High-tech Zone Construction Investment Development Co., Ltd. (“Zhaoqing High-tech Zone”). In December 2020, RMB800.0 million out of the RMB1,600.0 million borrowings from Zhaoqing High-tech Zone was repaid and concurrently a borrowing equivalently amounting to RMB800.0 million was obtained from a bank in the PRC, with a maturity date from December 18, 2020 to December 17, 2028. As of June 30, 2021, the effective interest rate of the RMB800.0 million loans from Zhaoqing High-tech Zone and the RMB800.0 million bank loans is 4.90% and 4.98% per annum, respectively. As of June 30, 2021, the principal amount of RMB4.0 million was repaid in advance. As of June 30, 2021, all of the bank loans and other borrowings of the Group were denominated in RMB and were at fixed interest rate, and the Group had not been in violation of any of the covenants pursuant to the applicable agreement(s) entered with the lenders.

TREASURY POLICY

If the Group determines that its cash requirements exceed the amount of cash and cash equivalents it has on hand at the time, it may seek to issue equity or debt securities or obtain credit facilities.

PLEDGE OF ASSETS

As of June 30, 2021, the Group pledged a restricted deposit of RMB1,147.2 million (December 31, 2020: RMB2,332.1 million) for the issuance of letter of guarantee, bank notes, forward exchange contracts and legal disputes. Certain manufacturing buildings of Zhaoqing plant with a total appraised value of RMB351.5 million (December 31, 2020: RMB1,206.4 million) were secured for the long-term bank loan.

GEARING RATIO

Gearing ratio equals total debt divided by total equity as of the end of the period. Total debt is defined to include short-term borrowings, current portion of long-term borrowings and long-term borrowings which are all interest-bearing borrowings. As of June 30, 2021, the gearing ratio of the Group is 4.9% (December 31, 2020: 5.3%).

MATERIAL INVESTMENTS

For the six months ended June 30, 2021, the Group did not have any significant investments (including any investment in an investee company with a value of 5% or more of the Group’s total assets as of June 30, 2021).

As of June 30, 2021, the Group did not have other plans for material investments and capital assets.

2021 INTERIM REPORT		9

Management Discussion and Analysis

 

CAPITAL COMMITMENTS AND CAPITAL EXPENDITURE

The Group had capital commitments amounting to RMB739.9 million for the acquisition of property, plant and equipment as of June 30, 2021, which was primarily for Guangzhou and Zhaoqing plants.

CONTINGENT LIABILITIES

As of June 30, 2021, the Group did not have any material contingent liabilities.

MATERIAL ACQUISITION AND DISPOSAL

On May 20, 2021, the Group entered into a restructuring agreement to acquire 100% of the equity interest of Jiangsu Zhitu Technology Co., Ltd.* (江蘇智途科技股份有限公司, 832282.NEEQ) with cash consideration of RMB250 million (the “Zhitu Acquisition”). Closing of the Zhitu Acquisition occurred on June 23, 2021. For further details of Zhitu Acquisition, please refer to the Prospectus.

RISK MANAGEMENT

Foreign Exchange Risk

The Group uses Renminbi as its reporting currency. Most of the Group’s revenues and expenses are denominated in Renminbi, while the Group also has certain portion of cash denominated in the U.S. dollar from its financing activities. The functional currency of the Company and subsidiaries in the United States and Hong Kong is the U.S. dollar. The functional currency of subsidiaries in the PRC, the variable interest entity (“VIE”) and the VIE’s subsidiaries is the Renminbi. The Group believes that it currently does not have any significant direct foreign exchange risk arising from its operating activities. As of June 30, 2021, the Group did not hold any financial instruments for hedging purposes.

Interest Rate Risk

The Group has not been exposed to material risks due to changes in market interest rates, and it has not used any derivative financial instruments to manage the interest risk exposure. The Group may invest the net proceeds from the Listing on the Hong Kong Stock Exchange in interest-earning instruments. Investments in both fixed rate and floating rate interest-earning instruments carry a degree of interest rate risk.

10		XPeng Inc.

Management Discussion and Analysis

 

EMPLOYEES AND REMUNERATION POLICIES

The following table sets forth the breakdown of the Group’s employees by function as of June 30, 2021:

 

Function		Number of Employees
Research and development			3,091
Sales and marketing			3,447
Manufacturing			988
General and administration			77
Operation			320
Total			7,923

The Group primarily recruits the employees through recruitment agencies, on-campus job fairs, referrals, and online channels including the Company’s corporate website and social networking platforms. The Group has adopted a training policy, pursuant to which technology, corporate culture, leadership and other trainings are regularly provided to the Group’s employees by internal speakers and third-party consultants.

The Group offers its employees competitive compensation packages and a dynamic work environment that encourages initiative. The Group participates in various government statutory employee benefit plans, including social insurance, namely pension insurance, medical insurance, unemployment insurance, work-related injury insurance and maternity insurance, and housing funds. In addition, the Group purchased employer’s liability insurance and additional commercial health insurance to increase insurance coverage of its employees.

BUSINESS OUTLOOK

We pursue the following strategies to accomplish our mission:

 

•

Accelerate investment in and advancement of our technologies

Technology is our key differentiation and our core focus. We will relentlessly focus on technology innovations to continue upgrading our proprietary advanced driver-assistance system, intelligent operating system as well as core vehicle systems. With our continued investment in research and development, we aim to stay at the forefront of Smart EV technology development and product innovations.

2021 INTERIM REPORT		11

Management Discussion and Analysis

 

•

Expand monetization of our software and content offerings

We expect to expand monetization of software and content offerings by introducing more advanced technologies and premium features, increasing attach rate and enhancing our value propositions to customers. We aim to further ramp up the adoption and attach rate of our XPILOT software as we continue to improve our intelligent driving software and hardware technologies. Additionally, we plan to make more value-added services and content available to our customers, thereby further expanding monetization from content offerings.

 

•

Continue to rapidly expand our product portfolio based on our platform approach

We intend to continue our fast pace of product offering expansion by leveraging our highly flexible Smart EV platforms, which currently include the David platform and the Edward platform. Our platform approach will enable us to optimize efficiency in product development, supply chain and manufacturing. We plan to continuously launch new Smart EV models and upgrades to broaden our addressable market and serve the demands of a wide range of customers.

 

•

Invest in building our leading Smart EV brand

We intend to continue solidifying our brand image that exemplifies smartness, quality and performance. We also strive to continue upgrading our brand positioning through launching various innovative and premium products, such as the P7 Wing edition with its luxury sports vehicle design. We seek to promote our brand awareness through various marketing initiatives, including online marketing, advertising, promotions and public events.

 

•

Increase the scale of our sales, service and super charging networks

We intend to continue to broaden our sales and service network to better engage and serve our customers, by expanding the presence of physical stores in cities which we believe have strong demand for Smart EVs and strengthening our online presence through strategic collaborations with major online platforms in China. Moreover, we plan to substantially expand the network of our XPeng-branded super charging stations to cover a broader range of locations.

 

•

Build and expand our international market presence

We plan to continue to expand into other international markets, starting with certain European markets. We aim to build and enhance our overseas sales and services capability, and to adapt the user interfaces of our software systems to optimize our products and services for consumers in overseas markets.

12		XPeng Inc.

 

Report on Review of Interim Financial Information

To the Board of Directors of XPeng Inc.

(incorporated in the Cayman Islands with limited liability)

Introduction

We have reviewed the interim financial information set out on pages 13 to 87, which comprises the condensed consolidated balance sheet of XPeng Inc. (the “Company”) and its subsidiaries (together, the “Group”) as of June 30, 2021 and the condensed consolidated statement of comprehensive loss, the condensed consolidated statement of changes in shareholders’ (deficit) equity and the condensed consolidated statement of cash flows for the six-month period then ended, and a summary of significant accounting policies and other explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and accounting principles generally accepted in the United States of America (“U.S. GAAP”). The directors of the Company are responsible for the preparation and presentation of this interim financial information in accordance with U.S. GAAP. Our responsibility is to express a conclusion on this interim financial information based on our review and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Scope of Review

We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Hong Kong Institute of Certified Public Accountants. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the interim financial information of the Group is not prepared, in all material respects, in accordance with U.S. GAAP.

