Li Auto Inc.

Hello, ladies and gentlemen. Thank you for standing by for Lee Otto's first quarter 2022 earnings conference call. At this time, all participants are in the listen-only mode. Today's conference call is being recorded. I'll now turn the call over to your host, Ms. Janet Zhang, Investor Relations Director of Lee Otto. Please go ahead, Janet.

Thank you, Amber. Good evening and good morning, everyone. Welcome to Li Auto's first quarter 2022 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website. On today's call, we have our president, Mr. Kevin Yanan Shen, and our CFO, Mr. Johnny T. Lee, to begin with prepared remarks. Our founder and CEO, Mr. Xiang Li, will join for the Q&A discussion. Before I continue, please be reminded that today's discussion will contain forelooking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forelooking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain filings of the company with U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required in the applicable law. Please also note that Li Auto's earnings press release and this conference call include discussions of unaudited GAAP financial information, as well as unaudited non-GAAP financial measures. Please refer to Li Auto's press release, which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. With that, I will now turn the call over to our president. Please go ahead, Kevin.

Thank you, Jenny. Hello, everyone, and thank you for joining our call today. In the first quarter of 2022, the EV boom continued. According to the China Passenger Car Association, or CPCA, retail sales of new energy passenger vehicles in China reached 1.07 million in the first quarter of 2022, representing a year-over-year increase of 146.6%. NEV's penetration rate climbed to a record high of 28.2% in March 2022. As a leader in the new energy vehicle market, we are excited to be one of the driving forces behind the industry's continued innovation and evolution. Thanks to our Li-1's outstanding feature and the compelling appeal to family users, we delivered 31,000 716 D1s during the quarter, aiming industry-wide supply chain challenges up 152.1% year-over-year and achieved a total revenue of RMB 9.56 billion, 167.5% higher than the first quarter of 2021. The past several months was undoubtedly a difficult period for all of us given the headwinds caused by the COVID-19 pandemic. We have been no exception to the supply chain disruptions and rising material and logistics costs that challenged the entire auto industry. Our Changzhou manufacturing base is located in the center of the Yangtze Delta region, which is home to over 80% of our parts suppliers, especially in the city of Shanghai and Kunshan. The COVID-19 resurgence in this area since late March has incapacitated some suppliers in Shanghai and Kunshan. Some of them completely shut down their production and delivery, making it impossible for us to maintain production after exhausting our parts inventory. This materially affected our production in April, resulting in delayed deliveries to our customers. As a result, we only completed 4,167 deliveries in April. In light of the encouraging signs of recovery from the pandemic in the Yangtze Delta region, we expect our total deliveries in the second quarter of this year to be between 21,000 to 24,000 vehicles. We should note there are still uncertainties with respect to the pace of the recovery. Well, we are doing everything in our power to increase our production and overcome supply chain constraints, aiming to shorten the delivery waiting time for L1 users while meeting all pandemic prevention and containment requirements from the government. To help offset the sharply rising raw material cost, particularly the battery cost, we raised the price of V1 by RMB 11,800, effective April 1st this year. Moving to the profitability, in the first quarter, Our gross margin remained robust at 22.6%. Our R&B expenses increased 167% year-over-year to R&B 1.37 billion, accounting for over 14% of our total revenues. As we continue to enhance our strategic investment in autonomous driving, intelligence cockpit, and electrification. The increase in R&D together with our direct sales and servicing network expansion resulted in a 151.5% increase in our operating expense year over year. Despite the deliberate increase in expenses to drive growth, our net cash flow from operations was positive for the eighth consecutive quarter. at RMB 1.83 billion, thanks to our outstanding manufacturing and operational efficiency. In addition to propelling growth, our expanding direct sales and servicing network serves as an important and efficient interface for us to gain insight into our