Li Auto Inc.

for Lee Otto's first quarter 2024 earnings conference call. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Janet Vang, Investor Relations Director of Lee Otto. Please go ahead, Janet.

Thank you, Kim. Good evening and good morning, everyone. Welcome to Lee Otto's first quarter 2024 earnings conference call. The company's financial and operating results were published in a press release earlier today, and they 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, to begin with prepare remarks. Our President, Mr. Donghui Ma, and our Senior Vice President, Mr. James, Liang Junzhou, will join for the Q&A discussion. Before I continue, please be reminded that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain company failings with the U.S. Securities and Exchange Commission and the Stock Exchange of Hong Kong Limited. The company does not assume any obligation to update any forward-looking statements except as required in the applicable law. Please also note that Li Auto's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial matters. Please refer to Liado's disclosure documents on the IR section of our website, which contain a reconciliation 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. First of all, let me review the performance of Li Xiang's car in the first quarter. In the first quarter, we delivered 80,400 new cars, with a 52.9% growth rate. At the same time, according to the mid-term business statistics, more than 200,000 new cars in China have a 24.8% growth rate. The growth rate of Li Xiang's car is higher than that of others. It is in the leading position among the high-end new car brands. With the increase in the delivery amount, the total income in the first quarter of 2024 reached RMB256 billion, which is 36.4% of the total increase. Despite the experience of the launch of the ideal mega, the replacement of the ideal R series products, and the adjustment of the price system, our net profit is still maintained at 20.6% in health. In the long term, the ideal car has nearly 100 billion RMB in cash reserves, and the health asset debt table will continue to support us to focus on the value of our users and firmly invest in R&D. Through product and service, we will continue to bring the user experience that exceeds expectations for family users. However, I must admit that since this year, we have faced many challenges in terms of internal management and external environment changes. The performance of the first quarter is different from what we expected in the beginning of the year. In the face of problems, we are actively adjusting. We are actively and quickly making adjustments, starting and landing organizational upgrades, and process optimization, improve internal business efficiency and decision-making quality, and strive to better focus on the creation and delivery of user value. In terms of product, on March 1st, we released the first high-pressure long-distance vehicle, which was created for large families, the family technology flagship MPV, the Ideal Mega. Based on the 800V high-pressure platform, the Ideal Mega with 705V battery is one of the most fast-charging mass-produced SUVs at present. During May 1st, The average charging time of the ideal mega user in the ideal super station is only 12.8 minutes, which greatly relieves the incapability of the charging user. On April 18th, the new ideal R6, a family of five luxury SUVs, was officially launched and met the needs of more young families of less than 300,000. The ideal R6 has excellent internal space and functional configuration. The CRTC range reached 1,390 kilometers. In terms of safety, The car safety of the ideal 26 is the highest standard in the industry, and it is standard for the all-seater AEB, which is constantly being designed to provide safety insurance for all families. With the official launch of the ideal bag and the ideal 26, and the exchange rate upgrade of the 2024 ideal R7, R8, and R9, the ideal car provides a product balance between 200,000 and 600,000 yuan for a large family. In the next four years, we will also change the competition pattern according to the market, quickly reduce the demand of users, and introduce a new price system. Our adjustment has also received the warm response from users. The supply and demand quickly increased. During the May 1st period, the increase in weekly orders reached a historical high. Among them, Li Xian 26 received 410,000 orders in the first half of April 18 to May 5 after the release. We are doing our best to make Li Xian 26 and ensure the speed of delivery. With the release of the model, the smart platform is also waiting. In mid-May, we launched the full delivery of the AD PRO 3.0, and upgraded the AD PRO to the B1V visual large model structure, and implemented the high-speed 1-way with a 1000-kilometer speed limit, the recognizable red light, and the city LCC at the intersection, and the smart train that can handle the complex parking space. On the ideal ADMAX 3.0 model, the road-free urban OLA is also starting a 1,000-person user guide in May. It is expected to be upgraded to all ADMAX models through OTAs in the third quarter of this year. In terms of charging network, on May 19, the ideal car has opened and scheduled 404 ideal superchargers with 1,770 superchargers. During the five-day period, the ideal supercharge station provides the ideal car all-wheel drive owners with more than 50,000 free charging services, and provides 90,000 charging services to young car owners across the country. We will continue to strengthen, increase, and accelerate the investment in the supercharge network. The goal is to open more than 10,000 superchargers at high speeds and cities across the country at the end of this year, and continue to enhance the experience of supercharging energy for ideal pure electricity users. In terms of sales network, Ideal Car has covered all of China's first-line, new-line and second-line cities, as well as 89% of the three-line cities. This year, we will continue to have the rhythm of going deeper into more cities to promote the continuous improvement of new energy car penetration rate. In addition, our service network is also constantly expanding to provide excellent services to ideal users. As of April 30, 2024, Ideal Car runs 481 retail centers in 144 cities across the country. Now translating for Mr. Leaf.

First, we'll begin with a review of Li Auto's first quarter performance. In the first quarter, we delivered over 80,400 vehicles, up 52.9% year-over-year. According to China Automotive Technology and Research Center, the NEV market priced over RMB 200,000 grew by 24.8% year-over-year during the first quarter. While our growth rate far exceeds that of the market, making us the leader among all premium NUE brands. Driven by the vehicle delivery growth, our total revenue for the first quarter reached RMB $25.6 billion, a year-on-year increase of 36.4%. Our gross margin for the first quarter remained healthy at 20.6% despite the launch of Li Mega, the changeover of the L Series, and the following price adjustments. In the long run, A robust balance sheet with cash reserves of nearly RMB 100 billion will continue to support us to focus on user value creation and firmly invest in R&D as we continue to offer products and services for families that exceed their expectations. Nevertheless, we have admittedly encountered multiple challenges since the start of the year from both internal operations and changes in the external environment. Our performance this quarter fell short of our expectations made at the beginning of this year. In response, we immediately took action and swiftly implemented adjustments across our business, including an organizational restructure and workflow optimization. We're confident that these initiatives will enhance our internal operating efficiency and improve the quality of our decision-making going forward, allowing us to focus more on creating and delivering user value. Turn it over to products. We released LiMEGA on March 1st, our first HPC Bev model and high-tech flagship MPV for large families. Built on our latest 800-volt battery electric platform and equipped with Chinen 5C battery, LiMEGA is one of the fastest-charging mass-produced passenger vehicles in production today. During China's Labor Day holiday, The average charging time for Li Mega users at our supercharging stations was only 12.8 minutes, significantly alleviating energy anxiety. On April 18th, we launched Li L6, a 5C premium family SUV that offers young families who are seeking family vehicles priced below RMB $300,000. LEAL-6 offers a spacious interior and superior configurations and can support a CLTC range of 1,390 kilometers. In terms of safety, LEAL-6 vehicle body is designed to meet the most stringent safety testing standards in the industry. Combined with its ever-improving full scenario AEB system that comes standard on the vehicle, LEAL-6 offers robust safety for families on the road. With the official launch of vMega and vL6, as well as the 2024 model year vL7, L8, and L9, we now offer a product portfolio that caters to a wide range of family users at price points ranging from RMB 200,000 to RMB 600,000. Facing challenges in the competitive market landscape in late April, we swiftly responded to evolving user needs with the introduction of a new pricing scheme that received very positive feedback and resulted in a substantial increase in store visits. During the Labor Day holiday, weekly order growth hit an all-time high. In particular, LEL6 received over 41,000 orders within its initial launch sales period from April 18th to May 5th. We're sparing no effort to ensure a robust supply and production ramp-up for LEL6 to drive a rapid increase in deliveries. Along with the release of our new models, we'll continue to make improvements in our autonomous driving platform. In mid-May, we began releasing the AD Pro 3.0 to all of our users with an upgrade to a large model-based BV architecture with improved functionality, including highway and NOA with driver takeover mileage of over 1,000 kilometers. City LCC capable of identifying traffic lights in real time to autonomously stop and go at intersections, and automated parking that can manage complex parking spaces. We launched public beta testing for B80Max 3.0 in May, where approximately 1,000 users tested our latest city NOA feature, which does not require high-definition maps and covers all roads nationwide. We plan to deploy the City NOA and all ADMAX vehicles through OTA in the third quarter of this year after we complete the initial nationwide testing. Looking at our charging network, we currently have 404 supercharging stations in operation with 1,770 charging stalls. During the May Day holiday, we provided over 54,000 complimentary charging sections and waived charging fees for users across our models. At the same time, we provided over 96,000 charging sessions to any of the users across the country, across different brands. We will continue to expand and accelerate investments in our supercharging network and aim to have over 10,000 charging stations, charging stalls in operation on highways and cities in China by the end of this year, continually improving the ultra-fast charging experience for all of our web users. With respect to our sales network, we have established a presence across all first tier, new first tier, and second tier cities, as well as 89% of third tier cities nationwide. This year will steadily expand our reach into additional cities to boost the penetration rate of any needs in China. Moreover, our service network is also expanding very rapidly, ensuring high quality services to our users. As of April 30th, of 2024, we have 481 retail stores covering 144 cities as well as 361 service centers and the auto off-ride body shops operating in 210 cities across the country. Looking ahead to the second quarter, we expect vehicle deliveries to be between 105,000 and 110,000 driven by robust market demand and our new products and recovery in orders. By fine-tuning the pace of our operations and upgrading our matrix organization, I'm confident that we will further enhance operating efficiency, increase user value, and pursue healthy growth. Next, I will turn it over to our CFO, Johnny.

