Li Auto Inc.

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

Thank you, Jason. Good evening and good morning, everyone. Welcome to Lee Otto's second 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 Tie Li, 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 forward-looking made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the conflict's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain failings of the company with the U.S. Securities and Exchange Commission and the Hong Kong Stock Exchange. The company does not assume any obligation to update any forward-looking statements except as required under 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 Lee Otto's disclosure documents on the IR section of our website, which contain 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, Janet. Hello, everyone, and thank you for joining our call today. I will review the key highlights of the second quarter and discuss our flagship smart SUV, Li L9, which has received highly positive feedback from family users for its best in-class combination of drivability, safety, comfort, and intelligence. We witnessed the continued consumer adoption of EVs in the second quarter. China's retail sales of new energy passenger vehicles surpassed 1.17 million during this quarter, more than doubled year over year, according to the China Passenger Car Association, with penetration rates climbing to 27.1% from 21.8% in the first quarter. We believe it will continue to rise, supported by more NED model launches, continuous iterations of smart features, and the increasing user preference for clean mobility. We remain focused on offering state-of-art products to our family users. Despite the challenges posed by the COVID-19 resurgence across cities nationwide, from March to May, we delivered 28,687 vehicles during the second quarter, representing a 63.2% year-over-year increase. These strong delivery results contributed to a 73.3% year-over-year increase in total revenues, which totaled RMB 8.73 billion. Our deliveries in July reached 10,422, up 21.3% year-over-year. On August 1st, we proudly rolled the $200,000 off the production line at our Changzhou manufacturing base. It took us just 986 days to reach this production milestone. Once again, setting a record speed among China's emerging EV manufacturers, following our historic speed in reaching the 100,000th unit mark. V1 is also the first domestic branded premium model priced above RMB 300,000 to achieve this production milestone. Moving to our supply chain, the COVID-19 resurgence severely affected the auto supply chain in the second quarter. Currently, there are remaining disruption and difficulties, but we moderated, they moderated as the pandemic became more contained. Although we are cautiously optimistic that our supply chain will normalize in the second half of the year, we should highlight that potential volatility remains and requires us to constantly stay on high alert, especially given the ongoing pandemic. As we navigate the continuous unpredictability, we focus on reinforcing our supply chain system. strengthening our partnership with parts suppliers to tackle part shortage and cost inflation, and at the same time, redoubled our exercise on auto parts quality control. Now, moving to profitability. In the second quarter, we continued to see that the power of our product, our execution consistency, and our operational resilience enable us to mitigate the cost inflation that we have been experiencing along with the rest of the industry. As a result, our second quarter gross margin remained relatively solid at 21.5%, up 2.6% year over year. As we remain devoted to R&D and network expansion to fuel our future growth, our operating expense increased by 91.9% year over year. Meanwhile, we continued to optimize our cost structure and then manage our cash flow effectively. Despite the pandemic's impact, we achieved another quarter of positive operating cash flow of RMB 1.13 billion and free cash flow of RMB 451.7 million. As part of our efforts to accelerate growth and accommodate additional user demand with new model launches, we continued to expand our direct sales and servicing network. As of July 31st, we had 259 retail stores covering 118 cities, as well as 311 servicing centers and authorized body and paint shops operating in 226 cities. While the pace of our sales network expansion has been challenged by the COVID-19 resurgence, we will strive to further extend our reach to users by upgrading our existing stores. In order to optimize charging experience for our users, we also rolled out the charging map function in our LeeAuto application on August 17, The map covers over 30,000 charging stations and 300,000 charging poles in 31 provinces and over 300 cities from six main charging station operators, including State Grid, Star Charge, and others, providing convenient energy replenishment options for our users. On June 21st, we unveiled Li L9, our flagship smart SUV. Reflecting our intense focus on family users, we developed Li L9 to create a mobile home create happiness. Thanks to our relentless R&D efforts and outstanding product definition capabilities, Li L9 boosts cutting edge premium features to provide outstanding handling and ultimate comfort and safety. Every LEAD L9 comes standard with our flagship full stack self-developed autonomous driving system, LEAD ADMAX. It's enhanced functionality bolstered by upgraded perception and vehicle control capability was highly recognized by users in the test drives. As the first volume production vehicle with redundancy design applied to its powertrain, steering system, braking system, and the power supply system for the computing platform, it offers enhanced reliability and safety. Supported by a computing platform composed of two Qualcomm Snapdragon automotive-grade 8155 chips and our in-house deep learning-based multimode interactive technology, LEED L9 provides a smart interior space featuring five screen, three-dimensional interactions for family members for all ages. We have received positive feedback along with very strong order intake for LEED L9, particularly from our target family users. We will commence delivery of LEED L9 by the end of August. While we forge ahead with our new model launches, we also continue to pursue optimization for our existing product. In June, we released the OTA 3.1 update for Liwan, taking the Liwan user experience to the next level. This update feature, a highly anticipated remote vehicle control function. allowing users to move the vehicle forward and backward in a straight line through our mobile