Li Auto Inc.

Hello, ladies and gentlemen. Thank you for standing by for Lee Auto's fourth quarter and full year 2023 earnings conference call. At this time, all participants are in listen-only mode. Today's call is being recorded. I will now turn the call over to your host, Kobi Wang, the head of capital markets of Lee Auto. Please go ahead, Kobi.

Thank you, operator. Good evening and good morning, everyone. Welcome to the Alto's first quarter and four-year 2023 earnings conference call. The company's financial and operating results were published in a press release earlier today and were 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 their remarks. Our President, Mr. Dong Hui Ma, and Senior VP, Mr. James Liang Jun Zhou, will join for the Q&A discussion. Before we continue, please be reminded that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Security Dedication Reform Act of 1995. Forward-looking statements inform Inherent risk and uncertainties are 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 filings with the USSEC and the Hong Kong Stock Exchange. The company does not assume any obligation to update any forward-looking statements as required under applicable law. Please also note that the auto's earnings price release and this conference call include discussion of an audit gap financial information, as well as an audit gap financial measures. Please refer to the auto's disclosure documents on our IR website which contains a recommendation of the unaudited non-GAAP measures to comparable GAAP measures. 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.

Hello, everyone. I'm Li Xiang. Welcome to today's phone call meeting. 2023 is the year of Li Xiang's speedy growth. We delivered 37.6 million new cars throughout the year. Our goal is to achieve the goal set by the beginning of 2023. We will become the first Chinese new power company to sell more than 300,000 new cars. In the fourth quarter, we delivered 13.2 million new cars, which is 184.6% of the total growth. In December, we also realized the important milestone of delivering 50,000 new cars a month. We created a Chinese luxury car brand. I want to take this opportunity to express my sincere gratitude to all family members, partners, and our team. Thank you for your trust, support, and hard work all the way. In terms of financial performance, the rapid growth of the business size, the steady execution of supply and supply and supply and supply and supply and supply and supply and supply and supply and supply and supply and supply and supply and supply and supply and supply and supply and supply and supply and supply For the first time in 2023, the ideal car will be the first year to turn back to profit and achieve healthy profit. The net profit of the whole year reached 118.1 billion RMB. By the end of 2023, we have reached 1036.7 billion RMB. In 2024, the growth of the business cycle will stabilize our healthy profit and loss, and continue to promote the deepening of product, platform, and system development. Long-term for the user to bring outstanding products and services. 2024 will be the year of the product of ideal cars. In March, we will bring home technology flagship mbv ideal mega. Publish and deliver. The ideal mega is based on high-pressure pure electricity structure development. Accomplish the ideal car in 5C charging. The latest technology results in the field of intelligent space and intelligent driving. In the same month. The 2024 ideal R7, ideal R8 and ideal R9 will open up a large-scale user exchange Welcome to pay attention to this Friday, which is March 1st Ideal Car 2024 Spring Announcement At that time, we will reveal more about the product details of the ideal MEGA and the 2024 R series In addition, this year we will also release a variety of new vehicles, including the ideal R6, to further expand our product range By the end of the year Our product line will include four high-voltage pure electricity, four high-pressure pure electricity, a total of eight models, and a product combination with extreme competitiveness to meet the diversified needs of family users in all areas. The release of the product is just the beginning of the growth of product power. Since the delivery of the ideal R series, we have completed more than 20 OTA upgrades, and have accumulated more than 700 functions and experiences. In December last year, we released the OTA 5.0 update to fully enhance the ideal L-series of car products. In terms of smart driving, with this upgrade, ADMAX 3.0 brings high-speed and city all-terrain smart driving NOA for all users, covering the city circuit of high-speed cities across the country and the city roads of more than 114 cities. In the second quarter of this year, we will realize the unmanned city NOA, which will be open to the whole country. It will further enhance the ability of city UAVs. The range of use is no longer limited to any city. And it will be upgraded through OTA to all ADMAX vehicles. So far, the smart driving UAV accumulation journey of ideal users has reached 5.6 billion kilometers. In the 10-day spring holiday period from February 8 to 17, more than 220,000 ideal users enjoy the smart driving UAV, which brings travel convenience. The UAV accumulation journey is more than 50 million kilometers. In terms of smart space, OT5.0 will actually connect to the multi-modal large-modal MIME GPT, which can be used in the whole car, to help ideal students. This will help ideal students to understand the ability of generation, knowledge memory, and reasoning. Since MIME GPT was launched, compared to the standard command-and-call way, users can send commands in a natural way, and get more text-to-text information and text-to-text services. In the 10-day holiday period of the Spring Festival, In terms of natural language dialogue, the proportion of all effective exchanges increased by 7.2% compared to before OTA 5.0. The whole number has doubled. In the next three years, we have also accelerated the expansion of the direct sales network. In the fourth quarter of 2023, we have increased the sales center by 106 stores at a speed of more than one store per day. We have established China's largest car direct sales network. sales and retail service system. As of January 31, 2024, Ideal Car has used 474 retail centers nationwide, covering 142 cities. In 2024, the sales and service network of Ideal Car will be further upgraded. By the end of the year, the target of the retail center will be increased to 800. At the same time, it will increase the layout of 1 and 2-line cities and deepen the coverage of 3 and 4-line cities. In terms of charging network, So far, ideal cars have opened more than 340 supercharging stations In the spring of the second half of the second half of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the first month of the to continue to provide high-quality and efficient energy-saving experiences for users. In 2024, we will speed up the supercharging network at the national highway and city layout speed. The target is to build more than 2,000 supercharging stations by the end of this year. In terms of production, the ideal car Beijing Green Zhidun Factory has been completed and produced by the end of 2023. For the delivery of the ideal MEGA in March and the production of the subsequent pure electric vehicles, In the first quarter of this year, we expect that the delivery volume of ideal cars will reach 100,000 to 100,003,000 in March and then break through 50,000. In 2024, we will continue to learn from excellent companies, continue to evolve, exceed expectations, create mobile homes, create happy homes.

Now translating for our CEO, Mr. Li Xiang. Welcome to today's earnings conference call. 2023 was a year of accelerated growth for Li Auto. We delivered a total of 376,000 vehicles for the entire year, exceeding our target set at the beginning of 2023, and also making us the first emerging new energy automaker in China to exceed the 300,000 annual deliveries mark. Our total deliveries for the fourth quarter reached 131,805 vehicles, an increase of 184.6% year over year. In December, we reached another significant milestone of 50,000 monthly deliveries, setting a new record for Chinese premium car brands. According to China Automotive Technology and Research Center's insurance registration data, In China's NEV market of RMB 200,000 and higher, Li Auto's market share increased from 10.9% in Q1 2023 to 16.0% in Q4, making us a leading Chinese automotive brand by market share. The growth will continue in 2024. I would like to take this opportunity to express our sincere gratitude to all of our family users, business partners, and our team for your unwavering trust, support, and tireless efforts. Moving on to our financial performance, our scale expansion, effective cost control, and increasing operating efficiency have continuously improved our financial performance. Q4 total revenues reached RMB 41.73 billion, and annual revenues surpassed the RMB 100 billion mark at RMB 123.85 billion. Additionally, we achieved full-year profitability for the first time in 2023. recording a healthy net income of RMB 11.81 billion. By the end of 2023, our cash position reached RMB 103.67 billion. In 2024, the virtuous cycle of our business growth will solidify our long-term profitability, cash generating capabilities, and capital base. This trajectory will further deepen our R&D efforts across products, platforms, and systems. ensuring consistent delivery of exceptional products and services to our users in the long run. 2024 will be an unprecedented year of new product launches for the auto, beginning in March with the launch of our high-tech flagship and family MPV, LiMEGA. Developed on a pure B2B platform, LiMEGA integrates the latest technological advancements in 5C B2B technologies, smart space, and autonomous driving. We also plan to begin mass delivery of 2024 model year LEED L7, L8, and L9 models starting in March. You're all welcome to tune in to our LEED Auto 2024 Spring Product Launch event this Friday, March 1st, where we'll be unveiling more exciting details about LEED Mega and our 2024 model year L series. Furthermore, we'll introduce several new models over the course of the year, including LEED L6 to broaden our product lineup even further. By the end of 2024, we will have eight models on the market, featuring four EREVs and four BEVs, forming a highly competitive product matrix and satisfying the diverse needs of our family users. New vehicle launches are only the starting points. Since the initial delivery of our L-Series, we have released over 20 over-the-air updates, operating over 700 features, Notably, the official release of our OTA 5.0 upgrades in December last year further enhanced product competitiveness of our vehicles. Moving to autonomous driving. With the latest release of ADMAX 3.0, full scenario NOA now covers all highways and city ring roads nationwide, as well as urban roads across over 110 cities. We anticipate to offer city NOA independent of HDMAX in all of China by the end of the second quarter this year. and it will be delivered to all ADMAX vehicles by NLA. As of today, our users have accumulated around 560 million kilometers on NLA. During the 10-day Chinese New Year holiday from February 8th to 17th, over 220,000 users enjoyed the convenience of NLA, covering close to 50 million kilometers on NLA. In terms of sparse space, LCA 5.0 integrated MyGPT into Li Xiang Tong Xue MindGPT is a full scenario multimodal large model with real-time connectivity. This development has significantly increased understanding, generating, memorizing, and reasoning capabilities. Since its release, there's a notable increase in user engagement in giving instructions and seeking text-based information and services through natural conversations. During the 10-day Chinese New Year holiday, The percentage of such natural conversations among all effective communications reached 7.2%, twice the level before OTA 5.0. Amidst our remarkable sales growth in 2023, we accelerated the expansion of our direct sales network. In Q4 2023, we opened 106 new retail stores, or over one store per day, creating the largest automobile direct sales network in China. As of January 31st, 2024, we have 474 retail stores across 142 cities nationwide. In 2024, we aim to further expand our direct sales and servicing network, targeting 800 retail stores by year end. While expanding our presence in first and second tier cities, we also plan to broaden our coverage in third and fourth tier cities. Turning it over to our supercharging network. To date, we have over 340 supercharging networks in operation, starting from the Chinese New Year holiday. Throughout the entire holiday, we provided family users with free access to Li Auto's supercharging services. We delivered 57,000 free charging sessions to Li Auto's users and over 120,000 sessions to all EV users, delivering over 2.81 million kilowatt hours of electricity. Facing the exceptionally high demand during the holiday season, our superchargers maintain an online rate of over 99.3%, providing uninterrupted access to high-quality and efficient charging experience to all users. In 2024, we will continue to accelerate our supercharging network expansion across highways and cities nationwide, targeting 2,000 supercharging stations by year-end. On the production front, Li Auto's Beijing Green Intelligent Manufacturing Race went into production toward the end of 2023, ready for volume production of Li Mega and subsequent BV models. With volume production delivery of Li Mega and 2024 model year L7, L8, and L9, we expect our total vehicle deliveries for Q1 2024 to range between 100,000 units to 103,000 units. with March delivery exceeding 50,000 units. In 2024, we'll continue to learn from the best enterprises, iterate ourselves, and surpass expectations as we create mobile homes and create happiness. With that, we will turn it over to our CFO, Johnny, for a closer look at our financial performance.