Thank you, sir. Hello, everyone. I will now walk you through some of our 2024 first quarter financials. Due to time constraints, I will address financial highlights here and encourage you to refer to our earnings price release for further details. Total revenues in the first quarter will be RMB 25.6 billion or 3.6 billion US dollars. up 36.4% year-over-year, and down 38.6% quarter-over-quarter. This includes RMB 24.3 billion, or 3.4 billion US dollars from vehicle sales, up 32.3% year-over-year, and down 39.9% quarter-over-quarter. The year-over-year increase was mainly attributable to higher vehicle deliveries, partially offset by the lower average selling price due to the different product mix and pricing strategy change between the two quarters. The sequential decrease was mainly due to decreased vehicle deliveries, which were affected by seasonal factors related to Chinese New Year holidays. and lower than expected order intake in March. Cost of sales in the first quarter was RMB 20.3 billion, or 2.8 billion U.S. dollars, up 36.1 percent year-over-year, and down 36.3 percent quarter-over-quarter. Gross profit in the first quarter was RMB 5.3 billion, $731.9 million are 38 percent year-over-year and down 46 percent quarter-over-quarter. Vehicle marketing in the first quarter was 19.3 percent versus 19.8 percent in the same period last year and 22.7 percent in the prior quarter. the vehicle margin remained relatively stable year-over-year. The sequential decrease was mainly due to lower average selling price as a result of pricing strategy changes in the first quarter and adjustment of warranty reserve in the prior quarter based on updated estimates of cost of future claims. Gross margin in the first quarter was 20.6% versus 20.4% in the same period last year, and 23.5% in the prior quarter. Operating expenses in the first quarter were RMB 5.9 billion, or 812.9 million U.S. dollars, up 71.4%. percent year-over-year, and down 13.1 percent quarter-over-quarter. R&D expenses in the first quarter were R&D 3 billion, or $422.3 million, up 64.6 percent year-over-year, and down 12.7 percent quarter-over-quarter. The year-over-year increase was primarily due to increased employee compensation as a result of growth in number of staff, as well as increased expense to support the expanding product portfolios and technologies. The sequential decrease was mainly in line with timing and progress of new vehicle programs. SG&A expenses in the first quarter were RMB $3 billion, or $412.4 million, up 81% year-over-year and down 8.9% quarter-over-quarter. The year-over-year increase was primarily due to increased employee compensation as a result of the growth in number of staff as well as increased rental and other expenses associated with the expansion of sales and servicing networks. The sequential decrease was mainly due to lower vehicle deliveries. Loss from operations in the first quarter was RMB $584.9 million or $81 million. million U.S. dollars, versus income from operations of RMB 405.2 million in the same period last year, and RMB 3 billion in the prior quarter. Operating margin in the first quarter was negative 2.3 percent, versus positive 2.2 percent in the same period last year, and the positive 7.3 percent in the prior quarter. Net income in the first quarter was RMB 591.1 million, or $81.9 million, down 36.7 percent year-over-year, and 89.7 percent quarter-over-quarter. Diluted net earnings per ADS attributable to ordinary shares was RMB 0.56 or $0.08 in the first quarter versus RMB 0.89 in the same period last year and RMB 5.32 in the prior quarter. And turning to our balance sheet and cash flow, Our cash position remains strong and stood at RMB 98.9 billion or 13.7 billion US dollars as of March 31st, 2024. Net cash used in operating activities in the first quarter was RMB 3.3 billion or 462.2 billion. $9 million versus net cash provided by operating activities of RMB 7.8 billion in the same period last year and RMB 17.3 billion in the prior quarter. Pre-cash flow was negative RMB 5.1 billion or negative $700.1 million in the first quarter. versus positive RMB 6.7 billion in the same period last year, and the positive RMB 14.6 billion in the prior quarter. And now for our business outlook. For second quarter of 2024, the company expects the deliveries to be between 105,000 and 150,000. 10,000 vehicles representing a year-over-year increase of 21.3 to 27.1 percent. The company also expects second quarter total revenues to be between RMB 29.9 billion and RMB 31.4 billion or 4.1 billion U.S. dollars and $4.3 billion, representing a year-over-year increase of 4.2% to 9.4%. This business outlook reflects the company's current and preliminary view on its business situation and market conditions, which is subject to change. That concludes our prepared remarks. I will now send 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 an additional question, you can re-enter the queue. If you are a Mandarin speaker, please ask your questions in Chinese first, then follow with English translation. Your first question comes from Bin Wang with Deutsche Bank.

Thank you, leaders. I have two questions. The first one is about sales and the second one is about interest rates. In terms of sales, we see that the second half of the year is 10.5 to 110,000. So it seems that the second half of the year will exceed 360,000, which means that we will have 60,000 units per month. At present, we see that the amount of mega is not high, and that M9 may be relatively late. So that is to say, we may have to reach 60,000 units per month in the second half of the year. Please ask us how to achieve 60,000 units of real monthly sales. First question is about the volume. Basically, you got the second quarter will be 105,000 units to enable. 110,000 units, which means the second half you need to sell 360,000 units, which means monthly volume will be close to 60,000 units. Because mega volume is quite small and M9 will be late, so just the EIEV, the monthly the volume will go to the 60,000-unit level, which looks challenging. So if you have some pressure to achieve this number, would you further revise on the pricing to fight for volume, or actually you just want to compromise on the profit and give up the volume target? This is the first question. The second question is to ask about the interest rate. We predicted that the interest rate would be 20% all year round. If we still maintain this interest rate, I would like to ask about the factors that make us be able to see 20% interest rate in the second half of the year. Does that mean that the sales will be higher or will there be other positive factors? My second question is about gross margin. Previously, you got a three-year gross margin of 20%. If you want to maintain a 20% gross margin after a pricing cut, what's the key driver for the margin? Is it because the volume increased when the monthly volume go to 60,000 units or other driver for maintaining a 20% gross margin?

Thank you.

Okay. This is James.