users' needs and desires. We think like a user. This perspective informs and motivates us as we strive to continually please users with updated features, product designs, and services. As of April 30, 2022, we had 225 retail stores covering 106 cities, and the 292 servicing centers and the Lee Auto authorized body and paint workshops operating in 211 cities. Going forward, we will continue to grow our sales network at the cadence that accommodates both our objective to capture market demand and the risk related to the ongoing pandemic. With respect to R&D, since we released our OTA 3.0 to introduce our full-stack NOA in December 1st last year, and become the third automotive OEM globally to develop a full-stack self-development NOA. More than 100,000 2021 L1 users have enjoyed NOA-assisted driving as of the end of April. We are pleased to see our self-development process contribute to the consistent improvement in our NOA's safety and functionalities. Its penetration rate has reached to 61.3%, which means that 61.3% of our users utilize NOA on the highways once it's available. The data gathered from the NOA mileage in real-life driving scenarios will play a crucial role in our future ADAS development and facilitate our ultimate goal of full fully autonomous driving. The NVIDIA Orin X chipset and the LiDAR on our next full-size SUV, the L9, will further improve our vehicle's autonomous driving capabilities. Our R&D efforts to develop our range extension system, chassis, and the domain controller in-house are also bearing fruit. These R&D trends, among others, will be unveiled in our second production model, the L9. That leads us to our update on products. Our first model, Li1, has been a proven success catering to the needs of families in China. After Li1 emerged as one of the industry's best SUV choice for family users, we built on our strengths and are getting ready to launch our second production model, the L9. Despite a few pandemic-related bumps in the road, we are forging ahead with our plan to commence the delivery of the L9 in the third quarter. The L9 is a flagship SUV for family users based on our new generation EREV platform, offering best-in-class combination of performance, safety, and intelligence. As just mentioned, It features our fully self-developed range extension system, chassis control system, and central vehicle domain controller, which empower its outstanding dynamic performance and drivability. In keeping with our fundamental belief that safety should always be standard, not optional, every L9 is built to our strictest safety standards and come equipped with our upgraded autonomous driving system, LI-AD Max, capable of all scenario NOAs for enhanced driving safety and convenience. The L9 also comes standard with first class premium features such as the sumptuous seat, a high performance audio system, and an all new three dimensional interactive experience. Above all, The L9 aims to meet the needs of more family users and delight users by proactively satisfying desire that they may never knew exist. Since we released the teaser information for the vehicle, we have received a great deal of positive customer feedback. And we can't wait to deliver our L9 and amaze our users with all its features and benefits. In parallel with our EREV development, we are also investing in R&D for next generation electric vehicle technology, including high C-rate battery, high voltage platform, and ultra-fast charging technology, with the goal of building an end-to-end BEV and charging ecosystem that can support a driving range of more than 400 kilometers with only 10 minutes charging. As a leader in the new energy vehicle industry, we are dedicated to leading the future of mobility while also making a positive impact on the environment of our society. On April 19, we released our first ESG report, which marks yet another step forward in our sustainability journey and underscore our resolve to operate responsibly. In addition, we are pleased to report that our Class A ordinary shares were included in the Shenzhen and Shanghai Hong Kong Stock Connect programs on March 14th and April 25th this year, respectively. This allows us to access a broader investor base and share our growth trajectory and further success with users, partners, and investors in mainland China via the financial market. Looking forward, we will continue to create the right product for family users, persevering through challenges with a laser focus on operational and financial efficiency, propelling progress and inspire happiness along the way. With that, I would like to turn it over to our CFO, Johnny, for a closer look at our financial performance. Please go ahead.

