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spk07: Hello, ladies and gentlemen. Thank you for standing by for Lee Auto's third quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Kobe Wong, the head of capital markets of Lee Auto. Please go ahead, Kobe.
spk02: Thank you, operator. Good evening and good morning, everyone. Welcome to the auto third quarter 2023 earnings conference call. The company's financial and operating results were published in a press release earlier today and are posted on the company's IR website. On today's call, we will have our chairman and CEO, Mr. Xiang Li, and our CFO, Mr. Johnny Tian Li, begin with prepared remarks. Our President, Mr. Donghui Ma, and Senior VP, Mr. James Liangjun Zhou, will join for the Q&A discussion. Before we continue, please be reminded that today's discussion will contain forward-looking statements made at the Safe Harbor Provision of the U.S. Private Security Litigation Reform Act of 1995, forward-looking statements involve inherent risk and uncertainties. As such, the company's actual results may be different from the views expressed today. Further information regarding risk and uncertainties is included in certain company filings with the US SEC and the Hong Kong Stock Exchange. The company doesn't assume any obligation to update Any forward-looking statements except are required under applicable law. Please also note that the auto earnings price release price and this conference call include a discussion of an audit gap financial information as well as an audit non-gap financial measures. Please refer to the auto's disclosure, the comments on the IR section of our website. which contains a recommendation of an audit non-GAAP measurable, comparable GAAP measurement. Our CEO will start his remarks in Chinese. There will be English translation after he finishes all his remarks. With that, I will now turn the call over to our CEO, Mr. Xiangli. Please go ahead.
spk05: Hello, everyone. I'm Li Xiang. Welcome to today's conference. In the third quarter of 2023, despite the fierce competition in the Chinese car market, Li Xiang still maintained a strong growth trend thanks to its powerful product power and outstanding execution. In the third quarter, the total turnover was more than 150,000. It increased by three times in the same period last year, creating a third quarter turnover record again. At the end of September, we completed the 50,000th delivery of Li Xiang. to become the fastest-growing Chinese car brand. In October, we surpassed 40,000 units delivered in a single month, which is an important milestone. According to the mid-term data, in the third quarter, the ideal R9 will be the champion in all-wheel drive SUV sales. The ideal R7 and R8 will be the top two in medium-sized SUV sales. The ideal car will remain the top three in the sales of more than 200,000 new energy car markets. The market share has continued to increase, from 10.9% in the first quarter of this year to 13.7% in the second quarter, and has increased to 15.4% in the third quarter of this year. I believe that the successful sales performance of the ideal 2 series and the delivery of a large number of pure electric vehicles next year will support ideal cars to replace traditional fuel cars on a larger scale in 2024. In terms of financial performance, the rapid growth of the scale promotes low-cost sustainability. The company's financial situation is healthy and stable. The income of the third quarter rose by 271.2% to 364.8 billion yuan. The net profit rose to 28.1 billion yuan. The free cash flow reached 132.2 billion yuan, which is a new high in history. By the end of the third quarter, our cash reserves have reached 885.2 billion yuan. Our health and business capabilities will support the long-term investment and development of ideal cars. Including the 5C pure electric vehicles that everyone has seen, the charging capacity is a reflection of the continuous research and development in the past years. In terms of production, in October, the ideal car manufacturing base in Changzhou completed the production and energy upgrade, and prepared for the further production climb in the fourth quarter. In terms of power chain management, we have optimized the management strategy, upgraded the management process, and strengthened the efficient coordination with the supplier. Continuously breaking the bottleneck of supply. It is expected that in the fourth quarter, our total supply will reach 12.5 million to 12.8 million. Next, let's talk about the important ideal microphone. Support charging 12 minutes of battery life of 500 kilometers. The ideal microphone with a design design that is ahead of the times has received more than expected market attention and recognition. The ideal mega ideal mega extreme large space is better to meet the needs of the whole family of the Chinese family It is in the form of a pure electric car with a harmonious and consistent attribute to make the mega achieve the lowest wind resistance coefficient of 0.15 in the world's MPV Perfect balance of energy consumption and space is obtained from the 800-volt high-pressure platform and 5C charging ratio The ideal mega wind power charging power is more than 520,000 watts and will become the fastest-charging mass-produced passenger car. The ideal MEGA will be officially released in December. In January of 2020, the show car will be launched. In February after the Spring Festival, the service will be opened. For more details about the ideal MEGA, you can look forward to our release in December. At the same time, we will continue to expand the construction of a 5C high-pressure charging network. So far, the ideal car has been on the national highway line to build and operate 130 ideal supercharging stations. At the end of this year, we will complete the construction of 300 high-speed supercharging stations, covering Jinjinji, Changsangjiao, Dawan District, Chanyu, and other four major economic areas. In the future, we will accelerate the deployment of ideal supercharging networks. At the same time as the encryption covers the national high-speed network, we will promote the layout of city supercharging stations, and improve the energy-saving enterprise of the entire user scene. In terms of smart driving, we hope that the development and development of ABMAX will go smoothly. At the end of the year, we plan to deliver the official version of ABMAX 3.0 to the users to provide the full scenario of NOA capabilities. At the same time, we will deliver the official software of AB PRO 3.0 to the users in the first half of next year. The partial computing capabilities of ABMAX will be released on AB PRO. We are confident that we will be the first team of smart drivers to be verified by the market in the first half of next year. In terms of direct marketing network, until October 31, 2023, there are already 372 retail centers in the country covering 133 cities. In the fourth quarter, we will continue to accelerate the expansion of stores. The goal is to have more than 400 stores at the end of this year, covering 140 cities nationwide, to further help ideal cars in China, in China, in the market. Finally, I would like to share with you the results we have obtained in ESG. At the end of September, the ideal car won the highest 3A rating of MSCI ESG. It is the first Chinese car to win the 3A rating. This time, the evaluation fully confirmed that we are in the management of the company, product quality and safety, product carbon dioxide, cleaning technology development, organization and talent, etc. Hello, everyone, and welcome to today's earnings conference call. In the third quarter of 2023, despite the intense competition in China's NEV market, we maintained strong growth momentum propelled by our compelling product lineup and strong execution.