I will take the first question. First of all, the L6 series has been widely recognized by users for its product strength and price point. During the initial sales period from 18th April to 5th May, the accumulated orders of L6 reached over 41,000 units, which was excellent sales performance the order intake of L6 series has maintained strong growth momentum post the initial sales period. Additionally, after we implemented the new pricing strategy for Lyoto L7, L8, and L9, their order flow has also shown ongoing improvements. In summary, our sales momentum has gradually improved And we are optimistic about the continued ramp up of the monthly sales going forward. And I will hand over to our sales firm for the second question.

Hello. My name is John. I think to us, the most important task after Q1's challenge mentioned, especially after March 1st. I think the most important task at the current stage is sales recovery. I think it's also everyone's primary concern and eye on the company. As we all know, the auto industry has a significant economy of scale.

sales can come back, I believe the gross margin pressure will be somehow reduced.

And also with the L6, additionally, outside the sales growth, product mix optimization will be another feature which can impact our cross-marketing. And as Lisa mentioned, we implemented a lot of several actions to control the organization's efficiency, which will help the marketing to come back. To remind you, I think we faced those challenges since March, so the second quarter will be the most difficult for the company in this year.

Thank you.

Your next question comes from Tin Sao with Morgan Stanley.

Hello, Mr. Guan. Thank you for your question. I have two questions. The first question, I still want to continue to follow up. Because Mr. Xiang just mentioned that this year's market pattern is malformed. We also see the acceleration of product sales and new products. So in addition to what we have seen so far in March and April, in addition to the adjustment of the release and price of the reformed model in 2024, as I just mentioned, in the second half of the year, So just want to follow up regarding the sales problem because As management just mentioned, the competition in China EV market has been getting worse here today. Although Li Auto just launched 2024 phase led in 2006 and also had the reasonable price adjustment, what would be the company's strategy to further boost the volume from here if sales stay suppressed? Would the company ever consider to upgrade the spec or further cut prices to provide the actual impetus to the sales volumes into second half, not just to L6, but also to the L789 and the battery EV, pure EV into second half. So that's my first question.

Jim, I was just going to answer. In terms of price strategy, the product price adjusted in April is very high. Consumers also recognize it. At present, the new orders of L789 are increasing every week. So the company has no plan to lower the price. On the other hand, as a healthy company, we believe that sales and profit margin are the two most important business indicators. I think that a car company that has been established for nine years has always been asking for this kind of demand.

First, in terms of pricing strategy, in fact, after the price adjustment in April, We've received consistent feedback that the current pricing is very competitive in the market, and it's also been very well received by our customers, as shown in continued order intake growth since April. So we don't have any further plans for price cuts. In terms of gross margin, we always believe that for a healthy company, sales and gross margin are the two most important operating metrics. And as a company, as a nine-year-old car company, the auto has continually held ourselves against these two important metrics.

Thank you, Mr. Xiang. My second question is about the possible cost. In addition to the discount, based on our new discount plan in 2024 and 2025, I would like to ask Mr. Guan, is the ideal car a reasonable one that includes the size of the staff, So my second question is about expenses. So based on Liado's updated sales target for 2024 and 2025, what would be the reasonable sizes of employees, sales networks, sales and marketing expenses, as well as R&D spending? And what would be the reasonable sizes of employees, sales networks, sales and marketing expenses, When will the benefitable cost savings be minimally reflected in the auto's financial? That's my second question. Thank you.

Hi, James. This is Johnny. I think given the new year's new sales growth target, the company has adjusted very quickly in the last less than two months to

to adjust resource allocation across various aspects to better align with this year's operating objectives. Just as Ethan just mentioned, we focus a lot on operating efficiency. I think you can read that in the last four years operation of the company.

We expect this adjustment will have some initial impact on results.

Most of them will impact the operating efficiency after the second quarter. Thank you.

So our next question comes from Tina Hao with Goldman Sachs.

Thank you for your time. I have two questions. The first question is a follow-up to Tim's question. This year, we said we would open 400 new stores. But now, after our new strategy came out, I would like to ask you about the goal of opening new stores. If you look at the shopping malls in the city center and the relatively... So my first question is in terms of the new store sales network expansion plan. So previously we had a target of 400 new stores this year. So just wondering now with our new strategy, what is the target number there? And also, among the stores, what's your split between the city-centered stores as well as, like, city, maybe suburban stores? And in terms of different city tiers, what is your consideration there? Thank you.

Hi, Gina. This is James. I would take your question. So, regarding our stores expansion plan, and we will... First of all, we will plan our sales and service networking at once according to sales demands while expanding our sales network in terms of quantity. We will also continuously optimize the quality of each retail store by offering more showroom vehicles and improving the store space. Considering we now have more and more different models. So this year, we have already opened 43 new retail stores with more than half of them having the capacity to display over nine showroom vehicles. In the meantime, we have closed some smaller ones. As of 19th May, the number of total retail stores reached 488, so this is the latest number. By city tiers, as you just asked, we have achieved 100 percent coverage of all first-tier cities, new first-tier cities and second-tier cities, and 89 percent coverage of third-tier cities. We also had 215 showrooms across the country to broaden our coverage of more cities, which helped us to penetrate to the Tier 3 and Tier 4 cities. Aligned with our new sales target, we are gradually changing our pace of market penetration in order to better suit the current business needs. As to the store types for our new stores, we have gradually increased the proportion of stores in automotive parks over the past year. In the long run, we will continue to increase the percentage of stores in automotive parks. parks as we expand our model portfolio and improve our brand awareness and influence. Thanks for your question.

Your next question comes from Yingdao Zhu with Scitex.

Thank you, Guan Licheng. I have two questions.

The first one is about the auto-driving and the urban environment. Currently, from the point of view of the entire car industry, each company's hardware has the same trend. The software and algorithmic effects also have the same trend. But Tesla's FSD overseas may make everyone look forward to it. So the first question is how to view the difference between the current automatic driving trend and the future trend. The second is actually for the product rhythm of pure electricity. We are currently looking at So I have two questions. The first one is about autonomous algorithm and the difference of this algorithm and how we see the future of this autonomous thing. The second question is about product. how we plan for the pure EV product later this year and next year. Thank you.

Hello, Yongbo. I'm Ma Donghui. Let me answer the first question. Regarding the fragility of autonomous driving technology, for example, in the city, there are actually several different solutions in the industry, heavy traffic, light traffic, and no traffic. Of course, no traffic is the most difficult It is not open to high-frequency maps, the range and the frequency of updates. As long as there is navigation, this function can work. The ideal car is Q3, which will be sent to all ADMAX users without a map. Without a map, in essence, it actually realizes the artificial intelligence of driving. Through data drive to train this model, to learn the behavior of human driving, it replaced the traditional programming rules. Tesla has also proposed the most extreme way to achieve this kind of data drive, such as the end-to-end large model. This kind of technical trend is easy for everyone to achieve. But in fact, in order to achieve it, it needs a lot of data and training. This is not what all car companies do with their ability and resources. So I think all companies should choose their own technical solutions based on their own situation.

First of all, on the question regarding CDNOA, there are three major paths in this area, completely dependent on HDMAX, partially independent, and simply independent of HDMAX. And obviously, the completely independent solution is the most difficult path because it doesn't rely on the coverage and update frequency of HDMAX as long as there's Navigation coverage CDNOA can work. So our plan is to release a completely independent HD map independent ADMAX solution to all users in Q3 this year for CDNOA. And fundamentally, fully independent solutions is real artificial intelligence in terms of Thomas driving. It uses data-driven models to use data to train models to mimic human behavior and in place for completely rule-based solutions. And Tesla's concept of end-to-end big model is a similar concept driven by data-driven model solution. It's very easy to reach consensus on this conceptual solution, but to implement it requires a lot of data and computing power. And this is not something that all car companies are capable of or have the resources of achieving. Therefore, we believe that different companies will select one of those three solutions based on their current situations and capability and resources. And these different choices will result in different products and user value creation.