Thank you, Lixiang. Hello, everyone. I will now walk you through some of our 23 fourth quarter financials. Due to time constraints, I will address financial highlights here and encourage you to refer to our earnings press release for further details. Total revenues in the fourth quarter were RMB $41.73 billion, or $12.8 billion, $136.4 percent year-over-year, and 23 percent cost-over-quarter. This included RMB 40.38 billion, or 5.69 billion U.S. dollars from vehicle sales, up 133.8 percent year-over-year, and 20.1 percent cost-over-quarter. The year-over-year increase was mainly attributable to the increase in vehicle deliveries, partially offset by the lower average selling price due to different product mix between the two quarters. The quarter-over-quarter increase was mainly attributable to the increase in vehicle deliveries. Cost of sales in the fourth quarter was RMB 31.9 5 billion, or 4.5 billion US dollars, up 126.8% year-over-year, and 18.2% quarter-over-quarter. Gross profit in the fourth quarter was RMB 9.79 billion, or 1.38 billion US dollars, up 174.4% year-over-year, and 28% quarter-over-quarter. Vehicle margin in the fourth quarter was 22.7% compared with 20% in the same period last year and 21.2% in the prior quarter. Excluding the impact of inventory provision related to E1 in the fourth quarter of last year and the true-up adjustments of warranty reserve in the fourth quarter of 2023, based on updated estimates of cost of further claims. The vehicle margin remained relatively stable over the fourth quarter of 2022. The increase in vehicle margin over the third quarter of 2023 was mainly due to the aforementioned true-ask adjustments. of warranty reserve in the fourth quarter. Gross margin in the fourth quarter was 23.5%, compared with 20.2% in the same period of last year, and 22% in the third quarter. Operating expenses in the fourth quarter were RMB 6.75 billion, $950.8 million, up 82.4 percent year-over-year, and 27.2 percent quarter-over-quarter. R&D expenses in the fourth quarter were RMB 3.49 billion, or $491.7 million, up 68.6 percent year-over-year, and 23.9% quarter-over-quarter. Primarily driven by increased expense to support our expanding product portfolios and technologies, as well as increased employee compensation as a result of our growing number of staff. SG&A expenses in the fourth quarter will earn 3.27 billion 460.5 million US dollars, 100.6% year-over-year, and 28.5% 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 the expansion of our sales and servicing network. Income from operations in the fourth quarter was RMB 3.04 billion, or 427.7 million US dollars, compared with RMB 133.6 million loss from operations in the same period last year, and up 29.8% quarter-over-quarter. Operating margin in the fourth quarter was 7.3% compared with negative 0.8% in the same period last year and 6.7% in the third quarter. Attributable to the increase of income from operation and the recognition of non-cash tax benefit for the release of valuation allowance on certain deferred tax assets. Net income in the fourth quarter was RMB 5.75 billion, or $810.2 million, representing an increase of 2,068.2% year-over-year, and increasing by 100% 4.5% quarter-over-quarter. Diluted net earnings per ADS attributable to ordinary shareholders was RMB 5.32 or 0.75 US dollars in the fourth quarter, compared with RMB 0.25 in the same period last year. and RMB 2.67 in the prior quarter. And turning to our balance sheet and cash flow, our cash position remains strong and stood at RMB 103.67 billion or 14.6 billion US dollars as of December 31st. 2023. Net cash provided by operating activities in the fourth quarter was RMB 17.29 billion, or 2.44 billion US dollars, up 251.1% year-over-year, and 19.2% quarter-over-quarter. And the free cash flow was RMB 14.64 billion, or 2.06 billion U.S. dollars in the fourth quarter, up 349.4% year-over-year, and 10.7% quarter-over-quarter. As of December 31st, 2023, we had a total of 31,000 591 employees. For more information and details of our 2023 full-year financial results, please refer to our earnings press release. And now for our business outlook. For the first quarter of 2024, the company expects the delivery to be between 100,000 and 103,000 vehicles. representing an increase of 90.2% to 95.9% from the first quarter of 2022. The company also expects first quarter total revenues to be between RMB 31.25 billion and RMB 32.19 billion, or US dollar 4.4 billion and US dollar 4.8 billion. representing an increase of 66.3% to 71.3% from the first quarter of last year. This business outlook reflects the company's current and preliminary view on its business situation and market condition, which is subject to change. That concludes our prepared remarks. 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 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. For the benefit of all participants on today's call, please limit yourself to two questions. And if you have additional questions, you can re-enter the queue. If you are a Mandarin speaker, please ask your questions in Chinese first, then follow with the English translation. Your first question comes from Bin Wang with Deutsche Bank. Please go ahead.

China China China And congratulations for the great result. I actually got two questions. Number one is that you previously mentioned you want to deliver 100,000 units by the September in a certain month this year. And per unit for a single product actually can reach more than 30,000 units. A very tough pricing condition. Do you change your guidance? If no, when do you think the monthly volume can reach this 100,000 units? And do you think it provides a breakdown of this 100,000 units by model? A second question is that the company previously got at the level to be the first tier in the self-driving technology in China. Can you ask what's the difference or gap between the leading players in China, such as Huawei and Xpeng? And when do you think you can catch up and exceed them in position? Thank you.

Okay, I will take the first question. This is James from the auto, so SVP of the sales and service. So very good question, Mr. Huangbin. Our guidance remains unchanged, so we are still talking to, say, over 100,000 people. models by end of this year. So starting from 2024 March, we will commence delivering of the Mega and also 2024 year model L9, L8, and L7 models, making our entrance into a brand new product cycle. With the launch and delivery of more competitive new product, we anticipate our monthly deliveries to exceed 50,000 vehicles in March, which is next month, and 70,000 in June, so the first half year. So when we hit the 70,000 monthly deliveries milestone in June, the market will have a better understanding of all of our company's assumptions and dedication. We encourage you to watch our performance in the coming months. So I will hand over to Mr. Ma to answer your second question.