spk08: Total deliveries for the quarter surpassed 105,000 vehicles, almost four times the volume for the same period last year, setting another new quarterly delivery record. By the end of September, we had delivered our 500,000 Li Auto vehicles, becoming the fastest Chinese emerging new automaker to reach this benchmark. Moreover, in October, Li Auto achieved another new milestone with over 40,000 monthly deliveries. According to the insurance registration data of China Automotive Technology and Research Center, Li L9 maintained its position as the full-size SUV sales champion during the quarter, while L7 and L8 continued to occupy the first and second spots in the large SUV market, respectively. We remained one of the top three SUV brands priced over RMB 200,000 in China, while our market share continued to grow, reaching 15.4%, in NEV brands priced over RMB 200,000 in China, compared with 10.9% in the first quarter and 13.7% in the second quarter. We believe that our L-series robust growth momentum, together with deliveries of our upcoming BEV models next year, will enable us to accelerate the large-scale transition from traditional ICE vehicles in 2024. Turning over to our financial performance, Our rapid-scale growth has driven continued cost reduction, resulting in steady improvements across multiple financial metrics. Total revenues for the third quarter were RMB $34.68 billion, up 271.2% year-over-year. Our net income and free cash flow increased to RMB $2.81 billion and RMB $13.22 billion, respectively, both heading new historical highs. Notably, our cash position reached RMB 88.52 billion as of the end of the third quarter. Our healthy operations reaffirms our strong operational capabilities, underpinning our long-term firm commitment to R&D. Our market-leading charging capability for 5C B&Bs is just one great example of our achievements made through R&D investment. With respect to production, in October, our Changzhou manufacturing base completed its capacity expansion. and is now well positioned for its production increase in Q4. In terms of supply chain management, we continue to break through the component supply chain bottleneck by enhanced supply chain management strategies, improved processes, and more efficient collaboration with our suppliers. We expect total deliveries in the fourth quarter to be between 125,000 to 128,000 units. Now I would like to talk about Lean Mega. Lean Mega can gain up to up to 500 kilometers of driving range with a 12-minute charge and features an industry-leading silhouette. Its market reception has exceeded our expectations. Li Mega's extremely large interior space meets the travel needs of large Chinese families. At the same time, its unique body style and silhouette are intended to reach the perfect balance between interior space and energy consumption. It is the most aerodynamic MPV in the world with a drag coefficient of only 0.215. Based on our 800-volt BEV platform, MEGA is capable of 5C charging with a peak charging power exceeding 520 kilowatts, higher than any other passenger vehicle in production in the world. LiMEGA is targeted for launch in December 2023. Showroom vehicles are scheduled for debut at retail stores in January 2024. and deliveries will commence in February. We will share more details about MEGA during our product launch event this December. In the meantime, we have been making progress with our 5C supercharging network extension. To date, we have built and started operating 130 supercharged stations along highways nationwide. We expect to establish 300 highway supercharging stations by the end of this year, covering four major economic zones, including the Beijing-Tianjin-Hebei Economic Belt, the Yangtze River Delta Region, and the Greater Bay Area and Sichuan-Chongqing Economic Belt. Going forward, we will further accelerate the rollout to increase nationwide highway coverage while also actively building urban supercharging stations, thereby greatly improving users' energy replenishment experiences across all scenarios. Moving on to autonomous driving. Our city NOA on our AD Max platform continue to progress smoothly. We expect to push the official version of AD Max 3.0 by the end of this year with full scenario NOA function. Meanwhile, the AD Pro 3.0's official version will be released in the first half of next year. By then, part of AD Max algorithm capability will also be available on AD Pro. We're confident that Lee Auto will become a market-proven first-year player in the autonomous driving market in the first half of next year. Turning to the development of our direct sales and servicing efforts, as of October 31, 2023, we have 372 retail stores in 133 cities. Moving to the fourth quarter, we will continue to accelerate our network expansion aiming to cover over 400 stores across 140 cities nationwide, further increasing Li Auto's market share in China's new energy automotive market. Last but not least, I would like to share some details regarding our accomplishments in ESG. In September, our company was upgraded to the highest AAA rating by MSCI ESG Research, making Li Auto the first Chinese automaker ever to receive this rating. The rating validates our steadfast efforts across corporate governance, product safety and quality, clean tech development, and organization and talent, among other areas. Moving forward, we'll continue to uphold our value proposition of providing outstanding products and services that exceed our family users' needs as we constantly push the limits of growth. With that, we'll turn it over to our CFO, Johnny, for a closer look at our financial performance.