application. This remote capability greatly increases users' convenience and improves their ability to park in narrow spaces. The update also includes an audio equalizer function and further optimization of our fully self-developed NOA function with enhanced accuracy for recommended lane change and the ramp entry or exit. Furthermore, we are steadily working on our plan of launching high power charging BEV model next year. We're also working on deploying our HPC network to support our HPC BEVs. LEED L9 will be the first model in the industry to adopt the NVIDIA O-ring platform to deliver advanced autonomous driving features, including NOA function, showcasing our strong R&D capability with high efficiency. Our self-developed autonomous driving algorithms have won much public recognition internationally. For example, we ranked first in the 2021 New Things 3D Vision Detection and Tracking Task, and also won first place in the ICCV 2021 Workshop Interpret Challenges. We also have the largest number of autonomous driving users in China. As of July 31st this year, Users with access to LOA function exceeded 130,000. The technology knowledge and insights accumulated through the one give us the advantage by helping us enhance our R&D efficiency during the L9 development process, refine products, and further optimize the safety and performance of autonomous driving. In summary, we will continue to create happiness and value for our family users by honing our existing products and expanding our model line up while enhancing our brand recognition for family users. We will also execute on our technology roadmap to solidify our lead in EREVs and advance our HPCPEV development. 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, Kevin. Hello, everyone. I will now go over some of our financial results for the second 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 press release, which is posted online for additional details. Total revenues in the second quarter of 2022 were RMB 8.73 billion, or 1.3 billion US dollars, representing an increase of 73.3% from RMB 5.04 billion in the second quarter of last year. This included RMB 8.48 billion, or 1.2 billion 27 billion U.S. dollars of vehicle sales in the second quarter of 2022, representing an increase of 73 percent from RMB 4.9 billion in the second quarter of 2021. The year-over-year increase in vehicle sales was mainly attributable to the increase in vehicle deliveries in the second quarter of this year. On a quarter-over-quarter basis, affected by supply shortage due to the COVID-19 in the second quarter of 2022, total revenues and the vehicle sales decreased by 8.7% and 8.9%, respectively. Revenues from other sales and services were RMB 249 million, 37.2 million U.S. dollars in the second quarter of 2022, representing an increase of 83.6 percent from RMB 135.7 million in the second quarter of 2021 and a decrease of 1.7 percent from RMB 253.4 million in the first quarter of The increase in revenue from other sales and services over the second 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 second quarter of 2022 was RMB 6.85 billion of 1.02 billion U.S. dollars representing an increase of 67.7 percent year-over-year and a decrease of 7.4 percent quarter-over-quarter. Cross-profit in the second quarter of 2022 was RMB 1.88 billion of 280.4 million U.S. dollars representing an increase of 97.1% year-over-year and a decrease of 13.2% quarter-over-quarter. Vehicle margin in the second quarter was 21.2% compared with 18.7% in the second quarter of last year and 22.4% in the first quarter of 2022. The increase in vehicle margin over the second quarter of 2021 was primarily driven by a higher average selling price attributable to the increase of vehicle deliveries of 2021 Liwan since its release in May 2021. Gross margin in the second quarter of 2022 was 21.5%. compared with 18.9% in the second quarter of last year and 22.6% in the first quarter of 2022. Operating expenses in the second quarter of 2022 will be 2.86 billion or 426.5 million US dollars. representing an increase of 91.9% year-over-year and an increase of 10.9% quarter-over-quarter. Research and development expenses in the second quarter of 2022 will earn $1.53 billion, or $228.7 million. representing an increase of 134.4% year over year and an increase of 11.5% quarter over quarter. The increase in R&D expenses over the second quarter of 2021 and the first quarter of 2022 was primarily driven by increased employee compensation as a result of our growing number of R&D staff, as well as increased expenses associated with new models to be introduced in the future. Signing general and administrative expenses in the second quarter of 2022 for RMB 1.33 billion, or $197.8 million, representing an increase of 58.6 percent year-over-year and an increase of 10.2 percent quarter-over-quarter. The increase in selling general and administrative expenses over the second quarter of 2021 and the first quarter of 2022 was primarily driven by increased employee compensation as a result of our growing number of staff as well as increased rental expenses associated with the expansion of the company's sales network. Losses from operations was RMB $978.5 million or $146.1 million in the second quarter of 2022, representing an increase of 82.6% year-over-year, and an increase of 136.9% quarter-over-quarter. Net loss was RMB $641 million, or $95.7 million in the second quarter of 2022, representing an increase of 172.2% year-over-year. and compared with RMB 10.9 million net loss in the first quarter of 2022. Turning to our balance sheet and cash flow, our cash and cash equivalents restricted cash, time deposits, and short-term investments totaled RMB 53.65 billion, or $8.01 billion as of June 30, 2022. Operating cash flow in the second quarter of 2022 was RMB 1.13 billion, or $168.6 million. Free cash flow was RMB 441.7 million, or $67.7 million. four million U.S. dollars in the second quarter of 2022. Now, for our business outlook, for third quarter of 2022, the company expects the deliveries to be between 27,000 to 29,000 vehicles, representing an increase of 7.5% to 15.5% from the third quarter of 2021. The company also expects the third quarter total revenues to be between RMB 8.96 billion and RMB 9.56 billion or U.S. dollar 1.34 billion and U.S. dollar representing an increase of 15.3% to 22.9% from the third quarter of 2021. This business outlook reflects the company's current and preliminary view on the business situation and the market condition, which is subject to change. I will now turn the call over to our operator and start the Q&A session. Thank you.