大家好,我是马东辉。 我来回答第二个问题。 大家知道我们在去年年底推送了OTL到华5.0的版本。 Currently, NOA in the whole scene has been launched in more than 110 cities across the country. Then, according to our data statistics after two months of promotion, the daily return rate used by NOA has increased by 50% compared to before. And NOA's smart driving journey has increased by 100 million kilometers. It helps users achieve more than 3 million times in each car. AED also helps users avoid accidents more than 30,000 times. These data and the recognition and feedback of the car owners and the media are useful to explain the value of our smart driving. In Q2 of this year, we will implement the unpainted version of the MAX model. The city NOA will be developed nationwide. The range of use is no longer limited by the number of cities, and it can be upgraded to all AD MAX vehicles. In terms of the Pro model, we will also use the BEV model. We release our OTA 5.0 around the end of 2023, and full-scale NLA is now available in over 110 cities around China.

And based on our statistics, two months after the release, the daily active usage for NLA has increased 50% compared to before the OTA. And we have accumulated over 100 million kilometers on NLA since the release. And NLA has helped our users with over 3 million parking maneuvers. AUB has avoided over 30,000 accidents for our users. All this data and all the positive feedback from users and media are great testaments to our product competitiveness. In the second quarter of 24, our ADMAX models will be delivering mapless capabilities city NOA in all cities in China and will not be constrained by number of cities and will be delivered to all cars equipped with ADMAX through OTA. In terms of AD Pro, cars equipped with AD Pro, we will also be deploying BEV big, large models to upgrade the highway NOA features, increasing the ramp experience and lane change experience. So we're very confident to say that 2024, in terms of our AD products and R&D capabilities, we're among the top in China.

Thank you.

Thank you.

Your next question comes from Tim Sao with Morgan Stanley. Please go ahead.

Thank you for accepting my question. Thank you for accepting my question. Thank you for accepting my question. Thank you for accepting my question. Thank you for accepting my question. Thank you for accepting my question. Thank you for accepting my question. So my first question is about the production and potential bottleneck. Because of the other first quarter volume guidance of 100 to 103,000 units implies a very significant ramp in March to 50K units or more. So considering several new models are coming to the market at about the same time, including mega L6, a facelift of a whole L series. Will there be any risk of supply bottleneck into March and April? What has the company done so far to ensure the smooth production run, deliveries while keeping the industry lean? So that's my first question.

I'm Ma Donghui. I'll answer this question. First of all, we have successful experience in the new product portfolio. We've done product and market analysis and discussion. After the launch of L9 and L7, we will realize the production and delivery of the complete自然月. And we will summarize these experiences and integrate them into our system. In the future, whether it is a new factory or a new worker, we can take advantage of and replicate these successful experiences. Regarding the new model, we have developed several new models that are all in line with the development plan. In terms of manufacturing, we have completed the factory's production planning in advance, and completed the construction of the factory and production line, as well as the recruitment and training of blue-collar workers. In terms of supply, we have also prepared the supply's production strategy and risk analysis in advance. The risk that has been detected has been designed. And in terms of planning, we have completed the supply needs of the end-to-end supply and supply needs in advance.

Now, 24年的確是我們新產品上市的大年。 我們有信心確保生產交付的穩定性和即時性。 First of all, we have a lot of great experience in new product launches and ramp-up to achieve volume shortly after a product launch. In the first calendar month after the launch of L7 and L9 respectively, we have been able to successfully produce and deliver over 10,000 units for each model. And we have collected all these best practices and lessons learned and put them into our system. So whether it's new factories or new employees, they're all able to very easily replicate these success in the past. In terms of new models, on the R&D front, all the new vehicle lines are being devolved on schedule. And in terms of production, we have already completed the construction of our factories ahead of time and recruited and trained the relevant blue-collar workers. On the supply front, we have already built the supply capabilities and completed the risk analysis and have created plans and strategies based on the risks identified. And on the planning front, using our new integrated planning system, we have connected supply and demand end-to-end and have locked down all the NASA's requirements from end to end. 2024 will be a big year in terms of new product launches, and we're very confident to maintain the consistency and timeliness of our supply.

Thank you for your answer, Mr. Dong. My second question is about the product deployment. After the launch of the L6 in April, the entire company will fully cover more than 50,000 products. The second question is about the product planning. After Li Auto's launch of L6 in April, The group's model portfolio would comprehensively cover a segment of 250K RMB, or around 35K U.S. dollar. So, well, Li Auto considered to take into the sub-35,000 U.S. dollar market anytime soon. That presents a more sizable market for an EV conversion. And separately, is there any tech constraint or disadvantage likely presenting Li Auto from building compact or low price model to compete with the local peers? So that's my second question.

I'm Li Jiang. I'll answer this question. Currently, the company's entire product plan, if we look at the next five years, there is no design under 200,000 yuan. Because of our own long-term judgment, if we look at 2030, if it's just a family business with more than 200,000 yuan, Then I think we only need to know one-third of the Chinese market to be able to be one and then a level of more than 10,000 billion If we can still have a good performance overseas, I think by 2030 and then a family care market of more than 200,000 We can achieve a close iPhone and then a global business income of mobile phones and then I think this is a huge gold mine Today we only know a very small part of this gold mine and then there is no need to share energy and then go If we look five years down the road, we have no plans to launch any vehicles below the 200,000 RMB price point. Because if we think about long term, up to 2030,

even if we only focus on the market over 200,000 RMB, just family users, if we were able to take one-third of that market in China, our total sales would already be more than 1 trillion RMB. And if you consider overseas by 2030, this market will create a business close to the revenue of all iPhones sold worldwide combined. So this is a huge gold mine that we think we've only mined a very, very small portion of. So there is no need to distract ourselves at this point, but rather we would like to focus exclusively on over 200,000 RMB family market globally. And our strategy is to continue to dive deep into this market, create a brand, and expand our market share.

Thanks for sharing all the great callers, and congratulations on the great result again. Thank you.

Your next question comes from Yingbo Zhu with SciTech Securities. Please go ahead. Thank you, Manager Chen.

I have two questions. The first question is actually about this year's price competition. We see that this year's whole car market competition is relatively intense. Many companies have launched new competitive products, and the products seem to have a certain gap. So my first question is about how we plan to use price methods this year. We want to look back at the pure electric vehicle design. We saw the success of the L-series 6789, and soon three months will come to MAGA. I have two questions. The first question is about the pricing and volume balance and how we see the profitability and volume increase by adjustment of pricing in different periods. And my second question is about the following EV models. How we plan after the mega model? Could you please give us more colors? Thank you.

This is Johnny. For the first question, I think for when we set up the full year field target, we have already considered about the competition and also the pace we launch our product. So when we consider that, we still, what we want to say as before, we will maintain a healthy cross-profit marketing over 20% always. And based on the market competition, the gross margin will fluctuate between 20% to 25% for different quarters. And just like last quarter, I think everyone was worried about the compensation in the fourth quarter. There will be some promotion. But for every quarter, there will be some other come out from the supply side and also from like the material price side. So, net-net, you can see from our first quarter, even we have some promotion in the fourth quarter, that we have more good news from the bond side. So, even though our cost margin increased, yeah. So, comparing with the third quarter. Let me talk about product planning.

In the first half of this year's product planning year, the company will release Dream Mega and Dream R9, R8, and R7 on March 1st. In the second quarter, we will also release Dream R6. In the second half of this year, we will release three other pure electric SUV models. Yes, and these three pure electric SUV models are all equipped with 5C charging and 1,4-cylinder drive. Then the product power is very strong. Yes, I emphasize the product power is very strong. Yes, we will continue to maintain our consistent product competitiveness and become the first choice for family users at the same price. 2024 will be the year of the product that the ideal car will do its best. Then at the end of the year, there will be four electric cars and four high-pressure pure electric cars.

For the first half of the year, we will be releasing in our March 1st spring event, Li Mega as well as 2024 model year Li L7, L8, and L9. And also in first half, we'll be releasing the L6. In the second half of the year, as we've communicated before, we will be releasing yet another three pure electric SUV models. All standard, come standard with 5C charging and all-wheel drive. And I would like to emphasize those cars are very, very competitive. And they will become the top choice for family users in their respective price segments. 2024 will be an unprecedented product year for Lee Auto. By the end of the year, we will have four range-extended models and four very competitive electric BEV models. Eight products are all very competitive. and they will together serve the needs of our family use.

Your next question comes from Tina Howe with Goldman Sachs.

Thank you for your time. Congratulations to the company for its outstanding performance.

I have two questions. The first is about the three pure electric vehicles of the second half of this year. I would like to know, if we look at the interest rate, due to the price of the battery, including our 5C, and also the previous period, the amount may be slightly smaller than our increase. In terms of the interest rate, how big of a gap will there be compared to the increase? This is the first question. The second question is, I would like to ask the company's Thanks management for taking my questions and congrats on the very strong result. So I have two questions. The first one is in terms of the BEV, three BEV models in the second half of the year. So considering the battery price as well as 5C charging capability and initially smaller volume versus your EREV models, what kind of like margin difference should we expect for the BEV models? And then the second question is in terms of the overseas expansion, what is the management's latest thought for overseas sales volume target over the next three to five years? Thank you.