Thank you, Kim. Hello, everyone. I will now go over some of our financial results for the first quarter of 2022. To be mindful of the length of this call, I will address financial highlights here and encourage you to refer to our earnings price release, which is posted online for additional details. Total revenues in the first quarter of 2022 were RMB 9.56 billion, or 1.51 billion U.S. dollars. representing an increase of 167.5% from RMB 3.58 billion in the first quarter of 2021. This included RMB 9.31 billion or 1.47 billion US dollars of vehicle sales in the first quarter of 2022. an increase of 168.7% from the first quarter of last year. The increase in vehicle sales over the first quarter of 2021 was mainly attributable to the increase in vehicle deliveries in the first quarter of 2022. On a quarter-over-quarter basis, total revenues and vehicles vehicle sales decreased 10% and 10.3% respectively, primarily due to the decrease in vehicle deliveries in the first quarter of 2022. Revenues from other sales and services were RMB 253.4 million, or 40 million US dollars, in the first quarter of 2022, representing an increase of 127.2 percent from RMB 111.5 million in the first quarter of 2021, and an increase of 3.6 percent from RMB 244.7 million in the fourth quarter of 2021. The increase in revenue from other sales and services over the first quarter of 2021 was mainly attributable to the increased sales of charging stores, accessories, and services in line with higher accumulated vehicle sales. Cost of sales in the first quarter of 2022 was RMB 7.4 billion, or 1.2 billion. $17 billion, representing an increase of 150.1% year-over-year and a decrease of 10.2% quarter-over-quarter. Gross profit in the first quarter of 2022 was RMB $2.16 billion, or $341.3 million, representing an increase of 250.9% year-over-year, and a decrease of 9.1% quarter-over-quarter. Vehicle margin in the first quarter of 2022 was 22.4%, compared with 16.9% in the same quarter of 2021, and 22.4% in the first quarter of 2021. The increase in vehicle margin over the first quarter of 2021 was driven by higher average selling price attributable to the increase in vehicle deliveries of 2021 V1 since its release in May 2021. Cross-margin in the first quarter of 2022 was 22.6%. compared to 17.3% in the first quarter of last year, and 22.4% in the first quarter of 2021. Operating expenses in the first quarter of 2022 will earn be $2.8 billion or $406.5 million, representing an increase of 151.5% year-over-year. and an increase of 9.4% quarter-over-quarter. Research and development expenses in the first quarter of 2022 were RMB $1.37 billion, or $216.7 million, representing an increase of 167% year-over-year and an increase of 11.7% quarter over quarter. The increase in research and development expenses over the first quarter of last year was primarily driven by the increased employee compensation as a result of our growing number of research and development staff, as well as increased cost associated with new product developments. The increase in research and development expenses over the fourth quarter of last year was mainly driven by increased employee compensation. Selling general and administrative expenses in the first quarter of 2022 will be $1.2 billion, or $189.8 billion, representing an increase of $100 35.9% year-over-year and an increase of 6.8% quarter-over-quarter. The increase in selling general and administrative expenses over the first quarter of 2021 was primarily driven by increased employee compensation as a result of our growing number of staff as well as increased marketing and promotion activities and rental expenses associated with the expansion of the company's sales network. Loss from operations in the first quarter of 2022 was RMB $413.1 million or $65.2 million compared with RMB $407.7 million loss. from operations in the first quarter of 2021 and RMB 24.1 million income from operations in the fourth quarter of 2021. Net loss was RMB 10.9 million or 1.7 million US dollars in the first quarter of 2022 compared with RMB 360 million net loss in the first quarter of 2021. And the RMB 295.5 million net income in the fourth quarter of 2021. Now turning to our balance sheet and the cash flow. Our cash and the cash equivalents are restricted cash, time deposits, and short-term investments totaled RMB 51.19 billion, or $8.07 billion as of March 31, 2022. Operating cash flow in the first quarter of 2022 was RMB 1.83 billion, or $289.3 million. Free cash flow was RMB $579.2 million in the first quarter of 2022. And now for our business outlook. For the second quarter of 2022, the company expects the deliveries to be between 21,000 and 24,000 vehicles. representing an increase of 19.5% to 36.6% from the second quarter of 2021. The company also expects second quarter total revenues to be between RMB 6.16 billion and RMB 7.04 billion, or US dollar 972.3 million and the U.S. dollar 1.11 billion, representing an increase of 22.3% to 39.8% from the second quarter of last year. This business outlook reflects the company's current and preliminary view on the business situation and market condition, in particular, the encouraging signs of recovery from the resurging pandemic in the Yangtze Delta region, which are all subject to change due to uncertainties related to factors such as the pace of the pandemic recovery, among others. I will now turn the call over to the operator and start the Q&A session. Thank you.