Thank you. 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 cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, please limit yourself to a few questions. If you have additional questions, you can re-enter the queue. Please ask your question in Chinese and then follow with All right, our first question comes from Fei Fang from Goldman Sachs. Please go ahead.

Fei Fang Great. Yes, thanks for taking my question. Now, the second quarter performance was impressive despite COVID, and L&I has outstanding traction for its price point, so congratulations on those. They were well done. My question is about your guidance, so the third quarter is in question. 27,000 to 29,000 unit guidance that you provided it, can you break it out by L1 and L9? And also, as you ramp the production of the high ASP L9, will gross margin improve? So that's the first question. My second question is about L9's retail traction. So the company disclosed in early August that L9 has received 30,000 confirmed orders. So just wondering if we can have a refreshed discussion in terms of this latest retail trend especially competition with the other new energy SUVs and MPVs that some of your EV peers have put in the market. 我很快翻译一下,我的第一个问题是关于第三季度的指引。 我们看到27,000到29,000的这样一个销量的区间,这里面多少是理想01,多少是L9。 随着L9它的产能的爬坡占比的提升,我们会看到毛利率的一个提升。 Kevin, thank you for your question. Your first question, for the guideline,

Actually we still stick to our previous projection that for September we're going to ship more than 10,000 L9. And for your second question, actually the Yeah, and for the, sorry, for the growth margin, L9 will be higher, yeah, will be higher, yeah, since it's a high-end product. Your second question about the traction, right now, although last month we already kind of received almost 30K order of L9, today, in the past two weeks, we still see a strong demand coming for L9.

Okay, got it, got it. Sorry, part of my second question was to ask Kevin if you can comment on sort of L&I in the context of this competition with the other SUVs and MPVs that some of your competitors have put in the market, whether it's Huawei, BYD, and so on and so forth. Are you seeing competitive threat from them that sort of, you know, cause you to change your strategy or, you know, introduce more marketing incentives in front of customers?

Yeah, in fact, the L9 has a very unique product positioning. Actually, in this price band, with this kind of size and smart features, we don't see there are any products that have the kind of product proposition. close to our L9. So right now it's more about how much we can convert our customer to place order on our L9 when they have the budget between 400K to 500K RMB.

Okay, that's helpful. Thank you.

And as a reminder, please ask your question in Chinese first, and then follow it with the English translation, and do that as well for the follow-up question. And our next question comes from Tim Hisao from Morgan Stanley. Please go ahead.