Tina, this is Johnny. And for the gross margin, as we mentioned in the previous course, both for the BEV and the EREV series, the overall blended gross margin will be 25% for both series. So when we start from mega and then the 9 series, the gross margin will start from the higher to lower. And also we want still to emphasize the product gross margin are established when you define your product. Our product are designed to ensure a healthy gross margin and also balance the customer's demand for the car, for each car. And also from the material side, like the battery material, I think since the second half of last year, I think for us it's good timing to launch our BEV models starting from this year. Thank you.

James, I will take your second question. First of all, the overseas market is very important to Lyoto. We are aiming to start to explore the overseas market and we are accelerating it. Regarding our plan for overseas exports, we remain committed to our direct sales model in overseas markets, focusing on building a robust sales network and a comprehensive after-sales service offerings infrastructures. With Lyoto's growing popularity globally, we are accelerating the development of after-sales service network and the spare parts supply chains to ensure outstanding service experience for our international customers. And by the way, we have successfully set up operations in Middle East and initiated the recruitment of local sales and service teams in Dubai. And in the first half year this year, we plan to establish dedicated after-sales service network in Central Asia and Middle East. By the first quarter of this year, we will commence overseas delivery, starting with the introduction of L9 and L7 models in local regions, which, by the way, is also customized for the local environment and the policies, local policies. Thank you.

Your next question comes from Ming Sun Li. with Bank of America. Please go ahead.

So my first question is still related to gross margin trend in the first quarter and the second quarter. In the first quarter, because you are selling the 2023 version of L7, L8, and L9, so your gross margin is slightly lower than 4Q. But in the second quarter, since you have a four-quarter contribution from MEGA, so do you expect the gross margin to recover? and also how is the analytics to overall margin. Thank you.

This is Johnny.

I think all the factors you mentioned is clear for the gross margin. And the company will maintain a healthy gross margin of about 20% for the first quarter. And as we mentioned earlier, the company will also maintain a healthy gross margin, which means always about 20% throughout the full year. And for the mega 2024 model of L-series, it will be a positive factor for the gross margin. starting from March. And our stakes will be negative if we want to be over 20% gross margin. And with our volume growth, it will be a positive factor for the gross margin. And for every quarter, there are some positive and negative. Thank you.

My second question is about the charging stations. This year, we are going to build 2,000 supercharging stations. I would like to know about the capital spending of the entire company, or the capital spending related to charging stations. Mr. Li mentioned that the 50-day charging station will be a good investment project. The company expects Li Auto plans to expand the charging station to 2,000 by the end of this year. What do we expect in the total capex? Previously, Chairman mentioned the charging station could be a profitable investment project So, when do you expect your charging station can reach break-even or cash flow break-even? Thank you.

Okay. I will take this question, James. So, by the end of 2024, and company plans to build a total of 2,000 charging stations, as you just mentioned. By the end of this year, we will have built more than 700 highway supercharging stations, covering 70% of the highways in China, as well as 90% of the highways in the four major economic zones. With the successive launches of BUA models this year, we have also begun to simultaneously accelerate the expansion of charging stations in cities. We anticipate that by the end of this year, the number of charging stations in cities will exceed 1,300, so totally 2,000. The company's cash reserves are ample, and we have allocated sufficient capital for the construction of charging stations. has a detailed operating models for the evaluation of each charging station. And by the way, personally, I'm looking after each and every charging station investment. And each station has its own profitability and ROI target. From a long-term perspective, we are very confident in our charging station's profitability prospect. Thank you.

Your next question comes from Yuquan Ding with HSBC.

Thank you, Manager. I have two questions for you. First, I would like to know how you view the whole industry. Because we saw that the ideal performance is high, and there are other news about other companies that are closed. In the middle of the low demand and continuous price war, how do you interpret the strategic focus of ideal cars in 2024 and the rhythm of implementation? The second question is about the company opening a new city. When do you think it will be the iPhone moment of smart driving? And how do you see it? Although technology is developing rapidly, the smart driving products in the Chinese market may be more homogenized, and there is no obvious payment model at the moment. Two questions. The first, we noticed the industry is going through a painful consolidation, while Li Auto booked a record high earnings. Many are struggling. How to look at the inflection point of the industry consolidation against the weak car demand and a continuous pricing war, including Li Auto? What is Li Auto's strategy priority list this year? And second question is, Management do talked about OTA, NOA in more cities and scenarios. When would be the iPhone moment for the autonomous driving development from management perspective? And how to read, despite of the technology progress, the current autonomous driving market offering might be running homogenous and lack of revenue model in the near term?

I'm Lisa. I'll answer this question.

And then I think first of all, we will insist on our usual view, which is that the competition of smart electric vehicles will be the focus of the head. Yes, I can make a prediction. We see the fourth quarter of 2024, and then look at 200,000 or more new electric vehicles. Yes, I think there will be an unimaginable situation, that is, there will be three brands in the head, to the fourth quarter of this year, and then you can get... Then three brands can get nearly 70% of the market share. We can go to the fourth quarter of this year for verification. So this is our judgment on the entire market share and then the trend. So no matter how the market environment changes, we will be more focused and then do a good job. Then the real value of the user, thereby improving the competitiveness of the company in the market. So 2024 is the big year of our very important products. Then every product has to From every detail to the complete delivery, it must be done well. On the other hand, we will also greatly increase the investment in research and development, and continuously enhance the technical capabilities in smart driving, smart space, and smart electric vehicles, and turn these capabilities into value for users. In general, we will challenge the annual delivery of 800,000 units this year to achieve the first target of the Chinese market luxury car brand. For this purpose, all the teams in the company are ready.

So as we've always maintained before, we believe in the smart EV industry, there will be a very clear Matthew effect as we build up the cells and as we'll see in the very near future. Here I'll make a prediction. By Q4 this year, in the market of RMB 200,000, RMB and above, the top three brands will command around close to 70% of market share, or in other words, CR3 will reach close to 70%, and we can test this hypothesis by the end of this year. And in order to prevail in this competitive environment, we will continue to focus on user value creation, which will convert into our competitive advantage. So on the product front, we will continue to focus on making all the details perfect and delivering the full product experience to our users. And on the R&D front, We will invest in our autonomous driving, smart space, and high voltage and range extended EV platforms and convert all these investments into user value. With that, our goal continues to be selling 800,000 units this year in 2024 and becoming the top one premium brand in China. And the team is all lined up to be ready to achieve this goal this year.

I'm Ma Donghui. Let me answer the second question. About the smart driving iPhone Moment, I personally think it will come within the next two to three years. The iPhone has completely changed everyone's understanding of smart phones. Although the first generation is not very perfect, it contains all the elements of iPhone success, such as design interaction, software and commercial mode. Compared to smart driving, with L2, L3, the mass production of smart driving, the change in data accumulation, and the constant improvement of AI models, I believe that smart driving will also lead to change. It will lead to the arrival of the iPhone moment. Maybe in an instant, the vehicle that has been pre-set in the hardware, maybe hundreds of thousands of cars, or even millions of cars, will achieve smart driving. For the ideal car, we always insist on a standard of smart driving. Personally, I believe the iPhone 4 moment

for autonomous driving will come in two to three years. iPhone 4 completely changed people's perception of smartphones. The iPhone 4 itself may not be perfect, but it encompasses all of the important factors for its success, including industrial design, user interaction, hardware, software, and business model. And compare that to autonomous driving with L2 and L3, reaching scale and being delivered in volume and data continues to accumulate, as well as the deployment of AI large models, I believe that autonomous driving will reach a inflection point, reaching its ISO 4 moment. And maybe all of a sudden, overnight, all of the cars equipped with the hardware, maybe hundreds, thousands, or even over a million, will achieve autonomous driving. So for LEAD Auto, we continue to invest in making autonomous driving hardware standard for all of our vehicles. And we have no plans for subscription or extra charge at the moment. Making autonomous driving set standard will bring us as many users as possible, collect as much data as possible, and help us to increase and improve our algorithms and improve the experience for our users. And that creates a very positive cycle.

As we are reaching the end of our conference call now, I'd like to turn the call back over to Kobe Wang for any additional or closing comments.

Thank you once again for joining us today.

If you have any more questions, please feel free to contact the Autos IR team. That concludes this conference call. You may now disconnect your line. Thank you. Bye. Thank you. Thank you.

Hello, ladies and gentlemen. Thank you for standing by for Lee Auto's fourth quarter and full year 2023 earnings conference call. At this time, all participants are in listen-only mode. Today's call is being recorded. I will now turn the call over to your host, Kobi Wang, the head of capital markets of Lee Auto. Please go ahead, Kobi.