Other matter

The comparative information for the condensed consolidated balance sheet is based on the audited financial statements as of December 31, 2020. The comparative information for the condensed consolidated statements of comprehensive loss, changes in shareholders’ (deficit) equity and cash flows, and related explanatory notes, for the six months ended June 30, 2020 has not been audited or reviewed.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, August 31, 2021

2021 INTERIM REPORT		13

 

Unaudited Condensed Consolidated Balance Sheet

(All amounts in thousands, except for share and per share data)    

 

		Note		As of June 30, 2021 RMB				As of December 31, 2020 RMB
				(Unaudited)				(Audited)
ASSETS
Current assets
Cash and cash equivalents		2(e)			15,444,912				29,209,388
Restricted cash		2(f)			1,147,234				2,332,145
Short-term deposits		2(g)			13,159,653				979,897
Short-term investments		2(j), 5			902,826				2,820,711
Accounts receivable, net		6			1,649,601				1,128,892
Current portion of finance lease receivables, net					430,542				156,069
Inventory		7			2,121,072				1,343,025
Amounts due from related parties		23			3,208				682
Prepayments and other current assets		8			1,933,471				1,603,286
Derivative assets		5			3,360				105,183
Total current assets					36,795,879				39,679,278
Non-current assets
Long-term deposits		2(h)			2,216,579				—
Property, plant and equipment, net		9			3,738,809				3,081,502
Right-of-use assets					823,011				461,184
Intangible assets, net		10			858,027				607,781
Land use rights, net		11			380,306				249,934
Finance lease receivables, net					1,031,812				397,467
Other non-current assets		12			406,313				228,633
Long-term investments					44,829				1,000
Total non-current assets					9,499,686				5,027,501
Total assets					46,295,565				44,706,779

14		XPeng Inc.

Unaudited Condensed Consolidated Balance Sheet

(All amounts in thousands, except for share and per share data)

 

		Note		As of June 30, 2021 RMB				As of December 31, 2020 RMB
				(Unaudited)				(Audited)
LIABILITIES
Current liabilities
Short-term borrowings		15			—				127,900
Accounts and notes payable		13			6,457,246				5,111,745
Amounts due to related parties		23			16,595				12,062
Current portion of lease liabilities					218,189				119,565
Current portion of deferred revenue		18			202,326				163,617
Current portion of long-term borrowings		15			—				45,000
Accruals and other liabilities		14			2,611,787				2,256,165
Income taxes payable					—				1,209
Total current liabilities					9,506,143				7,837,263
Non-current liabilities
Long-term borrowings		15			1,596,000				1,645,000
Lease liabilities					582,533				352,501
Deferred revenue		18			287,213				144,767
Other non-current liabilities		16			2,009,599				297,439
Total non-current liabilities					4,475,345				2,439,707
Total liabilities					13,981,488				10,276,970
Commitments and contingencies		24

2021 INTERIM REPORT		15

Unaudited Condensed Consolidated Balance Sheet

(All amounts in thousands, except for share and per share data)    

 

		Note		As of June 30, 2021 RMB				As of December 31, 2020 RMB
				(Unaudited)				(Audited)
SHAREHOLDERS’ EQUITY
Class A Ordinary shares (US$0.00001 par value; 8,850,000,000 and 8,850,000,000 shares authorized, 1,005,616,526 and 971,341,066 shares issued, 984,652,856 and 928,296,786 shares outstanding as of June 30, 2021 and December 31, 2020, respectively)		20			67				63
Class B Ordinary shares (US$0.00001 par value, 750,000,000 and 750,000,000 shares authorized, 429,846,136 and 429,846,136 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively)		20			26				26
Class C Ordinary shares (US$0.00001 par value, 400,000,000 and 400,000,000 shares authorized, 178,618,464 and 178,618,464 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively)		20			12				12
Additional paid-in capital					46,670,937				46,482,512
Accumulated deficit					(13,303,553	)			(11,322,423	)
Accumulated other comprehensive loss					(1,053,412	)			(730,381	)
Total shareholders’ equity					32,314,077				34,429,809
Total liabilities and shareholders’ equity					46,295,565				44,706,779

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

16		XPeng Inc.

 

Unaudited Condensed Consolidated Statement of Comprehensive Loss

(All amounts in thousands, except for share and per share data)

 

				For the Six Months Ended June 30,
				2021				2020
		Note		RMB				RMB
Revenues
Vehicle sales		17			6,394,711				913,269
Services and others		17			317,494				89,581
Total revenues					6,712,205				1,002,850
Cost of sales
Vehicle sales					(5,717,297	)			(963,136	)
Services and others					(216,487	)			(75,830	)
Total cost of sales					(5,933,784	)			(1,038,966	)
Gross profit (loss)					778,421				(36,116	)
Operating expenses(1)
Research and development expenses		2(m)			(1,398,638	)			(630,578	)
Selling, general and administrative expenses		2(n)			(1,751,588	)			(798,974	)
Total operating expenses					(3,150,226	)			(1,429,552	)
Other income					24,707				37,293
Loss from operations					(2,347,098	)			(1,428,375	)
Interest income					285,131				20,953
Interest expenses					(25,148	)			(15,954	)
Fair value gain on derivative assets or derivative liabilities					75,982				618,442
Other non-operating income, net					30,003				9,131
Loss before income tax expenses					(1,981,130	)			(795,803	)
Income tax expenses					—				—
Net loss					(1,981,130	)			(795,803	)

2021 INTERIM REPORT		17

Unaudited Condensed Consolidated Statement of Comprehensive Loss

(All amounts in thousands, except for share and per share data)    

 

				For the Six Months Ended June 30,
				2021				2020
		Note		RMB				RMB
Accretion on Preferred Shares to redemption value					—				(1,280,737	)
Net loss attributable to ordinary shareholders of XPeng Inc.					(1,981,130	)			(2,076,540	)
Net loss					(1,981,130	)			(795,803	)
Other comprehensive loss
Foreign currency translation adjustment, net of nil tax					(323,031	)			(15,399	)
Total comprehensive loss attributable to XPeng Inc.					(2,304,161	)			(811,202	)
Accretion on Preferred Shares to redemption value					—				(1,280,737	)
Comprehensive loss attributable to ordinary shareholders of XPeng Inc.					(2,304,161	)			(2,091,939	)
Weighted average number of ordinary shares used in computing net loss per ordinary share
Basic and diluted		22			1,589,568,703				362,747,375
Net loss per ordinary share attributable to ordinary shareholders
Basic and diluted		22			(1.25	)			(5.72	)
(1)   Share-based compensation was allocated in operating expenses as follows:
				For the Six Months Ended June 30,
				2021				2020
		Note		RMB				RMB
Selling, general and administrative expenses					82,562				—
Research and development expenses					105,867				—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

18		XPeng Inc.

 

Unaudited Condensed Consolidated Statement of Changes in Shareholders’ (Deficit) Equity

(All amounts in thousands, except for share and per share data)

 

						Ordinary Shares								Treasury Shares								Additional				Accumulated Other Comprehensive				Accumulated				Total Shareholders’
						Shares				Par Value				Shares				Par Value				Paid-in Capital				Loss				Deficit				Equity
		Note								RMB								RMB				RMB				RMB				RMB				RMB
Balance as of December 31, 2020							1,579,805,666				105				(43,044,280	)			(4	)			46,482,512				(730,381	)			(11,322,423	)			34,429,809
Share-based compensation			21				—				—				—				—				188,429				—				—				188,429
Issuance of treasury shares			20				8,121,312				1				(8,121,312	)			(1	)			—				—				—				—
Issuance of ordinary shares for the vested Restricted Share Units (“RSUs”)			20				26,154,148				1				30,201,922				3				(4	)			—				—				—
Foreign currency translation adjustment, net of nil tax							—				—				—				—				—				(323,031	)			—				(323,031	)
Net loss							—				—				—				—				—				—				(1,981,130	)			(1,981,130	)
Balance as of June 30, 2021							1,614,081,126				107				(20,963,670	)			(2	)			46,670,937				(1,053,412	)			(13,303,553	)			32,314,077

2021 INTERIM REPORT		19

 

Unaudited Condensed Consolidated Statement of Changes in Shareholders’ (Deficit) Equity

(All amounts in thousands, except for share and per share data)

 