spk04: Thank you, Jiang. Hello, everyone. I will now walk you through some of our 2023 third quarter financials. Due to time constraints, I will address financial highlights and encourage you to refer to our earnings price release for further details. Our total revenues in the third quarter were RMB 34.68 billion, of 4.75 billion US dollars, up 271.2% year-over-year, and 21% quarter-over-quarter. This included revenue from vehicle sales, RMB 33.62 billion, or 4.61 billion US dollars, up 271.6% year-over-year, mainly driven by increased vehicle deliveries. Revenue from other sales and services were RMB 1.06 billion or 145.7 million US dollars in third quarter, growing 258.7% year-over-year 56.2% quarter-over-quarter. The increase was mainly due to the increased sales of accessories and provision of services in line with higher accumulated vehicle sales, as well as the increased sales of charging stores in line with higher vehicle deliveries. Cost of sales in the third quarter was RMB 27.03 billion, or 3.71 billion U.S. dollars, up 231.3% year-over-year, and 20.6% quarter-over-quarter. Gross profit in the third quarter was RMB 7.62 billion, or 1.05 billion U.S. dollars, 7% year-over-year and 22.6% quarter-over-quarter. Vehicle margin in the third quarter was 21.2% compared with 12% in the same period last year and 21% in the prior quarter. Excluding the impact of inventory provision and the losses on purchase commitment related to D1 In the third quarter of 2022, the vehicle margin remained stable over the third quarter of 2022. Gross margin in the third quarter was 22%, compared with 12.7% in the same period last year, and 21.8% in the last quarter. Operating expenses in the third quarter were RMB 5.3% or $727.1 million, growing 60.2% year-over-year and 15.1% quarter-over-quarter. R&D expenses in the third quarter were R&B $2.2 billion or $386.1 million, up 56.1% year-over-year and 16.1 quarter-over-quarter, primarily driven by increased employee compensation as a result of our growing number of staffs, as well as increased expenses to support our product portfolio expansion and technology advancement. SG&A expenses in the third quarter were RMB 2.54 billion, or 348.7 million US dollars, of 68.8% year-over-year and 10.2% quarter-over-quarter, primarily driven by increased employee compensation as a result of our growing number of staff, as well as increased rental expenses associated with our sales and service network expansion. Income from operations in the third quarter was RMB 2.34 billion, or $320.6 million, compared with RMB 2.13 billion loss from operations in the same period last year, and growing 43.9% from RMB 1.63 billion income from operations in the last quarter. Net income in the third quarter was RMB 2.81 billion or $385.5 million compared with RMB 1.65 billion net loss in the same period last year, an increase in 21.8% from RMB 2.31 billion net income in the second quarter of this year. And now turning to our balance sheet and the cash flow. Our cash position remains strong and is stood at RMB 88.52 billion or 12.13 billion US dollars as of September 30th, 2023. Net cash provided by operating activities in the third quarter was RMB 14.51 billion or 1.99 billion US dollars. Free cash flow was RMB 13.22 billion or 1.81 billion US dollars in the third quarter. And now for our business outlook. For the fourth quarter of 2023, the company expects the deliveries to be between 125,000 and 128,000 vehicles representing an increase of 169.9% to 176.3% from the fourth quarter of 2022. The company also expects fourth quarter total revenues to be between RMB 38.46 billion, and RMB 39.38 billion, representing an increase of 117.9% to 123.1% from the fourth quarter of last year. This business outlook reflects the company's current and preliminary view on its business situation and market conditions. which is subject to change. This concludes our prepared remarks. I will now turn the call over to the operator to start our Q&A session. Thank you.
spk07: Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you are on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, please limit yourself to two questions. And if you have additional questions, you can reenter the queue. If you are a Mandarin speaker, please ask your questions in Chinese first, then follow with English translation. Your first question comes from Tim... Pardon me, one moment. Tim Sao with MS. Please go ahead.
spk10: Thank you, Manager Chen, for accepting my question. First of all, I would like to thank the company's 3G map. It is very bright. I have two questions. The first question is about the discount and the car horsepower rate. The 3G map of the company's car horsepower rate is called the overall market price. But we also saw that the ideal car has increased the rate of discount from the bottom of the 3G. The overall discount discount seems to have not been significantly reduced in the 4G map. As we look at the central listing of trademark products at the end of the year, So my first question is about the margin. Despite the quarter margin beat, the auto has been scaling up the vehicle discount and benefits since the late quarter 2020. And most of the promotions seem to continue in fourth quarter. As there are more competitive models coming to the market in the following months and the targeting to take on the auto, would the company consider to respond with more aggressive promotions or spec upgrade to your current lineup? And would that affect the auto's vehicle margin in fourth quarter and beyond? So in short, should we still consider 20% plus a reasonable margin? and the sustainable level for vehicle gross margin against such a tough competition backdrop? That's my first question. Thank you.
