Li Auto Inc.

Thank you for standing by and welcome to the Lee Auto Inc. fourth quarter and full year 2022 earnings conference call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the start key followed by the number one on your telephone keypad. I would now like to hand the conference over to Ms. Janet Zhang, Lee Auto IR Director. Please go ahead.

Thank you, operator. Good evening and good morning, everyone. Welcome to Li Auto's fourth quarter and full year 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 founder, chairman and CEO, Mr. Xiang Li, and our CFO, Mr. Johnny Chieh-Li, begin with prepared remarks. Our President, Mr. Donghui Ma, and our CTO, Mr. Yan Xie, will join for the Q&A discussion. Before I continue, please be reminded that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain company failings 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 price release and this conference call include discussions of unaudited gap financial information as well as unaudited non-gap financial matters. Please refer to Li Auto's disclosure documents on the IR section of our website, which contain a reconciliation of the unaudited non-gap matters to comparable gap matters. Our CFO will start a remark in Chinese for about five minutes There will be English translation follows after he finished all his remarks. With that, I will now turn the call over to our CX CEO, Mr. Xiang Li. Please go ahead.

Hello, everyone. Welcome to today's press conference. In 2022, the Chinese New South Wales motor market continues to show growth. More and more customers rely on New South Wales motor. According to the data of the Chinese Youth Conference, in the fourth quarter of 2022, The penetration rate of today's cars has increased to 31.7%. These data are 14.8% and 29% in 2021 and 3rd in 2022. Under this background, we continue to grow. In the past less than a year, Lianxi launched the ideal R9, R8, and R7 three-wheeled models, enriching the products, and achieving a comprehensive coverage of the family SUV market of 300,000 to 500,000 yuan, and further consolidated our leading position in this market. At the same time, We will further enhance the capability of developing supply chain and sales services. We will further upgrade the company's business process and organizational structure. We will prepare for the same time period and size expansion of the company. Regarding the delivery volume, in December 2022, our delivery volume exceeded 20,000. We have once again created the historic height of China's new car industry. We have established a solid foundation for the development of 2023. Since September 2022, Li Xiang R9 has continued to run the China's large SUV, Yuexiao Liang's Panhangbao. At the same time, Li Xiang R8 has also taken over Li Xiangwan's Xiao Liang Qiji and won the China's large SUV in December 2022. In the fourth quarter of 2022, we have delivered a total of 46,319 new cars. In 2022, we delivered a total of 133,246 cars. According to the data of the number of new arrivals, Li Xiang's car In December 2022, China's 300,000 to 500,000 SUV models and 300,000 to 500,000 new cars were all ranked first in the sales ranking, becoming the family's first luxury SUV. In the first quarter of this year, our orders for traditional sales units in the automotive industry are still very strong, fully manifesting the competitiveness of ideal cars in product service. We take this opportunity to sincerely thank all family users for their trust and support all the way. The company's 4G revenue has reached 176.5 billion yuan, which is 66.2% in total. In 2022, the total annual revenue reached 452.9 billion yuan, which is 67.7% in total. Due to our cost control and management quality, the 4G labor rate remains stable at 20.2%. The free cash flow reached 32.6 billion yuan. Regarding the product, On February 8th, we officially released the family 5-seat flagship SUV, the ideal R7. And on the 4th, the ideal R7 is equipped with excellent 2-seater space and comfort, as well as a variety of flagship-level configuration. It is equipped with our self-propelled self-propelled electric system. The total range of CRTC is 1,315 kilometers, and the acceleration of 100 kilometers is only 5.3 seconds. The ideal R7 is strictly based on the best performance of the 25% of the double-seater, 25% of the double-seater, and the best performance system. It also has sustainable intelligent space and intelligent driving. The R7 is equipped with the AirPro Max 3-wheel drive, which covers the front during the price range of 300,000 to 400,000 yuan. We also launched the R8L, which covers the price range of 300,000 to 350,000 yuan in the six seats of the R1. We will launch the delivery of the R7 Pro and Max in early March. The R7L and R8L will be delivered in early April of this year. With the emergence of these products and configurations, the product line of ideal R7, R8, and R9 was completed ahead of the 30 to 500,000 SUV market layout. After the release of the ideal R7, more users got to know the ideal car. Not only did the ideal R7 receive hot feedback from the market users, but our store also welcomed more diverse family users, and at the same time, it also increased the attention of the ideal R8. On December 16, Ideal 9 won the 10th XIYAN Awards for China's annual car awards. The XIYAN Awards are jointly created by the Chinese Car Review Magazine and the Australian EFS Car Enterprise Consulting Company, which is known as the Oscar of the Chinese car industry. Considering the continuous performance of Ideal 8 and Ideal 9 and the launch of Ideal 7 in the first quarter of 2023, This year, we will challenge all luxury S&P markets between 300,000 and 500,000, and take 20% of the market share. We expect the amount of delivery of Group B will be between 52,000 and 55,000. Regarding the supply chain, although the supply chain challenge continues to exist, Li Xian R9 and R8 broke 10,000 in the first half of the delivery. This is inseparable from the support of ideal cars, suppliers, and partners. It also reflects our more solid supply chain management and system capability. With the gradual improvement of the maturity of the industry and the gradual improvement of the supply and demand situation of upstream and downstream oil, we remain confident in the zero-fuel supply of 2023. At the same time, we also further strengthen the strategic perception and planning of the supply chain, risk management and cost management, and actively respond to the potential supply challenges and risks. Ideal T-car carries out modular management of the supply chain and maintains While closely cooperating with each other, we also actively strengthen the core products related to smart electric vehicles. Self-reliance and industrial chain vertical integration work In order to achieve a good balance between upstream costs and risk control In the past three years, the company has begun to build a factory self-construction of electric motor assembly and core components To ensure the stability of quality and supply Regarding sales network, in the fourth quarter of 2022, we will continue to strengthen the construction of direct sales and service networks, improve the visibility of users and brands, enhance our business capabilities, and promote the rapid growth of sales. As of January 31, 2023, Li Xiang Motor has 296 retail centers in the country, 123 cities in the country, and 322 retail centers in the country, and 222 cities in the country. Last year, while we continued to expand our sales network, we also focused on upgrading the scale of retail centers. upgrade the storefront to support multi-segment layout, and show more products to more families. In the next few seasons, with the improvement of our brand performance, integrated stores are also an important choice for us. After more than three years of commercial certification, the user experience is better, and the management system with lower sales cost is a long-term choice for us as a high-end brand positioning. In 2022, our sales cost has been lower than the development cost, In 2023, we will continue to improve the cost-efficiency ratio in terms of revenue. In terms of R&D, R&D has always been the core for us to create value for family users. The outstanding R&D capabilities not only make us stand out in the new energy car market, but will ultimately make us a leading smart technology enterprise around the world. In 2022, our investment in R&D has made significant progress. In terms of electric motors, we have developed a new generation of Zengcheng Electrical System 2.0 in the LiDAR series, Our self-developed 1.5T self-propelled motor has a heat efficiency of more than 40.5%. This self-developed 5-in-1 electric drive system has achieved a significant optimization of the NMVH of the self-developed system. We are self-taught to master the ideal mass-produced air suspension with the core technology of software components, and have achieved the integration of the level of input and control stability of home-used SUVs. Among them, the self-taught XU central control unit can handle complex car information at high speed, and achieve accurate control of the car in milliseconds. The smart space is continuously evolving. The ideal class has now evolved into a new generation of modular one-piece structure. It is already on the line in all models of the L series. It has become our self-reliant, face-to-face car storage scene. The three-engine Lisa-RT can support stronger and more complex algorithms in the car. In addition, our self-reliant algorithms are progressing very well in language and world communication. On the language level, the innovative MIMO-NITE algorithm can achieve the accurate separation of multiple sound areas. Combined with the self-proclaimed language recognition algorithm, MSDNet, the wake-up rate of ideal students in real-time test scenarios has been increased to 98%. In the face of the challenge of high noise in the industry, and the three important scenarios of children and children, the wake-up rate of ideal students is more than 90% accurate. In terms of the world, based on the self-proclaimed MMSNet algorithm, it can realize the accurate recognition of the hand movement of the passenger in the car. Combined with the innovative hand wake-up technology, to make hand-to-hand use more free and natural, so that the whole family can enjoy the joy of superpowers out of the blue. In terms of intelligent value, we have combined the mixed BEV algorithm proposed by Tsinghua University and MIT, which can be flexibly deployed in the ADMAX and ADPRO two sets of sensor and hardware combinations. Our自然的高速NEO預測算法 provides a comfortable auto-change and additional speed experience. Currently, more than 220,000 family users can use the high-speedNEO function. The range of high-speed NLA navigation support driving has reached nearly 100 million kilometers. Within a week of the Spring Festival in 2023, the range of high-speed NLA driving has reached nearly 8 million kilometers. This year, we will also further expand the ability of navigation support driving to urban scenarios. In the fourth quarter, we plan to launch early bird user testing of urban NLA on the ideal AD Max. In addition, our self-proclaimed AEB algorithm has added the application of laser on the AD Max. and launched the first integrated laser A and B function in the industry. The safety and long-term calculation of laser algorithms is expanded from cars, drivers, pedestrians, and other major traffic participants to irregular obstacles and night scenes including cars. In the future, we will continue to combine the full-time resources of power generation and high-pressure pure electricity core technology to continue to improve the level of automation of products. In product development, platform development, and system development, we will continue to invest resources. to promote the long-term growth of ideal cars. Finally, our long-term success involves continuous investment in our research and business capabilities, as well as the creation of new luxury models to enhance the brand value and continue to enhance the wheel effect. 2023 will be another year of high-speed development for the new car industry, especially ideal cars. We believe that Hi, everyone, and thank you for joining our call today.