Thank you. We will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to withdraw your request, please press the pound or hash key. For the benefit of all participants on today's call, please limit yourself to two questions. And if you have additional questions, you can re-enter the queue. If you're going to ask a question in Chinese, please follow with English translation. Once again, ladies and gentlemen, let's start one for questions. Our first question comes from the line of Fei Feng from Goldman Sachs. Please ask your questions.

Thank you for your sharing. Congratulations to the company for its excellent performance in the first quarter, especially the cash flow. I have two questions here. First of all, about the outlook, what is the expectation of the second quarter of the company? What is the assumption of the production and consumption of the country? What is the biggest uncertainty? And what is the specific launch time of L9? Or let's ask the other way around, which is a big environment of the current production and sales of the new energy car industry. Please comment on it. I'll just translate for myself. Great quarter, I have two questions. First about the business outlook, what's the broader market level assumptions that management are working with in terms of both supply and demand? What's the specific launch timing for L9? How will production ramp up? Any comment on the broader market environment would be very helpful. Second is about margin. The first quarter margin was a beat. Kevin discussed a retail price increase in April. So can you refresh us on the margin guidance from here? Thank you.

Thank you, Fengfei. This is Kevin. Thank you for your question. OK. On your first question, in fact, the outlook we we gave just now is based on our expectation of the recovery of the production of our suppliers in Yangtze Delta region. Basically, you can see from the end of April until now, although still a lot of suppliers are still struggling to recover, but we already see some of the positive signs that at least half of our suppliers already resumed their production. So therefore, there still are uncertainties for the next step. And in terms of the order, we have enough order on hand. So right now, the single biggest risk is still the production of our suppliers. And in terms of the March market launch plan for L9, as we just mentioned, in the third quarter of this year, L9 will be delivered to our customers. And overall, I think for the overall EV business, behind us, we already see that in the past two quarters, we have already seen very strong growth, both the production and the consumption. So looking to the future, I think there are uncertainties. First of all is the recovery of the supply chain. On the other hand, if the pandemic persists for a longer time, our fear is that the consumer's spending desire will reduce. So that's another thing we are monitoring closely. On your second question, actually, right now, it's not time for us to provide another updated guidance for our gross margin. Thank you.

Thank you. Our next question comes from Team Shell from Morgan Stanley. Please ask a question.

Hello, everyone. Thank you for accepting my question. I have two short questions. The first one is about some changes in our purchasing strategy. Because no matter how long or short the time required, production will eventually recover over time. However, due to the sudden closure of Shanghai this time and the recent disturbance of the suburb of Jiangchegu, I think China still insists on the clean-up policy. Is the ideal car in the future No matter if it's a purchase or production strategy of a new model, it will be adjusted. This is the first question. The second question is related to the profits mentioned just now. This is related to the financial situation of the battery industry and the impact of raw material price fluctuations and production volumes. In addition to the 1st of April, which is the 1.18 million yuan of the ideal car model, have you felt that this year there is a possibility So I've got two questions. The first question is about the sourcing strategy because we think the production recovery appears a matter of time. But has Lyoto taken any extra precautions? For example, reviewing or changing your current sourcing strategies in the wake of the recent disruption in Yangtze River Delta region. As Kevin mentioned, 80% of our suppliers are currently located there. So any thoughts on further diversification in China or offshore? Second question is about the potential price hike or margin pressure. Because on top of the 11.8 thousand price high of Liwan since April, If there is any pressure of the further pricing adjustment or despite a slightly likely further price hike of key components, for example, like batteries into second half, especially production costs have substantially increased recently. Thank you.

All right. Thank you, Tim. This is Kevin again. So first of all, for the supply chain management, in fact, we... In the past, we already have the measurement to try to qualify more suppliers to supply us. So that will not change. And right now, of course, with the pandemic, we will definitely consider some short-term measurements to counter the impact because there are still uncertainties of the recovery of the pandemic in front of us. For the long term, I don't think we'll take any dramatic measurement to change our supply chain management strategy. Because the pandemic is, we think, still is a one-time issue for us. And the supply chain strategy is a long-term thing. And for the price adjustment, in fact, with the 2021 V1, actually when we increased the price on April 1st, we already took into consideration of all the foreseeable material cost increase. Yeah. But we will continue to closely monitor the vitality of the cost. So right now we don't see another need to further change our price. But that's based on the current information we have.