spk04: Thank you, Tim. This is Johnny. I think for every quarter and every year, we will take full consideration between sales volume growth and the gross margin when we plan our sales policy and promotion policy. Also, every quarter, our sales policy will also add our supply chain effort, which absolves some of the sales policy promotion. I still want to emphasize, from the company's operation side, each quarter, Every year, we want to keep our cross-margin above 20%. We believe that will be a healthy margin to keep enough money on hand to invest on either AMD and also their service network expenses for the future. Thank you.
spk10: Thank you, Jason. My second question is about autonomous driving. From this year, we have seen a significant increase in the technology development of autonomous driving, which has also increased the investment strength. Could you please clarify the management of this project? We will look at this project in the future, the scale of the planned investment in 2024 and 2025, and the goal of the expansion of our team. In addition, with the increase in investment, such as foreign investors in the capital market, So my second question is about autonomous driving. The auto is now attaching greater importance to the development of smart driving and planning to increase the overall investment. So could management team help us to quantify Liotto's investment plan in a time-thriving, like how much you are going to spend in 2024 and 2025, and how many people are you planning to hire. And in the meantime, what would be the best way for investors to track the progress? For example, when will Liotto activate the Urban NOA function to all public users across the city? And will you keep offering such function for free after more size for investment this year? That's my second question. Thank you.
spk03: Hello, Tim. I'm Ma Donggui. Let me answer this question. First of all, our company has always paid great attention to intelligentization and intelligent driving investment. And then at this year's Autumn Games, we also conducted in-depth discussions and reached a consensus. And then in the future, we will prioritize intelligent driving as our core strategic goal. In terms of investment, Currently, we have about 900 autonomous drivers. Our plan is that by next year, the number of autonomous drivers will exceed 2,000 people. In two years, it will exceed 2,500 people. As the size and density of talents increase, we will also promote the development of products and technologies. On the one hand, we will launch multiple vehicles, including high-speed and urban development. On the other hand, we will also develop AI-based autonomous driving technology in the future. In terms of the amount, we will increase the number of vehicles and test vehicles, as well as the number of people involved in the development of the route. We have sufficient cash reserves and cash flow to support the financial support needed for smart driving. In terms of project progress, as mentioned earlier, our plan is to send the official version of ADMAX 3.0 to all MAX users by the end of December this year. and provide all the functions of the scene, and the unified use of the B1V file type. In addition, it will also upgrade the support function. At the same time, in the first half of next year, we will also send the AD 3.0 Pro version of the function to Pro users, and we will release some calculations of Max on Pro. We believe that it will greatly improve the ability to support driving. We are confident that in the first half of next year, it will be the first team to be verified by the market. Regarding the standard, we will always stick to the standard of intelligent driving. Mr. Ma, first of all, on a strategic level, the company has always been very focused on investments in autonomous driving. In the fall strategy summit of our company,
spk08: We had a thorough discussion around autonomous driving and reached consensus to make making smart autonomous driving leading in the market our core strategic goal. So the company will continue to increase our investment in autonomous driving. At this point, the R&D team for autonomous driving is around 900 people, and it's expected to reach about 2,000 by the end of 2024. and over 2,500 by the end of 2025. As the scale and talent density of our R&D team grows, we will develop technology as well as product at the same time. On the one hand, we will continue to deploy our AD products across multiple vehicle lines, across multiple scenarios, deploying NOA in multiple scenarios. On the other hand, we will continue to invest in AI algorithms of autonomous driving as well as other cutting-edge technology. In terms of investments, we will continue to increase the amount of investments in vehicles, in testing, computing power, and personnel. Our ample cash reserve and cash flow will be a very strong support for our continued investments. In terms of progress, as Lisa mentioned earlier, we plan to – deploy AD Max 3.0 software on all of our vehicles equipped with AD Max, providing full scenario NOA features using the same BEV architecture, and we will also be adding valet parking feature to our AD Max users. At the same time, in the first half of 24, we will be releasing AD Pro 3.0 to our Pro users, Part of the AD Max algorithms will be deployed on AD Pro, and the capability of autonomous driving will also be significantly improved. We're confident to become one of the top tier one players in the market that is proven by the market. In terms of product lineup strategies, we will continue to make AD standard on all of our vehicles, which allows us to have the largest training fleet of autonomous driving vehicles in the country, and also more training mileage, which will accelerate the deployment and iteration of our foundational model algorithms.
spk10: Thank you very much for sharing all the details. Super helpful. Thank you.
spk07: Your next question comes from Tina Hu with Goldman Sachs. Please go ahead.