				Ordinary Shares								Treasury Shares								Additional Paid-in Capital RMB				Accumulated Other Comprehensive Loss RMB				Accumulated Deficit RMB				Total Shareholders’ Deficit RMB
				Shares				Par Value				Shares				Par Value
		Note						RMB								RMB
Balance as of December 31, 2019					463,189,950				30				(100,442,575	)			(9	)			—				(5,948	)			(6,824,503	)			(6,830,430	)
Cumulative effect of adoption of new accounting standard		2(i)			—				—				—				—				—				—				(2,074	)			(2,074	)
Repurchase of shares Issuance of treasury shares Accretion on convertible redeemable preferred shares to redemption value		20			(100,442,575	)			(9	)			100,442,575				9				—				—				—				—
		20			50,992,470				4				(50,992,470	)			(4	)			—				—				—				—
		19			—				—				—				—				—				—				(1,280,737	)			(1,280,737	)
Foreign currency translation adjustment, net of nil tax					—				—				—				—				—				(15,399	)			—				(15,399	)
Net loss					—				—				—				—				—				—				(795,803	)			(795,803	)
Balance as of June 30, 2020					413,739,845				25				(50,992,470	)			(4	)			—				(21,347	)			(8,903,117	)			(8,924,443	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

20		XPeng Inc.

 

Unaudited Condensed Consolidated Statement of Cash Flows

(All amounts in thousands, except for share and per share data)

 

				For the Six Months Ended June 30,
				2021				2020
		Note		RMB				RMB
Cash flows from operating activities
Net loss					(1,981,130	)			(795,803	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property, plant and equipment		9			229,404				103,985
Amortization of intangible assets		10			12,098				7,160
Amortization of right-of-use assets					136,375				49,314
Amortization of land use right		11			3,796				2,661
Loss of disposal of property, plant and equipment					444				2,332
Impairment of property, plant and equipment					—				8,516
Impairment of accounts receivable		2(i)			3,309				2,059
Impairment of finance lease receivables		2(i)			6,737				617
Impairment of other current assets		2(i)			418				—
Reversal of impairment of other current assets		2(i)			—				(197	)
Inventory write-downs		7			86,332				16,000
Foreign exchange gains					(29,655	)			(11,503	)
Interest income					(66,047	)			(8,438	)
Share-based compensation		21(b)			188,429				—
Fair value gain on derivative assets or derivative liabilities					(75,982	)			(618,442	)
Changes in operating assets and liabilities:
Accounts receivable					(524,018	)			(154,959	)
Inventory					(988,170	)			(335,946	)
Amounts due from related parties					(2,526	)			17,921
Prepayments and other current assets					(337,136	)			(213,376	)
Other non-current assets					(28,237	)			(18,338	)
Accounts and notes payable					1,345,501				629,685
Deferred revenue					181,155				29,051
Lease liabilities					(169,546	)			(38,350	)
Accruals and other liabilities					308,816				113,270
Other non-current liabilities					49,383				7,087
Finance lease receivables					(915,555	)			(11,830	)
Amounts due to related parties					4,533				4,857
Income taxes payable					(1,209	)			—
Net cash used in operating activities					(2,562,481	)			(1,212,667	)

2021 INTERIM REPORT		21

 

Unaudited Condensed Consolidated Statement of Cash Flows

(All amounts in thousands, except for share and per share data)

 

				For the Six Months Ended June 30,
				2021				2020
		Note		RMB				RMB
Cash flows from investing activities
Placement of short-term deposits					(12,180,511	)			—
Maturities of short-term investments					1,951,650				193,109
Placement of long-term deposits					(2,200,000	)			—
Purchase of property, plant and equipment					(766,220	)			(314,369	)
Maturities of derivative assets					177,805				—
Payment for long-term investment					(43,829	)			(1,000	)
Receipt of government subsidy related to assets					9,310				128,346
Disposal of property, plant and equipment					2,916				27,329
Purchase of intangible assets					(256,241	)			(208,655	)
Disposal of equity investment in a company					—				10,000
Purchase of land use right					(2,103	)			—
Prepayment for purchase of land use right					(212,510	)			—
Net cash used in investing activities					(13,519,733	)			(165,240	)

22		XPeng Inc.

 

Unaudited Condensed Consolidated Statement of Cash Flows

(All amounts in thousands, except for share and per share data)

 

				For the Six Months Ended June 30,
				2021				2020
		Note		RMB				RMB
Cash flows from financing activities
Proceeds from non-controlling interests		16			1,660,000				—
Payments of listing expenses					(28,355	)			—
Proceeds from issuance of convertible redeemable preferred shares					—				1,010,834
Repayment of borrowings		15			(221,900	)			(370,405	)
Proceeds from borrowings					—				227,900
Loans from a related party		23			—				1,063,434
Repayment of loans to a related party		23			—				(1,063,434	)
Net cash provided by financing activities					1,409,745				868,329
Effects of exchange rate changes on cash, cash equivalents and restricted cash					(276,918	)			(2,857	)
Net decrease in cash, cash equivalents and restricted cash					(14,949,387	)			(512,435	)
Cash, cash equivalents and restricted cash at beginning of the period					31,541,533				2,407,743
Cash, cash equivalents and restricted cash at end of the period					16,592,146				1,895,308
Supplemental disclosure of cash flows information
Cash paid for interest, net of amounts capitalized					(65,076	)			(13,284	)
Acquisition of property, plant and equipment included in liabilities					99,787				287,949

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2021 INTERIM REPORT		23

 

Notes to the Condensed Consolidated Interim Financial Information

 

1.	Organization and Nature of Operations

 

(a)

Principal activities

XPeng Inc. (“XPeng” or the “Company”) was incorporated under the laws of the Cayman Islands on December 27, 2018, as an exempted company with limited liability. The Company, its subsidiaries and consolidated variable interest entity (“VIE”) and VIE’s subsidiaries (“VIEs”, also refer to VIE and its subsidiaries as a whole, where appropriate) are collectively referred to as the “Group”.

The Group designs and develops smart electric vehicles. It delivered its first model of smart electric vehicles, G3, commercially in December 2018. The Group manufactures the G3i, the new mid-cycle facelift version of the G3, and the P7 through its own plant in Zhaoqing. The Group delivered its second model of smart electric vehicles, a four-door sports sedan, P7, since May 2020. As of June 30, 2021, its primary operations are conducted in the People’s Republic of China (“PRC”).

 

(b)

History of the Group and Reorganization

The Group commenced its operation through Guangzhou Chengxing Zhidong Automotive Technology Co., Ltd. (“Chengxing”) since 2015. Chengxing was founded by Mr. Heng Xia, Mr. Tao He and Mr. Xiaopeng He (collectively the “Founders”), and subsequently obtained financing from various third party investors (collectively “Third Party Investors”) from 2016 through 2018.

In preparation for its initial public offering (“IPO”), the Group completed a reorganization (the “Reorganization”) in September 2019, which involved the following steps:

 

•

On December 27, 2018, the Company was established under the laws of the Cayman Islands as an exempted company with limited liability.

 

•

On January 7, 2019, XPeng Limited was incorporated in the British Virgin Islands as a wholly owned subsidiary of the Company.

 

•

On February 21, 2019, XPeng (HK) Limited was incorporated in Hong Kong as a wholly owned subsidiary of XPeng Limited.

 

•

On June 21, 2019, Guangdong Xiaopeng Motors Technology Co., Ltd. (“WFOE”) was established as a wholly owned subsidiary of XPeng (HK) Limited in the PRC.

24		XPeng Inc.

 

Notes to the Condensed Consolidated Interim Financial Information

 

1.	Organization and Nature of Operations (continued)

 

(b)

History of the Group and Reorganization (continued)

 

•

On September 2019, the Company issued 17,897,478 ordinary shares, 2,021,635 Series A Preferred Shares, 1,859,082 Series A1 Preferred Shares, 23,343 Series A2 Preferred Shares, 3,198,839 Series B Preferred Shares, 4,361,678 Series B1 Preferred Shares, 1,045,497 Series B2 Preferred Shares, 3,183,626 Series C Preferred Shares and 7,612,147 warrants in aggregate, to the existing shareholders of Chengxing, based on their respective equity interests in Chengxing. Concurrently, as a transitional arrangement and part of the Reorganization, a series of contractual agreements were entered into among WFOE, Chengxing and its existing shareholders, including the exclusive business cooperation agreement, the equity pledge agreement, the exclusive option agreement and the power of attorney. Consequently, WFOE became the primary beneficiary of Chengxing. In May 2020, WFOE exercised its rights under the contractual arrangement and purchased 100% of Chengxing. Consequently, Chengxing became an indirect wholly owned subsidiary of XPeng Inc.