Thank you, operator. Good evening and good morning, everyone. Welcome to the auto's first quarter and four-year 2023 earnings conference call. The company's financial and operating results were published in a press release earlier today and were 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 Tia Li, begin with their remarks. Our President, Mr. Dong Hui Ma, and Senior VP, Mr. James Liang Jun Zhou, will join for the Q&A discussion. Before we continue, please be reminded that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Security Dedication Reform Act of 1995. Forward-looking statements inform Inherent risks and uncertainties are 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 filings with the USSEC and the Hong Kong Stock Exchange. The company does not assume any obligation to update any forward-looking statements as required under applicable law. Please also note that the auto earnings price release and this conference call include discussion of an audit gap financial information as well as an audit gap financial measures. Please refer to the auto's disclosure documents on our IR website. which contains a recommendation of the unaudited non-GAAP measures to comparable GAAP measures. 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.

Hello, everyone. I'm Li Xiang. Welcome to today's phone call meeting. 2023 is the year of Li Xiang's speedy growth. We delivered 37.6 million new cars all year round. We set a goal to complete it by the beginning of 2023 and become the first Chinese new power company to sell more than 300,000 cars. In the fourth quarter, we delivered 13.2 million new cars, which is 184.6% of the total growth. In December, we realized the important milestone of delivering 50,000 cars a month and created a luxury Chinese car brand. new history. According to the mid-term data, in the new energy car market of more than 200,000 yuan in China, the market share of cars has increased from 10.9% in the first quarter of 2023 to 16% in the fourth quarter, becoming the top Chinese car brand with the highest market share in the fourth quarter. In 2024, our market share is expected to continue to expand. I want to take this opportunity to express my sincere thanks to all family members, partners and our team, Thank you for your trust, support, and hard work all the way. In terms of financial performance, the rapid growth of the business size, the steady execution of supply and supply and supply and supply and supply and supply and supply and supply and supply and supply and supply and supply and supply and supply and supply and supply and supply and supply and supply and supply For the first time in 2023, Ideal Motor has made a comeback and achieved a healthy profit of 118.1 billion RMB. By the end of 2023, we have reached 1036.7 billion RMB. In 2024, the growth of the business cycle will stabilize our healthy profit and loss, and continue to promote the deepening of product, platform, and system research. Long-term for the user to bring outstanding products and services. 2024 will be the year of the product that ideal cars can't afford. In March, we will bring home technology flagship mpv ideal mega. Publish and deliver. Ideal mega is based on high-pressure pure electricity structure development. Accomplish ideal cars in 5C charging. The latest technology results in the field of intelligent space and intelligent driving. In the same month. 2020 R7, 2020 R8, and 2020 R9 will open up a large-scale user interface. Welcome to this Friday, which is March 1st, for the 2020 R7, R8, and R9 spring release. We will introduce more product details about the R7 Mega and 2020 R series. In addition, this year, we will also release a variety of new vehicles, including the R26, to further expand our product range. By the end of the year, Our product line will include four high-voltage pure electricity, four high-pressure pure electricity, and a total of eight models to form an extremely competitive product combination, which will meet the diversified needs of family users in all areas. The release of the product is just the beginning of the growth of productivity. Since the delivery of the ideal R series, we have completed more than 20 OTA upgrades, and have accumulated more than 700 functions and experiences. In December last year, we released the OTA 5.0 update to fully enhance the ideal L-series of car products. In terms of smart driving, with this upgrade, ADMAX 3.0 brings high-speed and city-wide full-scope smart driving NOA for all users, covering the city circuit of high-speed cities across the country and the city roads of more than 114 cities. In the second quarter of this year, we will realize the unmanned city NOA, which will be open to the whole country. to further enhance the ability of city OAs. The scope of use is no longer limited to any city, and will be upgraded to all ADMAX models through OTA. So far, the smart driving OAs of ideal users have reached 5.6 billion kilometers. In the 10-day spring holiday period from February 8 to 17, more than 220,000 ideal users enjoy the travel convenience of smart driving OAs, and the OAs have accumulated more than 50 million kilometers. In terms of smart marriage, OT5.0 will actually connect to the multi-modal large-modal MIME GPT, which can be used in the whole car, to help ideal students, to help ideal students in the ability to understand, generate knowledge, memory and reasoning. Since MIME GPT was launched, it has been significantly improved in the 10-day holiday period of the Spring Festival, In terms of natural language dialogue, the ratio of all effective exchanges increased by 7.2% compared to before OTA 5.0. The whole number has doubled. In 2023, we also accelerated the expansion of direct sales and retail networks. In the fourth quarter of 2023, we opened more than one store a day, and increased to 106 retail centers, and established China's largest car retail, sales and retail service system. As of January 31, 2024, Dream Cars has used 474 retail centers nationwide, covering 142 cities. In 2024, the sales and service network of Dream Cars will be further upgraded. At the end of the year, the target of the retail center will be increased to 800. At the same time, it will increase the layout of 1st and 2nd line cities and deepen the coverage of 3rd and 4th line cities. In terms of charging network, So far, ideal cars have opened more than 340 supercharging stations In the spring of the 8th to mid-August, we opened ideal supercharging stations for ideal car users for free and provided 570,000 free charging services to ideal car owners The total number of services in the society is more than 120,000, and the total amount of charging is 2.81 million. Under the ultra-high load of the holiday period, the charging device charging rate is maintained at 99.3% or more In order to continue to provide high-performance energy-saving experience to users In 2024, we will accelerate the deployment speed of supercharging networks in high speeds and cities across the country The target is to build more than 2,000 supercharging stations by the end of this year In terms of production, the ideal car Beijing Green Zhidun Factory has been completed and invested by the end of 2023 For the delivery of the ideal mega in March And the production of the subsequent pure electric vehicles have been fully prepared In the first quarter of this year, we expect that the delivery volume of ideal cars will reach 100,000 to 100,003,000 in March, and then break through 50,000. In 2024, we will continue to learn from excellent companies, continue to evolve, exceed expectations, create mobile homes, and create happy homes.

Now translating for our CEO, Mr. Li Xiang. Welcome to today's earnings conference call. 2023 was a year of accelerated growth for Li Auto. We delivered a total of 376,000 vehicles for the entire year, exceeding our target set at the beginning of 2023, and also making us the first emerging new energy automaker in China to exceed the 300,000 annual deliveries mark. Our total deliveries for the fourth quarter reached 131,805 vehicles, an increase of 184.6% year over year. In December, we reached another significant milestone of 50,000 monthly deliveries, setting a new record for Chinese premium car brands. According to China Automotive Technology and Research Center's insurance registration data, In China's NEV market of RMB 200,000 and higher, Li Auto's market share increased from 10.9% in Q1 2023 to 16.0% in Q4, making us a leading Chinese automotive brand by market share. The growth will continue in 2024. I would like to take this opportunity to express our sincere gratitude to all of our family users, business partners, and our team for your unwavering trust, support, and tireless efforts. Moving on to our financial performance, our scale expansion, effective cost control, and increasing operating efficiency have continuously improved our financial performance. Q4 total revenues reached RMB 41.73 billion, and annual revenues surpassed the RMB 100 billion mark at RMB 123.85 billion. Additionally, we achieved full-year profitability for the first time in 2023. recording a healthy net income of RMB 11.81 billion. By the end of 2023, our cash position reached RMB 103.67 billion. In 2024, the virtuous cycle of our business growth will solidify our long-term profitability, cash generating capabilities, and capital base. This trajectory will further deepen our R&D efforts across products, platforms, and systems. ensuring consistent delivery of exceptional products and services to our users in the long run. 2024 will be an unprecedented year of new product launches for DeepV Auto, beginning in March with the launch of our high-tech flagship and family MPV, LiMEGA. Developed on a pure B2B platform, LiMEGA integrates the latest technological advancements in 5C B2B technologies, smart space, and autonomous driving. We also plan to begin mass delivery of 2024 model year LEA L7, L8, and L9 models starting in March. You're all welcome to tune in to our LEAuto 2024 spring product launch event this Friday, March 1st, where we'll be unveiling more exciting details about LEA Mega and our 2024 model year L series. Furthermore, we'll introduce several new models over the course of the year, including LEA L6 to broaden our product lineup even further. By the end of 2024, we will have eight models on the market, featuring four EREVs and four BEVs, forming a highly competitive product matrix and satisfying the diverse needs of our family users. New vehicle launches are only the starting points. Since the initial delivery of our L-Series, we have released over 20 over-the-air updates, operating over 700 features, Notably, the official release of our OTA 5.0 upgrades in December last year further enhanced product competitiveness of our vehicles. Moving to autonomous driving. With the latest release of ADMAX 3.0, full scenario NOA now covers all highways and city ring roads nationwide, as well as urban roads across over 110 cities. We anticipate to offer city NOA independent of HDMAX in all of China by the end of the second quarter this year. and it will be delivered to all ADMAX vehicles by NLA. As of today, our users have accumulated around 560 million kilometers on NLA. During the 10-day Chinese New Year holiday, from February 8th to 17th, over 220,000 users enjoyed the convenience of NLA, covering close to 50 million kilometers on NLA. In terms of our space, LCA 5.0 integrated MyGPT into Li Xiang Tong Xue MindGPT is a full scenario multimodal large model with real-time connectivity. This development has significantly increased Li Xiang Tongxue's understanding, generating, memorizing, and reasoning capabilities. Since its release, there's a notable increase in user engagement in giving instructions and seeking text-based information and services through natural conversations. During the 10-day Chinese New Year holiday, The percentage of such natural conversations among all effective communications reached 7.2%, twice the level before OTA 5.0. Amidst our remarkable sales growth in 2023, we accelerated the expansion of our direct sales network. In Q4 2023, we opened 106 new retail stores, or over one store per day, creating the largest automobile direct sales network in China. As of January 31st, 2024, we had 474 retail stores across 142 cities nationwide. In 2024, we aim to further expand our direct sales and servicing network, targeting 800 retail stores by year-end. While expanding our presence in first- and second-tier cities, we also plan to broaden our coverage in third- and fourth-tier cities. Turning over to our supercharging networks. To date, we have over 340 supercharging networks in operation, starting from the Chinese New Year holiday. Throughout the entire holiday, we provided family users with free access to Li Auto's supercharging services. We delivered 57,000 free charging sessions to Li Auto's users and over 120,000 sessions to all EV users, delivering over 2.81 million kilowatt hours of electricity. Facing the exceptionally high demand during the holiday season, our superchargers maintain an online rate of over 99.3%, providing uninterrupted access to high-quality and efficient charging experience to all users. In 2024, we will continue to accelerate our supercharging network expansion across highways and cities nationwide, targeting 2,000 supercharging stations by year-end. On the production front, Lee Auto's Beijing Green Intelligent Manufacturing Base went into production toward the end of 2023, ready for volume production of LiMEGA and subsequent BEV models. With volume production delivery of LiMEGA and 2024 model year L7, L8, and L9, we expect our total vehicle deliveries for Q1 2024 to range between 100,000 units to 103,000 units. with March delivery exceeding 50,000 units. In 2024, we'll continue to learn from the best enterprises, iterate ourselves, and surpass expectations as we create mobile homes and create happiness. With that, we'll turn it over to our CFO, Johnny, for a closer look at our financial performance.