spk12: Thank you for your time. Congratulations to the company for achieving such a strong performance. I also have two questions here. The first question is, as we expand to more cities, how do we view the difference between the needs of high-end cities and low-end cities users? Whether it's the difference between the existing differences between the increased city and the pure electric type, and then the ideal of how to adjust your marketing strategy to better capture these needs. And then the second question is about the supply chain and some of the plans for our supply chain. May I ask if the current supply chain's production balance has been completely resolved? In addition, do we have any goals and specific plans for the supply chain? For example, in the future, and then with this related to the future two years, our production and capital spending plans. Thank you. Okay, so thank you, management, for taking my question, and congratulations on a very strong set of results. So I have two questions. The first one is, as we are expanding our footprint into more and more cities, so how does management view the different type of customer need or demand in higher-tier city versus lower-tier city for both EREV product as well as BEV product? And how does Liato plan to adjust its marketing and sales strategy to better capture these differentiated demand. The second question is regarding your supply chain as well as cost reduction plan. So wondering if our supply chain bottleneck has been completely resolved at this point and how do we, going forward, how do we best manage the supply chain to be able to fulfill our growing demand? Related to that is, do we have any cost reduction plans and targets over the next few years? And lastly is, over the next two years, what is our capacity plan as well as our CAPEX guidance? Thank you.
spk09: Okay. Tina, this is James. And I will take your first question. And in the SUV market priced over 300,000 MMB, our market share in our well-developed cities reached 50% in some of the cities, while our average market share across the whole market is less than 20%, which means there's plenty of room for our future growth. Overall, we will continue to focus on first-tier, new-tier, new first-tier, and second-tier cities, aiming to increase our market share in these top tier cities. Currently, we haven't reached market saturation in first tier and second tier cities, and we will have huge growth potentials in those cities. In the 300,000 renminbi and higher SUV market, the monthly sales of VBA, are approximately 55,000 units in total. And if we consider the second-tier premium and automotive brand, which including BBA and the other brand, and they're around 90,000 units, which means we have ample room to achieve our next stage of growth. Additionally, we have big we have begun to accelerate our deployment in third-tier cities and speed up our store openings in certain key fourth-tier cities. And let me give you some numbers. As of today, we have more than 300 retail stores nationwide, among which there are more than, there have already more than 100 retail stores deployed. in the third-tier and fourth-tier cities. According to our current progress, we expect to have more than 110 retail stores in third-tier and fourth-tier cities by end of this year. I hope I have answered your first question. I will hand over to Mr. Ma for the second one. 第二个问题关于多华产能和教程本。
spk03: First of all, in terms of supply, the supply bottleneck problem we encountered before has been solved smoothly. And we are targeting the new model for next year. Whether it is in the manufacturing of the whole car or in the purchase of the parts, we have developed a long-term supply strategy to improve the toughness and supply guarantee of the supply. And in terms of cost reduction, we believe that the relationship between the main factory and the partner must be a long-term stable relationship. And it must be a result of mutual win-win. In the short term, it may still be based on business cost reduction, but through platformization of the project, including the amount of purchase and the cost calculation of CCI, our purchase price will return to a reasonable level. But in the long term, we will look for opportunities to reduce the cost efficiency from the end to the end of the strategy, including product development and technical innovation to optimize the cost reduction. At the same time, we will continue to optimize, upgrade, supply, digitalize the ability to pay our partner to upgrade the efficiency in the manufacturing process, and reduce the waste of quality cost. Finally, about the production capacity, the ideal car is in Beijing and Changzhou. There are two production and manufacturing bases. In Changzhou, there are three production lines to produce authentic models, L8, L7, L9, L6. In Beijing, there is a production line to produce existing models.
spk08: First of all, regarding supply chain bottleneck, all of the issues that we have encountered before have all been successfully resolved. As opposed to the regarding new models and our sales target for next year, we have made ample preparations across not only whole vehicle production capacity, but also part supply. We have made medium to long-term supply chain strategies to make sure that our supply chain is resilient over time. On cost reduction, our overall view is that OEMs should establish long-term and stable partnerships with our suppliers to achieve a mutually beneficial relationship for the two sides. For the short-term, our short-term cost reduction measures will mostly be focused on business measures. through platformization, volume aggregation, and cost accounting to drive our procurement costs to a reasonable level. For the medium to long term, we will look at the entire value chain from end to end to find ways to increase efficiency and reduce costs, including from product R&D, technology innovations, to drive down costs. At the same time, we'll also work with our suppliers to help them digitize and industrialized to increase the efficiency in the production process and reduce quality-related costs. In terms of overall vehicle production capacity, we have two manufacturing bays in Beijing and Changzhou, three production lines in Changzhou dedicated to REV models, L9, L8, and L7, as well as L6, which will be launched next year. In Beijing, there is one production line dedicated to our BEV products. production capacity is sufficient to meet the needs for sales and deliveries for the next two years.
spk12: Thank you very much, management, for the clear answers.
spk07: Your next question comes from Jiang Sha with Barclays. Please go ahead.