The equity interests held by the existing shareholders in the Company after the Reorganization are the same as the equity interests held by them in Chengxing before the Reorganization. Out of the equity interests issued, 43.44%, 38.09% and 18.47% were in the form of ordinary shares, Preferred Shares and warrants, respectively.

Prior to the Reorganization, the shareholders of Chengxing included individual shareholders and institutional shareholders. Pursuant to laws applicable to PRC residents and entities incorporated in the PRC, PRC individuals should complete registration of its outbound investments (i.e. the foreign exchange registration under State Administration of Foreign Exchange (“SAFE”) Circular 37), and PRC institutional investors should complete its statutory filings and foreign exchange registrations for outbound investment (i.e. ODI), respectively, before such PRC residents or entities’ can legally own offshore investments or equity interests in offshore entities. As such, all PRC individual shareholders and PRC institutional shareholders of Chengxing shall complete their relevant registrations and/or statutory filings, as appropriate, before they can, in accordance with applicable PRC laws, hold directly or indirectly the ordinary shares of the Company, which is incorporated under the laws of the Cayman Islands. The warrants are to reflect the holder’s (indirect) rights, obligations and interest in the Company as if the holders are holding Preferred Shares of the Company before the holders complete their necessary registration for outbound investment to exercise their warrants into Preferred Shares of the Company. Once the holders complete the necessary registration for outbound investment, the holders are required to exercise the warrants immediately at a nil price per share. The warrants are transferrable by the holder subject to approval of the Company’s board of directors. Accordingly, the warrants are accounted for and presented based on the terms on the underlying Preferred Shares that the warrants are exercisable into (see Note 19).

2021 INTERIM REPORT			25

 

Notes to the Condensed Consolidated Interim Financial Information

 

1.	Organization and Nature of Operations (continued)

 

(b)

History of the Group and Reorganization (continued)

 

The shareholders and their respective equity interest in the Company remain the same immediately before and after the Reorganization. Further, the Company, being the holding company after the Reorganization, is a newly established shell company. Accordingly, the Company determined that the Reorganization lacks substance and should be treated as a non-substantive merger with no change in the basis of assets, liabilities and shareholders’ deficits of Chengxing.

These unaudited condensed consolidated financial statements are presented as if the Group Reorganization had already taken place as of the beginning of the period covered by these unaudited condensed consolidated financial statements.

On March 20, 2020, the Company completed a 1:25 share split of all of its ordinary and Preferred Shares of the Company. All shares and per share amounts presented in the unaudited condensed consolidated financial statements have been retrospectively adjusted to reflect the share split.

In August and December 2020, the Company completed its IPO and follow-on offering (“FO”) on the New York Stock Exchange (“NYSE”) (Note 20).

26		XPeng Inc.

 

Notes to the Condensed Consolidated Interim Financial Information

 

1.	Organization and Nature of Operations (continued)

 

(b)

History of the Group and Reorganization (continued)

 

As of June 30, 2021, the Company’s principal subsidiaries and VIEs are as follows:

 

Principal subsidiaries		Place of incorporation		Date of incorporation or acquisition		Equity interest held		Principal activities
Chengxing(1)		PRC		January 09, 2015		100%		Investment holding
Guangzhou Xiaopeng Motors Technology Co., Ltd. (“Xiaopeng Technology”)		PRC		May 12, 2016		100%		Design and technology development
Guangzhou Xiaopeng Automobile Manufacturing Co., Ltd.		PRC		April 07, 2017		100%		Manufacturing of vehicles
Zhaoqing Xiaopeng New Energy Investment Co., Ltd.		PRC		February 02, 2020		100%		Manufacturing of vehicles
Zhaoqing Xiaopeng Automobile Co., Ltd. (“Zhaoqing XPeng”)		PRC		May 18, 2017		100%		Manufacturing of vehicles
Xiaopeng Automobile Sales Co., Ltd.		PRC		January 08, 2018		100%		Vehicle wholesale and retail
Beijing Xiaopeng Automobile Co., Ltd.		PRC		April 28, 2018		100%		Vehicle wholesale and retail, design and technology development
Shenzhen Xiaopeng Automobile Sales Service Co., Ltd.		PRC		August 06, 2018		100%		Vehicle wholesale and retail
Shanghai Xiaopeng Automobile Sales Service Co., Ltd.		PRC		October 10, 2018		100%		Vehicle wholesale and retail
Guangzhou Xiaopeng Automatic Driving Technology Co., Ltd		PRC		November 18, 2019		100%		Technology development
Shanghai Xiaopeng Motors Technology Co., Ltd.		PRC		February 12, 2018		100%		Technology development and vehicle retail
Guangzhou Xiaopeng Smart Charging Technology Co. Ltd		PRC		June 22, 2020		100%		Smart charging technology development
XSense. AI, Inc.		United States		November 27, 2018		100%		Technology development
XMotors. AI, Inc.		United States		January 05, 2018		100%		Technology development
XPeng (Hong Kong) Limited		Hong Kong		February 12, 2019		100%		Investment holding

2021 INTERIM REPORT			27

 

Notes to the Condensed Consolidated Interim Financial Information

 

1.	Organization and Nature of Operations (continued)

 

(b)

History of the Group and Reorganization (continued)

 

As of June 30, 2021, the Company’s principal subsidiaries and VIEs are as follows: (continued)

 

(1)

As a transitional arrangement and part of the Reorganization, a series of contractual agreements were entered into among WFOE, Chengxing and its existing shareholders, including the exclusive business cooperation agreement, the equity pledge agreement, the exclusive option agreement and the power of attorney. Consequently, WFOE became the primary beneficiary of Chengxing. In May 2020, WFOE exercised its rights under the contractual arrangement and purchased 100% of Chengxing. Consequently, Chengxing became an indirect wholly owned subsidiary of XPeng Inc.

(2)	The English names of the subsidiaries and VIEs represent the best effort by the management of the Company in translating its Chinese names as they do not have official English name.

 

		Place of incorporation		Date of incorporation or acquisition		Economic interest held		Principal activities
VIEs
Guangzhou Zhipeng IoV Technology Co., Ltd. (“Zhipeng IoV”) (Note 1(c)(i))		PRC		May 23, 2018		100%		Ride-hailing services and operating the related mobile app
Guangzhou Yidian Zhihui Chuxing Technology Co., Ltd. (“Yidian Chuxing”) (Note 1(c)(ii))		PRC		May 24, 2018		100%		Mobile apps and providing value-added services
VIEs’ subsidiaries
Guangzhou Xintu Technology Co., Ltd. (“Xintu Technology”) (Note 1(c)(i))		PRC		April 27, 2021		100%		Surveying and mapping
Jiangsu Zhitu Technology Co., Ltd. (“Zhitu Technology”) (Note 1(c)(i))		PRC		June 23, 2021		100%		Surveying and mapping

28		XPeng Inc.

 

Notes to the Condensed Consolidated Interim Financial Information

 

1.	Organization and Nature of Operations (continued)

 

 

(c)

Variable interest entity

 

(i)

Zhipeng IoV was established by two shareholders of the Company (the “Zhipeng IoV’s Nominee Shareholders”) on May 23, 2018. On May 28, 2018, Xiaopeng Technology, Zhipeng IoV, and Zhipeng IoV’s Nominee Shareholders entered into a series of contractual agreements, including an equity interest pledge agreement, a loan agreement, exclusive service agreement, exclusive call option agreement and power of attorney that irrevocably authorized Xiaopeng Technology to exercise the equity owner’s rights over Zhipeng IoV. These agreements provide the Company, as the only shareholder of Xiaopeng Technology, with effective control over Zhipeng IoV to direct the activities that most significantly impact Zhipeng IoV’s economic performance and enable the Company to obtain substantially all of the economic benefits arising from Zhipeng IoV. Management concluded that Zhipeng IoV is a variable interest entity of the Company and the Company is the ultimate primary beneficiary of Zhipeng IoV and shall consolidate the financial results of Zhipeng IoV in the Group’s unaudited condensed consolidated financial statements. As of June 30, 2021, Zhipeng IoV did not have significant operations, nor any material assets or liabilities.

On April 27, 2021, Zhipeng IoV established Xintu Technology and became the only shareholder of Xintu Technology. On June 23, 2021, Xintu Technology acquired 100% of the equity interest of Zhitu Technology, which is determined to be an asset acquisition (Note 10(ii)).