Hello, I'm Li Xiang. I want to answer the question about the product structure. The company will not release the product structure this year. It will be released in the first half of next year. First, the current stage of sales, the current stage of sales, the mid-high-end product structure, A lot of self-propelled superchargers are a necessary condition. We believe that the number of self-propelled superchargers to reach the same number as Tesla China is the right time for the product to push to the market. Second, we need to upgrade and increase the comprehensive power and commercial power of more power stations. The number of power station power stations is very important for our current multi-car and multi-price sales. If we want to support a new type of car to get more than 10,000 sales, probably need to add 500 to 600 fixed positions nationwide. Otherwise, there will be a problem of increasing the number of products but not increasing the quantity. This is an issue encountered by R8 in the past few months, because the number of positions of R8 has decreased by 40%. However, we are currently recovering the number of positions of R8. So, a sufficient number of super-alloy vehicles and an additional sufficient number of surface positions are essential conditions for selling pure electric SUVs.

The second question on our later BEV products. First of all, we will not be releasing our BEV SUV later this year. The latest plan is to release it in the first half of next year, and for two reasons. The first reason is we believe in order to sell premium BEV SUVs, a necessary requirement is to have enough branded charging stations. And we believe the correct level is to get similar levels of Tesla in China. That would be the perfect timing for releasing our next pet product. And secondly, another constraint is the number of parking spots in stores, in-store parking spots, the display spots. And this is very critical for us to be able to sell multiple cars across multiple price points and to supply a consistent sales of over 10,000 units per model. And in order to achieve that, we need about an additional 500 to 600 display spots across the country. Otherwise, we will be only increasing the number of products rather than the number of sales volumes. And that was the exact issue that L8 ran into in the past few months because we decreased the display spot of L8 by 40%. But that is being recovered right now, and we are adding more display spots for the VL8. So to summarize, enough charting stations and enough incremental display spots are two critical and necessary conditions for selling our SUV product. And we believe we'll reach this point in the first half of next year.

Your next question comes from Paul Gong with UBS.

So two questions for me. The first one is, sooner or later, we're going to have the full product line within the BEV. Do you consider building a dedicated brand or channel for the BEV products? The second question is, given the huge cash reserve and the share price performance recently, will you consider share buyback at some point? Thank you.

Okay. This is James. I will take your first question regarding the BEV and our REV models. So we will stick to our direct sales model in the domestic market, and we will strive to showcase all of our products in our retail stores and stores. In the meantime, we have initiated an internal discussion on differentiated retail strategy, and we may launch some innovative pilot programs in the future. And we will share additional relevant details in due course. And I hand over to our CFO, Jeremy, for your second question.

I thought of all the shares. Currently, we don't have a site plan, and we will periodically make some assessments based on companies' financial position, capital market, and other more prioritized cash needs on board meetings.

Thank you. Your next question comes from Yuchan Ding with HSBC.

Thank you, Director. I have two questions. The first one I would like to ask is about our basic card family users. I got two questions. The first is to ask about the growth conviction, especially our total addressable market is mainly hinged on the family users. That's largely middle class relevant, but it seems to be melting down. So is the growth coming from the increasing TAM or the relative competition versus the other peers offering, but we're seeing above RMB 200K, above increasing model supply? And second question is whether the company will consider harvesting some low-hanging fruit in the overseas market with relevance to the domestic market, it seems the pricing and competition is more favorable and the global OEM are moving marginally towards hybrid. The range extender seems to be a good solution.

So our first question, our focus will remain on the market of any of the vehicles priced over RMB 200,000 for family users, and this will continue to be our focus in the midst of long run, because we firmly believe that there's still much to be done in the market in terms of product, and there are many areas where we can improve. to better serve our users and create value for them in the long term.

Okay, I will take your second question. Regarding the overseas market strategy, so as the auto vehicle models became increasingly popular overseas, we will accelerate the establishment of our after-sales servicing networks in order to provide the best service experience for our overseas users. We will build an after-sales service network in the international market where we already have an established user base. We plan to start our own after-sales service network in Central Asia and in the Middle East this year, which is ongoing. right now. We will select appropriate dealers for market expansion in overseas countries and regions outside Western Europe and North America. Given the adjustments of this year's sales target, we will focus our efforts in the domestic market this year. We will share more details in due course.

Your next question comes from Ming Soon-Li with Bank of America.

Your next question comes from Ming Soon-Li with Bank of America.

Your next question comes from Ming Soon-Li with Bank of America. Your next question comes from Ming Soon-Li with Bank of America. Your next question comes from Ming Soon-Li with Bank of America. Your next question comes from Ming Soon-Li with Bank of America. So, recently, media reported a company has certain reorganization. And in the future, what is your strategy for your reorganization? And what department or what area you will input more resource to develop? Thank you. This is my first question.

I'm Li Xiang. Hello, Ming. The core change of the organization adjustment in this wave is the establishment of a specialized team for quality operation, so that the business can focus on making high-quality decisions to improve the efficiency of execution and not have to spend a lot of time on repetitive operation work. I think this is the most fundamental change this time. So in this most recent organization restructuring, one most important change is that we've established a new department called Quality Operations. And the thinking behind this change is

to allow our business units to really focus on high-quality decision-making and operating efficiency instead of focusing on processes and operating these processes. And typically for an organization change, it takes about 12 to 24 months to see real results. So we think a good time to reevaluate would be sometimes in 2025 and 2026. Okay, thank you, Mr. Li.

My second question is still about NOA. 那今年可以看到公司在NOA的 在城市的開放程度速度更快 那請問目前管理層認為 對消費者而言 NOA的功能 特別是我們理想的消費者 價位在25萬以上 重要度如何 有越來越高嗎 Tesla FSD V12 在中國開放之後 對消費者的行為會有所改變嗎 未來一些尾部的車企 如果沒有NOA的功能 So this year, we can see Lyoto's development in NOA is speeding up. So right now, for your client base, how important do you think NOA is for your customer base? And after Tesla opens FSD version 12 in China, will this change consumers' behavior? And in the future, if some auto company, they don't have NOA functions on the car, are they able to sell car well? Thank you. This is my second question.

Hello, Ming. I'm Ma Gonghui. We firmly believe that NOA can make ideal users drive more safely and conveniently. And we can also see that in May, we started to promote the test version of NOA. And then, based on the use of the first batch of public car owners, we can see that the range of AIA is more than 65%. From the usage rate, we can see the user's recognition. Regarding the opening of Tesla FSD V12, we believe that the next stage of smart driving competition, smart driving will become the main factor that consumers consider. First of all, we firmly believe that NOA makes it easier and safer for our users to drive.

As we've seen in the latest release of our mapless NOA beta version in May, the feedback from the first group of users, they drive over 65% of their total mileage using CityNOA. And this penetration rate is a good testament to how widely accepted our latest version of NOA is among our users. And in terms of Tesla's FSD V12, we believe that in the next stage of competition for smart electric vehicles, autonomous driving will be a primary reason for our users as they consider buying a car. FSD V12, after it becomes available in China, will only make users focus even more on autonomous driving functionalities as well as experience, which will further enhance the importance of the creation of industry standards and the development of the technology in the industry. And again, in return, drive different car companies to invest even further in improving the performance of NLA features.

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

Thank you once again for joining us today. If you have any further questions, please feel free to contact Rialto's Investor Relations team. That's all for today. You may now disconnect your line. Thank you. you you Thank you. Thank you. Thank you. So, Thank you. Hello. Bye. Thank you.

Thank you. music music you

Hello, ladies and gentlemen. Thank you for standing by for Lee Otto's first quarter 2024 earnings conference call. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Janet Vang, Investor Relations Director of Lee Otto. Please go ahead, Janet.