Thank you for accepting my question, Mr. Manager. I would also like to congratulate you on the success of the L9 launch and order. I have two quick questions. The first one is about the guidance for the third quarter. It seems to be a bit conservative. Is it mainly because of the change of the ideal model? If so, how long do we expect this kind of impact to last? In addition, does the production of L9 climb or is there any other reason to cause the guidance for the third quarter to be conservative? So my first question, just want to follow up on the third quarter guidance. because I think third-quarter volume guidance of 27,000 to 29,000 looks a little bit conservative. So considering the launch of L9 and improving supply dynamic, should we attribute the conservative self-alloc to the transition of Li1 only, or if the production ramp-up of L9 can explore the expectation, or if there's any other reason we should take into consideration? So it's just simply due to the hiccup or Li1, How long should we expect this kind of impact will last? And my second question is about the sales mix of EREV, the plug-in hybrid, and BEV next year. How should we think about the mix in 2023? And could you provide some updates regarding the numbers of new models? If the mix of the BEV is going to increase substantially next year, Should we be concerned about potential dilution to our margin, or could that hurt our cash flow? So those are my two questions. Thank you.

Yeah, Tim, this is Kevin. Thank you for your question. About your first question, in fact, when we give out this guidance, of course, we have seen some slowdown of the V1's order intake. I think primarily the issue right now is that when we have the new product into our retail stores, a lot of attention has been attracted by the new product rather than the old product. Actually, we are working with our sales team to regain the attention from our potential customers for D1. So, on the other hand, about the potential launch of the new product, actually the only comment I can give right now is that it will come in soon and will come in sooner than the expectation. That's the only comment I can give. And about the new product model, BEV model, we plan to launch next year. In fact, as you can expect, for any new model we launch into the market, we have an intention to increase the revenue, also to improve our cash flow, improve our profitability. So therefore, with the new BEV model, in our plan, we plan the reasonable profitability of cost. So it won't hurt our cash flow. It won't hurt our gross margin next year.

That's perfect. Thank you very much, Kevin.

The next question comes from So long from Credit Suisse. Please go ahead.

Hello, everyone. I have a question about the Dream1. I received two investors who confirmed to me. The first one is, is our Dream1 waiting for about two to three weeks? The second one is, does Dream1 give a 7,000-dollar insurance discount? If so, will our next L8 be listed in November? Okay. Basically, I got one question about the new one, because investor told me that three things. Number one, we hear that in the new ones, waiting time has been reduced to two or three weeks. And secondly, from this month, the ones that offer around 7,000 million BIP per unit cut up the promotion for the insurance. And number three, allow A, which will be the next generation, allow new one will launch in November this year. Can you confirm the three things from the investors? Thank you.

Thank you for your question. First of all, about the waiting time, actually. The waiting time right now is, of course, shorter than last month. As I already explained, the order intake is slower right now. So, therefore, we can turn over the delivery faster. And about the 7,000 RMB kind of promotion, actually, yeah, you got the information very updated. We kind of released this policy just this Sunday. So, yeah. And about the new product you're asking about, I think the same answer I already provided, that it will come. and sooner than our expectation.

Okay, thank you. Thank you so much.

The next question comes from Paul Gong from UBS. Please go ahead.

Thank you, Mr. Guan. I have two questions. The first one is about How do we improve this ideal one or our strategy? What are some new adjustments? How big is the problem? I understand that when the L9 was just launched, it was not obvious at the beginning of June and early July. But is it more obvious now? Or is it a weakness of the entire industry? So just translate my two questions. The first question is regarding the cannibalization of L9 versus C9. How much of the recent weakness of the D1 orders is due to the cannibalization of the new model, and how much of it do you think is due to the weakening macro environment as well as the weakening demand for the cars in general? My second question is regarding the features or the key highlights of the BEV. I think management I previously mentioned that the BEVs and ELEVs, they should be based on different models. They have different features. And can you give us a little comment on how should we think about the uniqueness or the attractiveness of your BEV in view of such a crowded market in the BEV market already?

Paul, this is Kevin.

I will take your first question and Lixiang will address the second question. The first question, the thing is that before we put in the car, L9, into our retail stores, before people start to test drive it, actually we see no change of the order intake pattern of L1. To a certain extent, it's to our surprise that when we have the customer coming into the stores to test drive, some of the customer original plan was to test drive V1, but when they see L9 and when they, after they test drive the L9, We see, especially the customer with enough budget, we see a lot of them converted to L9 customers. So right now, as I just explained, that's one of the reasons why we also have some more promotion plans for L1. And I think, but on the other hand, we still have a confidence that D1 is still a very competitive product because if we compare it with the existing product other than L9, other product in the same price band, 300K to 400K RMB price band, D1 is still one of the most competitive product in the market. Let me answer the second question. There are two main differences between the pure electric type and the electric car type. The first one is the charging type. Our current test car can charge 400 kilometers in 10 minutes. This is a new standard for supercharging. The purpose of the pure electric car is the same as the electric car. The purpose is to be able to carry the fuel car. This will allow the past users of electric vehicles to choose a pure electric vehicle without any disadvantages. If we look at the current L9 user data, nearly 80% of users can charge their electric vehicles at home.

and close to 100% of the users have stable charging conditions.