 

(ii)

Yidian Chuxing was established by two shareholders of the Company (the “Yidian Chuxing‘s Nominee Shareholders”) on May 24, 2018. On May 28, 2018, Guangzhou Xiaopeng Zhihui Chuxing Technology Co., Ltd, (“Xiaopeng Chuxing”), Yidian Chuxing, and Yidian Chuxing‘s Nominee Shareholders entered into a series of contractual agreements, including an equity interest pledge agreement, a loan agreement, exclusive service agreement, exclusive call option agreement and power of attorney that irrevocably authorized Xiaopeng Chuxing to exercise the equity owner’s rights over Yidian Chuxing. These agreements provide the Company, as the only shareholder of Xiaopeng Chuxing, with effective control over Yidian Chuxing to direct the activities that most significantly impact Yidian Chuxing’s economic performance and enable the Company to obtain substantially all of the economic benefits arising from Yidian Chuxing. Management concluded that Yidian Chuxing is a variable interest entity of the Company and the Company is the ultimate primary beneficiary of Yidian Chuxing and shall consolidate the financial results of Yidian Chuxing in the Group’s unaudited condensed consolidated financial statements. As of June 30, 2021, Yidian Chuxing did not have significant operations, nor any material assets or liabilities.

2021 INTERIM REPORT			29

 

Notes to the Condensed Consolidated Interim Financial Information

 

1.	Organization and Nature of Operations (continued)

 

(d)

Liquidity

The Group has been incurring losses from operations since inception. The Group incurred net losses of RMB1,981,130,000 and RMB795,803,000 for the six months ended June 30, 2021 and 2020, respectively. Accumulated deficit amounted to RMB13,303,553,000 and RMB11,322,423,000 as of June 30, 2021 and December 31, 2020, respectively. Net cash used in operating activities was approximately RMB2,562,481,000 and RMB1,212,667,000 for the six months ended June 30, 2021 and 2020, respectively.

The Group’s liquidity is based on its ability to enhance its operating cash flow position, obtain capital financing from equity interest investors and borrow funds to fund its general operations, research and development activities and capital expenditures. The Group’s ability to continue as a going concern is dependent on management’s ability to execute its business plan successfully, which includes increasing market acceptance of the Group’s products to boost its sales volume to achieve economies of scale while applying more effective marketing strategies and cost control measures to better manage operating cash flow position and obtaining funds from outside sources of financing to generate positive financing cash flows. With the completion of its IPO and FO on NYSE in August and December 2020, the Group received the net proceeds, after deducting the underwriting discounts and commissions, fees and estimated offering expenses, of RMB11,409,248,000 and RMB15,980,227,000, respectively. In July 2021, with the completion of its Global Offering on Hong Kong Stock Exchange (“HKEX”), the Group received the net proceeds, after deducting the underwriting discounts and commissions, of HKD15,823,315,000. As of June 30, 2021, the Group’s balance of cash and cash equivalents, restricted cash, excluding RMB8,512,000 restricted as to withdrawal or use for legal disputes, short-term deposits and short-term investments was RMB30,646,113,000.

Management has concluded, after giving consideration to its plans as noted above, the net proceeds received upon completion of IPO, FO and the Global Offering on HKEX, and existing balance of cash and cash equivalents as of June 30, 2021, that the Group has sufficient funds for sustainable operations and it will be able to meet its payment obligations from operations and debt related commitments for the next twelve months from the issuance of the unaudited condensed consolidated financial statements. Accordingly the unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of operations.

30		XPeng Inc.

 

Notes to the Condensed Consolidated Interim Financial Information

 

2.	Summary of Significant Accounting Policies

 

(a)

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted consistent with Article 10 of Regulation S-X. The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments as necessary for the fair statement of the Group’s financial position as of June 30, 2021, results of operations and cash flows for the six months ended June 30, 2021 and 2020. The consolidated balance sheet at December 31, 2020 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by U.S. GAAP. The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the unaudited condensed consolidated financial statements have read or have access to the audited consolidated financial statements for the preceding fiscal years. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements and related footnotes for the year ended December 31, 2020. The accounting policies applied are consistent with those of the audited consolidated financial statements for the preceding fiscal year. Results for the six months ended June 30, 2021 are not necessarily indicative of the results expected for the full fiscal year or for any future period.

 

(b)

Principles of consolidation

The unaudited condensed consolidated financial statements include the financial statements of the Company, its subsidiaries and the VIEs for which the Company is the ultimate primary beneficiary. All transactions and balances among the Company, its subsidiaries and VIEs have been eliminated upon consolidation.

A subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting power: has the power to appoint or remove the majority of the members of the board of directors (the “Board”): to cast majority of votes at the meeting of the Board or to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.

A VIE is an entity in which the Company, or its subsidiary, through contractual arrangements, bears the risks of, and enjoys the rewards normally associated with, ownership of the entity, and therefore the Company or its subsidiary is the primary beneficiary of the entity. In determining whether the Company or its subsidiaries are the primary beneficiary, the Company considered whether it has the power to direct activities that are significant to the VIE’s economic performance, and also the Company’s obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIEs that could potentially be significant to the VIEs.

2021 INTERIM REPORT			31

 

Notes to the Condensed Consolidated Interim Financial Information

 

2.	Summary of Significant Accounting Policies (continued)

 

(c)

Use of estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the balance sheet date, and the reported revenues and expenses during the reported period in the unaudited condensed consolidated financial statements and accompanying notes. Significant accounting estimates reflected in the Group’s unaudited condensed consolidated financial statements primarily include, but are not limited to, the determination of performance obligations and allocation of transaction price to those performance obligations, the determination of warranty cost, lower of cost and net realizable value of inventory, assessment for impairment of long-lived assets and intangible assets, recoverability of receivables, valuation of deferred tax assets, determination of share-based compensation expenses as well as redemption value of the Preferred Shares.

Management bases the estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from these estimates.

 

(d)

Fair value

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be either recorded or disclosed at fair value, the Group considers the principal or most advantageous market in which it would transact, and it also considers assumptions that market participants would use when pricing the asset or liability.

The Group applies a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. This guidance specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. The hierarchy is as follows:

Level I — Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.

32		XPeng Inc.

 

Notes to the Condensed Consolidated Interim Financial Information

 

2.	Summary of Significant Accounting Policies (continued)

 

(d)

Fair value (continued)

 

Level II — Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level II valuation techniques.

Level III — Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect the Group’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair value guidance describes three main approaches to measure the fair value of assets and liabilities:

(1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.

When available, the Group uses quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Group will measure fair value using valuation techniques that use, when possible, current market-based or independently sourced market parameters, such as interest rates and currency rates.

Financial assets and liabilities of the Group primarily consist of cash and cash equivalents, restricted cash, short- term deposits, short-term investments, accounts receivable, finance lease receivables, long-term deposits, derivative assets, other assets, accounts and notes payable, short-term borrowings, lease liabilities, accruals and other liabilities, derivative liabilities and long-term borrowings. As of June 30, 2021 and December 31, 2020 , the carrying values of these financial instruments, except for other non-current assets, long-term deposit, long-term borrowings and non-current portion for lease liabilities, are approximated to their fair values due to the short- term maturity of these instruments.

2021 INTERIM REPORT			33

 

Notes to the Condensed Consolidated Interim Financial Information

 

2.	Summary of Significant Accounting Policies (continued)

 

(d)

Fair value (continued)

 

Financial assets or liabilities that are measured at fair value on a recurring basis consist of short-term investments and derivative assets or liabilities. All of its short-term investments and derivative assets or liabilities, which are comprised primarily of structured deposits, bank financial products and forward exchange contracts, are classified within Level II of the fair value hierarchy because they are floating income products linked to currency exchange rate, gold and benchmark interest rate. They are not valued using quoted market prices, but can be valued based on other observable inputs, such as interest rates and currency rates. The Group has derivative liabilities that are measured at fair value. The derivative liabilities are used to account for the redemption right that met the definition of a derivative and are classified within level III at the fair value hierarchy as the Company adopted the equity allocation model with unobservable inputs for which there are little or no market data to determine the fair value.

 

(e)

Cash and cash equivalents

Cash and cash equivalents represent cash on hand, time deposits and highly liquid investments placed with banks or other financial institutions, which are unrestricted as to withdrawal and use, and which have original maturities of three months or less.