All right, thank you. Our next question comes from Yiqin Ding from HSBC. Please go ahead.

Thank you, Manager Chen. I'm Yu Qian from Huifeng. I would like to ask two questions. The first one is about the trend of our new orders after the rise. How is the new order in April compared to January? Considering that there may be some pre-purchases in March and some seasonal disruptions in February, and the expectation of the recovery of the demand for electric vehicles in the next high-end price range, can we expect a strong growth in demand after the supply recovery in the second half of 2020 or is this year's demand pattern relatively challenging? Then the second question is about the product cycle and payment philosophy of the company. This year, there will be L9 listed, which is the product year of electric vehicles next year. Can you please share with the management that the company will release new products with high density in the next 18 months, and can be a product strategy that continues to pay off in the segment area and the plan about product governance? My two questions first is on the order book and the demand outlook. What's the new order book momentum post the price hike? And how would the new order book in April compare to January? And looking ahead, how would management would expect high-end pricing category EVs demanding 3.5 looks like more growth quota back-end loaded. And the second question is on the product cycle and product strategy. We might see L9 coming soon, and next year would be a big product cycle launching year. Will we have your insight on how we plan the five models, five new models value proposition in the coming 18 months and the conviction or the product philosophy to enable them or potentially the segment winner?

Thank you, Yuxian. This is Kevin. I will take the first question and leave the second question to Li Xiang. As we all know that in April 1st, we increased our price. Naturally, a lot of sales leads were consumed. in the end of March. So therefore, in the very beginning of April, because we have to restart the sales lead pipeline, so therefore the first half of April was a little bit slow. But since the last week of April and also the first week of May, we already see a very strong comeback of the order intake. The only exception is Shanghai because the pandemic stopped us from taking orders. So overall, we are still very confident that our Liwan will continue to be very strong. Overall, for the high-end PV market, unless the the pandemic persist very long time and hurt the economy very badly. Otherwise, we think the demand will continue to be stable. But from our side, because our D1 and also our incoming L9, the product competitiveness is very, very strong. So therefore, despite the The demand side, the fluctuation, we still have a very strong confidence that these two products will do very good this year in the market.

Let me talk about our product planning. The core of product planning is actually from 2019, and then at the end of the year, after we delivered the ideal version, we planned the subsequent product combination. So it's a big difference from the past single product. The key point here is product combination. So, whether it's the new generation of increased development, or the development of the 800-volt voltage platform, or our smart driving, and the smart cabin, and the electronic electrical structure, the development of these five technical products on the platform is actually designed for the entire product combination. If we look at 2021, and then the ideal version, and then the price of all new energy vehicles with a price range of between 300,000 and 400,000 yuan, with a market share of more than 30%, We think that as a good storage product, this kind of style is actually reasonable. Our next product plan can be summarized like this. The first is that two different engines will use two different body types. We think that the best body type is SUV. Yes, then for the level of the product we want to make, then it is not the best efficiency to make a sedan, then to make MPV, then it is not the best efficiency. SUV is a very good form. Then in terms of pure electricity, then we think that in fact, then doing such a large-sized SUV, in fact, the efficiency is not high. So, in terms of pure electricity, we are a new form. Then in the next two years, after we release the product, everyone will find that the pure electricity we make is different from any form of product in the market today. They designed it for this kind of special form of pure electric. So we used completely different forms of different power. So there is no competition between the two forms, but it is to compete with each other in the market of 200,000 to 500,000 yuan that we are facing. I think the second level is to use different prices. We will put a product in each 100,000 yuan price range. Yes, and then it includes 400,000 to 500,000. And then because our starting point is relatively good, our starting point is placed between 300,000 to 400,000. So we can go up to hit the price range of 400,000 to 500,000, and then we can go down to enter the price range of 200,000 to 300,000. So the whole price, we will basically cover a heavyweight product in each price range to meet the demand of the user in this price range. But in the same price range, we will also have a full battery and this and this and this kind of product, and the product mentality is different. Yes, but what's behind it is actually more like, for example, the entire platform technology. And then from the performance of the product to the subsequent supply, it's all public. It also includes pure electric power. It also includes our smart driver. And then it includes our smart cockpit. It also includes our electronic architecture. In fact, it will form a more effective module for product combination. And then a module is formed. So this is probably our product plan. If we talk about it more clearly, our product plan is basically very similar to iPhone. Yes, then for different prices, then use a set of effective technical platforms to push out iPhone 12 Pro Max, iPhone 12 Pro, iPhone 12 and iPhone 12 Mini at different prices, then for different consumer needs, to carry out accurate satisfaction. So this is the core product strategy of the entire ideal car. We will also evaluate the product power provided in each price range, whether it can become an absolute leader in this price range. Yes, so this is the product logic of the entire ideal car.