spk01: Thank you very much for taking my question and Big congrats on the very strong results. I mean, competition has been on the top of the mind for many investors with recent launch by Huawei and auto of the sort of the larger SUVs. And that SUV is also EREV. And also the Denza, the BYD's Denza brand is launching some of the large SUVs as well. I was wondering, could you share without your thoughts around competition, around customers buying behavior. You talked about market share earlier. Are you seeing any impact yet on market share and on your market positioning? Thank you. 我自己来翻译一下吧。 我的问题就是关于竞争, 因为华为 和问界的M7和腾讯的一些新的产品, Okay, John, this is James. I will take your question. So, although this year the competition in the new energy vehicles market is relatively intense,
spk09: we once again achieved impressive sales results. Our models retained strong sales momentum. And each model is a blockbuster. Till now, the delivery of all of our models, including L9, L8, and L7 also has reached exceeded 100,000 units. And just like yesterday, our L7 has exceeded 100,000 units in less than 10 months because this product launched in March this year. And also, our sales have achieved a steady and continuous growth, while our share in the NEV market priced above 200,000 RMB continued to rise from 10.9% in the first quarter to 15.4% in the third quarter. And I can give you another number, like in last month, October, our market share is already more than 17 percent. At present, the penetration rate of the new energy vehicle market has exceeded 35 percent, crossing the innovation diffusion gap to entering the early mass period. The concentration effect of leading auto companies will become increasingly evident, and our accumulated user base and market share will support our further increase in delivery volumes and market share gains. I hope I answered your questions.
spk01: Thank you very much, James. Thank you.
spk07: Your next question comes from Zhu Yingbo with SciTech Securities. Please go ahead.
spk14: my first question is how we balance the technology advantage, especially we mentioned about the low drag coefficient, and balance that between, and consumer recognition for market management, especially for blind order.
spk05: Yingbo, let me answer this question, Lixiang. I think this MEGA, in the traditional car value system, and then the safety of the whole car, In terms of functional configuration and portability, we can definitely achieve the top of the industry with the standard of the needs of family users. But we think this is not enough. In addition, all of our pure electric car products have three important breakthroughs. The first is the breakthrough of charging. In 12 minutes, it can cover 500 kilometers and build a large-scale charging station on the highway, so that any consumer can buy a pure electric car without worry. I think this is the first point. Then the second point is the breakthrough of space. By re-designing the entire high-pressure electrified structure, any of our products will be the largest in the same level of space in the car. It's the same size and the same level of size. It's the same size and the same level of size. It's the same size and the same level of size. It's the same size and the same level of size. It's the same size and the same level of size. It's the same size and the same level of size. It's the same size and the same level of size. It's the same size and the same level of size. It's the same size and the same level of size. will be redefined at all levels, whether it is MPV, SUV, or sedan. We will put this design from decades to the future directly on today's electric cars. We will put the design and concept that you think will appear in the concept car on today's electric cars. Therefore, we will make a higher level of breakthrough with the three most important values of our users. The sense of security brought by charging, the sense of value brought by space 以及领先的造型带来的向往感。我们所有的承电产品都将坚持这三个重要的原则。 Talk about Mega and all of our BV products.
spk08: In terms of traditional values, including safety features and comfort, Mega will continue to focus on families' needs and make sure that we will be the absolute best. We're among the absolute best in the industry. On top of that, all of our PEV products will have three breakthroughs. The first one is breakthrough on charging experience. It can provide up to 500 kilometers of range with 12 minutes of charging. And we will also be deploying large-scale charging stations on major highways in China. So any consumer can buy one of our PEV vehicles with total confidence about their charging experience. And secondly, it's a breakthrough on interior room. With our high voltage pure electric architecture, we'll be able to completely redesign vehicle architecture to make sure that the interior space of our products are always the biggest among their segments, even reaching the level of next segment up, which provides the best interior experience for family users. And thirdly, all of our products will have a breakthrough in terms of styling and body style. All of our styling will be redefining each one of the traditional categories, whether it's MPV, SUVs, or sedans. We will be bringing design language from decades down the road and to launch them on our existing vehicles as if they're only concept vehicles, but they're actually production vehicles that we'll be launching to the market. Through these three breakthroughs, we'll be able to provide three very unique value to our customers. The first one is the sense of safety from charging or the experience of charging. And the second is the sense of value from a very large interior space. And third is the sense of longing from very exciting styling. And all of our BEV products will be following these three principles.
spk14: Thank you, Mr. Xiang. My second question is related to this question. Recently, we have observed that a series of car companies have stronger synchronization, larger screens, and better human-to-person interaction. In fact, we are also thinking about the future. Everyone is worried about competition. On the one hand, it is the worry of product synchronization, and on the other hand, it is more about financial. I don't know if the three points you mentioned above are about charging, My second question is how we see that the EV product become more and more homogenization and more larger screens, more smart interactions and controls. How we make EV product more differentiation? Thank you.
spk00: Let me answer this question. I think what I just said is quite comprehensive.