Thank you, Li Xiang. Hello, everyone. I will now walk you through some of our 2018 23 fourth quarter financials. Due to time constraints, I will address financial highlights here and encourage you to refer to our earnings press release for further details. Total revenues in the fourth quarter were RMB 41.73 billion, or 5.8 billion US dollars, 136.4 year-over-year and 23% cost-over-counter. This included RMB $40.38 billion or $5.69 billion from vehicle sales, up 133.8% year-over-year and 20.1% cost-over-counter. The year-over-year increase was mainly attributable to the increase in vehicle deliveries, partially offset by the lower average selling price due to different product mix between the two quarters. The quarter-over-quarter increase was mainly attributable to the increase in vehicle deliveries. Cost of sales in the fourth quarter was RMB 31.9 5 billion, or 4.5 billion U.S. dollars, up 126.8% year-over-year, and 18.2% quarter-over-quarter. Gross profit in the fourth quarter was RMB 9.79 billion, or 1.38 billion U.S. dollars, up 174.4% year-over-year, and 28% quarter-over-quarter. Vehicle margin in the fourth quarter was 22.7% compared with 20% in the same period last year and 21.2% in the prior quarter. Excluding the impact of inventory provision related to E1 in the fourth quarter of last year and the true-up adjustments of warranty reserve in the fourth quarter of 2023, based on updated estimates of cost of further claims, the vehicle margin remained relatively stable over the fourth quarter of 2022. The increase in vehicle margin over the third quarter of 2023 was mainly due to the aforementioned true-ask adjustments. of warranty reserve in the fourth quarter. Gross margin in the fourth quarter was 23.5%, compared with 20.2% in the same period of last year, and 22% in the third quarter. Operating expenses in the fourth quarter were RMB 6.75 billion, $950.8 million, up 82.4% year-over-year, and 27.2% quarter-over-quarter. R&D expenses in the fourth quarter were RMB 3.49 billion, or $491.7 million, up 68.6% year-over-year, and 23.9% quarter-over-quarter. Primarily driven by increased expense to support our expanding product portfolios and technologies, as well as increased employee compensation as a result of our growing number of staff. SG&A expenses in the fourth quarter will earn 460.5 million U.S. dollars, 100.6% year-over-year, and 28.5% 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 the expansion of our sales and servicing network. Income from operations in the fourth quarter was RMB 3.04 billion, or $427.7 million, compared with RMB 133.6 million lost from operations in the same period last year, and up 29.8% quarter-over-quarter. Operating margin in the fourth quarter was 7.3% compared with negative 0.8% in the same period last year and 6.7% in the third quarter. Attributable to the increase of income from operation and the recognition of non-cash tax benefit for the release of valuation allowance on certain deferred tax assets. Net income in the fourth quarter was RMB 5.75 billion, or $810.2 million, representing an increase of 2,068.2% year-over-year, and increasing by 100% 4.5 percent quarter-over-quarter. Diluted net earnings per ADS attributable to ordinary shareholders was RMB 5.32 or 0.75 U.S. dollars in the fourth quarter, compared with RMB 0.25 in the same period last year. and RMB 2.67 in the prior quarter. And turning to our balance sheet and cash flow, our cash position remains strong and stood at RMB 103.67 billion or 14.6 billion U.S. dollars as of December 31st. 2023. Net cash provided by operating activities in the fourth quarter was RMB 17.29 billion or 2.44 billion US dollars, up 251.1% year-over-year and 19.2% quarter-over-quarter. And the free cash flow was RMB 14.64 billion, or 2.06 billion U.S. dollars in the fourth quarter, up 349.4% year-over-year, and 10.7% quarter-over-quarter. As of December 31st, 2023, we had a total of 31,000 591 employees. For more information and details of our 2023 full-year financial results, please refer to our earnings price release. And now for our business outlook. For the first quarter of 2024, the company expects the delivery to be between 100,000 and 103,000 vehicles. representing an increase of 90.2% to 95.9% from the first quarter of 2022. The company also expects first quarter total revenues to be between RMB 31.25 billion and RMB 32.19 billion, or US dollar 4.4 billion and US dollar 4.8 billion. representing an increase of 66.3% to 71.3% from the first quarter of last year. This business outlook reflects the company's current and preliminary view on its business situation and market condition, which is subject to change. That concludes our prepared remarks. 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 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. For the benefit of all participants on today's call, please limit yourself to two questions. And if you have additional questions, you can re-enter the queue. If you are a Mandarin speaker, please ask your questions in Chinese first, then follow with the English translation. Your first question comes from Bin Wang with Deutsche Bank. Please go ahead.

China China China And congratulations for the great result. I actually got two questions. Number one is that you previously mentioned you want to deliver 100,000 units by the end of September in a certain month this year. And a unit for a single product actually can reach more than 30,000 units. A very tough pricing condition. Do you change your guidance? If no, when do you think the monthly volume can reach this 100,000 units? And do you think it provides a breakdown of this 100,000 units by model? A second question is that the company previous guidance may be the first tier in the self-driving technology in China. Can you ask what's the difference or gap between the leading players in China, such as Huawei and Xpeng? And when do you think you can catch up on the exceeding position? Thank you.

Okay, I will take the first question. This is James from the auto, so SVP of the sales and service. So, very good question, Mr. Wanbin. Our guidance remains unchanged, so we are still talking to, say, over 100,000 people. models by end of this year. So starting from 2024 March, we will commence delivering of the Mega and also 2024 year model L9, L8, and L7 models, making our entrance into a brand new product cycle. With the launch and delivery of more competitive new product, we anticipate our monthly deliveries to exceed 50,000 vehicles in March, which is next month, and 70,000 in June, so the first half year. So when we hit the 70,000 monthly deliveries milestone in June, the market will have a better understanding of all of our company's assumptions and dedication. We encourage you to watch our performance in the coming months. So I will hand over to Mr. Ma to answer your second question.