This is Lee Kyung. I'm translating for Lee Kyung, the founder of the company. When we launched our first product by the end of 2019, it was one single product, which became a big success. But from that time on, we started to look at our product portfolio as a combination of different products. And therefore, since then, we started developing five different platforms to support our product portfolio, including the range-extended platform, 800-volt high-voltage electric vehicle platform, the autonomous driving platform, smart space platform, and our electric e-architecture platform. So all these five platforms combined together support our wide range of products across different price ranges. So by 2021, if you look at V1 as a product, in the 300,000 to 400,000 RMB NEV market, it already had a 30% market share and is still increasing. And that's our standard for a successful hit product. And we think that's a very comparable market share in the target market. And with that in mind, we want to continue to deliver hit products in every price range within our target markets. And we look at a product portfolio with two perspectives. The first one is that we pair a different body type with different energy sources. And by that, I mean, electric, electric, pure electric vehicles will have one body type and extended range vehicles would have a different body type. So when we built, started building range extended vehicles, we felt, we realized that the best body type was SUVs because neither sedans or MPVs were a good fit for, from a packaging standpoint for range extended vehicles. And by the same logic, when it comes to electric vehicles, we realized that big SUVs are no longer a good fit because for energy efficiency reasons. And therefore, when we deliver our first electric vehicle, you will see a completely new body type that we believe is best optimized for electric, pure electric vehicles. And with this combination, we believe there will be no condensation between our own electric vehicle and range extended vehicle product portfolios. And with those, we will completely cover the 200, 500,000 RMB target market. So that was our first strategy. And the second strategy is with respect to price range. So with the goal of covering the entire $200,000 to $500,000 price range in every $100,000 segment, we will have one hit product, one in range extended, and one in pure electric. We had a good start because our first product was in the $300,000 R&D price range. So from there, we can go up to $500,000, and we can also go down to between $200,000 and $300,000. So in every segment, as I said earlier, there will be one EV and one REV, and they will all be built based on those five platforms I mentioned earlier, the range-extended vehicle platform, the high-voltage electric vehicle platform, autonomous driving platform, smart space platform, and e-architecture platform. So by Analogy, you can see our product portfolio is very similar to iPhone, where we have one key concept and platform. And from there on, it covers all different price ranges with the iPhone 12, iPhone 12 Pro, iPhone 12 Pro Max, and even the iPhone Mini. And in every price range, you can see the product is an absolute leader in that market segment. And that has been our goal and philosophy since three years ago.

Right, thank you. Our next question comes from Mingxuan Li from Bank of America. Please, that's a question.

Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan uh uh The second question, the company just announced to the end of April. Because we originally expected to add 400 units by the end of the year, but due to the current situation, many business activities will slow down, so it may be possible that the opening speed needs to be slowed down a little bit. The other one is that because there will be a pure electric car next year, so we will gradually build this charging station in the second half of the year. Because our pure electric car was designed to be supercharged at the beginning, 我们会像友商一样就是一个比较快速的去开这个充电站或者目的地充电桩 还说我们的所有的这个充电设备都会是以这个超快充为主 所以说我们不会像其他友商一样就是需要开这么多的这个charging station 这是我两个问题 那我翻译一下 So my first question is for the battery price and also the lithium supply In the future, will you think the the lithium supply will constrain the EV growth for China. And also, currently, the battery price is still high. Do you think this is because of some speculative trading, or is it really mainly because of real demand? A set of questions regarding your point of sales expansion. Previously, your target is 400 stores by the end of the year. But under the pandemic, will you slow down the progress? And also, in terms of the charging pile, do you have any plan? Are all of your charging station based supercharging infrastructure? Thank you.

Lee, this is Kevin. Thank you for your question. Three questions. First of all, we think right now the battery cost, especially the raw material cost, is already deviated from the reasonable price, of course. So with the supply increase, we'll definitely see gradually the raw material cost should go down, yeah. But overall for this year, we still expect probably the price will still stay in a relatively high position. That's our outlook. So of course, this high price of the raw material will translate into the increase of the end consumer price. Therefore, we will kind of hurt the market demand. But as I mentioned just now, with our D1 and our L9, because our product competitiveness is very high, we still have strong confidence that even with a slightly higher price, we can still get a lot of order. For example, for Li-1, even though we increased the price starting from April 1st, but as I just mentioned, starting from end of April till now, we see the order still coming strong. And in terms of the The retail stores, we did have a quite aggressive plan. By the end of this year, we want to have more than 400 retail stores. Right now, of course, because of this pandemic issue, we are revisiting our plan. But we should all agree that the number of retail stores is a fundamental requirement. for us to achieve a higher sales volume next year. So therefore, it doesn't matter how big the impact of the pandemic for this year, we still want to open as many retail stores as possible, despite the impact of the pandemic. In terms of charging posts, starting from this year, we already have a team starting to build the charging posts. Right now, the initial focus of this team is to primarily build charging poles along the highway, especially those highways connecting the big cities. Right now, the primary focus is still the highway to connect the cities, and within the city, It depends on the customer needs. We will choose carefully whether we want to build a charging post within CT. That's the strategy right now we have.

Thank you. Our next question comes from Jing Chang from CICC. Please ask your question.

Hello everyone, my name is Lin. I am the CEO of Zhongjin Motors. I would like to ask you a few questions. The first question is about finance. We have 2.8 billion yuan of other income. I would like to know what kind of business it is. The second question is about battery cost. Many car owners have mentioned that they are in their second or third year. to negotiate the cost again. It is possible that there will be a second wave of battery cost increase before the end of the year. I would like to ask if there is a way to negotiate with the above-mentioned business owners. And if there is a further cost increase in the future, will we still carry out the next wave? The last small problem is that It's still related to the product planning. We also see that this year, it seems to be around 200,000 yuan. And then the middle-sized pure electric car will be listed. And then everyone's expectation is also relatively high. I want to ask about what we look forward to. It seems that we will be more likely to be in this SUV model next year. And then it may be more than 300,000 yuan. How do we look at this 200,000 yuan? So my first question about the financial question about the other income of 280 million RMB in the first quarter. So where does it come from? And my next question is about the battery cost negotiation. I heard that many car companies said that they frequently negotiate the cost quarterly or semi-annually. So how about that? So if the price, if the cost of battery will continue to increase by the middle of this year, how do we reflect and will we further raise our selling price to reflect the cost increase? And last question about the product pipeline. And we have seen that many brands, they want to launch, need to launch by pure electric. Again, with the positioning a price position of around 200,000 RMB this year. And the market has very high expectations for these models. How do we view the market of this sub-market? And according to our plan, if we are going to launch again and with a price below 300,000 RMB, I think that it should be not before 2024. So I'll be worried about if the entry to the market too late means these market opportunities.