spk05: If we can, in terms of the core value of the user, because what we are talking about is not the most important thing we do, it is not about making some quantitative changes. Because quantitative changes are already a basis for competition. For example, cheaper prices, better cost-effectiveness, more configuration, more screens, more features. I think we really hope that at the three most critical value levels of the users, we can achieve a breakthrough that is higher than that. I think this is actually the most important thing for us. For example, as I said, we are charging at 5C, and then our entire charging speed depends on the entire cycle until we reach 85%. Our lowest speed exceeds the highest speed of the best people in the industry at present. I think my earlier response covered a lot of your questions, and I just want to emphasize that our focus has always been on core user value, what makes the most
spk08: create the most value for our users. I think with the intense competition, as you mentioned, incremental changes are definitely taken for granted, whether it's lower price, whether it's more features or more screens. These are things we'll definitely do well in. But when we think about competition, we think really the way to stand out is to compete on a higher dimension and to create, really focus on the three values that consumers care about most. And taking 5C charging as an example, In our real-world testing, even when the battery state of charge reaches 85%, it can still have a charging power of over 300 kilowatts, which is even higher than the maximum charging rate of many other competitors. This really established a new standard for the industry, and that is only the result of years of innovation through products and R&D in our efforts And that is something we will continue to invest in and continue to prove a great value for our users.
spk07: Your next question comes from Ming Sun Li with B of A. Please go ahead.
spk11: Thank you, Dr. Guan. I have two questions. The first question is about The charging stations and chargers of the current brands have been rapidly built in China. I would like to ask what is the difference between the charging station layout in the city and the charging station layout on the road? In addition, the company has also mentioned charging technology and charging technology, but I would like to know more about the charging technology and experience. If the company wants to make a difference with the competitors, Currently, Li Auto has used a lot of charging stations in China. What is the difference between charging stations within the city and also on the highway? In terms of your charging technology and also user experience for your business, how do you want to differentiate from yourself and your competitors?
spk09: Okay. Min, thanks for your question. This is James. I will take your question. At present, in urban areas, whether it is public charging or home charging, consumers have good access to charging facilities that provide a decent charging experience. Therefore, for BE-Waste, we must first tackle the most critical pain point, and focus on fulfilling the need for rapid energy replenishment during highway long-distance travel. Through the construction of large-scale charging stations along the highways, coupled with the experience of charging for 12 minutes to support 500 kilometers driving range, we strive to eliminate consumers' worries around BEV purchases. Furthermore, With the launch and the delivery of the BEVs next year, we will also start the construction of charging stations in cities. In addition, with respect to product experience, we will consider both the hardware and the software as a whole product. For example, when the Nioto car owner is looking for a charging pile, the status of charging gun and charging pile can be checked. on the infotainment system in the car. We also provide plug-and-play, password-free payment among those services to provide a better experience for our users. And for BE-based, the batteries can be remotely preheated. We think, from user experience perspectives, aiming to help our users have a better charging experience. Okay, this is my answer.
spk11: We are actually a 1.0 business from the beginning to the end. In fact, including the beginning of last year's Huawei, it also trained a lot of partners. In fact, the sales are getting better and better in the market. Including next year's small car, it will also enter the market. I just want to understand the management of China's motor company. What kind of use will it be in China? So Yoto and also some other EV companies are the first generation of EV startup in China, but currently we are seeing more and more competitive with peers to enter the market. For example, Huawei cooperated with a lot of partners in China and also started to bring some good sales. Xiaomi will also launch their car in 2024. So in your view, for the longer term, how do you think the market dynamic in China for EV industry And for other companies, how can they survive or operate well? How do you think policy is most important in your vision?
spk05: Thank you. Okay, I'm Li Jiang. Let me answer this question. I think the first one is that people are more interested in the competition between Huawei products and us. Our internal understanding is very consistent. When we face Huawei, we have a mindset. 80% is learning, 20% is respect, and 0% is complaining. This is a very unified mindset within us. As a startup company, when we are able to sell more than 1,000 billion in revenue, and encounter a model of technology that has made tens of millions in revenue, I think we are very fortunate and excited. So I think this is our real mentality. I think this is the first point. The second point is, if we want to do it internally, if we want to do it on a scale of millions, under such intense competition today, I think it's actually three levels. It's a competition of three dimensions and nine levels. I think the first one is at the consensus level of the enterprise, including our corporate culture, our user brand, and our corporate strategy. Yes, and the co-operability of these three levels must be very good. Yes, I think the second level is the business level of our consumer, including our products and research, our sales and services, and our supply and manufacturing. The co-operation of these three levels must be very good. Yes, the third point, which is also very important to us in the past, is the construction of our entire professional system, which includes our human resources and organization, IT and process, and the operation of our finance and companies. I think from these nine dimensions, if you want to achieve a scale of more than 1 million in a year, these nine points will form a short-term theory. You have to do everything well in every aspect to be able to take over a family and sell more than 1 million of such a high-speed competitive smart electricity enterprise every year. I think this is our basic understanding.