Thank you, Kim. Good evening and good morning, everyone. Welcome to Lee Otto's first quarter 2024 earnings conference call. The company's financial and operating results were published in a press release earlier today, and they 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, to begin with prepare remarks. Our President, Mr. Donghui Ma, and our Senior Vice President, Mr. James Liang-Jun Zhou, will join for the Q&A discussion. Before I continue, please be reminded that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain company failings with the U.S. Securities and Exchange Commission and the Stock Exchange of Hong Kong Limited. The company does not assume any obligation to update any forward-looking statements except as required in the applicable law. Please also note that Li Auto's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial matters. Please refer to Liado's disclosure documents on the IR section of our website, which contain a reconciliation 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. First, let me review the performance of Li Xiang's car in the first quarter. In the first quarter, we delivered 80,400 new cars, with a 52.9% growth rate. At the same time, according to the mid-term business statistics, more than 200,000 new cars in China have a 24.8% growth rate. The growth rate of Li Xiang's car is higher than that of others. It is in the leading position among the high-end new car brands. With the growth of the delivery amount, the first quarter total income in 2024 reached RMB256 billion, which is 36.4% of the total growth. Despite the experience of the launch of the ideal mega, the replacement of the ideal R series products, and the adjustment of the price system, our net profit is still maintained at 20.6% in health. In the long term, the ideal car has a cash deposit of nearly 100 billion RMB, and the health asset debt table will continue to support us in focusing on the value of our users and firmly investing in R&D. Through our product and service, we have been able to bring the user experience beyond their expectations. However, I must admit that over the past year, we have faced many challenges in terms of internal operations and external environment changes. The performance of the first quarter is different from what we expected in the beginning of the year. In the face of problems, we are actively adjusting. We are actively and quickly adjusting. We are actively starting and organizing upgrades. and process optimization, improve internal management efficiency and decision-making quality, and strive to better focus on the creation and delivery of user value. As for the product, on March 1st, we released the first high-pressure full-electric vehicle, the family-made family technology flagship MPV, the ideal mega. Based on the 800V high-pressure platform, the ideal mega with Kirin 5C battery is currently one of the fastest mass-produced SUVs. During May 1st, The average charging time of the ideal mega user at the ideal control station is only 12.8 minutes, which greatly relieves the unbearable anxiety of the charging user. On April 18th, the new ideal R6, a family of five luxury SUVs, was officially launched and met the needs of more young families of less than 300,000. The ideal R6 has excellent internal space and functional configuration. The CRTC range has reached 1,350 kilometers. In terms of safety, The car safety of the Dream R6 follows the highest standards in the industry and is equipped with a constantly evolving all-wheel drive AEB to provide safety insurance for the whole family. With the official launch of the Dream Bag and the Dream R6, as well as the exchange rate upgrade of the 2024 Dream R7, R8, and R9, Dream Cars provides a product balance between 200,000 and 600,000 yuan for a large family. In the next four years, we will also change the competition pattern according to the market, quickly reduce the demand of users, and introduce a new price system. Our adjustment has also received the warm response from users. The supply and demand quickly increased. During the five-year period, the increase in weekly orders has created a new height in history. Among them, after the release of Dream26, from April 18th to May 5th, we received 410,000 orders in the first sale period. We are doing our best to make Dream26 to ensure the speed of delivery. With the release of the model, the smart platform is also waiting. In mid-May, we launched the full delivery of the AD PRO 3.0, and upgraded the AD PRO to the B1V visual large model structure, and implemented the high-speed NLA with a 1000-kilometer speed limit, the recognizable red and green lights, and the city LCC at the intersection, as well as the smart car that can handle complex car seats. On the ideal ADMAX 3.0 model, the road-free, city-wide OLA will also start thousands of users in May. It is expected to be upgraded to all ADMAX models through OTA in the third quarter of this year. In terms of charging network, as of May 19, the ideal car has opened 404 ideal supercharger stations with 1,770 superchargers. During May 1st, Ideal Supercharge Station provided more than 50,000 times of free charging service to all car owners. It provided 960,000 times of charging service to car owners from all over the country. We will continue to strengthen, increase, and accelerate the investment of supercharge network. The goal is to open more than 10,000 supercharge stations in high-speed cities and cities all over the country at the end of this year. We will continue to enhance the experience of supercharge energy for ideal pure electricity users. In terms of sales network, Ideal Car has covered all of China's first-line, new-line and second-line cities, as well as 89% of the three-line cities. This year, we will continue to have the rhythm of going deeper into more cities to promote the continuous improvement of the new energy car penetration rate. In addition, our service network is also constantly expanding to provide excellent services to ideal users. As of April 30, 2024, Ideal Car runs 481 retail centers in 144 cities across the country. Now translating for Mr. Elise.

First, we'll begin with a review of Li Auto's first quarter performance. In the first quarter, we delivered over 80,400 vehicles, up 52.9% year-over-year. According to China Automotive Technology and Research Center, the NUV market priced over RMB 200,000 grew by 24.8% year-over-year during the first quarter. While our growth rate far exceeds that of the market, making us the leader among all premium NUE brands. Driven by the vehicle delivery growth, our total revenue for the first quarter reached RMB $25.6 billion, a year-on-year increase of 36.4%. Our gross margin for the first quarter remained healthy at 20.6% despite the launch of Li Mega, the changeover of the L Series, and the following price adjustments. In the long run, A robust balance sheet with cash reserves of merely RMB 100 billion will continue to support us to focus on user value creation and firmly invest in R&D as we continue to offer products and services for families that exceed their expectations. Nevertheless, we have admittedly encountered multiple challenges since the start of the year from both internal operations and changes in the external environment. Our performance this quarter fell short of our expectations made at the beginning of this year. In response, we immediately took action and swiftly implemented adjustments across our business, including an organizational restructure and workflow optimization. We're confident that these initiatives will enhance our internal operating efficiency and improve the quality of our decision-making going forward, allowing us to focus more on creating and delivering user value. Turn it over to products. We released LiMEGA on March 1st, our first HPC Bev model and high-tech flagship MPV for large families. Built on our latest 800-volt battery electric platform and equipped with a Chinen 5C battery, LiMEGA is one of the fastest-charging mass-produced passenger vehicles in production today. During China's Labor Day holiday, The average charging time for Li Mega users at our supercharging stations was only 12.8 minutes, significantly alleviating energy anxiety. On April 18th, we launched Li L6, a 5C premium family SUV that offers young families who are seeking family vehicles priced below RMB $300,000. LEAL 6 offers a spacious interior and superior configurations and can support a CLTC range of 1,390 kilometers. In terms of safety, LEAL 6 vehicle body is designed to meet the most stringent safety testing standards in the industry. Combined with its ever-improving full scenario AEB system that comes standard on the vehicle, LEAL 6 offers robust safety for families on the road. With the official launch of vMega and vL6, as well as the 2024 model year vL7, L8, and L9, we now offer a product portfolio that caters to a wide range of family users at price points ranging from RMB 200,000 to RMB 600,000. Facing challenges in the competitive market landscape in late April, we swiftly responded to evolving user needs with the introduction of a new pricing scheme that received very positive feedback and resulted in a substantial increase in store visits. During the Labor Day holiday, weekly order growth hit an all-time high. In particular, the L6 received over 41,000 orders within its initial launch sales period, from April 18th to May 5th. We're sparing no effort to ensure a robust supply and production ramp-up for the L6 to drive a rapid increase in deliveries. Along with the release of our new models, we'll continue to make improvements in our autonomous driving platform. In mid-May, we began releasing the AD Pro 3.0 to all of our users with an upgrade to a large model-based BV architecture with improved functionality, including highway and NOA with driver takeover mileage of over 1,000 kilometers. City LCC capable of identifying traffic lights in real time to autonomously stop and go at intersections, and automated parking that can manage complex parking spaces. We launched public beta testing for B80Max 3.0 in May, where approximately 1,000 users tested our latest city NOA feature, which does not require high-definition maps and covers all roads nationwide. We plan to deploy the City NOA and all ADMAX vehicles through OTA in the third quarter of this year after we complete the initial nationwide testing. Looking at our charging network, we currently have 404 supercharging stations in operation with 1,770 charging stalls. During the May Day holiday, we provided over 54,000 complimentary charging sections and waived charging fees for users across our models. At the same time, we provided over 96,000 charging sessions to any of the users across the country, across different brands. We will continue to expand and accelerate investments in our supercharging network and aim to have over 10,000 charging stations, charging stalls in operation on highways and cities in China by the end of this year, continually improving the ultra-fast charging experience for all of our web users. With respect to our sales network, we have established a presence across all first tier, new first tier, and second tier cities, as well as 89% of third tier cities nationwide. This year will steadily expand our reach into additional cities to boost the penetration rate of any needs in China. Moreover, our service network is also expanding very rapidly, ensuring high quality services to our users. As of April 30th, of 2024, we have 481 retail stores covering 144 cities as well as 361 service centers and the auto off-ride body shops operating in 210 cities across the country. Looking ahead to the second quarter, we expect vehicle deliveries to be between 105,000 and 110,000 driven by robust market demand and our new products and recovery in orders. By fine-tuning the pace of our operations and upgrading our matrix organization, I'm confident that we will further enhance operating efficiency, increase user value, and pursue healthy growth. Next, I will turn it over to our CFO, Johnny.