Thank you, Tony. This is Li Jie. I will take the first question. The other game, the increase of Of other gains compared with last quarter was mainly the VAT refund upon collection as well for our company was qualified as a software company.

This is Kevin. For the battery cost, we agreed with our suppliers with a framework to kind of relate the battery price with the with the fluctuation of the upstream raw materials. So, therefore, for the coming quarters, we don't need to renegotiate everything. But, of course, we'll always come back to our suppliers ask for cost savings. That's for sure. Yeah. And also, as I just mentioned, the price increase already reflected our expectation of the for the raw material price. in the coming quarters.

Li Xiang. Let me answer the question about the product. I think we are at least very clear that the entire product strategy and company strategy in 2025 will still serve family users with children. This is a clear definition. So we want to launch a product that is quite satisfied with the size of the space in the car. At the same time, we also hope that there are two other things. It's a standardized configuration. All of our products are four-wheel drive. In addition, we have a strong enough intelligent system, including smart drivers and smart seats, so that every home user can experience it. I think this is our target user. The dynamic form that is replaced and the priority of the intelligent system is what we want to provide to the users. In such a situation, Then it will be more clearly focused on the price range of 200,000 to 500,000 yuan. Then we will continue to increase it. Now it has entered 300,000 to 400,000 yuan. Then make a medium-sized product. It will also be integrated into full-size products. It will also be integrated into medium-sized products downwards. I think this is our very clear company strategy and product planning until 2025. In this year, OK.

It's very clear to us that by 2025, our core customers will still be families with kids. And with that, three things become very clear. First is that we're always going to build vehicles with an acceptable level of interior dimensions for family users. And the second one is that all of our vehicles will be all-wheel drive. And third is that we want to make sure that every vehicle includes our latest autonomous driving and smart space solutions so that every family member are able to enjoy them. And with these three things in mind, it is very natural that we will continue to focus on the 200,000 to 500,000 RMB price range. And within this range, we'll continue the mind of 300,000, 400,000, which is our starting point. And from there on, we'll expand upward to the full-size market and downwards to mid-size market. So this year, as you know, our focus will be the L9 release. And next year, we'll be launching three new vehicles. including a completely new range extended vehicle and also our first battery electric vehicle. And you will also see our first product in the 200 to 300,000 midsize market.

All right, thank you. Our next question comes from Bing Wang from Credit Suisse. Please ask your question.

Director Lin, I have a question about the battery. We have a calculation of the cost of this battery price of 30 percent. Did you start calculating from January 1st? Because we found that it is actually quite surprising to increase the yellow ratio. I just want to know if we have any factors that cause this yellow ratio to increase. If the price is still increasing, the price is still increasing. Then this is really very powerful. Then in the second quarter, the battery price is about the same as the first quarter anyway. This one added 11,800 yuan, so the second quarter price should be improved. Because your whole scale is still there. I only have one question about the battery price. So can you know when you start to accounting for the price increase for battery? Because you mentioned the battery price increase by 30%. Is it from the January 1st or start from the second quarter? If the first quarter already considering the price increase for battery, you also actually increase the price start from April 1st. It doesn't mean the second quarter marginal flow increase. So can you have some guidance on this?

Thank you. Thank you for the question. It's a rather complicated question. So basically, the first quarter's financial performance already took consideration of the, of course, already took consideration of part of the battery cost increase. And the impact was not that dramatic, primarily due to, as you know, that we have inventories. So therefore, the cost, in fact, is a rolling mix. So that's for the first quarter. From the second quarter, we'll have the battery cost increase, as you mentioned. And at the same time, from the beginning of this quarter, we'll have a selling price increase so yeah so there therefore the it's not that we can expect some very high gross margin compared to last quarter okay all right thank you as we are reaching the end of a conference call I'd like to turn the call back to the company for closing remarks

Ms. Janet Zhang, please go ahead.

Sure. Thank you once again for joining with us today. If you have further questions, please feel free to contact Leardo's Investor Relations team. Then that's all for today. Thank you and have a good one.

Ladies and gentlemen, did this conclude our conference for today? Thank you for participating. You may all disconnect.