大家好,我是马东辉,我来回答第二个问题。 大家知道我们在去年年底推送了OTA的话5.0的版本, Currently, NOA in the entire scene has been launched in more than 110 cities across the country. Then, according to our data statistics after two months of promotion, the daily fire rate used by NOA has increased by 50% compared to before. And NOA's intelligent driving journey has increased by 100 million kilometers. It helps users achieve more than 3 million times in various vehicles. AED also helps users avoid accidents more than 30,000 times. These data and the recognition and feedback of the car owners and the media are useful to explain the value of our smart driving products. In Q2 this year, we will implement the unpainted version of the MAX model. The city NOA will be developed nationwide. The range of use is no longer limited by the number of cities, and it can be upgraded to all AD MAX vehicles. In terms of the Pro model, we will also use the BEV model, We released our OTA 5.0 around the end of 2023, and full-scale NLA is now available in over 110 cities around China.

And based on our statistics, two months after the release, the daily active usage for NLA has increased 50% compared to before the OTA. And we have accumulated over 100 million kilometers on NLA since the release. And NLA has helped our users with over 3 million parking maneuvers. AUV has avoided over 30,000 accidents for our users. All this data and all the positive feedback from users and media are great testaments to our product competitiveness. In the second quarter of 24, our ADMAX models will be delivering mapless capabilities city NOA in all cities in China and will not be constrained by number of cities and will be delivered to all cars equipped with ADMAX through OTA. In terms of AD Pro, cars equipped with AD Pro, we will also be deploying BEV big, large models to upgrade the highway NOA features, increasing the ramp experience and lane change experience. So we're very confident to say that 2024, in terms of our AD products and R&D capabilities, we're among the top in China.

Thank you.

Thank you.

Your next question comes from Tim Sao with Morgan Stanley. Please go ahead.

Thank you for accepting my question. Thank you for accepting my question. Thank you for accepting my question. Thank you for accepting my question. Thank you for accepting my question. Thank you for accepting my question. So my first question is about the production and potential bottleneck. Because of the other first quarter volume guidance of 100 to 103,000 units implies a very significant ramp in March to 50K units or more. So considering several new models are coming to the market at about the same time, including MEDA, L6, a facelift of the whole L series. Will there be any risk of the supply bottleneck into March and April? What has the company done so far to ensure the smooth production run, deliveries while keeping the industry lean? So that's my first question.

I'm Ma Donghui. I'll answer this question. First of all, we have successful experience in the new product path. We've done both market and sales. After the launch of L9 and L7, we will realize the production and delivery of the complete自然月. And we will summarize these experiences and integrate them into our system. In the future, whether it is a new factory or a new worker, we will be able to build and replicate these successful experiences. Regarding the new models, we have developed several new models that are all in line with the development plan. In terms of manufacturing, we have completed the factory's production plan in advance, and completed the construction of the factory and production line, as well as the recruitment and training of blue-collar workers. In terms of supply, we have also prepared the supply's production strategy and risk analysis in advance. The risks that have been identified have already been designed. And in terms of planning, we have opened the supply needs of the end-to-end supply, and have done the supply in advance.

Now, 24年的確是我們新產品上市的大年。 我們有信心確保生產交付的穩定性和即時性。 First of all, we have a lot of great experience in new product launches and ramp-up to achieve volume shortly after a product launch. In the first calendar month after the launch of L7 and L9 respectively, we have been able to successfully produce and deliver over 10,000 units for each model. And we have collected all these best practices and lessons learned and put them into our system. So whether it's new factories or new employees, they're all able to very easily replicate these success in the past. In terms of new models on the R&D front, all the new vehicle lines are being devolved on schedule. And in terms of production, we have already completed the construction of our factories ahead of time and recruited and trained the relevant blue-collar workers. On the supply front, we have already built the supply capabilities and completed the risk analysis and have created plans and strategies based on the risks identified. And on the planning front, using our new integrated planning system, we have connected supply demand end-to-end and have locked down all the NASA's requirements from end to end. 2024 will be a big year in terms of new product launches, and we're very confident to maintain the consistency and timeliness of our supply.

Thank you for your answer, Mr. Dong. My second question is about the product deployment. After the launch of the L6 in April, the entire company will complete a product deployment of over 50,000. The second question is about the product planning. After Liado's launch of L6 in April, The group's model portfolio would comprehensively cover a segment of 250K RMB or around 35K US dollar. So, well, Li Auto considered to take into the 35,000 US dollar market anytime soon. That presents a more sizable market for an EV conversion. And separately, is there any tech constraint or disadvantage likely preventing Li Auto from building compact or low-price ERUE SED or model to compete with the local peers? So that's my second question.

I'm Li Jiang. I'll answer this question. Currently, the company's entire product plan, if we look at the next five years, there is no design under 200,000 yuan. Because of our own long-term judgment, if we look at 2030, if it's just a market of over 200,000 yuan and family business, Then I think we only need to eat one-third of the Chinese market to be able to be a level of an income of more than 100 million yuan. If we can still have a good performance overseas, I think by 2030, then we can achieve a global business income of close to iPhone and mobile phones in a family user market of more than 200,000. I think this is a huge gold mine. Today, we only eat a small part of this gold mine, and then there is no need to share energy and then go. If we look five years down the road, we have no plans to launch any vehicles below the 200,000 RMB price point. Because if we think about long-term, up to 2030,

Even if we only focus on the market over 200,000 RMB, just family users, if we were able to take one-third of that market in China, our total sales would already be more than 1 trillion RMB. And if you consider overseas by 2030, this market will create a business close to the revenue of all iPhones. sold worldwide combined. So this is a huge gold mine that we think we've only mined a very, very small portion. So there is no need to distract ourselves at this point, but rather we would like to focus exclusively on over 200,000 RMB family market globally. And our strategy is to continue to dive deep into this market, create a brand, and expand our market share.

Thanks for sharing all the great colors, and congratulations on great results again. Thank you.

Your next question comes from Yingbo Xu with SciTech Securities. Please go ahead. Thank you, Manager Chen.

I have two questions. The first question is actually about this year's price competition. We see that this year's whole car market competition is relatively intense. Many companies have launched new competitive products, and the products seem to be in a certain range. So my first question is about how we plan to use price methods this year. The second question is that we want to take a look at the plan of pure electric vehicles from now on. We saw the success of the L series 6789, and soon three months will come to MAGA. I have two questions. The first question is about the pricing and volume balance and how we see the profitability and volume increase by adjustment of pricing in different periods. And my second question is about the following EV models. How we plan after the mega model? Could you please give us more colors? Thank you.

This is Johnny.

But for the first question, I think for when we set up the full year sales target, we have already considered about the competition and also the pace we launch our product. So when we consider that, we still, what we want to say as before, we will maintain a healthy cross-profit margin over 20% always. And based on the market competition, the gross margin will fluctuate between 20% to 25% in different quarters. And just like last quarter, I think everyone was worried about the compensation in the fourth quarter. There will be some promotion. But for every quarter, there will be some other come out from the supply side and also from like the material price side. So, net-net, you can see from our first quarter, even we have some promotion in the fourth quarter, that we have more good news from the bond side. So, even though our cost margin increased, yeah, some, comparing with the third quarter. OK. Two questions.

OK. Let me talk about product planning. Yes, our ideal. In the first half of this year's product planning, the company will release the ideal mega and the ideal R9, R8, and R7 in March 1st. In the second quarter, we will also release our ideal R6. In the second half of this year, we will release the other three pure electric SUV models. Yes, and these three types of pure electric SUVs are all standard 5C chargers, with four-wheel drive, and excellent product performance. Yes, I emphasize the excellent product performance. We will continue to maintain our consistent product performance, and become the first choice for family users at the same price. 2024 will be the year when ideal cars will have no potential. At the end of the year, there will be four electric cars and four high-pressure pure electric cars,

For the first half of the year, we will be releasing in our March 1st spring event, Li Mega as well as 2024 model year Li L7, L8, and L9. And also in first half, we'll be releasing the L6. In the second half of the year, as we've communicated before, we will be releasing yet another three pure electric SUV models. All standard, come standard with 5C charging and all-wheel drive. And I would like to emphasize those cars are very, very competitive. And they will become the top choice for family users in their respective price segments. 2024 will be an unprecedented product year for Lee Auto. By the end of the year, we will have four range-extended models and four very competitive BEV models. Eight products are all very competitive. and they will together serve the needs of our family use.

Your next question comes from Tina Ha with Goldman Sachs.

Thank you for your time. Congratulations to the company for its outstanding performance.

I have two questions. The first is about the three pure electric vehicles of the second half of this year. I would like to know, if we look at the interest rate, due to the price of the battery, including our 5C, and also the previous period, the amount may be slightly smaller than our increase. How big of a gap will there be in the interest rate compared to the increase? This is the first question. The second question is, I would like to ask the company's thanks management for taking my questions and congrats on the very strong result so i have two questions the first one is in terms of the bev uh three bev models in the second half of the year so considering the battery price as well as 5c charging capability and an initially smaller volume versus your EREV models. What kind of like margin difference should we expect for the BEV models? And then the second question is in terms of the overseas expansion, what is the management's latest thought for overseas sales volume target over the next three to five years? Thank you.