Thank you, sir. Hello, everyone. I will now walk you through some of our 2024 first quarter financials. Due to time constraints, I will address financial highlights here and encourage you to refer to our earnings price release for further details. Total revenues in the first quarter will be RMB 25.6 billion or 3.6 billion US dollars. up 36.4% year-over-year, and down 38.6% quarter-over-quarter. This includes RMB 24.3 billion, or 3.4 billion US dollars from vehicle sales, up 32.3% year-over-year, and down 39.9% quarter-over-quarter. The year-over-year increase was mainly attributable to higher vehicle deliveries, partially offset by the lower average selling price due to the different product mix and pricing strategy change between the two quarters. The sequential decrease was mainly due to decreased vehicle deliveries, which were affected by seasonal factors related to Chinese New Year holidays. and lower than expected order intake in March. Cost of sales in the first quarter was RMB 20.3 billion, or 2.8 billion US dollars, up 36.1% year-over-year, and down 36.3% quarter-over-quarter. Gross profit in the first quarter was RMB 5.3 billion, $731.9 million are 38 percent year-over-year and down 46 percent quarter-over-quarter. Vehicle marketing in the first quarter was 19.3 percent versus 19.8 percent in the same period last year and 22.7 percent in the prior quarter. the vehicle margin remained relatively stable year-over-year. The sequential decrease was mainly due to lower average selling price as a result of pricing strategy changes in the first quarter and adjustment of warranty reserve in the prior quarter based on updated estimates of cost of future claims. Gross margin in the first quarter was 20.6% versus 20.4% in the same period last year and 23.5% in the prior quarter. Operating expenses in the first quarter were RMB 5.9 billion or $812.9 million at 71.4% percent year-over-year and down 13.1 percent quarter-over-quarter. R&D expenses in the first quarter were R&D 3 billion or 422.3 million U.S. dollars, up 64.6 percent year-over-year and down 12.7 percent quarter-over-quarter. The year-over-year increase was primarily due to increased employee compensation as a result of growth in number of staff, as well as increased expense to support expanding product portfolios and technologies. The sequential decrease was mainly in line with timing and progress of new vehicle programs. SG&A expenses in the first quarter were RMB $3 billion, or $412.4 million, up 81% year-over-year and down 8.9% quarter-over-quarter. The year-over-year increase was primarily due to increased employee compensation as a result of the growth in number of staff as well as increased rental and other expenses associated with the expansion of sales and servicing networks. The sequential decrease was mainly due to lower vehicle deliveries. Loss from operations in the first quarter was RMB $584.9 million or $81 million. versus income from operations of RMB $405.2 million in the same period last year and RMB $3 billion in the prior quarter. Operating margin in the first quarter was negative 2.3% versus positive 2.2% in the same period last year and positive 7.3%. in the prior quarter. Net income in the first quarter was RMB 591.1 million, or 81.9 million U.S. dollars, down 36.7 percent year-over-year, and 89.7 percent quarter-over-quarter. Diluted net earnings per ADS attributable to ordinary shares was RMB 0.56, or $0.08 in the first quarter, versus RMB 0.89 in the same period last year, and RMB 5.32 in the prior quarter. And turning to our balance sheet and cash flow, Our cash position remains strong and stood at RMB 98.9 billion or 13.7 billion US dollars as of March 31st, 2024. Net cash used in operating activities in the first quarter was RMB 3.3 billion or 462.2 billion. nine million U.S. dollars versus net cash provided by operating activities of RMB 7.8 billion in the same period last year and RMB 17.3 billion in the prior quarter. Pre-cash flow was negative RMB 5.1 billion or negative 700.1 million U.S. dollars in the first quarter. versus positive RMB 6.7 billion in the same period last year, and the positive RMB 14.6 billion in the prior quarter. And now for our business outlook. For the second quarter of 2024, the company expects the deliveries to be between 105,000 and 130,000. 10,000 vehicles presenting a year-over-year increase of 21.3 to 27.1 percent. The company also expects second quarter total revenues to be between RMB 29.9 billion and RMB 31.4 billion or 4.1 billion U.S. dollars and $4.3 billion, representing a year-over-year increase of 4.2% to 9.4%. This business outlook reflects the company's current and preliminary view on its business situation and market conditions, 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 an additional question, you can re-enter the queue. If you are a Mandarin speaker, please ask your questions in Chinese first, then follow with English translation. Your first question comes from Bin Wang with Deutsche Bank.

Thank you, leaders. There are two questions. The first one is about sales and the second one is about interest rates. In terms of sales, we see that the second half of the year is 10.5 to 110,000. So it seems that the second half of the year will exceed 360,000, which means that we will have 60,000 units per month. At present, we see that the amount of mega is not high, and M9 may be relatively late. So that is to say, we may have to reach 60,000 units per month in the second half of the year. Please ask us how to achieve 60,000 units of real monthly sales. First question is about the volume. Basically, you got the second quarter will be 105,000 units to enable. 110,000 units which means the second half you need to sell 360,000 units which means monthly volume will be close to 60,000 units because mega volume is quite small and M9 will be late so just the EIEV the monthly volume will go to the 60,000-unit level, which looks challenging. So if you have some pressure to achieve this number, would you further revise on the pricing to fight for volume, or actually you just want to compromise the profit and give up the volume target? This is the first question. The second question is to ask about the interest rate. We predicted that the interest rate would be 20% all year round. If we still maintain this interest rate, I would like to ask about the factors that make us be able to see 20% interest rate in the second half of the year. Does that mean that when the sales volume reaches 60,000 units, there will be a scale increase or are there other positive factors? My second question is about gross margin. Previously, you got a three-year gross margin of 20%. If you want to maintain a 20% gross margin after a pricing cut, what's the key driver for the margin? Is it because the volume increased when the monthly volume go to 60,000 units or other driver for maintaining a 20% gross margin?

Thank you.

Okay. This is James.

I will take the first question. First of all, the L6 series has been widely recognized by users for its product strength and price point. During the initial sales period from 18th April to 5th May, the accumulated orders of L6 reached over 41,000 units, which was excellent sales performance the order intake of L6 series has maintained strong growth momentum post the initial sales period. Additionally, after we implemented the new pricing strategy for Lyoto L7, L8, and L9, the order flow has also shown ongoing improvements. In summary, our sales momentum has gradually improved. And we are optimistic about the continued ramp up of the monthly sales going forward. And I will hand over to our sales firm for the second question.