Cash and cash equivalents as reported in the unaudited condensed consolidated statement of cash flows are presented separately on the unaudited condensed consolidated balance sheet as follows:

 

		As of June 30, 2021								As of December 31, 2020
		Amount				RMB equivalent				Amount				RMB equivalent
		(’000)								(’000)
Cash and cash equivalents:
RMB			7,599,691				7,599,691				4,428,120				4,428,120
US$			1,214,606				7,843,751				3,793,451				24,781,268
Euro			73				563				—				—
HKD			1,091				907				—				—
Total							15,444,912								29,209,388

As of June 30, 2021 and December 31, 2020, substantially all of the Group’s cash and cash equivalents were held in reputable financial institutions located in the PRC, Hong Kong and United States.

34		XPeng Inc.

 

Notes to the Condensed Consolidated Interim Financial Information

 

2.	Summary of Significant Accounting Policies (continued)

 

(f)

Restricted cash

Restricted cash primarily represents bank deposits for letter of credit, bank notes and forward exchange contracts amounting to RMB1,138,722,000 and RMB2,296,560,000 as of June 30, 2021 and as of December 31, 2020, respectively. And deposits, amounted to RMB8,512,000 and RMB35,585,000, that are restricted due to legal disputes as of June 30, 2021 and as of December 31, 2020, respectively.

 

(g)

Short-term deposits

Short-term deposits represent time deposits placed with banks with original maturities between three months and one year. Interest earned is recorded as interest income in the unaudited condensed consolidated statement of comprehensive loss during the periods presented. As of June 30, 2021 and December 31, 2020, substantially all of the Group’s short-term deposits amounting to RMB13,159,653,000 and RMB979,897,000 are placed in reputable financial institutions in the PRC.

 

(h)

Long-term deposits

Long-term deposits of the Group represent time deposits placed with banks with original maturities more than one year. Interest earned is recorded as interest income in the unaudited condensed consolidated statement of comprehensive loss during the periods presented. As of June 30, 2021 and December 31, 2020, substantially all of the Group’s long-term deposits amounting to RMB2,216,579,000 and nil are placed in reputable financial institutions in the PRC.

 

(i)

Current expected credit losses

In 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASC Topic 326”), which amends previously issued guidance regarding the impairment of financial instruments by creating an impairment model that is based on expected losses rather than incurred losses. The Group adopted this ASC Topic 326 and several associated ASUs on January 1, 2020 using a modified retrospective approach with a cumulative-effect increase of RMB2,074,000 recorded in accumulated deficit.

2021 INTERIM REPORT			35

 

Notes to the Condensed Consolidated Interim Financial Information

 

2.	Summary of Significant Accounting Policies (continued)

 

(i)

Current expected credit losses (continued)

 

The Group’s accounts receivable, other current assets and finance lease receivables are within the scope of ASC Topic 326. The Group has identified the relevant risk characteristics of its customers and the related receivables, other current assets and finance lease receivables which include size, type of the services or the products the Group provides, or a combination of these characteristics. Receivables with similar risk characteristics have been grouped into pools. For each pool, the Group considers the historical credit loss experience, current economic conditions, supportable forecasts of future economic conditions, and any recoveries in assessing the lifetime expected credit losses. Other key factors that influence the expected credit loss analysis include customer demographics, payment terms offered in the normal course of business to customers, and industry-specific factors that could impact the Group’s receivables. Additionally, external data and macroeconomic factors are also considered. This is assessed at each quarter based on the Group’s specific facts and circumstances. For the six months ended June 30, 2021 and 2020, the Group recorded RMB10,464,000 and RMB2,479,000 expected credit loss expense in selling, general and administrative expenses, respectively. As of June 30, 2021, the expected credit loss provision for the current and non-current assets are RMB16,220,000 and RMB5,158,000, respectively.

The Group typically does not carry significant accounts receivable related to vehicle sales and related sales as customer payments are due prior to vehicle delivery, except for amounts of vehicle sales in relation to government subsidy to be collected from government on behalf of customers.

Finance lease receivables primarily consist of the aggregate of the minimum lease receivable at the inception of the lease and the initial direct costs. The Group classified its finance lease receivables into different categories from performing to non-performing based on the credit risk of the lessees and the past due days, if any, of the principal and/or interest repayments. As of June 30, 2021 and December 31, 2020, the majority of the finance lease receivables are categorized as performing since the customers have a low risk of default, a strong capacity to meet contractual cash flows and have not past due repayments and the amounts of finance lease receivables of other categories are immaterial.

The Group considers historical credit loss rate for each category of deposits and other receivables and adjusts for forward looking macroeconomic data except for certain long aging receivables for which the debtors failed to make demand repayment and the Group has made specific provision on a case-by-case basis.

36		XPeng Inc.

 

Notes to the Condensed Consolidated Interim Financial Information

 

2.	Summary of Significant Accounting Policies (continued)

 

(i)

Current expected credit losses (continued)

 

The following table summarizes the activity in the allowance for credit losses related to accounts receivable, other current assets and finance lease receivables for the six months ended June 30, 2020 and 2021:

 

		For the Six Months Ended June 30, 2020 RMB’000
Balance as of December 31, 2019			4,645
Adoption of ASC Topic 326			2,074
Balance as of January 1, 2020			6,719
Current period provision			2,479
Write-offs			(3,984	)
Balance as of June 30, 2020			5,214

 

		For the Six Months Ended June 30, 2021 RMB’000
Balance as of December 31, 2020			12,507
Current period provision			10,464
Write-offs			(1,593	)
Balance as of June 30, 2021			21,378

 

(j)

Short-term investments

For investments in financial instruments with a variable interest rate indexed to the performance of underlying assets, the Group elected the fair value method at the date of initial recognition and carried these investments subsequently at fair value. Changes in fair values are reflected in the unaudited condensed consolidated statement of comprehensive loss. The Group’s short-term investments in financial instruments were RMB902,826,000 and RMB2,820,711,000 as of June 30, 2021 and December 31, 2020, respectively.

2021 INTERIM REPORT			37

 

Notes to the Condensed Consolidated Interim Financial Information

 

2.	Summary of Significant Accounting Policies (continued)

 

(k)

Revenue recognition

Revenue is recognized when or as the control of the goods or services is transferred upon delivery to customers. Depending on the terms of the contract and the laws that apply to the contract, control of the goods and services may be transferred over time or at a point in time. Control of the goods and services is transferred over time if the Group’s performance:

 

•

provides all of the benefits received and consumed simultaneously by the customer;

 

•

creates and enhances an asset that the customer controls as the Group performs; or

 

•

does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date.

If control of the goods and services transfers over time, revenue is recognized over the period of the contract by reference to the progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognized at a point in time when the customer obtains control of the goods and services.

Contracts with customers may include multiple performance obligations. For such arrangements, the Group allocates overall contract price to each distinct performance obligation based on its relative standalone selling price in accordance with ASC 606. The Group generally determines standalone-selling prices for each individual distinct performance obligation identified based on the prices charged to customers. If the standalone selling price is not directly observable, it is estimated using expected cost plus a margin or adjusted market assessment approach, depending on the availability of observable information, the data utilized, and considering the Group’s pricing policies and practices in making pricing decisions. Assumptions and estimations have been made in estimating the relative selling price of each distinct performance obligation, and changes in judgments on these assumptions and estimates may affect the revenue recognition. The discount provided in the contract are allocated by the Group to all performance obligations as conditions under ASC 606-10-32-37 are not met.

When either party to a contract has performed, the Group presents the contract in the unaudited condensed consolidated balance sheet as a contract asset or a contract liability, depending on the relationship between the entity’s performance and the customer’s payment.

A contract asset is the Group’s right to consideration in exchange for goods and services that the Group has transferred to a customer. A receivable is recorded when the Group has an unconditional right to consideration. A right to consideration is unconditional if only the passage of time is required before payment of that consideration is due.

38		XPeng Inc.

 

Notes to the Condensed Consolidated Interim Financial Information

 

2.	Summary of Significant Accounting Policies (continued)

 

(k)

Revenue recognition (continued)

 

If a customer pays consideration or the Group has a right to an amount of consideration that is unconditional, before the Group transfers a good or service to the customer, the Group presents the contract liability when the payment is made or a receivable is recorded (whichever is earlier). A contract liability is the Group’s obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. The Group’s contract liabilities are primarily resulted from the multiple performance obligations identified in the vehicle sales contract, which is recorded as deferred revenue and recognized as revenue based on the consumption of the services or the delivery of the goods.