Tino, this is Johnny. And for the gross margin, as we mentioned in the previous course, both for the BEV and the EREV series, the overall blended gross margin will be 25% for both series. So when we start from mega and then the nine series, the gross margin will start from the higher to lower. And also we want still to emphasize the product gross margin established when you define your product. Our products are designed to ensure a healthy gross margin and also balance the customer's demand for the car, for each car. And also from the material side, like the battery material, I think since the second half of last year, I think for us it's a good timing to launch our BEV models starting from this year. Thank you.

Okay, Tina. James, I will take your second question. So first of all, the overseas market is very important to Lioto. And we are aiming to start to explore the overseas market, and we are accelerating it. So regarding our plan for overseas exports, we remain committed to our direct sales model in overseas markets, focusing on building a robust sales network and comprehensive after-sales service offerings infrastructures. With Liorto's growing popularity globally, we are accelerating the development of aft sales service network and spare parts supply chains to ensure outstanding service experience for our international customers. And by the way, we have successfully set up operations in the Middle East and initiated the recruitment of local sales and service teams in Dubai. And in the first half year this year, we plan to establish dedicated after-sales service network in Central Asia and Middle East. By the first quarter of this year, we will commence overseas delivery, starting with the introduction of L9 and L7 models in local regions, which, by the way, which is also customized for the local environment and the policies, local policies. Thank you.

Your next question comes from Ming Sun Li with Bank of America. Please go ahead.

Thank you for accepting my question. I have two questions here. The first question is related to the interest rate. I will ask a short question. I would like to know the trend of the interest rate in the first and second quarter compared to the trend in the fourth quarter. For example, the interest rate in the first quarter is a little less, and the discount is also a little more. Is the interest rate going to go down a little bit? In the second quarter, after the launch of the new L789 in 2024, So my first question is still related to gross margin trend in first quarter and second quarter. In first quarter, because you are selling the 2023 version of the L7, L8, and L9, so where your gross margin is slightly lower than 4Q. But in the second quarter, since you have a full quarter contribution from Mega, so do you expect the gross margin to recover? And also, how is the L6 to overall margin? Thank you. This is what you want to ask.

Hi, this is John.

I think all the factors you mentioned is clear for the gross margin. And the company will maintain a healthy gross margin of about 20% for the first quarter. And as we mentioned earlier, the company will also maintain a healthy gross margin, which means always about 20% throughout the full year. And for the mega and the 2024 model of L-series, it will be a positive factor for the gross margin starting from March. And the L-6 will be negative if we want to be over 20% gross margin. And with our volume growth, it will be a positive factor for the gross margin. For every quarter, there are some positive and negative, which is helpful for you.

Thank you. Li Auto plans to expand the charging station to 2,000 by the end of this year. What do we expect in the total capex? Previously, Chairman mentioned the charging station could be a profitable investment project. So when do you expect your charging station can reach break-even or cash flow break-even? Thank you.

Okay. I will take this question, James. So by the end of 2024, and company plans to build a total of 2,000 charging stations, as you just mentioned. By the end of this year, we will have built more than 700 highway supercharging stations covering 70% of the highways in China, as well as 90% of the highways in the four major economic zones. With the successive launches of BUA models this year, we have also begun to simultaneously accelerate the expansion of charging stations in cities. We anticipate that by the end of this year, the number of charging stations in cities will exceed 1,300, so totally 2,000. The company's cash reserves are ample, and we have allocated sufficient capital for the construction of charging stations. has a detailed operating models for the evaluation of each charging station. And by the way, personally, I'm looking after each and every charging station investment. And each station has its own profitability and ROI target. From a long-term perspective, we are very confident in our charging station's profitability prospect. Thank you.

Your next question comes from Yuquan Ding with HSBC.

Thank you, Manager. I have two questions for you. First, I would like to ask you how you view the whole industry. Because we saw that the ideal performance was high, and there was some news about other companies that were shut down. In the middle of the low demand and continuous price war, how do you interpret the strategic focus of ideal cars in 2024 and the rhythm of implementation? The second question is to ask the company to open a new city. When do you think it will be the iPhone moment of smart driving? And how do you see it? Although technology is rapidly developing, the product of smart driving in the Chinese market may be more homogenized, and there is no obvious cost model at the moment. Two questions. The first, we noticed the industry is going through a painful consolidation, while Li Auto booked a record high earnings. Many are struggling. How to look at the inflection point of the industry consolidation against the weak car demand and a continuous pricing war, including Li Auto? What is Li Auto's strategy priority list this year? And second question is, Our management do talk about OTA, NOA in more cities and scenarios. When would be the iPhone moment for the autonomous driving development from management perspective? And how to read, despite of the technology progress, the current autonomous driving market offering might be running homogenous and lack of revenue model in the near term?

I'm Li Xia. Let me answer this question.

First of all, we will insist on our usual view, which is that And smart electric vehicles will be the focus of the head. I can make a prediction. We see the fourth quarter of 2024. And then look at more than 200,000 new cars. I think there will be an unimaginable situation. There will be three head brands. By the fourth quarter of this year, three brands can get nearly 70% of the market share. We can verify it by the fourth quarter of this year. So this is our judgment on the entire market share and trend. So no matter how the market environment changes, we will be more focused on making the real user value better, and thus improving the competitiveness of the company in the market. So 2024 is the year of our very important products. And then every product must be made from every detail to the complete delivery. On the other hand, we will also greatly increase the investment in research and development, and continue to enhance the technical capabilities in smart driving, smart space, and smart electric vehicles, and transform these capabilities into value for users. In general, we will challenge the annual delivery of 800,000 units this year to achieve the first goal of China's luxury car brand. For this purpose, all the teams in the company are ready.

So as we've always maintained before, we believe in the smart EV industry, there will be a very clear Matthew effect as we build up the files and as we'll see in the very near future. Here I'll make a prediction. By Q4 this year, in the market of RMB 200,000, RMB and above, the top three brands will command around close to 70% of market share, or in other words, CR3 will reach close to 70%, and we can test this hypothesis by the end of this year. And in order to prevail in this competitive environment, we will continue to focus on user value creation, which will convert into our competitive advantage. So on the product front, we will continue to focus on making all the details perfect and delivering the full product experience to our users. And on the R&D front, we will invest in our autonomous driving, smart space, and high-voltage and range-extended EV platforms and convert all these investments into user value. With that, our goal continues to be selling 800,000 units this year in 2024 and becoming the top one premium brand in China. And the team is all lined up to be ready to achieve this goal this year.

I'm Ma Donghui. Let me answer the second question. Regarding the iPhone Moment, I personally think it will come in the next two to three years. The iPhone has completely changed everyone's understanding of smartphones. Although the first generation is not very perfect, it contains all the elements of iPhone success. such as design interaction, software and commercial mode. Compared to smart driving, with the mass production of L2 and L3 smart driving, the number of data accumulations and the constant improvement of AI models, I believe smart driving will also lead to change. It will lead to the arrival of the iPhone moment. Maybe in an instant, the car that has been pre-arranged on the hardware, maybe hundreds of thousands of cars, even millions of cars, will achieve smart driving. In terms of ideal equipment, we always insist on a standard for smart driving. For the time being, there is no subscription and additional spending plan. This standard will help us collect more data for our smart driving users, and promote our algorithmic ability to improve, and further improve the user experience of smart driving users to form a correct cycle.

Personally, I believe the iPhone 4 moment for autonomous driving will come in two to three years. iPhone 4 completely changed people's perception of smartphones. The iPhone 4 itself may not be perfect, but it encompasses all of the important factors for its success, including industrial design, user interaction, hardware, software, and business models. And compare that to autonomous driving with L2 and L3 reaching scale and being delivered in volume, and data continues to accumulate, as well as the deployment of AI large models. I believe that autonomous driving will reach a inflection point, reaching its iPhone 4 moment. And maybe all of a sudden, overnight, all of the cars equipped with the hardware maybe hundreds, thousands, or even over a million will achieve autonomous driving. So for LEAD Auto, we continue to invest in making autonomous driving hardware standard for all of our vehicles, and we have no plans for subscription or extra charge at the moment. Making autonomous driving standard will bring us as many users as possible, collect as much data as possible, and help us to increase and improve our and improve the experience for our users. And that creates a very positive cycle.

As we are reaching the end of our conference call now, I'd like to turn the call back over to Kobe Wang for any additional or closing comments.

Thank you once again for joining us today.

If you have any more questions, please feel free to contact the Autos IR team. To conclude this conference call, You may now disconnect your line. Thank you. Bye.