Hello, Amit. This is John. I think to us, the most important task after Q1's challenge mentioned, especially after March 1st. I think the most important task at the current stage is sales recovery. I think it's also everyone's primary concern and eye on the company. As we all know, the auto industry has a significant economy of scale. sales can come back, I believe the gross margin pressure will be somehow reduced. And also with the L6, additionally, outside the sales growth, product mix optimization will be another feature which can impact our cross-marketing. And as Lisa mentioned, we implemented a lot of several actions to control the organization's efficiency, which will help the marketing to come back. To remind you, I think we faced those challenges since March, so the second quarter will be the most difficult for the company in this year.

Thank you.

Your next question comes from Tin Sao with Morgan Stanley.

Hello, Mr. Guan. Thank you for your question. I have two questions. The first question, I still want to continue to follow up. Because Mr. Xiang just mentioned that this year's market pattern competition is malformed. We also see that the price of oil products, product sales, and new products are accelerating. So in addition to what we currently see in March and April, the change in the price and price adjustment in 2024, as I just mentioned, in the second half of the year, So just want to follow up regarding the sales problem because As management just mentioned, the competition in China EV market has been getting worse here today. Although Li Auto just launched 2024 Phase 11, same as the L6, and also had the reasonable price adjustment, what would be the company's strategy to further boost the volume from here if sales stay suppressed? Would the company ever consider to upgrade the spec or further cut prices to, you know, to provide the actual impetus to the sales volumes into second half, not just to L6, but also to the L789 and the battery EV, pure EV into second half. So that's my first question.

Jim, I was just going to answer. In terms of price strategy, the product price adjusted in April is very high. Consumers also recognize it. Currently, the number of new orders for L789 is increasing every week. So the company currently has no plan to lower its price. On the other hand, as a healthy company, we believe that sales and profit margin are the two most important business indicators. In fact, the car industry, which has been established for nine years, has always been demanding this kind of demand.

First, in terms of pricing strategy, in fact, after the price adjustment in April, We've received consistent feedback that the current pricing is very competitive in the market, and it's also been very well received by our customers, as shown in continued order intake growth since April. So we don't have any further plans for price cuts. In terms of growth margin, we always believe that for a healthy company, sales and growth margin are the two most important operating metrics. And as a company, as a nine-year-old car company, the auto has continually held ourselves against these two important metrics.

Thank you, Mr. Xiang. My second question is about the possible cost. In addition to the discount, based on our new discount plan in 2024 and 2025, I would like to ask Mr. Guan, is there a reasonable size of the ideal car, including the size of the staff, So my second question is about expenses. So based on Liado's updated sales target for 2024 and 2025, what would be the reasonable sizes of employees, sales networks, sales and marketing expenses, as well as R&D spending? And what would be the reasonable sizes of employees, sales networks, sales and marketing expenses, When will the benefitable cost savings be minimally reflected in the auto's financial? That's my second question. Thank you.

Hi, James. This is Johnny. I think given the new year's new sales growth target, the company has adjusted very quickly in the last less than two months to

to adjust resource allocation across various aspects to better align with this year's operating objectives. Just as Ethan just mentioned, we focus a lot on operating efficiency. I think you can read that in the last four years operation of the company.

We expect this adjustment

will have some initial impact on results, but most of them will impact the operating efficiency after the second quarter. Thank you.

So our next question comes from Tina Hao with Goldman Sachs.

Thank you for your time. I have two questions. The first one is a follow-up to Tim's question. Before this year, we said we would open 400 new stores. But now, after our new strategy came out, we want to ask about the goal of opening new stores. If you look at the shopping malls in the city center, So my first question is in terms of the new store sales network expansion plan. So previously we had a target of 400 new stores this year. So just wondering now with our new strategy, What is the target number there? And also, among the stores, what's your split between the city center stores as well as, like, city, maybe suburban stores? And in terms of different city tiers, what is your consideration there? Thank you.

Hi, Dina. This is James. I would take your question. So regarding our store's expansion plan, first of all, we will plan our sales and service networking at once according to sales demands. While expanding our sales network in terms of quantity, we will also continuously optimize the quality of each retail store by offering more showroom vehicles and improving the store space considering we now have more and more different models. So this year we have already opened 43 new retail stores with more than half of them having the capacity to display over nine showroom vehicles. In the meantime, we have closed some smaller ones. 19th May, the number of total retail stores reached 488. So this is the latest number. And by city tiers, as you just asked, we have achieved 100% coverage of all first-tier cities, new first-tier cities, and second-tier cities. And 89% coverage of third tier cities. We also had 215 showrooms across the country to broaden our coverage of more cities, which helped us to penetrate to the tier three and tier four cities. Aligned with our new sales target, we are gradually changing our pace of market penetration. in order to better suit the current business needs. As to the store types for our new stores, we have gradually increased the proportion of stores in automotive parks. Over the past year, in the long run, we will continue to increase the percentage of stores in automotive parks as we expand our model portfolio and improve our brand awareness and influence. Thanks for your question.

Your next question comes from Yingdao Zhu with Scitex.

Thank you, Guan Licheng. I have two questions.

The first one is about the auto-driving and auto-engineering. Currently, from the point of view of the whole car industry, each company's hardware has the same trend. The software and algorithmic effects also have the same trend. But Tesla's FSD abroad may make everyone look forward to it. So the first question is how to view the difference between the current automatic driving trend and the future trend. The second is actually for the product rhythm of pure electricity. We are currently looking at So I have two questions. The first one is about autonomous algorithm and the difference of this algorithm and how we see the future of this autonomous thing. The second question is about product. how we plan for the PureEasy product later this year and next year. Thank you.

Hello, Yongbo. I'm Ma Dongfei. Let me answer the first question. About the interoperability of autonomous driving technology. For example, in the city, there are actually several different solutions in the industry, heavy traffic, light traffic, and no traffic. Of course, no traffic is the most difficult is not open to high-intensity maps, the range and the frequency of updates. As long as there is navigation, this function can work. The ideal car is the Q3, which will be launched to all ADMAX users, the UAV of the unmanned city. The unmanned car is essentially the implementation of the artificial intelligence of driving. Through data drive to train this model, to learn the behavior of human driving, it replaced the traditional programming rules. Tesla also proposed the most extreme way to achieve this kind of data drive, such as the end-to-end large model. This kind of technical trend is easy for everyone to achieve. But in fact, in order to achieve it, it needs a lot of data and training. This is not what all car companies do with their ability and resources. So I think all companies should choose their own technical solutions based on their own situation.

First of all, on the question regarding CDNOA, there are three major paths in this area, completely dependent on HDMAX, partially independent, and simply independent of HDMAX. And obviously, the completely independent solution is the most difficult path because it doesn't rely on the coverage and update frequency of HDMAX as long as there's Navigation coverage CDNOA can work. So our plan is to release a completely independent HD map independent ADMAX solution to all users in Q3 this year for CDNOA. And fundamentally, fully independent solutions is real artificial intelligence in terms of autonomous driving. It uses data-driven models, uses data-trained models to mimic human behavior and in place for completely rule-based solutions. And Tesla's concept of end-to-end big model is a similar concept driven by data-driven model solution. It's very easy to reach consensus on this conceptual solution, but to implement it requires a lot of data and computing power. And this is not something that all car companies are capable of or have the resources of achieving. Therefore, we believe that different companies will select one of those three solutions based on their current situations and capability and resources. And these different choices will result in different products and user value creation.