2022 was another year of explosive growth for new energy vehicles in China, as more consumers embrace NEVs. According to the China Passenger Car Association, the penetration rate of new energy passenger vehicles reached 31.7% in Q4 2022 compared to 14.8% in 2021 and 29.0% in Q3 2022. Our business continued to grow rapidly. In less than a year, we launched three new models, L9, L8, and L7, fully covering the family SUV market between RMB $300,000 and $500,000. These launches further solidified our market leadership. In the meantime, We continue to fortify our foundations across R&D, supply chain, and sales and service networks. We've upgraded our overall business processes and work structure to prepare for ourselves in the 1 to 10 stage. Next, moving on to deliveries and recent updates. In December 2022, we delivered more than 20,000 vehicles, setting another record not only for ourselves, but also all emerging automakers in China, putting us in a very good position for 2023. While the L9 has been dominating the full-size SUV monthly sales chart in China ever since its release in September, the L8 continued V1's sales success, becoming the top seller of all large SUVs in December 2022. We delivered 46,319 new vehicles in Q4 2022, and 2022 annual deliveries reached 133,246 units. In December 2022, according to the insurance registration data from Chinese Automotive Technology Research Center, we ranked first in both the SUV and EV markets in the price range of 300,000 RMB to 500,000 RMB, establishing ourselves as one of the go-to brands for all premium SUV shoppers. Furthermore, in the first quarter, a typical off-season for vehicle sales, we maintained strong order intake, showcasing the competitiveness of our products and services. I would like to hereby thank all of our users and their families for their trust and support along the way. Our revenues reached RMB 17.65 billion in Q4 and 45.29 billion for the full year of 2022, up 66.2% and 67.7% year-on-year respectively. With our cost management capability and operation efficiency, we maintain a healthy gross margin of 20.2% and free cash flow of 3.26 billion RMB in Q4 2022. Moving on to our product lineup. On February 8th, we officially launched the L7, our 5C flagship family SUV, with test drive starting the day after. The L7 features exceptional second row space, a comfortable interior, and a long list of standard features. Equipped with our in-house developed all-wheel drive range extension system, the L7 has a CLPC range of 1,315 kilometers and 0 to 100 kilometers per hour acceleration in 5.3 seconds. L7 is developed with a G rating, the highest possible rating in the CACI 25% small overlap crash test for both the driver and passenger side. It also features a constantly evolving smart space entertainment system and our driver assistance system. Li L7 is available in three trim levels, air, pro, and max, fully covering the 300,000 to 400,000 RMB price range. Alongside the L7 release, we also released an air model to our L8 lineup, which succeeded Li 1 in the same segment, which covers the 300,000 to 350,000 RMB price range. We will commence deliveries of LEED L7 Pro and Max in early March, and delivery of LEED L7 Air and L8 Air will start in early April this year. With the introductions of these new models, we have completed the deployment of L7, L8, and L9 for the entire 300 to 500,000 RMB SUV market. The L7 also allowed us to reach a broader audience base. The L7 not only received raving reviews from customer test drives, but also brought in more diverse family users into our stores, which further led to new leads and orders for the L8. On December 16th, the L9 was awarded the Car of the Year in the 10th Shenyang Award. It is organized by the Auto Business Review and Austria-based EFS Consulting. The Shenyang Award is widely regarded as the Academy Award in the Chinese auto industry. With LEED L8 and L9 continuous strong performance and the addition of L7 to our family, we will set ourselves a stretch goal of 20% market share in the 300,000 to 500,000 RMB premium SUV segment this year. Against this backdrop, we expect first quarter deliveries to be in the range of 52,000 to 55,000 units. Next, on to supply chain. Despite continued supply chain challenges, Our deliveries for both L9 and L8 exceeded 10,000 units in their first four months of delivery. This was only possible with the support of our suppliers, and this was also a testament to our solid supply chain management capabilities. We remain confident of our parts supply in 2023 as we further improve our planning, risk management, and cost management capabilities to cope with potential challenges and risks. We take a modularized approach to supply chain management. While we work closely with our supplier base, we have also strategically identified core areas for in-house development and vertical integration in order to strike a good balance between cost and risk. Over the past three years, we have been deploying a series of manufacturing facilities in the range extender and electric drive units. Next, moving on to the sales network. In Q4 2022, we continued to strengthen our direct sales and services network and to increase our user outreach and brand awareness in order to bolster our commercial capabilities and drive growth. As of January 31, 2023, we operated 296 retail stores covering 123 cities as well as 320 service centers and Lee Auto authorized body shops in 222 cities. In 2022, while expanding our sales network, we focused on upgrading our existing retail stores to house multiple models in order to reach more different types of families. In the coming quarters, as our brand continues to gain momentum, we will have more multifunction stores in our sales network. After more than three years of operation, the direct sales model has proven to provide better user experience and at a lower cost, which will remain our long-term commitment as a premium car brand. In 2022, our SG&A expenses were already lower than our R&D expenses, and we expect to further reduce our selling expenses as a percentage of revenue in 2023. In terms of R&D, it has always been a cornerstone of our value creation process for family users. excellent user research and development capabilities have not only allowed us to stand out in the NED market, but also will ultimately allow us to emerge as a world-class tech company. In 2022, we made great strides in research and development. On the electric drive unit, our L-series vehicles are powered by our in-house all-new range extension 2.0 system with our 1.5 liter four-cylinder turbocharged engine boasting a maximum thermal efficiency of 40.5%, and coupled with our proprietary 5-in-1 drive unit, has significantly enhanced the overall noise, vibration, and harshness performance. Supported by our proprietary hardware and software, the Lee Magic Carpet Air Suspension provides top-notch ride and handling, and in particular, our own XCU vehicle controller, is capable of handling complex vehicle information at high speed, enabling mid-second grade vehicle control. Our smart space continues to evolve. Li Xiaotongxue, for instance, has evolved with a new generation device cloud integrated architecture and has been rolled out to all of our L-series models. Featuring our in-house inference engine for in-car scenarios, LisaRT, It provides solid foundation for the in-car deployment of more powerful and complex algorithms. Moreover, we have made remarkable progress in the voice and vision-based interaction algorithms. On the speech side, with our innovative MemoNet algorithm that can accurately isolate different human voices in multiple zones, with our voice recognition algorithm, MSENet, Li-Qiang Tongxue's activation and recognition accuracy both reached 98% in real-world testing. These rates remain at over 90% in various demanding scenarios, including high noise, low voices, and children's voices. On the vision side, our MVSNet algorithm can accurately recognize gestures of all occupants, combined with innovative summit by gesture technology, and makes interactions through gestures easier and more natural, allowing a whole family to enjoy the superpower of making contact and taking control over the air. In terms of autonomous driving, we adopted the Fusion BEV algorithm framework jointly proposed by Tsinghua University, MIT, and us, which can be flexibly deployed with the ADMAX and ADPRO's different hardware considerations. Our in-house highway NOA prediction algorithm enables organic automated lane change and a smooth acceleration experience. As of now, Over 220,000 family users have used our highway NOA features, covering 100 million kilometers of distance. During the 2023 Chinese New Year holiday alone, our highway NOA mileage of all models reached almost 8 million kilometers. This year, we'll further expand our NOA features into urban driving scenarios, with beta testing for early bird users planned on the ADMAX in the first quarter of this year. In addition, we created the industry's first AEB function with LiDAR applications on LEED ADMAX and expanded the LiDAR's algorithm safety scenario for major traffic participants such as vehicles, cyclists, and pedestrians to cover irregular scenarios, including special vehicles as well as night driving scenes. Going forward, we will continue to focus on developing our core EREV and BEV technologies in-house and further elevating our products-level intelligence. To that end, we will consistently direct our R&D resources across products, platforms, and systems to fuel our long-term growth. In summary, we view our long-term success as a function of our continued investment in R&D and our business capabilities, which will support the creation of more hit models, enhance our brand value, and serve as critical pillars of our business flywheel. 2023 will be another year of rapid development of the MEV industry, and for Lee Auto in particular. We have full confidence that we will be able to build an increasingly innovative and diverse model lineup and deliver outstanding products and services that will continue to exceed our users' needs. With that, we'll turn over the call to CFO Johnny for a deep dive into our financial performance.

Thank you, Alicia. Hello, everyone. I will now review some of our 2022 fourth quarter financials. To leave more time for the Q&A session, I will address financial highlights here and encourage you to refer to our earnings press release for more details. Our total revenues in the fourth quarter of 2022 were RMB 17.65 billion, or 2.56 billion U.S. dollars, representing an increase of 66.2 percent year-over-year and an increase of 88.9 percent quarter-over-quarter. This included RMB 17.27 billion or 2.5 billion U.S. dollars from vehicle sales, which was up 66.4 year-over-year and 90.9 percent quarter-over-quarter. The increase was mainly attributable to the increase in vehicle delivery, as well as a higher average selling price due to our delivery of the L9, starting in late August, and the L8, starting in November. Revenues from other sales and revenues were RMB 381.5 million, or $55.3 million in the fourth quarter. representing an increase of 55.9% year-over-year and an increase of 28.7% quarter-over-quarter. The increase was mainly due to the increased sales of accessories and services in line with higher accumulated vehicle sales. Cost of sales in the fourth quarter was RMB 14.08 of 2.04 billion U.S. dollars, representing an increase of 70.9 percent year-over-year and an increase of 72.6 percent quarter-over-quarter. Gross profit in the fourth quarter of 2022 was RMB 3.57 billion of 517.1 million U.S. dollars, growing 49.8 percent compared with the fourth quarter of last year and 201.7 percent compared with the third quarter of this year of 2022. Vehicle margin in the fourth quarter of 2022 was 20 percent compared with 22.3 percent in the fourth quarter of 2021 and 12 percent in the third quarter of The decrease in vehicle margin over the fourth quarter of 2021 was mainly due to the different product mix between the two quarters. The increase in vehicle margin over the third quarter was mainly attributable to the losses on purchase commitments related to R1 in the third quarter of 2022. Gross margin in the fourth quarter of 2022 was 20.2%, compared with 22.4% in the fourth quarter of 2021, and 12.7% in the third quarter of 2022. Operating expenses in the fourth quarter of 2022 were RMB 3.7 billion, or $536.4 million, representing an increase of 47.1% year-over-year, and an increase of 11.7% quarter-over-quarter. R&D expenses in the fourth quarter of 2022 were RMB 2.07 billion, or $300.1 million, up 68.3% year-over-year, and 14.7% quarter-over-quarter. The increase was primarily driven by increased expenses to support our expanding product portfolios, as well as increased employee compensation as a result of our growing number of staff. Citing general and administrative expenses in the fourth quarter of 2022, RMB $1.63 billion, 36.3 million US dollars, representing an increase of 44.8% year-over-year and an increase of 8.1% quarter-over-quarter. The increase 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 our sales and servicing network. Loss from operations in the fourth quarter of 2022 was RMB $133.6 million, or $19.4 million, compared with RMB $24.1 million income from operations in the fourth quarter of 2021, and representing a decrease of 93.7% from RMB 2.13 billion loss from operation in the third quarter of 2022. Net income in the fourth quarter of 2022 was RMB 265.3 million, or $38.5 million, representing a decrease of 10.2% from RMB 95.5 million net income for the same period in 2021, and compared with RMB 1.65 billion net loss in the third quarter of 2022. Turning to our balance sheet and cash flow, our balance of cash and the cash equivalent, restricted cash, time deposit, and short-term investment was RMB 58.45 billion or 8.47 billion US dollars as of December 31st, 2022. Next cash provided by operating activities in the fourth quarter of 2022 was RMB 4.93 billion or 714.1 million US dollars. Free cash flow was RMB 3.26 billion, or $472.3 million in the fourth quarter of 2022. As of December 31, 2022, we had a total of 19,396 employees. For more of our 22 full-year financials. Please refer to our earnings press release for more details. And now for our business outlook. For the first quarter of 2023, the company has the delivery to be between 52,000 and 55,000 vehicles, representing an increase of 64% to 73.4% from the first quarter of 2022. The company also expects first quarter total revenues to be between RMB 17.45 billion and RMB 18.45 billion, or US dollar 2.53 billion and US dollar 2.68 billion, representing an increase of 82.5% to 93% from the first quarter of 2022. This business outlook assumes supportive microeconomic conditions, no significant disruption in the supply chain, and reflects the company's current and preliminary view on its business situation and market conditions, which is subject to change. I will now turn the call over to the operator to start our Q&A session. Thank you.