Either they have a charger at home, or they have a fast charger near the company. So, our focus is not on how to charge users in the city or at home. Our core goal is to ensure that users in dense economic areas, such as Long Triangle, Zhu Triangle, Chuan Yu, and Jingjingji, It also includes the economic zone of Wuhan and Zhengzhou. In such an area, it is very convenient to carry out the long journey between the areas. This is one of the core purposes of our construction. I think the second aspect is to play the advantage of electric vehicles. So in our pure electric model, it is a new form. This form will have a larger space than the current increased SUV. So these two aspects.

So mainly two angles of differentiation. The first one is around charging. In fact, we already have a prototype running right now that can charge 400 kilometers of range in 10 minutes. And the goal here is very similar to a range extended vehicle, which is to replace all internal combustion engine vehicles for customers and to have no anxiety in terms of range. Our data shows that among our L9 customers, 80% of them have home charging. And 100% of them have stable charging either at home or in the office. So home charging or office charging is really not the key here. The key challenge is to enable customers to travel freely within key economic zones within China. For example, the Yangtze Delta River region, the Beijing Tianjin region, Wuhan, Sichuan, these big mega city areas, we will support with high power charging so that customers can drive long distances. with no range anxiety even if they're driving electric vehicles. So the second advantage when it comes to electric vehicles is space. Because of the engineering possibility enabled by electric vehicles and new architectures and new body types, we can provide a lot more space in our electric vehicles compared to range extended vehicles with the same footprint.

我能很快跟进一下吗? 就是说如果L9对于理想1的一个替代是超预期的话, 我们为L9所设置的月产的这个产能的上限是多少? If the L9 cannibalization of理想1 is higher than expected, how much of the capacity ceiling will prepare for L9? Yeah, the cap capacity is...

15,000 for L9.

Thank you very much. Thank you.

好的,非常感谢。 The next question comes from Ming Li from Bank of America. Please go ahead.

My first question is regarding the gross margin trend and also the battery cost trend for second half this year. actually has something to do with L1. In addition to L1 and L9, some of the customers here will overlap. We now see that there are some new products on the market, such as Wenjie's product, which is closer to our positioning. How do we see the competitiveness of a product like this? Does it also have some impact on L1? If so, what should we expect from L8 or new products? The second question is regarding the competitive landscape. Recently, we also see ITIL brand volume sales has grown steadily. And besides that, how do we expect the new D1 or L8 product competitiveness versus the current Li-1.

Thank you.

This is Kevin. Thank you for your question. The first question is about the battery cost. Actually, as we all know, in the recent months, the raw material for battery has come down a little bit. But we would expect that for the coming months this year, the raw material cost will again fluctuate a lot. So therefore, for the gross margin outlook, a lot of time are based on the best cost. So therefore, I can only comment on the battery cost will be kind of a fluctuation. And for the new product competitiveness, I will ask Lixiang to comment. LIXIANG CHENG CHENG CHENG CHENG CHENG So right now around L8, I can share two things. One is that it will be released much sooner than many people are expecting. And the second thing is that the period from release to delivery will be shorter than L9.

And when L8 is available, I think that would be a good time to compare the product competitiveness with newly released competitors. And we have full confidence that we will dominate all these products with our L8.

Thank you.

The next question comes from Zhu Yingbo from CITICS. Please go ahead.

Thank you. I have two questions. The first one is to ask about the product. We can see that Zengcheng has launched more new products. We just talked about L8. Can you share some of the strategies for Zengcheng products in the medium term? The second one is that we can see that the release of this ATM is now $3.66 billion. Can you analyze the situation of the subsequent ATM release or our capital reserve plan? I have two questions. The first question is about the EREV product. What's our mid-term competitiveness strategy for EREV product? And the second question is about money raising. Could you please talk a little bit more about ATM and the further capital reserve project? Thank you.