spk08: First of all, I think what many people are really asking is how do we look at the competition from Huawei? And this is actually a question we have brought consensus across the company. When we look at Huawei, 80% of what we're thinking is how do we learn from them? And 20% is really respect. And there's zero complaint, in fact. Because as we become a company that has We're still a startup company, and as we reach the 100 billion revenue milestone, we're actually very lucky and impressed to have a role model which has done businesses on the scale of 1 trillion RMB. So we're very excited to have Huawei along the way. And when we look internally in terms of how we want to weather the storm and stand out in intense competition, we look at really nine areas across three broad categories. The first category is really the consensus across the company, and that includes culture, brand, consumer brand, and strategy. And the second category is our business operations, which covers from R&D, sales and services, supply chain, and manufacturing. And lastly is back office functions, which includes HR and organizations, IT and processes, and finance and operations. And to become a company that can really handle 100 billion RMB of revenue, we really need to excel in all areas. There can't be any one shortcoming. And that will be the core foundation for any company that wants to reach the scale of 1 million unit sales annually.
spk07: Your next question comes from Jing Cheng with CICC. Please go ahead. Thank you for answering my question.
spk13: I have two questions. The first one is relatively short. Regarding the overall production of MEGA and its early profitability, Beijing Pure Electric Factory may start to invest in MEGA with the launch of MEGA. How long do we expect to have a relatively stable production? Especially with the higher price of MEGA, we believe that it will reach a relatively high profit and loss ratio. However, compared to the early stage of the investment, how do we look at the profit and loss ratio of MEGA? Will there be a delay in the profit and loss ratio of 1-2% next year? This is the first question. Then the second question is about the new car plan for 2024, especially the pure electric models, and the following models of the Mac. We also know that there are two platforms, such as Whaleshark, which may be more in line with this bigger model. Regarding their positioning of the product next year, including the timing and delivery time of the listing, there is no more information to share at the moment, mainly these two questions. So my first question is about a short-term question regarding the production ramp-up and probability of mega. As our Beijing BEV platform will be put into production along with the launch of mega, how long do we expect it to clamp to the steady capacity and what is the early stage probability level of mega? And will it be a dragging problem on our gross profit margin in the first and second quarter next year? And my second question is about our new product pipeline next year. Especially for the BV models, we know that there are two platforms, Will and Shock. And the former one corresponds to maybe larger and more expensive models. So do you have any more information about their product positioning and in order to launch to the market all the timing of the delivery.
spk03: I am Ma Dongfei. I will answer the first question about MAGA. MAGA is our first electric vehicle. It is also a new electric platform. And it is produced in our Beijing new factory, new production line. Indeed, the entire production process will be very challenging. But we also have This is a great opportunity. On the one hand, we have experience in this field, whether it is this L7 or L9 Then we are in these few models just in the process of listing words also experienced a very short time to complete this higher delivery level We have also accumulated a lot of experience through the review and then the second point is that we and our customer service partner together to sort out the NUDD的話零部件然后也制定了质量管控和产能爬坡的攻坚活动 In addition, in terms of personnel, we also conducted personnel recruitment and training in advance. In general, we are confident that we can ensure the smooth execution of MAGA's production. Ensure that the release date is listed, and the listing date is listed. Another point is that MAGA will be officially released in December. In the initial production process,
spk08: Speaking of challenge, MAGA will be our very first BEV vehicle and also the debut of our BEV platform, also in a new factory in Beijing as well as a new production line. So there's definitely challenges. But at the same time, we think there are many opportunities for us to overcome the challenges. First of all, we have plenty of experience in rapid production ramp-up. The LEED L8, L9, and L7, all these three vehicles have ramped up pretty rapidly and reached very high numbers within a short period of time. And as we look back at these experiences, we've accumulated a lot of great experience in rapid production ramp-up. At the same time, we've also worked with our suppliers to work through our NUDD parts, namely new, unique, different, and difficult. We have created very detailed quality control and production ramp-up plans. In terms of personnel, we will front load our recruiting and training to prepare for the start of production. Overall, we are pretty confident that the ramp-up of MEGA will be relatively successful it will be able to reach volume immediately after it comes to the market and after it will be able to be delivered immediately after the product launch and reach volume immediately after its first delivery. Mega will be officially launched in December, and at the beginning of production ramp-up, we would expect to be a slight impact on gross margin, but we believe that as production rate steadies, the growth margin will very rapidly recover to a very healthy level.
spk05: Let me answer the product plan for 2024. In 2024, we will release and deliver four products in total. It is the company's first-of-its-kind and the richest product of the year. In the first half of 2024, we will release the more young family SUV, the ideal R6. In the second half of the year, we will deliver three pure electric products.
spk08: Mr. Alicia, to answer the question on product lineup, next year we will be launching four completely new models, which creates a record since the company's beginning. In the first half, we'll be launching another large SUV product catered towards younger families called the L6. And in the second half, we'll have three BEV models. The rate and the method of launch will be very similar to the successful experience from our previous products.
spk07: As we are reaching the end of our conference call now, I'd like to turn the call back over to management for any additional or closing comments.
spk02: Thank you once again for joining us today. If you have any other questions, please feel free to contact Legato's IR team. Thank you. Have a good one. Bye-bye.
spk07: That does conclude our conference for today. Thank you for participating. You may now disconnect.
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