Thank you. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you are on a speakerphone, please pick up your handset to ask your question. When asking a question in Chinese, please translate your question in English for the convenience of everyone on the call. The first question today comes from Tim Tsai with Morgan Stanley. Please go ahead.

Hello, I'm Tim Tsai from Morgan Stanley. First of all, thank you for accepting my question.

I also congratulate you on your performance in the fourth quarter. We also had a very successful game. I actually have two very quick questions. The first is about the amount. We also saw that before the management level, we mentioned that after the L7 payment, the overall monthly payment may reach 25,000. After the payment of the A2 version of 7 and 8, it can reach a target of 30,000. The amount of payment is very impressive. Can we ask the management level I would like to share with you the overall performance of the 789 payment. This is based on our new orders, new orders, or our assessment of the market size or other factors. It takes a long time to achieve such a stable monthly payment goal. I think Mr. Xiang just mentioned that it is a very close cooperation with the supplier. But will the supplier be able to cooperate with the supplier under such a situation? So my first question is about the broadband outlook. We noticed that previously the management shared the monthly deliveries could at least reach 25,000 after the delivery of L7 started, with a further point to 30,000 after the air versions of L7-8. are available. So I just want to double confirm first that how we come up with such a strong target. Are they based on the pace of the new order intake, order backlog, or our assessment of total addressable market of 5, 6-seaters SUV? And how fast could Liotto's monthly deliveries reach and stabilize at such level? And more importantly, could the supply chain co-ordinately ramp up their output at such a rapid pace? So this is my first question.

Thank you. Okay, let me answer it. I think the first question is, we will try to achieve an internal prediction of 25,000 and 30,000. Because in April, it will be the first complete delivery month of our L7, Pro, and Max. And in May, it will be the first complete delivery month of our IR products.

所以這是回答的第一個問題。 So 25 to 30,000 orders is our internal goal, and we expect to reach this level in Q2, because April is the first full month where we deliver the L7 Pro and Max, and May will be the first month where we deliver the Air version of L7 and L8. 那第二個問題,然後從整個的產能發布方面呢,

I think we still have some problems in the second half of 2022. For example, our entire delivery plan is sometimes too aggressive. We think that we have sold so many orders, so we should deliver this amount. But this is very stressful for the entire supply chain. On the other hand, in the second half of last year, we sold a single model and actually sold multiple models. Then our entire sales service network system support, and also face great challenges. So, in the last four seasons and this year's first season, we have already begun such a process of upgrading, in order to ensure that our product development, our sales service, and our consumer manufacturing can achieve a high quality throughout the entire process, including the planning level, including the planning level, including the actual transaction level. What benefits do I think this will bring us? First, the allocation of resources is more reasonable. So a second question about our ramp up. Admittedly, we experienced some issues in the second half of 2022 with our deliveries. And we attributed really to two things. One is

because we had to set a very aggressive delivery goal because we were seeing really good order intake. So that plays a lot of pressure on the supply chain. And the second cause was we were switching from a single model to multiple models, which again plays a lot of pressure on our sales and service networks. So across Q4 and Q1 of this year, we have been going through a long process of upgrading our sales and service and manufacturing systems So that now we have a very robust system all the way from planning to delivery to manufacturing and sales so that we can handle really the stress that comes in with our strong order intake. And that really helps us to make three things a lot better. The first one is resource allocation. We could really allocate the best resource to where it's most needed. And the second one is our employees will feel more fulfilled as they achieve these goals. And third is that it also applies suppliers to retire efficiency on their side.

Okay, very clear. Thank you, Mr. Chang, for sharing.

My second question is about battery purchase and our impact on this year's potential interest rate. As we can see, this year's battery price drop is a probability event. Before the market, we also saw news about the battery market price drop. and is expected to sign a long-term strategic cooperation with the leading brand of new cars in the market. I would like to ask the management how they view such a low battery price and long-term strategic binding for the contribution of the group's overall new car horsepower rate this year. Based on our judgment on the battery cost and price, at what time will we see the horsepower rate of the new car So my second question is about battery procurement costs and the potential impact to the margin. We saw strong likelihood that battery prices would continue to downtrend this year. And previously, local media also reported like Cato and likely others are rallying to offer some aggressive pricing. in exchange for long-term contracts from Leotos and other top-notch EV makers. So, could the management team comment on potential collaboration with battery makers and how should we think about the contribution to Leotos' vehicle margin improvement in the following quarters in terms of scale and timing versus current level?

Hello, Tim. My name is Ma Donghui. Let me answer this question.

So in terms of battery pricing,

There are many factors at play, including the lead mines and battery pricing mechanisms. But in general, our belief is that as battery cost continues to approach a more reasonable level, we think it's good for the industry, not only for us as OEMs, but also for suppliers and battery manufacturers.

As we have more and more new models, the sales are increasing. And then, as a new driver, the power battery is a very important system. So as we expand to more models and as our sales continue to ramp up, we believe battery is a very strategic asset, and we will continue to commit to a multi-supplier strategy for two reasons. One is not only for the stability of our supply chain,

but also to meet the time requirements for developing multiple models at the same time.

In the long run, the whole power battery is reasonable, and it is still in the hands of the master. As for the main material of the battery, the price of carbon dioxide reached 400,000 tons in the last two days. The price of the entire battery is inevitable. Currently, we are still negotiating the price with our partner. There is no more information yet to be disclosed.

In the long term, we believe that battery prices will continue to move towards a more reasonable level. As you can see in the past few days, the price of lithium carbonate has already reached about 400,000 RMB per ton, and we believe the long-term trend is still for the price to go down, and we'll continue to work with suppliers to negotiate a good term, but there's not much details I can share at this point.

Thank you very much for the detailed update. Thank you.

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

Thank you, Manager Chen. This is my question.

My first question may be about the interest rate. Because we see that the interest rate of this quarter is at 20 points. This is a little lower than the interest rate when we taught this ideal 10,000 in the first quarter and the second quarter. Just now, Li Tiechong also mentioned that this is because of a change in product structure. But from my understanding, this quarter has more than half of these contributions are from L9. I feel that the interest rate of L9 should be higher than the overall one. So my first question is regarding the gross margin. I think for this quarter, the vehicle gross margin has been 20.0%, which is about 1% lower than second quarter and 2%. points lower than first quarter. I think just now Mr. has mentioned it was due to the product mix change, but my understanding is L9 contributed about 60% of the volume for this quarter, which should be positive for the margin. Is that due to the initial ramping up stage, or is there any other reasons you can share? This is my first question.

Thank you, Paul. This is Johnny from the company. First, the gross margin is healthy and consistent with our guidance. Starting from the fourth quarter, our revenue and gross margin across profit is a mix of different product offerings. the majority of the sales volume comes from the L9 and the L8, and both product is under the ramping up period. As you know, our supply chain needs to ramp up with that for some period and to release the cross-market cost down. in the coming quarter. And our IELTS series platform, the overall gross margin is 25% with material delivery in the future, monthly delivery.

Thank you. Thank you. Then my second question is about a plan for our next pure electric project.

It may not be out until the second half of this year. So far, we have achieved great success in the field of real estate, which is in large SUVs, and in building large SUVs for families. For a pure electric car, from a positioning point of view, as well as whether we can achieve the corresponding and corresponding real estate, a similar price-to-price ratio, and at the same time maintain a competitive advantage, how do we think about this? My second question is regarding to your upcoming Pure Electric. perhaps on MPV. I understand the selling point might be fast charging, but we also see some competitors, some peers, fast charging BUV models recently launched. It didn't really meet the expectation. So how should we define our products? by maintaining the competitive list while trying to achieve certain margins that is hopefully comparable to our existing EL-EV products.

Let me answer this question. I think what you just said is based on three levels. Because when we are using Zengcheng, we have to solve two core problems. First, the battery cost is high. Second, it's hard to charge. and the charging speed is slow. So, we adopted a strategy to increase the battery capacity, call it battery life, and long-term power generation. In order to solve the problem of pure electric vehicles, we need to think about solving the same problem. So, first of all, can we provide a charging experience that is close to electric vehicles in 10 minutes and 400 kilometers? This is very important. There is another key point behind this. Similar to mobile phones, we provide 4G network, support 4G network mobile phones, but we can't allow users to operate on 2G network. Therefore, the basic facilities and follow-up are very important for us. So this solves the problem of charging difficulty and charging speed. The second is the cost problem. Why do we need to use 800V? Why do we need to build the factory of Taha Gui's module? It's because we want to increase the efficiency of the entire power drive level. and improve the development of the vehicle. The actual result of the actual test is that compared to the same 400V mainstream IGBC and the same driving method, we can save about 15% of the battery capacity. This is a very significant advantage for the project. I can give you two answers. The first one is how to solve the charging problem. So I'll answer this question on three levels.