I think Zengcheng, and then we still look back at this for more than five years, we think it is the best solution for SBOA. Then I will give you an example of other brands. Yes, for example, let's look at the same price of more than 200,000 yuan. Biadix's two products are in this Han aspect. In fact, it is obvious that EV is better than DMI, but in terms of sugar, DMI is better than EV in sales. Because as a consumer, spend 200,000 or even 300,000 yuan or even 400,000 yuan to buy an SUV, it has a very clear expectation that I will be able to drive it out and play. I think this demand is real. Especially after the epidemic, this demand is more clear and exists. Therefore, we believe that in the long term, a structure such as an SUV is a very good experience for SUVs, and it has a very good production capacity. What we want to do is actually in terms of the efficiency of the whole upgrade. And then gradually and then do it higher Yes, I think by then you can take a look And then some mainstream media And then test the power consumption of the L9 And the performance of the performance of the L9 Yes, the power consumption of the L9 And then it's basically 60% In the case of power outage It's a performance of 60% of the same level And then it's actually better than what you think today What's the technology behind the rise It's better than those people bragging about those brands Smaller models of SUV power consumption Yes, I think there are many potentials that can be dug out later. So, the increase is long-term. Because the increase is a motor vehicle, right? Then add a generator. Instead of a fuel car with batteries, I think this is a completely different concept. I think if you don't even understand this thing, and talk about what's behind the scenes, I think some companies are hard to sell their products well. So, we can also see, including traditional companies like Chang'an, So talking about range-extended vehicles, if you look at over the next five years, we still believe that REV is the best solution for SUVs, period.

I'll give you one example. If you look at BYD, they have two main products above 200,000 RMB. There's a Han sedan and there's a Tang SUV. So in terms of Han, which is the sedan, the EV sells much better than DMI, which is the hybrid vehicle. But for Tang, the case is exactly the opposite. DMI sells better than EV. And the reason for that is when people buy cars in the 200,000 to 300,000 RMB range, when they buy an SUV, they have a very clear expectation that they want to go on longer trips, especially post-COVID. So REV is still the best solution up until today for SUVs that solve range anxiety. So under that consumption within REV, our biggest goal is to solve the efficiency challenge. And if you look at L9, you can look at there's many top media that have tested the L9. Our energy consumption level is still leading in its class. Even with low SOC, the fuel consumption is only around 60% of much smaller internal combustion engine vehicles, and it's much better than what many claim to be competitors, which are much smaller SUVs. Because at the end of the day, our EV as an EV is not an internal combustion engine adding a battery to it. So that's the key difference between PHEV and our range-extended electric vehicles. There shouldn't be any discussion of which one is more advanced or which one is more backwards. For the users, range extended vehicles is an EV that happens to have an internal combustion, or we call a range extender, whereas PHEV is really more of an internal combustion engine vehicle with a battery. I'll give you another example. Chang'an, which is a very established company with very capable technical skills, And their latest vehicle, SL03, is an REV rather than PHAF, despite the fact that Thailand has all the PHAF technologies in the world. But they still built an REV as their most advanced solution, because at the end of the day, again, REV is really an electric vehicle.

Yibo, for the second question about the cash flow and the ATM offering, I think first, Liotto has very healthy operating cash flow and free cash flow, which can still fund our business every quarter. But in the long run, we are very clear we are still at the early stage of this industry in 10 to 15 years. So we still want to use the active market to secure more cash to further fund the company's development, especially in the R&D and also the new model R&D side. For the ATM offering, I think based on this year's market condition, as I just mentioned, we still want to to secure more cash from the equity offerings. So we choose the ATM to do this. As most of the ATM offerings, we need to stop before we publish our earnings release. So hopefully we can finish this ATM offering in the coming months. Thank you.

The next question comes from Jiang Xiao from Barclays. Please go ahead.

谢谢管理层接受我的提问。 我有两个问题。 第一个问题就关于你们的这个BEV的这个车型。 我就想请问一下这个BEV的车型是不是还是这种家庭型的SUV的这种车型。 第二个问题我想请问一下是 I have two questions. First question is about for the new BEV cars. Are those new cars still going to be family-oriented? SUVs or something else. The second question is really about the guidance for the second half operating expenses. Thank you.

So I have a short answer for the first question.

In terms of the body type for electric vehicle, I still want to keep it confidential before it's released because it's a very unique design.

And also to add to Alicia's answer, we still serve family customers with our PE. Operating expenses, I think we have a very clear roadmap on our product and our goal for this and next year's sales target. So we will keep going to invest on the R&D side and also on the network expansion to better serve our family customers.

Thank you.

As we are reaching the end of our conference call, I'd like to turn the call back over to the company for closing remarks. Ms. Janet Zong, please go ahead.

Thank you once again for joining with us today. If you have any further questions, please feel free to contact Viado's Investor Relations team. Then that's all for today. Thank you.