Vehicle sales

The Group generates revenue from sales of electric vehicles, together with a number of embedded products and services through a contract. The Group identifies the customers who purchase the vehicle as its customers. There are multiple distinct performance obligations explicitly stated in a series of contracts including sales of vehicle, free charging within 4 years or 100,000 kilometers, extended lifetime warranty, option between household charging pile and charging card, vehicle internet connection services, services of lifetime free charging in XPeng- branded super charging stations and lifetime warranty of battery which are accounted for in accordance with ASC 606. The standard warranty provided by the Group is accounted for in accordance with ASC 460, Guarantees, and the estimated costs are recorded as a liability when the Group transfers the control of vehicle to a customer.

Car buyers in the PRC are entitled to government subsidies when they purchase electric vehicles. For efficiency purpose and better customer service, the Group or Zhengzhou Haima Automobile Co., Ltd. (“Haima Auto”) applies for and collect such government subsidies on behalf of the customers. Accordingly, customers only pay the amount after deducting government subsidies. The Group determined that the government subsidies should be considered as part of the transaction price because the subsidy is granted to the buyer of the electric vehicle and the buyer remains liable for such amount in the event the subsidies were not received by the Group due to the buyer’s fault such as refusal or delay of providing application information.

The overall contract price is allocated to each distinct performance obligation based on the relative estimated standalone selling price. The revenue for sales of the vehicle and household charging pile is recognized at a point in time when the control of the vehicle is transferred to the customer and the charging pile is installed at customer’s designated location. For vehicle internet connection service, the Group recognizes the revenue using a straight-line method. For the extended lifetime warranty and lifetime warranty of battery, given limited operating history and lack of historical data, the Group decides to recognize the revenue over time based on a straight-line method initially, and will continue monitoring the cost pattern periodically and adjust the revenue recognition pattern to reflect the actual cost pattern as it becomes available. For the free charging within 4 years

2021 INTERIM REPORT			39

 

Notes to the Condensed Consolidated Interim Financial Information

 

2.	Summary of Significant Accounting Policies (continued)

 

(k)

Revenue recognition (continued)

 

Vehicle sales (continued)

 

or 100,000 kilometers and charging card to be consumed to exchange for charging services, the Group considers that a measure of progress based on usage (rather than a time-based method) best reflects the performance as it’s typically a promise to deliver the underlying service rather than a promise to stand ready. For the services of lifetime free charging in XPeng-branded super charging station, the Group recognize the revenue over time based on straight-line method during the expected useful life of the vehicle.

Initial refundable deposits for intention orders and non-refundable deposits for vehicle reservations received from customers prior to vehicle purchase agreements signed are recognized as refundable deposits from customers (accruals and other liabilities) and advances from customers (accruals and other liabilities). When vehicle purchase agreements are signed, the consideration for the vehicle and all embedded services must be paid in advance, which means the payments received are prior to the transfer of goods or services by the Group, the Group records a contract liability (deferred revenue) for the allocated amount regarding to those unperformed obligations. At the same time, advances from customers are classified as contract liability (deferred revenue) as part of the consideration.

XPILOT, the Group’s intelligent driving system, provides assisted driving and parking functions tailored for driving behavior and road conditions in China. The Group rolled out XPILOT 3.0 in January 2021. A customer can subscribe for XPILOT 3.0 by either making a lump sum payment or paying annual installments for a three-year period. XPILOT 3.0 will feature several new functions, including a navigation guided pilot for highway driving and advanced intelligent parking. Revenue related to XPILOT 3.0 is recognized at a point in time when intelligent driving functionality of XPILOT 3.0 is activated and transferred to the customers.

Other services

The Group provides variable other services to customers including services embedded in a sales contract, super charging service, maintenance service, ride hailing services and vehicle leasing service.

Services embedded in a sales contract may include free charging within 4 years or 100,000 kilometers, extended lifetime warranty, option between household charging pile and charging card, vehicle internet connection services, lifetime warranty of battery and services of free charging services in XPeng-branded charging station. Other services also include super charging service and maintenance service. These services are recognized under ASC 606.

40		XPeng Inc.

 

Notes to the Condensed Consolidated Interim Financial Information

 

2.	Summary of Significant Accounting Policies (continued)

 

(k)

Revenue recognition (continued)

 

Other services (continued)

 

The Group provides ride hailing services with smart commuting solutions to customers by using the Group’s self-owned G3 vehicles and hiring and training drivers managed by third party agents via service agreement. The Group believes it acts as a principle in the ride hailing services as it controls a specified good or service before it is transferred to the customers. The revenue for ride hailing services is recognized overtime in a period when the ride hailing services is consumed under ASC 606.

Revenue from vehicle leasing service to customers under operating lease and finance lease are recognized under ASC 842.

Practical expedients and exemptions

The Group follows the guidance on immaterial promises when identifying performance obligations in the vehicle sales contracts and concludes that lifetime roadside assistance, traffic ticket inquiry service, courtesy car service, on-site troubleshooting and parts replacement service, are not performance obligations considering these services are value-added services to enhance customer experience rather than critical items for vehicle driving and forecasted that usage of these five services will be very limited. The Group also performs an estimation on the stand-alone fair value of each promise applying a cost plus margin approach and concludes that the standalone fair value of foresaid services are insignificant individually and in aggregate, representing less than 1% of vehicle gross selling price and aggregate fair value of each individual promise.

Considering the qualitative assessment and the result of the quantitative estimate, the Group concluded not to assess whether promises are performance obligation if they are immaterial in the context of the contract and the relative stand-alone fair value individually and in aggregate is less than 1% of the contract price, namely the lifetime roadside assistance, traffic ticket inquiry service, courtesy car service, on-site troubleshooting and parts replacement service. Related costs are then accrued instead.

2021 INTERIM REPORT			41

 

Notes to the Condensed Consolidated Interim Financial Information

 

2.	Summary of Significant Accounting Policies (continued)

 

(k)

Revenue recognition (continued)

 

Customer Upgrade Program

In the third quarter of 2019, due to the upgrade of the G3 from 2019 version (“G3 2019”) to 2020 version (“G3 2020”), the Group voluntarily offered all owners of G3 2019 model the options to either receive loyalty points, valid for 5 years since the grant date, which can be redeemed for goods or services, or obtain an enhanced trade-in right contingent on a future purchase starting from the 34th month of the original purchase date but only if they purchase a new vehicle from the Group. The owners of G3 2019 model had to choose one of the two options within 30 days after receiving the notice. Anyone who did not make the choice before the date was deemed abandoning the options. At the time the offers were made, the Group still had unfulfilled performance obligations for services to the owners of G3 2019 model associated with their original purchase. The Group considered this offering is to improve the satisfaction of the owners of G3 2019 model but was not the result of any defects or resolving past claims regarding the G3 2019 model.

As both options provide a material right (a significant discount on future goods or services) for no consideration to existing customers with unfulfilled performance obligations, the Group considers this arrangement to be a modification of the existing contracts with customers. Further, as the customers did not pay for the additional rights, the contract modification is accounted for as the termination of the original contract and commencement of a new contract, which will be accounted for prospectively. The material right from the loyalty points or the trade-in right shall be considered in the reallocation of the remaining consideration from the original contracts among the promised goods or services not yet transferred at the date of the contract modification. This reallocation is based on the relative stand-alone selling prices of these various goods and services.

For the material right from loyalty points, the Group estimated the probability of points redemption when determining the stand-alone selling price. Since the fact that most merchandise can be redeemed without requiring a significant amount of points compared with the amount of points provided to customers, the Group believes it is reasonable to assume all points will be redeemed and no forfeiture is estimated currently. The amount allocated to the points as a separate performance obligation is recorded as a contract liability (deferred revenue) and revenue will be recognized when future goods or services are transferred. The Group will continue to monitor forfeiture rate data and will apply and update the estimated forfeiture rate at each reporting period.