So I'll start off with why we decided to build our EVs in the first day. It was really two things, right? One is because battery costs were very high, and second was charging was difficult at the time for electric vehicles. It was not only difficult to find charging stations, but also very slow to charge. So moving over to EVs, we also intend to solve the three issues. The first one is about charging. With our EVs, our strategy has been to use gas on highways and use electricity in the local environment. So EV, we solved the same issue by charging rapidly, charging 400 kilometers of range in 10 minutes, which is very comparable to gas cars. But that's not the complete picture. It's like when we had 4G mobile phones, but if we don't only have 2G networks, it still wouldn't work. So another piece of the puzzle is infrastructure. So with car-bound charging capabilities and infrastructure, we are able to provide a level of charging experience comparable to our EVs or gas vehicles. And second one is cost. As you can see, we've invested a lot on our 800-volt high-voltage architecture, as well as our own in-house silicon carbide factory. And many of these innovations combined allow us to significantly increase the efficiency of our EV architecture Compared to 400-volt IGBT systems, we observe almost 15% of energy efficiency compared to similar models on a 400-volt architecture. And that saves a significant amount of battery and therefore cost of the vehicle. And the third level I want to talk about is product. I can assure you that on our EV product lineup, we will be able to provide a similar level of product and experience differentiation that exceed our user expectations even more so than our REB model.

好的,非常感谢。Thank you so much.

The next question comes from Wang Bin with CreditSuite. Please go ahead.

谢谢各位领导。我有两个问题。 第一个关于L7的订单。 公司其实给了一个2万5跟3万的时间表。 能不能假设就是L7L这款产品呢? China China China Actually got two questions. Number one is about order. you said that before version, you've got 25,000 units sales. But after that, you've got 30,000 units, which means will be 5K from the air. So can I assume the overall LR7 will be bigger than the total order flow for LRI? That's the first question about the order flow for LR7. And the second question about the margin, I actually try to quantify the margin impact in the number four quarter because we see a few factors. Number one is that the lithium price actually increasing quite big in the number four quarter compared to number three, increasing from 400,000 units, maybe potentially more than 500,000. Is that going to be the number one reason? Number two is about the promotion for D1. We saw that in the last quarter, last year, each month we sell around 1,000 units on D1. So is that going to create an inventory? Is the second reason why the margin did not increase? And third one is about the component supply. Normally, for a company in the first certain month, say 50K, you actually have a higher cost. After 50K, you have a lower cost. So that's the reason I'm trying to understand what's the margin trend in the first quarter next year, 2023. Thank you. This is Lijie.

I will answer all of your questions. First, I think for the new L7, as Euro, we still need some time to ramp up. For the Q1 guidance, we include several . Most of the delivery will still be L9 and L8. And as we mentioned, April or May will be the whole month we deliver our L-series, including air. So we have some air order, but as you know, the air version test drive hasn't started. So a lot of the customers need to do test drive.

So the mix

just like those survey you might see from the Weibo. And for the second question, I think all the factors you mentioned is what was the factor that makes our 70 percent margin in the first quarter. And all this as a whole got the impact of 2 percent of the margin, so I think I don't want to break it into too much detail. And for this year, considering the market condition, we still want to keep our guidance to be above 20%.

Thank you. Thank you so much.

The next question comes from Mingzhu Li with Bank of America. Please go ahead.

Hello, leaders. I have two questions. The first question is about the green card issue in Shanghai. Last year, you mentioned that the total sales in Shanghai was around 5%. My first question is regarding the license plate policy change in Shanghai. So what is the sales contribution from Shanghai City in 2022 and 2023? And among that, how many percentage of the consumers this year, they use their current license plate to buy our product? So this is my first question. 我還是想跟管理層這邊歌詞一下 這個今年跟明年的一個產品的策略 因為之前應該管理層有提到 今年應該是來不及出這個L6了 那想了解一下 今年是不是還是會按照時間去出這個純電的MPV 還是也不一定 那另外可不可以請管理層這邊講一下 明年的一個大概的一個產品的一個pipeline So my second question is regarding your product pipeline. So first question, will you launch the BEV this year for the MPV and also for your new product pipeline? L6 will be launched next year, and also for the, besides L6, next year for the BEV product, will you start to launch more other products, for example, such like SUV or sedan? Thank you for these two questions.

Okay. I'll answer separately. I'm Li Xiang. I'll answer the first question first. From Shanghai's point of view, in January, and the orders will be poor. Why? Because the main sales in November and December were released in advance. In February, it has started to recover significantly. Our own prediction is very simple. Because we look at the target setting and the actual achievement. The main thing is to look at the market share rate. So our own judgment is that Shanghai will be very similar to Beijing. In terms of orders, in Shanghai, the January order flow was not very good.

And that was understandable because most of the demand was released in November and December last year. But we have seen a very significant recovery since February. And over the long term, we look at this issue from a market share standpoint. And we believe the steady state market share in Shanghai will be comparable to that in Beijing because going forward, in either of these markets, REV purchase will be incentivized by free license plates. So we think Shanghai will eventually move towards a market share similar to that in Beijing.

And then the second question is actually the release time of our flagship products and the total time of delivery are actually tied to some of the most key technologies. Sometimes we actually produce some, and then some delay is mainly because of the most advanced technology. For example, an important upgrade that will happen at the end of this year is Qualcomm's 8295. So we ourselves are actually is closely related to the development progress and strategy of the high-end 8295 and the development progress of the entire software. Otherwise, I can't release a flagship product using the last generation of flagship chips. This is very uncomfortable for us. So this is one of the reasons behind the reasonable release time. We must use the most advanced flagship-level chip products and chip technology. So this is one level. First of all, in terms of flagship EV products, the timing of the product release is highly tied to the cycle of technology innovations. And in particular, in this case,

At the end of this year, there will be a big milestone where Qualcomm will be releasing their A295 chips. So the delay in our EV product is highly tied to this because we want to meet the development cycle so that we can release our flagship vehicle with the new chip as early as possible. We cannot have our flagship model only carry the last generation chip when it comes to market. And the second one in terms of the EV lineup, The EV lineup will basically mirror something similar to what we have with the IL series, which fully covers the 200,000 to 500,000 RMB price range.

Thank you.

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

Thank you for accepting my question. My first question is that we mentioned that our goal is to get market share of 300,000 to 500,000 in the SUV market. I don't know if our estimate is right, but is it about the same as a monthly sales of about 350,000? My first question comes from... Just now we mentioned that we aim to get a 20% market share on the SUV market with a price from between $300,000 to $500,000. So my question is how we have confidence in this market share, and could you please talk a little bit more on how we consider about the market of SUV between the price 200,000 to 300,000. This is my first question. Thank you. I think it's like this. In 2002, the market share of 300,000 to 500,000 SOEs was 9.5%.

This year, we have a prediction for the market. It will be between 1.4 million and 1.5 million. Yes, our requirements are to double the share price. And when we reach 20% of the market share, we will be relatively stable. We will reach this level, and then SUV, and then a brand champion in sales. This is a way for us to set goals. I think that in fact, the market of 200,000 to 300,000 is actually more difficult for us. Yes, we need to have a stronger scale, and then enter the price range of 200,000 to 300,000.

First one, about the $300,000, $500,000 price range. We were at a market share of 9.5% last year, as you mentioned. And this year, we expect the whole market size to be between 1.4 to 1.5 million units. And our goal is to double the share because we believe at 20% share is where we could reasonably steadily stay as the brand champion. And that's kind of how our goal came about. The $200,000 to $300,000 market is a lot more competitive. So our plan is to achieve the market, approach the market at a second stage where we have much greater economy of scale and stronger core competencies.

Thank you. My second question is, I have seen that recently, the overseas-driven AI technology has had a lot of influence in China. Will it have an impact on the industry when it comes to easy training? We want to know, My second question is that considering the pre-trained transformer AI technology has influenced in different sectors, in different industries. So my question is how will that impact auto industry we are working now and in the future, how can that influence? And for the consumers, for the users, what kind of change we can experience in short? Thank you.

Hello, Yibo. This is Yen. Let me take your question. We have invested in the development of AI-based cognitive technologies for quite a long time, especially the compositional AI and the gesture recognition. We think they are very important in smart space, and this gives our customers very good user experience. So recently, we are paying close attention to ChatGPT, and we think it's the technology behind, like, Large language models and pre-trained models are very similar to what we are doing right now in smart space. So we also believe that these technologies have good potentials in visual tasks like self-driving. And the related study and the development is still in progress.

Thank you.

The next question comes from Ukraine Ding with HSBC. Please go ahead.

Hello, everyone. I'm Yuqian from Huifeng. A lot of questions have been covered before. I just want to ask one question. The price of the three SUV models is actually a bit different. What do you think about the possibility of the potential shortage of products? If the sales volume of the three models is between 20,000 and 30,000, I only got one question, is that Within our current three SUV model portfolio, how do we evaluate the potential cannibalization given by different versions of different models of pricing points overlap? And should these three models combine themselves between per month $20K to $30K, what's the roughly margin range we would expect given these three SUV models have the shared cost base?

Let me talk about the first question. In fact, the user group of R7 and R8 is very clear in our actual transaction process. The number of users with cross-needs is not as large as expected. R7 users are more likely to have three or two family members. R8 users either have two children or three generations in total. There is such a need. Even R7 users The attention of R7 has also led to an increase in order volume of R8. In fact, the effective price coverage of R7, R8, and R9 is actually what we want to build. Not only is it a product line, but also a product network. We hope that we can meet the needs of any family of 30 to 500,000 to 50,000 users. We hope that users are hesitant to choose R7 or R8, or choose R9 or R8. In fact, in practice, we've seen very clear user base differentiation between L7 and L8. There hasn't been as much overlap as we have been expecting.

As we've seen in showrooms, the L7 is really attracting families with two to three members, one kid. And L8 is attracting either families with two kids or those that are three generations under the same roof. And another good thing is that the interest in L7 has also helped us view orders for L8. So with L8, L7, and L9, we really formed not just a product line, but in fact a product network. We want any family who's willing to buy an SUV will come to our network and find and think about whether it's L7 or L8 or L8 or L9 that they should buy rather than comparing us to other brands and pick which brand to buy. That has been our core product philosophy with the product lineup of L7, L8, and L9.

For the gross margin, as we just mentioned, For the L-series platform, with all this product offering and with some scalability, the design cross-profit is profit margin is 35%. But considering this year's battery price and also the macroeconomics, we still want to keep our balance just about 20%.

There are no further questions at this time. I'll now hand back to Ms. Zeng for any closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact the auto investor relations team. Then that's all for today. You may disconnect your line. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect. Thank you. Thank you. Thank you for watching. Thank you for standing by and welcome to the Lee Otto, Inc. Fourth Quarter and Full Year 2022 Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Ms. Janet Zhang, Lee Auto IR Director. Please go ahead.

Thank you, operator. Good evening and good morning, everyone. Welcome to Lee Auto's fourth quarter and full year 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 Founder, Chairman, and CEO, Mr. Xiang Li, and our CFO, Mr. Johnny Tie Li, begin with prepared remarks. Our President, Mr. Donghui Ma, and our CTO, Mr. Yan Xie, will join for the Q&A discussion. Before I continue, please be reminded that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding and uncertainties is included in certain company failings 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 price release and this conference call include discussions of unaudited GAAP financial information. as well as unaudited non-GAAP financial matters. Please refer to Liado's disclosure documents on the IR section of our website, which contain a reconciliation of the unaudited non-GAAP matters to comparable GAAP matters. Our CFO will start a remark in Chinese for about five minutes. There will be English translation follows after he finished all his remarks. With that, I will now turn the call over to our CX CEO, Mr. Xiang Li, please go ahead.

Hello, everyone. Welcome to today's conference. In 2022, the market of Chinese New South Wales vehicles continues to show an explosive growth. More and more customers rely on New South Wales vehicles. According to the data of the Chinese Youth Conference, in the fourth quarter of 2022, the penetration rate of New South Wales vehicles increased to 31.7%. This data is 14.8% and 29% in 2021 and 3 in 2022. Under this background, we continue to grow. In the past less than a year, Lianxi launched the ideal R9, R8, and R7 single-seater models to enrich product quality, and realized a comprehensive coverage of the 300,000 to 500,000 family SUV market, and further consolidated our leading position in this market. At the same time, we fully strengthen the ability to develop power chains and sales services, we fully upgraded the company's business process and organizational structure, and prepared for the company from 1 to 10 stages. As for the payment volume, in December 2022, our payment volume exceeded 20,000 yuan, and once again created the historic height of China's new car industry, and established a solid foundation for the development in 2023. Since September 2022, Li Xian Erjiu has been running China's largest SUV, Yuexiao Liang's Panhangbao, At the same time, the ideal 28 also received the ideal 10,000 sales miracle in December 2022. We have delivered a total of 46,319 new cars in the fourth quarter of 2022. A total of 133,246 cars were delivered throughout the year in 2022. According to the data collected in the middle of the year, ideal cars in December 2022 China 300,000 to 500,000 SUV models as well as 300,000 to 500,000 new energy vehicles are the top sellers, becoming the family's first luxury SUV. In the first quarter of this year, our orders for traditional sales units in the automotive industry are still very strong, fully manifesting the competitiveness of ideal cars in product service. We take this opportunity to sincerely thank all the family users for their trust and support all the way. The company's income in the fourth quarter reached RMB176.5 billion, with a growth of 66.2%. In 2022, the total annual income reached 452.9 billion yuan, with a growth of 67.7%. Due to our cost control and operating quality, the profit margin of the 4G system remains stable at 20.2%. The free cash flow reached 32.6 billion yuan. Regarding the product, on February 8, officially released the family 5-seat flagship SUV, the ideal R7, and opened the market on the 4th. The ideal R7 is equipped with excellent double-decker space and comfort, as well as a variety of flagship-level configuration. It is equipped with our self-propelled self-propelled electric system. The overall range of CRTC reaches 1,315 kilometers, and the acceleration of 100 kilometers is only 5.3 seconds. The ideal R7 is strictly based on the best performance system of 25% of the dual-seater 25% of the dual-seater. It also has sustainable smart space and smart driving. The R7 is equipped with the AirPro Max 3-wheel drive, which covers the front during the price range of RMB300,000 to RMB400,000. We also launched the R8L, which covers the price range of RMB300,000 to RMB350,000 of the previous six seats. We will launch the delivery of R7Pro and Max at the beginning of March. The R7L and R8L will be delivered at the beginning of April this year. With the release of these products and configurations, the product line of ideal L7, L8, and L9 was completed ahead of the 30-500,000 SUV market layout. After the release of ideal L7, more users got to know the ideal car. Not only did the ideal L7 receive a lot of feedback from test users, but our store also attracted more and more home users. At the same time, it also increased the level of attention of ideal L8. On December 16, Ideal 29 won the 10th Xinyuan Awards, the annual Chinese car award. The Xinyuan Awards are jointly created by the Chinese car comment magazine and the Australian EFS, a car and business consulting company, known as the Oscar of the Chinese car industry. The first quarter of 2023, considering the continuous performance of Ideal 28 and Ideal 29, and the launch of Ideal 7, This year, we will take the challenge of winning 20% of the market share between 300,000 and 500,000 yuan. We expect the amount of delivery of Group B will be between 52,000 to 55,000. Regarding the supply chain, although the supply chain challenge continues to exist, Li Xian R9 and R8 broke 10,000 in the first half of the delivery. This is inseparable from the support of ideal cars, suppliers, and partners. It also reflects our more solid supply chain management and system capability. With the gradual improvement of industrial maturity and the gradual improvement of supply and demand of upstream and downstream oil, we have maintained confidence in the zero component supply of 2023. At the same time, we have further strengthened the strategic perception and planning of the supply chain, risk management and cost management, and actively respond to the potential supply challenges and risks. Ideal cars implement modular management of the supply chain, While closely cooperating with each other, we also actively strengthen the core products related to smart electric vehicles. Self-reliance and industrial chain vertical integration work In order to achieve a good balance between upstream costs and risk control In the past three years, the company has begun to build the factory self-construction of electric motor assembly and core components to ensure the stability of quality and supply. Regarding the sales network, in the fourth quarter of 2022, we will continue to strengthen the construction of direct sales and service networks, improve the availability of users and brands, strengthen our business capabilities, and promote the rapid increase in sales. As of January 31, 2023, Dream Cars already has 296 retail centers in the country, 123 cities in the country, and 322 retail centers in the country, and 222 cities in the country. Last year, while we continued to expand our sales network, we also focused on upgrading the scale of retail centers. upgrade the storefront to support multi-segment layout, and show more products to more families. In the next few seasons, along with the improvement of our brand performance, integrated stores are also an important choice for us. After more than three years of commercial certification, the user experience is better, and the management system with lower sales cost is a long-term choice for us as a high-end brand positioning. In 2022, our sales cost has been lower than the research cost. In 2023, we will continue to improve the cost-efficiency ratio in revenue. So, R&D R&D has always been the core of our value for family users. The outstanding R&D capabilities not only allow us to break out of the new energy car market, but will ultimately make us a leading smart technology enterprise around the world. In 2022, our investment in R&D has made significant progress. In terms of e-motor, we have upgraded the new generation of Zengcheng e-motor system 2.0 Our self-developed 1.5T self-propelled engine has a heat efficiency of more than 40.5%. This self-developed 5-in-1 electric drive system has achieved a significant optimization of the NMVH of the self-developed system. We have naturally mastered the ideal mass-produced air suspension with the core technology of the software. It has achieved the integration of the degree of input and control stability of the home-used SUV. Among them, the XCO multi-engine control unit can handle complex car information at high speed. It can actually control the car accurately in seconds. The smart space is continuously evolving. The ideal class has now evolved into a new generation of modular one-piece structure. It has already started to line up in all models of the L series. It has become our self-reliant, face-to-face car storage scene, the most powerful and more complex algorithm to deploy in the car. In addition, our self-reliant algorithm is progressing brilliantly in the field of voice and world communication. At the voice level, the innovative MIMO NIGHT algorithm can achieve the accurate separation of multiple sound regions. Combined with the language recognition algorithm of the self-proclaimed MSDNet, the wake-up rate of ideal students in real-time car testing scenarios has been increased to 98% respectively. In the face of the challenge of high noise in the industry, and the three important scenarios of children and children, the wake-up rate and accuracy of ideal students is more than 90%. In terms of vision, based on the self-proclaimed MMSNet algorithm, it can realize the accurate vision of the driver's hand movements. Combined with the innovative hand movement wake-up technology, to make hand-to-hand use more free and more natural, so that the whole family can enjoy the joy of superpowers out of the box. In terms of intelligent value, we have combined the mixed BEV algorithm proposed by Tsinghua University and MIT, which can be flexibly deployed in the ADMAX and ADPRO two sets of sensor and machine hardware combinations. Our自然的高速NEO預測算法 provides a comfortable automatic change and acceleration experience. Currently, more than 220,000 family users can use the high-speedNEO function. The speed limit of high-speed NLA navigation support driving has reached nearly 100 million kilometers. Within a week of the Spring Festival in 2023, the speed limit of high-speed NLA driving has reached nearly 8 million kilometers. This year, we will also further expand the ability of navigation support driving to urban scenarios. In the fourth quarter, we plan to launch early bird user testing of city NLA on the ideal AD Max. In addition, our self-proclaimed AED algorithm has increased the application of laser on AD Max. and launched the first integrated laser AED function in the industry. The security of laser calculation is expanded from vehicles, drivers, pedestrians, and other major traffic participants to irregular obstacles and night scenes within a car. Looking forward to the future, we will continue to combine the full-time resources of high-pressure pure electricity and high-pressure pure electricity and continue to improve the level of automation of products. In product development, platform development, and system development, we will continue to invest resources. to promote the long-term growth of ideal cars. Finally, our long-term success involves continuous investment in our research and business capabilities, as well as the creation of new car models, strengthening the value of the brand, and continuing to enhance the wheel effect. 2023 will be a year of high-speed development for the new car industry, especially ideal cars. We believe that Hi, everyone, and thank you for joining our call today.

2022 was another year of explosive growth for new energy vehicles in China, as more consumers embrace NEVs. According to the China Passenger Car Association, the penetration rate of new energy passenger vehicles reached 31.7% in Q4 2022 compared to 14.8% in 2021 and 29.0% in Q3 2022. Our business continued to grow rapidly. In less than a year, we launched three new models, L9, L8, and L7, fully covering the family SUV market between RMB $300,000 and $500,000. These launches further solidified our market leadership. In the meantime, We continue to fortify our foundations across R&D, supply chain, and sales and service networks. We've upgraded our overall business processes and work structure to prepare for ourselves in the 1 to 10 stage. Next, moving on to deliveries and recent updates. In December 2022, we delivered more than 20,000 vehicles, setting another record not only for ourselves, but also all emerging automakers in China, putting us in a very good position for 2023. While the L9 has been dominating the full-size SUV monthly sales chart in China ever since its release in December, sorry, in September, the L8 continued the one sales success, becoming the top seller of all large SUVs in December 2022. We delivered 46,319 new vehicles in Q4 2022, and 2022 annual deliveries reached 133,246 units. In December 2022, according to the insurance registration data from Chinese Automotive Technology Research Center, we ranked first in both the SUV and MEV markets in the price range of 300,000 RMB to 500,000 RMB, establishing ourselves as one of the go-to brands for all premium SUV shoppers. Furthermore, in the first quarter, a typical off-season for vehicle sales we maintained strong order intake, showcasing the competitiveness of our products and services. I would like to hereby thank all of our users and their families for their trust and support along the way. Our revenues reached RMB 17.65 billion in Q4 and 45.29 billion for the full year of 2022, up 66.2% and 67.7% year-on-year respectively. With our cost management capability and operation efficiency, we maintain a healthy gross margin of 22.2% and free cash flow of 3.26 billion RMB in Q4 2022. Moving on to our product lineup. On February 8th, we officially launched the L7, our 5C flagship family SUV, with test drive starting the day after. The L7 features exceptional second row space, a comfortable interior, and a long list of standard features. Equipped with our in-house developed all-wheel drive range extension system, the L7 has a CLPC range of 1,315 kilometers and 0 to 100 kilometers per hour acceleration in 5.3 seconds. L7 is developed with a G rating, the highest possible rating in the CACI 25% small overlap crash test for both the driver and passenger side. It also features the constantly evolving smart space entertainment system and our driver assistance system. Li L7 is available in three trim levels, air, pro, and max, fully covering the 300,000 to 400,000 RMB price range. Alongside the L7 release, we also released an air model to our L8 lineup, which succeeded Li 1 in the same segment, which covers the 300,000 to 350,000 RMB price range. We will commence deliveries of the L7 Pro and Max in early March, and delivery of the L7 Air and L8 Air will start in early April this year. With the introductions of these new models, we have completed the deployment of L7, L8, and L9 for the entire 300 to 500,000 RMB SUV market. The L7 also allowed us to reach a broader audience base. The L7 not only received raving reviews from customer test drives, but also brought in more diverse family users into our stores, which further led to new leads and orders for the L8. On December 16th, the L9 was awarded the Car of the Year in the 10th Shenyang Award. It is organized by the Auto Business Review and Austria-based EFS Consulting. The Shenyang Award is widely regarded as the Academy Award in the Chinese auto industry. With LEED L8 and L9 continuous strong performance and the addition of L7 to our family, we will set ourselves a stretch goal of 20% market share in the 300,000 to 500,000 RMB premium SUV segment this year. Against this backdrop, we expect first quarter deliveries to be in the range of 52,000 to 55,000 units. Next, on to supply chain. Despite continued supply chain challenges, Our deliveries for both L9 and L8 exceeded 10,000 units in their first full month of delivery. This was only possible with the support of our suppliers, and this was also a testament to our solid supply chain management capabilities. We remain confident of our parts supply in 2023 as we further improve our planning, risk management, and cost management capabilities to cope with potential challenges and risks. We take a modularized approach to supply chain management. While we work closely with our supplier base, we have also strategically identified core areas for in-house development and vertical integration in order to strike a good balance between cost and risk. Over the past three years, we have been deploying a series of manufacturing facilities in the range extender and electric drive units. Next, moving on to the sales network. In Q4 2022, we continued to strengthen our direct sales and services network and to increase our user outreach and brand awareness in order to bolster our commercial capabilities and drive growth. As of January 31, 2023, we operated 296 retail stores covering 123 cities as well as 320 service centers and Lee Auto authorized body shops in 222 cities. In 2022, while expanding our sales network, we focused on upgrading our existing retail stores to house multiple models in order to reach more different types of families. In the coming quarters, as our brand continues to gain momentum, we will have more multifunction stores in our sales network. After more than three years of operation, the direct sales model has proven to provide better user experience and at a lower cost, which will remain our long-term commitment as a premium car brand. In 2022, our SG&A expenses were already lower than our R&D expenses, and we expect to further reduce our selling expenses as a percentage of revenue in 2023. In terms of R&D, it has always been a cornerstone of our value creation process for family users. excellent user research and development capabilities have not only allowed us to stand out in the NED market, but also will ultimately allow us to emerge as a world-class tech company. In 2022, we made great strides in research and development. On the electric drive unit, our L-series vehicles are powered by our in-house all-new range extension 2.0 system with our 1.5-liter four-cylinder turbocharged engine boasting a maximum thermal efficiency of 40.5%, and coupled with our proprietary 5-in-1 drive unit, has significantly enhanced the overall noise, vibration, and harshness performance. Supported by our proprietary hardware and software, the LEED Magic Carpet Air Suspension provides top-notch ride and handling, and in particular, our own XCU vehicle controller is capable of handling complex vehicle information at high speeds, enabling mid-second grade vehicle control. Our smart space continues to evolve. Li Xiang Tongxue, for instance, has evolved with a new generation device cloud integrated architecture and has been rolled out to all of our L-series models. Featuring our in-house inference engine for in-car scenarios, LisaRT, It provides solid foundation for the in-car deployment of more powerful and complex algorithms. Moreover, we have made remarkable progress in the voice and vision-based interaction algorithms. On the speech side, with our innovative MemoNet algorithm that can accurately isolate different human voices in multiple zones, with our voice recognition algorithm, MSENet, Li Xiangtongxue's activation and recognition accuracy both reached 98% in real-world testing. These rates remain at over 90% in various demanding scenarios, including high noise, low voices, and children's voices. On the vision side, our MDSNet algorithm can accurately recognize gestures of all occupants, combined with innovative summit by gesture technology, and makes interactions through gestures easier and more natural, allowing a whole family to enjoy the superpower of making contact and taking control over the air. In terms of autonomous driving, we adopted the Fusion BEV algorithm framework jointly proposed by Tsinghua University, MIT, and us, which can be flexibly deployed with the ADMAX and ADPRO's different hardware considerations. Our in-house highway NOA prediction algorithm enables organic automated lane change and a smooth acceleration and deceleration experience. As of now, Over 220,000 family users have used our highway NOA features, covering 100 million kilometers of distance. During the 2023 Chinese New Year holiday alone, our highway NOA mileage of all models reached almost 8 million kilometers. This year, we'll further expand our NOA features into urban driving scenarios, with beta testing for early bird users planned on the ADMAX in the first quarter of this year. In addition, we created the industry's first AEB function with LiDAR applications on the ADMAX and expanded the LiDAR's algorithm safety scenario for major traffic participants such as vehicles, cyclists, and pedestrians to cover irregular scenarios, including special vehicles as well as night driving scenes. Going forward, we will continue to focus on developing our core EREV and BEV technologies in-house and further elevating our products-level intelligence. To that end, we will consistently direct our R&D resources across products, platforms, and systems to fuel our long-term growth. In summary, we view our long-term success as a function of our continued investment in R&D and our business capabilities, which will support the creation of more hit models, enhance our brand value, and serve as critical pillars of our business flywheel. 2023 will be another year of rapid development of the NEV industry, and for Lee Auto in particular. We have full confidence that we will be able to build an increasingly innovative and diverse model lineup and deliver outstanding products and services that will continue to exceed our users' needs. With that, we'll turn over the call to our CFO, Johnny, for a deep dive into our financial performance.

Thank you, Alicia. Hello, everyone. I will now review some of our 2022 fourth quarter financials. To leave more time for the Q&A session, I will address financial highlights here and encourage you to refer to our earnings press release for more details. Our total revenues in the fourth quarter of 2022 were RMB 17.65 billion, or 2.56 billion U.S. dollars, representing an increase of 66.2% year-over-year and an increase of 88.9% quarter-over-quarter. This included RMB 17.27 billion or 2.5 billion U.S. dollars from vehicle sales, which was up 66.4% year-over-year and 90.9% quarter-over-quarter. The increase was mainly attributable to the increase in vehicle delivery, as well as a higher average selling price due to our delivery of Li-L9 starting in late August and Li-L8 starting in November. Revenues from other sales and revenues were RMB 381.5 million, or $55.3 million in the fourth quarter. representing an increase of 55.9% year-over-year and an increase of 28.7% quarter-over-quarter. The increase was mainly due to the increased sales of accessories and services in line with higher accumulated vehicle sales. Cost of sales in the fourth quarter was RMB 14.08 of US$2.04 billion, representing an increase of 70.9% year-over-year and an increase of 72.6% quarter-over-quarter. Gross profit in the fourth quarter of 2022 was RMB3.57 billion, or US$517.1 million, growing 49.8% compared with the fourth quarter of last year and 201.7% compared with the third quarter of this year, of 2022. Vehicle margin in the fourth quarter of 2022 was 20% compared with 22.3% in the fourth quarter of 2021 and 12% in the third quarter of 2022. The decrease in vehicle margin over the fourth quarter of 2021 was mainly due to the different product mix between the two quarters. The increase in vehicle margin over the third quarter was mainly attributable to the losses on purchase commitments related to R1 in third quarter of 2022. Gross margin in the fourth quarter of 2022 was 20.2%, compared with 22.4% in the fourth quarter of 2021, and 12.7% in the third quarter of 2022. Operating expenses in the fourth quarter of 2022 were RMB 3.7 billion, or $536.4 million, representing an increase of 47.1% year-over-year, and an increase of 11.7% quarter-over-quarter. R&D expenses in the fourth quarter of 2022 were RMB 2.07 billion, or $300.1 million, up 68.3% year-over-year, and 14.7% quarter-over-quarter. The increase was primarily driven by increased expenses to support our expanding product portfolios, as well as increased employee compensation as a result of our growing number of staff. Selling general and administrative expenses in the fourth quarter of 2022 were RMB 1.63 billion, 36.3 million US dollars, representing an increase of 44.8% year-over-year and an increase of 8.1% quarter-over-quarter. The increase 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 our sales and servicing network. Loss from operations in the fourth quarter of 2022 was RMB $133.6 million, or $19.4 million, compared with RMB $24.1 million income from operations in the fourth quarter of 2021, and representing a decrease of 93.7% from RMB 2.13 billion loss from operation in the third quarter of 2022. Net income in the fourth quarter of 2022 was RMB 265.3 million, or 38.5 million U.S. dollars, representing a decrease of 10.2 percent from RMB 95.5 million net income for the same period in 2021, and compared with RMB 1.65 billion net loss in the third quarter of 2022. Turning to our balance sheet and cash flow, our balance of cash and the cash equivalent, restricted cash, time deposited, and short-term investment was RMB 58.45 billion or 8.47 billion US dollars as of December 31st, 2022. Next cash provided by operating activities in the fourth quarter of 2022 was RMB 4.93 billion or 714.1 million US dollars. Free cash flow was RMB 3.26 billion, or $472.3 million in the fourth quarter of 2022. As of December 31, 2022, we had a total of 19,396 employees. For more of our 2,000 22 full-year financials. Please refer to our earnings press release for more details. And now for our business outlook. For the first quarter of 2023, the company expects the deliveries to be between 52,000 and 55,000 vehicles, representing an increase of 64% percent to 73.4 percent from the first quarter of 2022. The company also expects first quarter total revenues to be between RMB 17.45 billion and RMB 18.45 billion, or US dollar 2.53 billion and US dollar 2.68 billion, representing an increase of 82.5% to 93% from the first quarter of 2022. This business outlook assumes supportive microeconomic conditions, no significant disruption in the supply chain, and reflects the company's current and preliminary view on its business situation and market conditions, which is subject to change. I will now turn the call over to the operator to start our Q&A session. Thank you.

Thank you. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you are on a speakerphone, please pick up your handset to ask your question. When asking a question in Chinese, please translate your question in English for the convenience of everyone on the call. The first question today comes from Tim Tsai with Morgan Stanley. Please go ahead.

Hello, I'm Tim Tsai from Morgan Stanley. First of all, thank you for accepting my question.

I also congratulate you on your performance in the fourth quarter. We also had a very successful launch. I actually have two very quick questions. The first one is about the volume. We also saw that before the management floor, we mentioned that after L7 payment, the overall monthly payment may reach 25,000. After the payment of the A2 version of L7 and A8, it can reach a target of 30,000. The amount of payment is very impressive. Can we ask the management floor I would like to share more about the performance of 789's overall payment. This is based on our new orders, third-party orders, or our assessment of the market size or other factors. It takes a long time to achieve such a stable monthly payment target. I think Mr. Xiang also mentioned that it is a very close cooperation with the supplier, but will the supplier be able to cooperate with the supplier So my first question is about the broadband outlook. We noticed that previously the management shared the monthly deliveries could at least reach 25,000 after the delivery of L7 started, with a further climb to 30,000 after the air versions of L7-8. are available. So, I just want to double-confirm that how we come up with such a strong target. Are they based on the pace of the new order intake, order backlog, or our assessment of total addressable market of 5, 6-seaters SUV? And how fast could Liotto's monthly deliveries reach and stabilize at such level? And more importantly, could the supply chain co-ordinately ramp up their output at such a rapid pace? So this is my first question.

Thank you. Okay, let me answer it. The first question is, we will try to achieve an internal prediction of 25,000 and 30,000. Because in April, it will be the first complete delivery month of our L7, Pro, and Max. And in May, it will be the first complete delivery month of our IR products.

所以這是回答的第一個問題。 So 25,000 to 30,000 orders is our internal goal, and we expect to reach this level in Q2, because April is the first full month where we deliver the L7 Pro and Max, and May will be the first month where we deliver the Air version of L7 and L8. 那第二個問題,然後從整個的產能爬坡方面呢,

I think that in the second half of 2022, we will still encounter some problems. For example, our entire delivery plan will sometimes be too aggressive. We think that we have sold so many orders, so we should deliver such a volume. But this is very stressful for the entire public chain. On the other hand, in the second half of last year, we sold a single model and actually sold multiple models. Then our entire sales service network system support, and also face great challenges. So, in the last four seasons and this year's first season, we have already begun such a process of upgrading, in order to ensure that our product development, our sales service, and our supply production can achieve a high quality throughout the entire process, including the planning level, including the planning level, including the actual interaction level. What benefits do I think this will bring us? First, the allocation of resources is more reasonable. So a second question about our ramp up. Admittedly, we experienced some issues in the second half of 2022 with our deliveries. And we attributed really to two things. One is

because we had to set a very aggressive delivery goal because we were seeing really good order intake. So that plays a lot of pressure on the supply chain. And the second cause was we were switching from a single model to multiple models, which again, plays a lot of pressure on our sales and service networks. So across Q4 and Q1 of this year, we have been going through a long process of upgrading our sales and service and manufacturing systems So that now we have a very robust system all the way from planning to delivery to manufacturing and sales so that we can handle really the stress that comes in with our strong order intake. And that really helps us to make three things a lot better. The first one is resource allocation. We could really allocate the best resource to where it's most needed. And the second one is our employees will feel more fulfilled as they achieve these goals. And third is that it also applies suppliers to retire efficiency on their side.

Okay, very clear. Thank you, Mr. Chang, for sharing.

My second question is about battery purchase and our impact on this year's overall profit. As we can see, this year's battery price drop is a probability event. The market also saw a drop in the battery market before. and is expected to sign a long-term strategic cooperation with the leading brand of new cars in the market. I would like to ask the management team what they think of such a low battery price and long-term strategic binding for the contribution of the group's overall new car horsepower rate this year. Based on our judgment on the battery cost and price, what time frame will we see the new car's horsepower rate So my second question is about battery procurement costs and the potential impact to the margin. We saw strong likelihood that battery prices will continue to downtrend this year. And previously, local media also reported like Cato and likely others are rallying to offer some aggressive pricing. in exchange for long-term contracts from Leotos and other top-notch EV makers. So, could the management team comment on potential collaboration with battery makers and how should we think about the contribution to Leotos' vehicle margin improvement in the following quarters in terms of scale and timing versus current level?

Hello, Tim. My name is Ma Donghui. Let me answer this question.

So in terms of battery pricing,

There are many factors at play, including the lead mines and battery pricing mechanisms. But in general, our belief is that as battery cost continues to approach a more reasonable level, we think it's good for the industry, not only for us as OEMs, but also for suppliers and battery manufacturers.

As we have more and more new models, the sales are increasing. And then the power battery, as a new driver, is a very important system. So as we expand to more models and as our sales continue to ramp up, we believe battery is a very strategic asset, and we will continue to commit to a multi-supplier strategy for two reasons. One is not only for the stability of our supply chain,

but also to meet the time requirements for developing multiple models at the same time.

As far as I can see, the entire power battery is still in its prime. As for the main raw material of the battery, the price of carbon dioxide reached $400,000 per tonne in the last two days. The price of the entire battery falling back is inevitable. Currently, we are still negotiating the price with our partner. We can reveal more information at this time.

In the long term, we believe that battery prices will continue to move towards a more reasonable level. As you can see in the past few days, the price of lithium carbonate has already reached about 400,000 RMB per ton, and we believe the long-term trend is still for the price to go down, and we'll continue to work with suppliers to negotiate a good term, but there's not much details I can share at this point.

Thank you very much for the detailed update. Thank you.

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

Thank you, Manager Chen. This is my question.

My first question may be about the interest rate. Because we see that the interest rate of this quarter is at 20 points. This is slightly lower than the interest rate when we taught this ideal 10,000 in the first quarter and the second quarter. Just now, Li Tiezhong also mentioned that this is because of a change in product structure. But from my understanding, there are more than half of the contributions this quarter are from L9. I feel that the interest rate of L9 should be higher than the overall. So my first question is regarding the gross margin. I think for this quarter, the vehicle gross margin has been 20.0%, which is about one percentage point lower than second quarter and two percentage points lower than first quarter. I think just now Mr. has mentioned it was due to the product mix change, but my understanding is L9 contributed about 60% of the volume for this quarter, which should be positive for the margin. Is that due to the initial ramping up stage, or is there any other reasons you can share? This is my first question.

Thank you, Paul. This is Tony from the company. First, the gross margin is healthy and consistent with our guidance. And starting from the first quarter, our revenue and gross margin across profit is a mix of different product offerings. the majority of the sales volume comes from the L9 and the L8, and both product is under the ramping up period. As you know, our supply chain needs to ramp up with that for some period and to release the cross-market cost down. in the coming quarter. And our IELTS series platform, the overall cross-margin is with material delivery in the future. Thank you.

Thank you. Then my second question is about the next project of pure electric.

It may not be out until the second half of this year. So far, we have achieved great success in the field of真诚, which is to build a large SUV for families. For a pure electric car, how do we think about whether we can complete the corresponding and corresponding真诚's similar horsepower ratio and maintain a competitive advantage? My second question is regarding to your upcoming Pure Electric. perhaps on MPV. I understand the selling point might be fast charging, but we also see some competitors, some peers, fast charging BUV models recently launched didn't really match the expectation. So how should we define our products by maintaining the competitive list while trying to achieve certain margins that is hopefully comparable to our existing ELEV products.

Let me answer this question. I think what you just said actually comes from three aspects. Because when we are using an increase, we have to solve two core problems. The first is that the battery cost is high. The second is that charging is difficult, including the charging speed is slow. These are the problems. So we actually used the strategy of increasing the battery. The battery is used for long-term power generation. The basic facilities and then follow-up for us is actually very important. So this is the problem of charging the charging speed of the charging board. The second is the cost problem. So why do we have to use 800 feet and then why do we have to build it? And then it's still the model of the factory. It's because we're going to be in this whole power drive level and then the efficiency of the sound and then the sound of our car and then the sound of the development and then we're now Then the actual result of the measurement is the same as the 400-v mainstream IGBC and then compared to the product of the same driving method, we can save about 15% of the battery capacity. Yes, this is a very, very significant advantage for the project. Yes, I said this is two answers for everyone. The first one is how do we solve the charging problem? So I answered this question on three levels.

So I'll start off with why we decided to build our EVs in the first day. It was really two things, right? One is because battery costs were very high, and second was charging was difficult at the time for electric vehicles. It was not only difficult to find charging stations, but also very slow to charge. So moving over to EVs, we also intend to solve the three issues. The first one is about charging. With our EVs, our strategy has been to use gas on highways and use electricity in the local environment. So EV, we solved the same issue by charging rapidly, charging 400 kilometers of range in 10 minutes, which is very comparable to gas cars. But that's not the complete picture. It's like when we had 4G mobile phones, but if we don't only have 2G networks, it still wouldn't work. So another piece of the puzzle is infrastructure. So with car-bound charging capabilities and infrastructure, we are able to provide a level charging experience comparable to our EVs or gas vehicles. And the second one is cost. As you can see, we've invested a lot on our 800-volt high-voltage architecture, as well as our own in-house silicon carbide factory. And many of these innovations combined allow us to significantly increase the efficiency of our EV architecture Compared to 400-volt IGBT systems, we observed almost 15% of energy efficiency compared to similar models on a 400-volt architecture. And that saves a significant amount of battery and therefore cost of the vehicle. And the third level I want to talk about is product. I can assure you that on our EV product lineup, we will be able to provide a similar level of product and experience differentiation that exceed our user expectations even more so than our REB model.

好的,非常感谢。Thank you so much.

The next question comes from Wang Bin with Credit Suisse. Please go ahead.

谢谢各位领导。我有两个问题。第一个关于L7的订单。公司其实给了一个2万5跟3万的时间表。能不能假设就是L7L这款产品呢? There will be 5,000 orders per month, based on the gap of the branch. The second question is whether I can see that the total orders of L7 have exceeded the total of L8 and L9. Because it seems that the traffic on the market is like this. So I want to confirm the current orders of L7. This is the first question. The second question I would like to ask is about the profit and loss ratio. Because in fact, I want to go back. one way to look at it is to see what factors have caused the return rate to be at the same level as the 3rd quarter. So what I'm trying to think of is that the interest rate has actually increased by about 100,000 yuan per tonne, from more than 400,000 to more than 500,000 yuan. Is this the first factor? The second factor is whether it is because more than 1,000 ideal cars are sold every month. Do you want to forget that this is a few hundred thousand yuan discount for each car? Can it be lightened? Finally, it is that new products often have a price and cost I actually got two questions. Number one is about the order. For your guidance, you said that before the version, you got 25,000 units sales. But after that, you got 30,000 units, which means there will be 5K from the air. So, can I assume the overall LR7 will be bigger than the total order flow for LR8 and LR9? That's the first question about the order flow for LR7. And the second question about the margin. I actually try to quantify the margin impact in the number four quarter because we see a few factors. Number one is that the lithium price actually increasing quite big in the number four quarter compared to number three, increasing from 400,000 units, let me pretend, to more than 500. Is that going to be the number one reason? Number two is about the promotion for the new one. We saw that in the last quarter, last year, each month we sell around 1,000 units new one. So is that going to create an inventory? Is the second reason why the margin did not increase? And third one is about the component supply. Normally, for a company in the first certain month, say 50K, you actually have a higher cost. After 50K, you have a lower cost. So that's the reason I'm trying to understand what's the margin in the first quarter next year, 2023. Thank you. This is Li Jie.

I will answer all of your questions. First, I think for the new L7, as Euro, we still need some time to ramp up. For the Q1 guidance, we include several . Most of the delivery will still be L9 and L8. And as we mentioned, April or May will be the whole month we deliver our series, including air. So we have some air order, but as you know, the air version test drive hasn't started. So a lot of the customers need to do test drive.

So the mix.

just like those survey you can see from the Weibo. And for the second question, I think all the factors you mentioned is what was the factor that makes our 10 percent margin in the first quarter. And all this as a whole got the impact of 2 percent of the margin, so I think I don't want to break it into too much detail. And for this year, considering the market condition, we still want to keep our guidance to be above 20%.

Thank you. Thank you so much.

The next question comes from Mingzhu Li with Bank of America. Please go ahead.

Hello, leaders. I have two questions. The first question is about the green card issue in Shanghai. Last year, the leaders mentioned that the sales ratio in Shanghai was around 5%. My first question is regarding the license plate policy change in Shanghai. So what is the sales contribution from Shanghai City in 2022 and 2023? And among that, how many percentage of the consumers this year, they use their current license plate to buy our product? So this is my first question. 我還是想跟管理層這邊更新一下 今年跟明年的一個產品的策略 因為之前應該管理層有提到 今年應該是來不及出L6了 那想了解一下 今年是不是還是會按照時間 去出純電的MPV 還是也不一定 那另外可不可以請管理層這邊講一下 明年的一個大概的產品的pipeline So my second question is regarding your product pipeline. So first question, will you launch the BEV this year for the MPV and also for your new product pipeline? will LSX be launched next year? And also, besides LSX, next year for the BEV product, will you start to launch more other products, for example, such like SUV or sedan? Thank you for those two questions.

I'll answer separately. I'm Li Xiang. I'll answer the first question first. From Shanghai's point of view, in January, Then the orders will be relatively poor. Why? Because the main sales in October and December were released in advance. In February, it has started to recover very significantly. Our own prediction is very simple. Because we look at the setting of the target and the actual achievement. The main thing is to look at the market performance. So our own judgment Shanghai will be very similar to Beijing. In terms of orders, in Shanghai, the January order flow was not very good.

And that was understandable because most of the demand was released in November and December last year. But we have seen a very significant recovery since February. And over the long term, we look at this issue from a market share standpoint. And we believe the steady state market share in Shanghai will be comparable to that in Beijing because going forward, in either of these markets, REV purchase will be incentivized by free license plates. So we think Shanghai will eventually move towards a market share similar to that in Beijing.

The second question is that the release and delivery time of our flagship products is actually tied to some of the most key technologies. Sometimes we actually have some delays, mainly because of the most advanced technology tied to it. For example, an important upgrade that will happen at the end of this year is Qualcomm's 8295. So we ourselves is closely related to the development progress and development strategy of Qualcomm 8295, as well as the development progress of the entire software. Otherwise, I can't release a flagship chip and use the last generation of flagship chips. This is very uncomfortable for us. This is one of the reasons behind the reasonable release time. We must use the most advanced flagship chip and chip technology. So this is one level. First of all, in terms of flagship EV products, the timing of the product release is highly tied to the cycle of technology innovations. And in particular, in this case,

At the end of this year, there will be a big milestone where Qualcomm will be releasing their A295 chips. So the delay in our EV product is highly tied to this because we want to meet the development cycle so that we can release our flagship vehicle with the new chip as early as possible. We cannot have our flagship model only carry the last generation chip when it comes to market. And the second one, in terms of the EV lineup, the EV lineup will basically mirror something similar to what we have with the IL series, which fully covers the 200,000 to 500,000 RMB price range.

Thank you.

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

Thank you for accepting my question. My first question is that we just mentioned that our goal is to get a market share of 300,000 to 500,000 in the SUV market. I don't know if our estimate is right, but is it about the equivalent of a monthly sales of about 350,000? Then my amount My first question comes from... Just now we mentioned that we aim to get a 20% market share on the SUV market with a price from between $300,000 to $500,000. So my question is how we have confidence in this market share, and could you please talk a little bit more on how we consider about the market of SUV between the price two hundred thousand to three hundred thousand this is my first question thank you um

Yes, our requirements are to double the share price. And when we reach 20% share price, we will be relatively stable. We will reach this level. Then SUV, then a brand champion in sales. This is a way for us to set goals. I think the market of 200,000 to 300,000 is actually more difficult for us. Yes, we need to have a stronger scale. Then enter the price range of 200,000 to 300,000.

First one, about the $300,000, $500,000 price range. We were at a market share of 9.5% last year, as you mentioned. And this year, we expect the whole market size to be between 1.4 to 1.5 million units. And our goal is to double the share because we believe at 20% share is where we could reasonably steadily stay as the brand champion. And that's kind of how our goal came about. The $200,000 to $300,000 market is a lot more competitive. So our plan is to achieve the market, approach the market at a second stage where we have much greater economy of scale and stronger core competencies.

Thank you. My second question is, I have seen that recently, the AI technology that is driven by overseas countries has a lot of influence in China. Will it have an impact on the industry when it comes to easy training? We want to know from My second question is that considering the pre-trained transformer AI technology has influenced in different sectors, in different industries. So my question is how will that impact auto industry we are working now and in the future, how can that influence? And for the consumers, for the users, what kind of change we can experience in short? Thank you.

Hello, Yibo. This is Yen. Let me take your question. We have invested in the development of AI-based cognitive technologies for quite a long time, especially the compositional AI and the gesture recognition. We think they are very important in smart space, and this gives our customers very good user experience. So recently, we are paying close attention to ChatGPT, and we think it's the technology behind, like, Large language models and pre-trained models are very similar to what we are doing right now in smart space. So we also believe that these technologies have good potentials in visual tasks like self-driving. And the related study and the development is still in progress.

Thank you.

The next question comes from Ukraine Ding with HSBC. Please go ahead.

Hello, everyone. I'm Yuqian from Huifeng. A lot of questions have been covered before. I just want to ask one question. The price of the three SUV models is actually a bit different. What do you think about the possibility that the current products may have different prices? If the sales of the three SUV models are between $20,000 to $30,000, I only got one question, is that Within our current three SUV model portfolio, how do we evaluate the potential cannibalization given by different versions of different models of pricing points overlap? And should these three models combine themselves between per month $20K to $30K, what's the roughly margin range we would expect given these three SUV models have the shared cost base?

Let me talk about the first question. In fact, L7 and L8, the user group in the front, in our actual transaction process, is actually very clear. The number of users who have cross-reference needs is not as much as expected. L7 users are more like a family of three, and then a family of two. L8 is actually either a second generation, or a third generation common, and then such a need. Even L7's The attention of R7 has also led to an increase in order volume of R8. In fact, the effective price coverage of R7, R8, and R9 is actually what we want to build. Not only is it a product line, but also a product network. We hope that in fact, we can meet the needs of any family of 30 to 500,000 to 50,000 users. We hope that users are hesitant to choose R7 or R8, or choose R9 or R8. In fact, in practice, we've seen very clear user base differentiation between L7 and L8. There hasn't been as much overlap as we have been expecting.

As we've seen in showrooms, the L7 is really attracting families with two to three members, one kid. And L8 is attracting either families with two kids or those that are three generations under the same roof. And another good thing is that the interest in L7 has also helped us view orders for L8. So with L8, L7, and L9, we really formed not just a product line, but in fact a product network. We want any family who's willing to buy an SUV will come to our network and find and think about whether it's L7 or L8 or L8 or L9 that they should buy rather than comparing us to other brands and pick which brand to buy. That has been our core product philosophy with the product lineup of L7, L8, and L9.

For the gross margin, as we just mentioned, For the L-series platform, with all this product offering and with some scalability, the design cross-profit is profit margin is 35%. Considering this year's battery price and also the macroeconomics, we still want to keep our balance just about 20%.

There are no further questions at this time. I'll now hand back to Ms. Singh for any closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact the auto investor relations team. Then that's all for today. You may disconnect your line. Thank you. That does conclude our conference for today.

Thank you for participating. You may now disconnect.