Hi, I'm Li Xiang. I want to answer the question about the product structure. This year, the company will not release the product structure of SBOA. It will be released in the first half of next year. First, the current-stage sales, the current-stage sales of SBOA, enough self-driving supermodels is a necessary condition. We believe that the number of self-driving supermodels to reach the same number as Tesla China is the right time for the product to push to the market. Second, we need to upgrade and increase the comprehensive power and commercial power of more power stations. The number of power station power stations is very important for our current multi-car and multi-price sales. If we want to support a new type of car to get overseas sales, probably need to add 500 to 600 fixed positions nationwide. Otherwise, there will be a problem of increasing the number of products but not increasing the number of sales. This is an issue that R8 has encountered in the past few months, because R8's number of positions has decreased by 40%. However, we are currently recovering the number of positions of R8. Therefore, a sufficient number of superchargers and an additional sufficient number of store positions are essential conditions for selling pure electric SUVs.

The second question on our later BEV products. First of all, we will not be releasing our BEV SUV later this year. The latest plan is to release it in the first half of next year, and for two reasons. The first reason is we believe in order to sell premium BEV SUVs, a necessary requirement is to have enough branded charging stations. we believe a correct level is to get similar levels of Tesla in China. That would be the perfect timing for releasing our next bad product. And secondly, another constraint is the number of parking spots in stores, in-store parking spots, display spots. And this is very critical for us to be able to sell multiple cars across multiple price points and to supply a consistent sales of over 10,000 units per model. And in order to achieve that, we need about an additional 500 to 600 display spots across the country. Otherwise, we will be only increasing the number of products rather than the number of sales volumes. And that was the exact issue that L8 ran into in the past few months because we decreased the display spot of L8 by 40%. But that is being recovered right now, and we are adding more display spots for the VL8. So to summarize, enough charting stations and enough incremental display spots are two critical and necessary conditions for selling our SUV product. And we believe we'll reach this point in the first half of next year.

Your next question comes from Paul Gong with UBS.

So two questions for me. The first one is, sooner or later, we're going to have the full product line within the BEV. Do you consider building a dedicated brand or channel for the BEV product? The second question is, given the huge cash reserve and the share price performance recently, will you consider share buyback at some point? Thank you.

Okay. This is James. I will take your first question regarding the BEV and our REV models. So, we will stick to our direct sales model in the domestic market, and we will strive to showcase all of our products in our retail stores and showrooms. In the meantime, we have initiated an internal discussion on differentiated retail strategy, and we may launch some innovative pilot programs in the future. And we will share additional relevant details in due course. I hand over to our CFO, Jeremy, for your second question.

For the share buybacks, currently we don't have a set plan. We will periodically make some assessments based on companies' financial position, capital market, and other more prioritized cash needs for our meeting.

Thank you. Your next question comes from Yuchan Ding with HSBC.

Thank you, Manager. I have two questions. The first one I would like to ask is about our basic card family users. Then we see that the background is that the financial effects of the middle class are relatively weak. Is there any update to our positioning of the family market? Then see that the supply of electric vehicles of more than 200,000 is also increasing. Then for us in the future, especially in the second half of the year, this growth space mainly comes from the expansion of the family user market. Relatively competitive, or what can the manager explain? Then the second question I want to ask, will you consider the expansion of the overseas market in advance? I got two questions. The first is to ask about the growth conviction, especially our total addressable market is mainly hinged on the family users. That's largely middle class relevant, but it seems to be melting down. So is the growth coming from the increasing TAM or the relative competition versus the other peers offering, but we're seeing above RMB 200K, above increasing model supply? And second question is whether the company will consider harvesting some low-hanging fruit in the overseas market with relevance to the domestic market, it seems the pricing and competition is more favorable, and the global OEMs are moving marginally towards hybrid. The range extender seems to be a good solution.

Let me answer this question first. I think that we think that more than 200,000 medium- and high-end family users are our firm market choice. And this medium-term period will not change. On the other hand, I think we are far from doing well.

So our first question, our focus will remain on the market of any of the vehicles priced over RMB 200,000 for family users, and this will continue to be our focus in the midst of long run, because we firmly believe that there's still much to be done in the market in terms of product, and there are many areas where we can improve. to better serve our users and create value for them in the long term.

Okay, I will take your second question. Regarding the overseas market strategy, so as the auto vehicle models became increasingly popular overseas, we will accelerate the establishment of our after-sales servicing networks in order to provide the best service experience for our overseas users. We will build an after sales service network in international market where we already have an established user base. We plan to start our own after sales network, after sales service network in Central Asia and in the Middle East this year, which is ongoing. We will select appropriate dealers for market expansion in overseas countries and regions outside Western Europe and North America. Given the adjustments of this year's sales target, we will focus our efforts in the domestic market this year. We will share more details in due course.

Your next question comes from Ming Soon-Li with Bank of America.

Your next question comes from Ming Soon-Li with Bank of America.

Your next question comes from Ming Soon-Li with Bank of America. Your next question comes from Ming Soon-Li with Bank of America. So, recently, media reported a company has certain reorganization. And in the future, what is your strategy for your reorganization? And what department or what area you will input more resource to develop? Thank you.

This is the first question. Hello, I'm Li Xiang. Hello, Ming. The core change of our organization adjustment this time is to set up a special team for quality operation, so that the business can focus on making high-quality decisions to improve the efficiency of execution. We don't need to spend a lot of time on repetitive operation work. I think this is the most fundamental change this time. So in this most recent organization restructuring, one most important change is that we've established a new department called Quality Operations. And the thinking behind this change is

to allow our business units to really focus on high-quality decision-making and operating efficiency instead of focusing on processes and operating these processes. And typically for an organization change, it takes about 12 to 24 months to see real results. So we think a good time to reevaluate would be sometimes in 2025 and 2026. Okay, thank you, Mr. Li.

My second question is still about NOA. 那今年可以看到公司在NOA的 在城市的開放程度速度更快 那請問目前管理層認為 對消費者而言 NOA的功能 特別是我們理想的消費者 價位在25萬以上 重要度如何 有越來越高嗎 Tesla FSD V12 在中國開放之後 對消費者的行為會有所改變嗎 未來一些尾部的車企 如果沒有NOA的功能 So this year, we can see Lyoto's development in NOA is speeding up. So right now, for your client base, how important do you think NOA for your customer base? And after if Tesla open FSD version 12 in China, will this change consumers' behavior? And in the future, if some auto company, they don't have NOA functions on the car, are they able to sell car well? 谢谢,这是我第二个问题。 明,你好,我是马公辉。 我们坚定的话认为NOA一定能够使理想用户驾驶更安全,然后更便捷。 我们也能看到就是5月我们开始推送的无图城市NOA的测试版本,

According to the usage of the first batch of public car owners, we can see that the range of NLA is more than 65% of the range that can be used. From the usage rate, we can see the recognition of the user. Regarding the opening of Tesla FSD V12, we believe that the next stage of intelligent driving competition, intelligent driving will become the main factor that consumers consider. First of all, we firmly believe that NOA makes it easier and safer for our users to drive.

As we've seen in the latest release of our mapless NOA beta version in May, the feedback from the first group of users, they drive over 65% of their total mileage using CityNOA. And this penetration rate is a good testament to how widely accepted our latest version of NOA is among our users. And in terms of Tesla's FSD V12, we believe that in the next stage of competition for smart electric vehicles, autonomous driving will be a primary reason for our users as they consider buying a car. FSD V12, after it becomes available in China, will only make users focus even more on autonomous driving functionalities as well as experience, which will further enhance the importance of the creation of industry standards and the development of the technology in the industry. And again, in return, drive different car companies to invest even further in improving the performance of NLA features.

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

Thank you once again for joining us today. If you have any further questions, please feel free to contact Rialto's Investor Relations team. That's all for today. You may now disconnect your line. Thank you.