According to the terms of the trade-in program, owners of G3 2019 who elected the trade-in right have the option to trade in their G3 2019 at a fixed predetermined percentage of its original G3 2019 purchase price (the “guaranteed trade-in value”) starting from the 34th month of the original purchase date but only if they purchase a new vehicle from the Group. Such trade-in right is valid for 120 days. That is, if the owner of a G3 2019 does not purchase a new vehicle within that 120-day period, the trade-in right expires. The guaranteed trade-in value will

42		XPeng Inc.

 

Notes to the Condensed Consolidated Interim Financial Information

 

2.	Summary of Significant Accounting Policies (continued)

 

(k)

Revenue recognition (continued)

 

Customer Upgrade Program (continued)

 

be deducted from the retail selling price of the new vehicle purchase. The customer cannot exercise the trade- in right on a stand-alone basis solely as a function of their original purchase of the G3 2019 and this program, and therefore, the Group does not believe the substance of the program is a repurchase feature that provides the customer with a unilateral right of return. Rather, the trade-in right and purchase of a new vehicle are linked as part of a single transaction to provide a loyalty discount to existing customers. The Group believes the guaranteed trade-in value will be greater than the expected market value of the G3 2019 at the time the trade-in rights become exercisable, and therefore, the excess value is essentially a sales discount on the new vehicle purchase. The Group estimated the potential forfeiture rate based on the market expectation of the possibility of the future buying and applied the forfeiture rate when determining the stand-alone selling price at the date of the contract modification. The amount allocated to the trade-in right as a separate performance obligation is recorded as a contract liability (deferred revenue) and revenue will be recognized when the trade-in right is exercised and a new vehicle is purchased. The Group will continue to reassess the reasonableness of the forfeiture rate applied in the subsequent reporting periods.

 

(l)

Cost of sales

Vehicle

Cost of vehicle revenue includes direct parts, material, labor cost and manufacturing overhead (including depreciation of assets associated with the production) and reserves for estimated warranty expenses. Cost of vehicle revenue also includes charges to write-down the carrying value of the inventories when it exceeds its estimated net realizable value and to provide for on-hand inventories that are either obsolete or in excess of forecasted demand, and impairment charge of property, plant and equipment.

Services and others

Cost of services and others revenue generally includes cost of direct part, material, labor costs, installment costs, costs associated with providing non-warranty after-sales service and depreciation of associated assets used for providing the services.

Cost of ride hailing services revenue also includes agent and service fee paid to third party agents and revenue sharing fee to a third party data supporting entity.

2021 INTERIM REPORT			43

 

Notes to the Condensed Consolidated Interim Financial Information

 

2.	Summary of Significant Accounting Policies (continued)

 

(m)

Research and development expenses

All costs associated with research and development (“R&D”) are expensed as incurred. R&D expenses consist primarily of employee compensation for those employees engaged in R&D activities, design and development expenses with new technology, materials and supplies and other R&D related expenses. For the six months ended June 30, 2021 and 2020, R&D expenses were RMB1,398,638,000 and RMB630,578,000, respectively.

 

(n)

Selling, general and administrative expenses

Sales and marketing expenses consist primarily of employee compensation and marketing, promotional and advertising expenses. Advertising expenses consist primarily of costs for the promotion of corporate image and product marketing. For the six months ended June 30, 2021 and 2020, advertising expenses were RMB280,272,000 and RMB179,380,000, respectively, and total sales and marketing expenses were RMB1,389,098,000 and RMB513,292,000, respectively.

General and administrative expenses consist primarily of employee compensation for employees involved in general corporate functions and those not specifically dedicated to R&D activities, depreciation and amortization expenses, legal, and other professional services fees, lease and other general corporate related expenses. For the six months ended June 30, 2021 and 2020, general and administrative expenses were RMB362,490,000 and RMB285,682,000, respectively.

 

(o)

Government grants

The Group’s PRC based subsidiaries received government subsidies from certain local governments. The Group’s government subsidies consist of specific subsidies and other subsidies. Specific subsidies are subsidies that the local government has provided for a specific purpose, such as land fulfillment costs and production and capacity subsidies related to the manufacturing plant construction of Zhaoqing XPeng (“Zhaoqing manufacturing plant”). Other subsidies are the subsidies that the local government has not specified its purpose for and are not tied to future trends or performance of the Group, receipt of such subsidy income is not contingent upon any further actions or performance of the Group and the amounts do not have to be refunded under any circumstances. The Group recorded specific subsidies as other non-current liabilities when received or reduced interest expense. The specific subsidies are amortized over the depreciation period of associated assets to reduce their depreciation cost. Other subsidies are recognized as other income upon receipt as further performance by the Group is not required.

44		XPeng Inc.

 

Notes to the Condensed Consolidated Interim Financial Information

 

2.	Summary of Significant Accounting Policies (continued)

 

(p)

Share-based compensation

The Group grants RSUs, restricted shares and share options (collectively, “Share-based Awards”) to eligible employees and accounts for share-based compensation in accordance with ASC 718, Compensation — Stock Compensation. Share-based awards are measured at the grant date fair value of the awards and recognized as expenses using graded vesting method or straight-line method, net of estimated forfeitures, if any, over the requisite service period. For awards with performance conditions, the Company would recognize compensation cost if and when it concludes that it is probable that the performance condition will be achieved.

The fair value of the RSUs and restricted shares granted prior to the completion of the IPO were assessed using the income approach/discounted cash flow method, with a discount for lack of marketability given that the shares underlying the awards were not publicly traded at the time of grant. This assessment requires complex and subjective judgments regarding the Company’s projected financial and operating results, its unique business risks, the liquidity of its ordinary shares and its operating history and prospects at the time the grants were made. The fair value of share options granted prior to the completion of the IPO is estimated on the grant or offering date using the Binomial option-pricing model. The assumptions used in share-based compensation expense recognition represent management’s best estimates, but these estimates involve inherent uncertainties and application of management judgment. If factors change or different assumptions are used, the share-based compensation expenses could be materially different for any period. Moreover, the estimates of fair value of the awards are not intended to predict actual future events or the value that ultimately will be realized by grantees who receive Share-based Awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company for accounting purposes.

The fair value of the RSUs granted subsequent to the completion of the IPO is estimated based on the fair market value of the underlying ordinary shares of the Company on the date of grant.

Share options granted to employees:

Since 2015, Chengxing has granted options to certain directors, executive officers and employees. The options granted are exercisable only upon the completion of an IPO or change in control.

Share options granted to employees includes both service condition and performance condition. Employees are required to provide continued service through the satisfaction of the occurrence of change of control or an IPO to retain the award since no share option would be vested prior to the occurrence of the Liquidity Event even though the service condition has been satisfied. Given the vesting of the share options granted is contingent upon the occurrence of the Liquidity Event, there is no share-based compensation expense to be recognized until the date of consummation of Liquidity Event.

2021 INTERIM REPORT			45

 

Notes to the Condensed Consolidated Interim Financial Information

 

2.	Summary of Significant Accounting Policies (continued)

 

(p)

Share-based compensation (continued)

 

On June 28, 2020, the board of directors of the Company approved the 2019 Equity Incentive Plan (“ESOP Plan”) with 161,462,100 Class A ordinary shares reserved. Options, restricted shares, RSUs, dividend equivalents, share appreciation rights and share payments may be granted under the ESOP Plan.

In June 2020, the Group agreed with the participants to cancel the existing stock options granted during the period between 2015 and the first quarter of 2020 along with a concurrent grant of a replacement RSUs (“Replacement”).

Restricted share units granted to employees:

Prior to the completion of the IPO, RSUs granted to employees include both service condition and performance condition. Employees are required to provide continued service through the satisfaction of the occurrence of Liquidity Event to retain the award since no RSU would be vested prior to the occurrence of the Liquidity Event even though the service condition has been satisfied. The Group also granted RSUs in 2020 with only performance condition and the RSUs would be vested upon the occurrence of Liquidity Event. Given the vesting of these two types of RSUs granted is contingent upon the occurrence of the Liquidity Event, there is no share-based compensation expense to be recognized until the date of consummation of Liquidity Event. In July 2020, RSUs vested immediately upon grant date were granted to employees and the share-based compensation expense were recognized immediately on the grant date.

Subsequent to the completion of the IPO, the Group granted RSUs with only service condition to employees and the share-based compensation expense were recognized over the vesting period using straight-line method.

 

(q)

Earnings (losses) per share

Basic earnings (loss) per share is computed by dividing net income (loss) attributable to holders of ordinary shares, considering the accretion on Preferred Shares to redemption value, by the weighted average number of ordinary shares outstanding during the period using the two-class method. Under the two-class method, net income is allocated between ordinary shares and other participating securities based on their participating rights. Diluted earnings (loss) per share is calculated by dividing net income (loss) attributable to ordinary shareholders, as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares consist of shares issuable upon the conversion of the Preferred Shares using the if-converted method, unvested restricted shares, and ordinary shares issuable upon the exercise of outstanding share options (using the treasury stock method). Ordinary equivalent shares are not included in the denominator of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive.