Li Auto Inc.

Hello, ladies and gentlemen. Thank you for standing by for Lee Auto's third 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 Tseng, Investor Relations Director of Lee Auto. Please go ahead, Janet.

Thank you, operator. Good evening and good morning, everyone. Welcome to Lee Auto's third quarter 2024 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 prepared remarks. Our President, Mr. Donghui Ma, and Senior Vice President, Mr. James Jiang Jinsou, 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 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 Price Release and Discomfort Call include discussions of unaudited U.S. GAAP financial information as well as unaudited non-GAAP financial matters. Please refer to Li Auto's disclosure documents on the IR section of our website. which contain a reconciliation of the unaudited non-GAAP measures to comparable U.S. 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 press conference. In the third quarter, China's volume of new and new cars has reached 50.3%. The number of new and new cars in the quarter has surpassed that of gasoline cars for the first time. At the same time, the head effect of brand sales is becoming more and more obvious, especially in the new and new car market with a price range of more than 200,000 yuan. In the third quarter, the market share of the three major brands has exceeded 50%. Among them, the number of delivery of ideal cars in the third quarter has reached 15.2 million, which is a 45.4% increase. The market share rate has risen from 14.4% in the second quarter of this year to 17.3% in the third quarter. The high market share and market share rate have further increased the ideal car market share in China, which is more than 200,000 yuan. In addition, the ideal car market share in the whole car market, which is more than 200,000 yuan, is the first to exceed the traditional Chinese brand in many European countries. The market share rate is close to the top three. and become a brand leader in China. In the face of the increasing number of entry-level cars in China, the ideal R series sales are still strong. We continue to innovate. Through a monthly version of high-quality OTA updates, the functions of intelligent driving, intelligent seating, and car experience are constantly evolving. The average sales of the 3G series R series is up to 50,000 a month. It is worth mentioning that is due to the strong investment of research and development. Ideal Car's intelligent driving ability is quickly relayed and continues to break through, promoting ADMAX, the car's sales ratio is constantly increasing. This not only represents the user's recognition of Ideal Car's technical achievements, but also further improves our product structure. In the third quarter of 2024, the total income of Ideal Car reached RMB 429 billion, with an increase of 23.6%, creating a new record. . . . . . . . . . to become the first Chinese brand to reach 1 million delivery. 1 million delivery is a milestone and a new beginning. In the future, we will continue to upgrade our technology, maintain innovative advantages, and strive to create outstanding product and service. At the same time, we will insist on efficient production and delivery rhythm, strengthening our industry's leading position. In the fourth quarter of this year, we expect the delivery volume of ideal cars to reach 160,000 to 170,000. The total delivery volume in 2024 is about 520,000 to 512,000. In terms of smart value, since July, our full-time resource of the end to the end plus VRM's new generation of smart value program, with a speed of two to three official versions per week. In three months, the size of the model training data has increased from 1 million clips to 4 million clips. The level of control process, MPI, is about 2.5 times higher. Based on the powerful data model and the deep understanding of the traffic environment covered by the whole scene, this new dual-system frame solution can greatly improve the experience of user frame. On October 23rd, we launched OTA 6.4 delivery to MEGA and Ideal R series vehicles, continuously to more than 320,000 ADMAX users. and fully deliver the new frame solution. Since July, there has been no wrongful delivery nationwide, and in just three months, ABMAX technology has been updated again. In addition, OTA 6.4 has also brought a more dynamic ideal class for all car owners, such as the task master 2.0 under the language model, the charging experience upgrade, and the new functions and experience optimization of the smart space and smart electricity. We have established a core advantage for smart driving technology. Until October 30th, the ideal car smart driving training course has reached 2.6 billion kilometers. The ideal car user NOA general course has reached 13.9 billion kilometers. There are more than 60 million times of smart driving functions. The ideal car takes the initiative to gather users, to prevent the current large-scale accident 3.45 million times, including 516 extreme malignant accidents. In the third quarter, we continue to upgrade sales and service networks. By the end of September, Dream Cars will operate 479 retail centers in 145 cities across the country, and 436 post-sales maintenance centers and authorization version centers in 221 cities. Among them, there are 165 of them located in the city of Tougu and in the center of Youzhi. The unit capacity of its single chain is 9 to 11 units, which leads to more than 3,000 total units. At the same time, it also prepares for our new pure electric SUV while supporting the increase in sales of existing models. In terms of charging network construction, so far, the ideal car has been open to operation, with 1,000 ideal supercharging stations. It is equipped with 4,888 superchargers and covers 175 cities in 31 provinces across the country. Among them, the ideal high-speed supercharger station has reached 582. It ranks first in the high-speed supercharger network construction scale industry. In addition, we continue to expand our cooperation with high-quality industry partners. On October 12, we officially reached a strategic cooperation with China. Both sides will build a supercharger station and platform Internet interaction and other aspects. We have built a high-end super-large platform. Currently, we have built more than 1,200 high-power, high-stability third-party high-end charging stations. In the field of pure electricity, we will maintain a strategic structure. The efficiency and reliability of pure electric vehicles has always been one of the core concerns of consumers. We will continue to speed up the charging network layout. To actively explore new technologies, the goal is to build a charging network including high-speed and city-wide industries next year. To prepare for our new charging SUV models, and to continue to provide more users with convenient and reliable energy-saving time. Finally, I would like to share with you the results we have obtained in ESG. In September this year, with the management of wages, product quality safety, Hello everyone, this is Lee Seung and thank you for joining today's earnings conference call.

In the third quarter, China's NUV penetration rate has reached 50.3%, marking the first time NUV overtook ICE vehicles in terms of new vehicle registration. The market share of leading brands continue to expand, especially in the RMB 200,000 and over NUV market, where the top three brands combined account for over 50% market share in Q3. Li Auto delivered over 152,000 vehicles in Q3, of 45.4% year-over-year and driving our segment market share to 17.3% in Q3 compared to 14.4% in Q2. Our historically high quarterly deliveries and market shares solidified our market leadership in the segment. In addition, our sales in China's overall RMB 200,000 and above PV market surpassed multiple established European premium brands for the very first time, making us the top three brands among all brands and number one across all Chinese brands in this segment. With a multitude of players entering the EREV market, Li-L series sustained its strong sales performance, partly attributable to our ongoing innovation and high-quality monthly OTA updates, encompassing improvements in autonomous driving, smart cockpit, and electric drive. In Q3, The average monthly sales of the L-Series exceeded 50,000 units. It is worth noting that ABMAX take rate continues to grow, owing to our investments in R&D that have led to rapid iterations and breakthroughs in our vehicle's autonomous driving capabilities. The deployment not only reflects user recognition of our technologies, but also improves our overall product mix. In the third quarter, We continued to upgrade our sales and service network. As of the end of September, we had 479 retail stores located in 145 cities, as well as 436 service centers and the auto authorized body and paint shops operating in 221 cities in China. Among these, 165 sales centers are located in major auto parts and premium commercial properties. with nine to 11 display spots per store, driving our total display spots to over 3,000. This supports the sales growth of our existing models while also prepares us for the launch of BEV SUVs. On the supercharging network as of now, we have 1,000 supercharging stations with 4,888 charging stalls operating in 175 cities across 31 provinces nationwide. Notably, our network includes 582 Li Auto supercharging stations along highways, the largest network of its kind in China. In addition, we continue to strengthen our collaboration with premium partners in the industry. On October 12th, we officially formed strategic cooperation with Sinopec on charging station construction and platform interconnectivity. As of now, our Li selection supercharging network includes 1,200 high-power, highly stable third-party charging stations. We remain on track in terms of our BEV strategy. Charging efficiency and reliability remain top concerns for BEV customers. We will continue to accelerate the deployment of our charging network while actively exploring new technologies, aiming to establish an industry-leading charging network covering both highways and urban areas by next year. The initiative will prepare us for the launch of our BEV electric SUVs and ensure that we continue to provide convenient and reliable charging experience for a growing number of users. Moving on to autonomous driving. Since its release in July, our proprietary full-stack end-to-end and vision language model autonomous driving solution has been iterating at a rate of two to three versions per week. In just three months, The amount of training data per model went from 1 million video clips to 4 million, while the average mileage per intervention increased nearly 2.5 times. Our new System 1, System 2 autonomous driving solution significantly enhanced user experience with its robust model and deep comprehension of the traffic environment. On October 23rd, we began rolling out OTA 6.4 for VMEGA and BL series. The update includes our new autonomous driving solution, which is now fully deployed on over 320,000 ADMAX vehicles, only three months after we rolled out our nationwide map list in LA in July. The LTA 6.4 update also features a more lively , Taskmaster 2.0 powered by large language models, and improved charging experience, among many other improvements. Our industry-leading amount of real-world training data is a key competitive advantage and powers rapid innovations in autonomous driving. As of October 30th, our total real-world training mileage has reached 2.6 billion kilometers, with NOA mileage hitting 1.39 billion kilometers, and automated parking has been activated 60 million times. Additionally, our active safety features have prevented 3.45 million potential accidents including 516 severe accidents. In Q3 2024, our total revenues reached a record high of RMB 42.9 billion, up 23.6% year-over-year. Our growth margin expanded to 21.5%, and non-GAAP income from operations hit an all-time high of RMB 4.4 billion, and operating cash flow reached RMB 11 billion. The solid financial performance is driven by our improving product mix, economies of scale, and operating efficiency. In October, we reached an important milestone of 1 million cumulative vehicle deliveries in just 58 months, the first among emerging new energy vehicle automotive brands in China. The milestone marked a new beginning. Looking forward, we will continue to innovate through R&D and develop outstanding products and services. while maintaining our production and delivery efficiency as an industry leader. In Q4 of this year, we expect vehicle deliveries to be between 160,000 to 170,000 units, with full-year deliveries falling between 502,000 and 512,000 units. Last but not least, I would like to share the highlights in our ESG performance. In September, We received MSCI's highest AAA BSG rating for the second consecutive year, a testament to our outstanding performance in corporate governance, product quality and safety, and clean energy technology. We will continue to explore cutting-edge low-carbon technologies and implement green operational management practices, proactively fulfilling our social responsibilities. I will now turn it over to our CFO, Johnny, to walk you through our financial performance.

Thank you, Xia. Hello, everyone. I will now walk you through some of our 2024 third 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 third quarter were RMB 42.9 billion, or 6.1 billion U.S. dollars, up 23.6% year-over-year, and 35.3% quarter-over-quarter. This included RMB 41.3 billion or 5.9 billion U.S. dollars from vehicle sales, up 22.9% year-over-year, and 36.3% quarter-over-quarter. The year-over-year and sequential increase was primarily attributable to the increase in vehicle delivery, partially offset by the lower average selling price, mainly due to the different product mix. Cost of sale in the third quarter was RMB 33.6 billion, or 4.8 billion U.S. dollars. 24.5% year-over-year, and 32% quarter-over-quarter. Gross profit in the third quarter was RMB 9.2 billion, or 1.3 billion US dollars, up 20.7% year-over-year, and 49.3% quarter-over-quarter. Vehicle margin in the third quarter was Relatively stable compared with 21.2% in the same period last year, and improved from 18.7% in the last quarter. The sequential increase was mainly due to the cost reduction, partially offset by the lower average selling price mainly due to the different product mix. Gross margin in the third quarter was 21.5% versus 22% in the same period last year and 19.5% in the prior quarter. Operating expenses in the third quarter were RMB 5.8 billion or 825.4 million US dollars, up 9.2% year-over-year. and 1.5% quarter-over-quarter. RMB expenses in the third quarter were RMB 2.6 billion or $368.6 million, down 8.2% year-over-year and 14.6% quarter-over-quarter. The year-over-year and the sequential decrease was primarily due to the decreased design and development cost for new products and technologies, and decreased employee compensation. FD&A expenses in third quarter were RMB 3.4 billion, or $478.7 million, up 32.1% year-over-year, 19.3% quarter-over-quarter. The year-over-year and the sequential increase was primarily due to the increased employee compensation associated with the recognition of share-based compensation expenses regarding the CEO's performance-based awards in the third quarter of this year. as the achievement of the related performance condition was deemed probable. Income from operations in the third quarter was RMB 3.4 billion, or 489.2 million U.S. dollars, up 46.7% year-over-year, and 633.4% cultural records. Our patient margin in the third quarter was 8%, improved from 6.7 in the same period last year, and 1.2% in the prior quarter. Next income in the third quarter was RMB 2.8 billion, or $401.9 million, up 0.3% year-over-year, and 156%. Diluted net earnings per ADS attributable to ordinary shareholders was RMB 2.66 or 0.38 US dollars in the third quarter, versus RMB 2.67 in the same period last year, and RMB 1.05 in the prior quarter. and now turning to our balance sheets and cash flow. Our cash position remains strong and stood at RMB 106.5 billion or 15.2 billion US dollars as of September 30th, 2024. Net cash provided by operating activities in the third quarter was RMB 11 billion or 1.6 billion U.S. dollars, versus net cash provided by operating activities of RMB 14.5 billion in the same period last year, and net cash used in operating activities of RMB 429.4 billion in the prior quarter. Free cash flow was RMB 9.1 billion or 1.3 billion U.S. dollars in the third quarter, versus RMB 13.2 billion in the same period last year, and negative RMB 1.9 billion in the prior quarter. And now for our business outlook. For the fourth quarter of 2024, the company expects the deliveries to be between 160,000 and 170,000 vehicles, representing a year-over-year increase of 21.4% to 29%. The company also expects fourth quarter total revenues to be between RMB 43.2 billion and RMB 45.9 billion or 6.2 billion US dollars and 6.5 billion US dollars representing a year-over-year increase of 3.5% to 10%. 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. If you're on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, please limit yourself to 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 English translation. Your first question comes from Tim Tsao with Morgan Stanley.

Morgan Stanley, hello. I'm Tim. Thank you for your question. And congratulations to the company for maintaining a very strong revenue growth. I have two questions. The first question is about the ideal oil series, the future growth space of the car industry. Because our goal of 50.2 to 51.2 million a year this year Thanks for taking my question. So my first question is about the potential, gross potential of EREV. The four-year target of 1,002 to 1,012,000 units implies the average monthly sales of the L-series could exceed 53,000 in both quarters. So, looking to next year, how much upside do you think the L-series would still have? If there is ample upside, where would the opportunities be emerging from? Is it going to be new models like L5, facelift, X4? or further penetration into the lower-tier cities in China. So that's my first question.

Okay. Tim, this is James. I will take your first question. Overall, we hope our sales growth next year will be twice the growth rate of Renminbi 200,000 and higher anyway market. Thank you.

Okay. My second question is about the autonomous driving. So in September, ReAuto launched a better version of point-to-point, all scenario smart driving with just one click. So when will such function be officially deployed in full scale? And in addition, is there any chance that ReAuto will launch its CTNOA function on the new pro version with hardware spec upgrade next year? Thank you.

I'm Ma Donghui. I'll answer this question. In the past 10 months, and then completed a few large versions of the deck from the beginning of the clear soil and then to the soil and then to the dendrodon You can see that everyone's recognition and expectation of the ideal car frame is getting higher and higher And then about the words of this car seat to the car seat of a frame and then we planned it to be 12 minutes before the end of this year and then we will fully send it to all the AD Max words of this user At the same time, we will also promote the national ETC and non-return communication capability. We will use the VLM model to monitor ETC, whether it is from the city to the high speed NVA or from the high speed to the city NVA, and it will not be because of this pass, the ETC charge will be withdrawn, and then bring a more smooth user experience to the user. Then the other is about saying, In the past 10 months, we have went through several major iterations in our autonomous driving features.

We went from reducing reliance on maps to mapless and to end-to-end, which we've seen today. And in the meantime, people's recognition and expectations for our NOA have kept increasing. And in terms of parking space to parking space at one click, our plan is to launch it to all of you ADMAX users by the end of December of this year. And along with this launch, we will also be releasing the feature to past all of ETC toll stations automatically, which relies on our VLM model to recognize ETC toll stations so that our users can drive from highway to urban roads or to urban roads to highways through ETC toll stations without exiting NOA, which provides a more fluid user experience. And in terms of whether our city NOA will be released on pro models, And because CDNOA relies on stronger perception and a larger amount of computing power, the current CDNOA features, unfortunately, won't be provided on our pro models. As for specifics of future models and information, please stay tuned to our product launch events in the future. Thank you.

Your next question comes from Bin Wang with Deutsche Bank.

My first question is about the new upcoming TOEV products. What's the timing for the first product and what's the pricing range that has to be? And what's your expectation for the monthly source volume? Because some of the local media report, you actually will have an I6 in the middle of 2025. Can you confirm that? Thank you.

I'm Li Jiang. As for the detailed product plan, we will share it with you through an official product release at the right time. Because for such a new product, it is very important to protect it. Overall, we are very confident about the subsequent development.

First of all, as for exact information about our launch plan, I will be releasing this information at the appropriate time in a formal product launch event because for automotive products, confidentiality is quite important. And overall, we're still very confident about our best products overall. And if you've seen with our L series, our EV models, they have performed very strongly in the high-end new energy vehicle market. And it is also our goal to make our best SUVs tier one players in the high-end market.

Thank you. Then my second question is about us. This season, there are some, uh, some rewards about the CEO. That's the reward of the first stock market. Uh, let me ask you, because I said it before, it's over 500,000. This can be confirmed. Uh, let me ask you, we haven't got 500,000 yet. How much is this season? And how much will there be in the fourth quarter? This is the main cost. And what is the principle of the distribution of this cost and time? Thank you. My question is about the share-based conversation for the CEO. We know that the previous year announcement is that more than half a million units in the past 12 months, you can get a grander sale of some options. Can I know how much expense you're booking in the third quarter and how much you are going to be in the number four quarter this year? Thank you.

Hi, this is John. Regarding the CEO share-based compensation, this, as of September 30th, the company expects the Q4, the first quarter delivery plus the delivery in the first three quarters will probably meet the CEO's performance required for the first batch of share-based compensation awards. which means the total delivery in the trailing 12 months first reach over 500,000. So as a result, we recognize the share based compensation expenses in the third quarter of RMB 593 million. And there will be additional RMB 42 million in the fourth quarter. Yeah. And every batch of the reward, which means the next 500,000 milestone, the expense will be the same as each batch. Thank you.

Your next question comes from Tina Howe with Goldman Sachs.

Your next question comes from Tina Howe with Goldman Sachs. And then at the same time, I see that this year, because of the four-season sales guidance, compared to the three-season, it may have increased by about 10,000 to 20,000. But last year's four-season and three-season growth was actually 26,000 to 27,000. Considering that we actually have one more car this year, but the overall sales guidance is relatively conservative. I want to ask how this is considered. Maybe this year's sales policy will not be as much as last year. So my first question is regarding our sales policy strategy into the fourth quarter of the year, and then also in relation to that, our fourth quarter volume guidance seems to be quite conservative, incremental volume in 4Q versus 3Q compared to last year. So I'm wondering how we're thinking about the volume and the sales policy.

Okay. Hi, Tina. This is James. I will take your first question. First of all, against the competition, sales of the air service remains strong, mainly due to the strengthening momentum of our brand recognition with over 1 million deliveries and the rapid breakthrough of our autonomous driving capabilities. We are very confident about our sales in the first quarter. The competition has been intense since the beginning of this year. Against such tough competition, our market share has been continuously increasing. In the third quarter, our market share in the Renminbi 200,000 and above EUV market reached 17.3%, a record high year-to-date. Meanwhile, since L6 launch, its monthly delivery have exceeded 25,000 units with cumulative deliveries exceeding 139,000. VL6 is the best selling model among the new vehicles released this year. As to sales, we initiated a new round of change in the second half this year to give more operating autonomy to each region. The person in charge in each province will be responsible for overall operations, not just the sales as in the past. With operating autonomy, each province can run region-specific sales and marketing activities according to the local market conditions, further increasing brand awareness and market share. If we look at this region by region, the competition landscape varies for different provinces. We will formulate region-specific sales policies according to the local conditions. Thank you.

Okay, thank you. My second question is also related to our sales network. Because this year, until now, it seems that My second question is regarding our sales network expansion plan. So what will be our target store number by end 2024 and also by end 2025? Thank you.

Okay, so we expect our retail stores to reach about 500 at the end of this year. Our key channel adjustments we have been implementing this year is to gradually replace lower performing shopping mall stores in our network with sales center in leading and auto parks. As a result, The proportion of sales centers in auto parks will increase to over 40% at the end of this year from 24% at the end of 2023. Our total display sports in China is expected to reach over 3,600 at the end of 2024 from over 2,600 at the end of 2023. Meanwhile, we are expanding our coverage in the third tier cities and some key fourth and fifth tier cities in terms of sales and service networks. As to the store target next year, we will share that after the first quarter earnings release. Thank you.

So our next question comes from Jing Chang with CICC.

So my first question is, as Mr. Li Xiang has just mentioned, we have more and more new players to compete with us in the EREV sector. So if looking into our L series, it has already been released for nearly two years. So if there are some sectors that we can upgrade our products or what aspects do we think can be greatly improved,

Hello, I'm Li Xiang. I think the competition for cars includes technology, products, supply chain, sales, service, and other comprehensive management capabilities. In fact, growth is just one of the most important technologies, but it is definitely not the whole. The R series will still be in a state of lightness in the next one or two years. And after consumers buy ideal cars, we will continue to update functions and upgrade experiences, and continue to enhance the value of products. software and hardware experience, we should be the best in the industry. In the next three to five years, I think the biggest change comes from artificial intelligence, including the intelligent driver based on real artificial intelligence and the intelligent assistant based on artificial intelligence. It will bring consumers a completely different experience today. It is also the beginning of the real change. Finally, I would like to remind everyone of a small point. So far in 2024, The most recognized new car in the global market is the Lidia R6. This is the result of the sales end. From the launch to the current six months, the Lidia R6 has accumulated over 13.9 million units. And the production capacity is obviously not satisfied with the demand for orders. The factory still needs to achieve expansion during the 25th Spring Festival to be able to meet the needs of more consumers.

The competition in the automotive industry encompasses technology, product, supply chain, sales, and service. It's a holistic competition. And RUV technology is only a pretty important one among all technologies, but it's definitely not the whole picture. For the LEAL series in the next few years, it's still considered, if you were to make an analogy to a human being, it's still in its youth stage. And after consumers buy our LEAL auto vehicles, we will continue to improve our features and experience through OTAs, which improves the value of product that they receive. So software, hardware, and user experience and product, this integrated experience, the auto is still the leader in the industry. And if we're looking at the next three to five years, I think the biggest variable is going to be artificial intelligence, which includes... AI-powered autonomous driving and AI-powered smart assistant. It will create a completely different experience for our users. And that, I consider, is the beginning of real step change. And one thing I want to remind everyone of is since the beginning of 2024, the most popular and well-received automotive products in the entire world is LEED L6. And that's hard results that we've seen in our source. From launch to today, in a matter of only six months, VL6 has delivered over 139,000 units, and demand is still over supply, which requires us to expand our production facility during Spring Festival in 2025.

So my second question is about overseas markets. do we have a more aggressive strategy to going overseas? And if yes, what considerations we shall base on? Can you give us a brief plan, including which markets we should focus on and how to develop the product dealership? And if we look into 2025, whether the overseas market will be a key driver for our sales growth?

Okay, this is James, and I will answer your question. Absolutely, the overseas market is very important to us. Our overseas strategy is different from other automakers. As of now, we have established the servicing networks in several countries and regions, such as Kazakhstan in the Middle Asia. These service installs also helped us expand our market share in the overseas market. Regarding the choice of the overseas region, the Middle East and Central Asia will be our first target regions. Building on this, we will continuously explore and evaluate other markets with high growth potential to expand our global footprint. However, we are not considering entering Western Europe and North America for the time being. Thank you.

Your next question comes from Ming Sun Li with B of A. Hello, everyone.

Thank you for the opportunity to ask me a question. I have two questions here. First of all, my first question is, a few days ago, Ideal Motors officially announced to all ADMAX users I would like to know what is the biggest improvement from the point of view of user experience of the end-to-end NOA compared to before. In addition, this year, since the 13th quarter, has the sales of the ADMAX version changed significantly? Let me translate the first question. So in October 2024, Lioto officially OTA the end-to-end latest ADMAX functions, and how does the user experience improve on the feedback so far? And year-to-date, do you see significant sales makes change for your ADMAX version? Thank you.

Hello, I'm Ma Zonghui. Let me answer this question. First of all, after Dundund and VLM were launched, we think that the whole frame of the frame will become an ability from the function. It will become a real and supervised frame ability from the function of urban environment and high-end environment. This is also a transformation from the rule of law to the real AI model. And then for users, the value it brings is still relatively high. I'll give you two examples. First of all, the management process, which we call MPI, will become longer. And then, with the addition of model parameters and the increase in training data, the MPI process will be greatly improved. It is also very in line with the rules of Seeking Law. This means that companies with high-quality training data and will have absolute advantages in the future competition. The second point is that the safety journey of the whole scene, which we call MPA, will also be greatly improved. Compared to that, we predict that the version of this brick-to-brick will further improve the safety journey number and will reach three to five times the human safety journey. In addition, with the improvement of large model capacity, And then we are thinking about this A B automatic emergency control and then the automatic emergency transfer of AIS. And then the overall safety is significantly improved. The number of major accidents will also be greatly reduced. Since we launched what we call end-to-end BLM autonomous driving functionality,

We view autonomous driving no longer as a feature, city NOA and highway NOA, but more as a capability, the ability to offer supervised autonomous driving. And that marks the change from rule-based algorithms to real AI model-driven algorithms. And for users, the values are pretty significant. I'll give a few examples. First of all is MPI, or we call it miles per intervention, have increased very steadily as we increase the amount of model parameters and training data. And the increase actually fits very perfectly into scaling law, which means companies with high-quality training data will have a significant competitive advantage in this industry in the future. Second example I want to give is MPA, which is miles per accident, have also been increasing steadily. My estimate is that with this current end-to-end version, the MPA is going to be three to five times compared to human drivers. And lastly, as we increase the big model capability, our active safety features like AEB and AES have also been improving very significantly. The number of severe accidents have dropped dramatically. And in terms of sales take rate, ADMAX take rate has steadily increased, not only for cars priced over $300,000, but also for BL6, we have seen a very dramatic increase in ADMAX take rate.

Thank you, Mr. Ma. My second question is about our charging stations. As Mr. Li mentioned, we now have 1,000 charging stations. I would like to ask, how many charging stations are expected to reach by the end of next year? In addition, how many are currently self-sufficient and how many are third-party? I would also like to know more about the capital assistance related to this next year. Finally, I would like to ask, how is the usage rate of the charging stations now? So what's our plan for the charging station by the end of next year? and what is your current breakdown for your own building charging station and also the charging station run by the third party? And right now, what is the utilization, especially since you have so many charging stations but the BEV mega total population is still not high? Does this mean that many other brands use your charging brand so your charging station did not impact your gross margin.

Okay. This is James. I will take your question. So, overall, we plan to establish the industry's largest OEM charging network and have an absolute lead. Before our new BEV models come to market, we expect to have more charging stations than Tesla in key cities for sales. By the time our new BEV model launches, we target to have more than 2,000 charging stations in operation, which will scale up to 4,000 by the end of 2025, next year. Our supercharging station network now covers nine national highways, a total of over 54,000 kilometers. with a coverage ratio of 63 percent of national highway trunk lines. By the end of 2025, we will build more than 1,200 supercharging stations along highways covering 90 percent of national highways. In addition to highway and urban coverage, we will also selectively cover medium and long distance self-driving routes to meet the needs of our users for family travel. For instance, our Mount Everest Supercharging Station commenced operation in October this year, and we expect to achieve end-to-end coverage to national highway National Highway 318 in April next year. And also, regarding the cooperative supercharger station in the city, so far we have already built more than 500, and we are expecting by end of next year, we will also have this cooperative supercharger station in the city, more than 3,000. Thank you.

Your next question comes from with HSBC. The first question is about the consolidation for the pricing category above 200K. We discussed that at the beginning of the year, is the industry consolidation shaping the way as management expected? How do we take the competition coming from the mass market brands, high-end model, and tech brands all to line up?

I'm Li Jiang. I think even though we haven't launched the whole series of SMEs, we are increasing the market rate of N1V by more than 200,000. 3G has already reached 17%. I think for a long time, no matter which brand enters the market, I think everyone will face the same fundamental challenge. Can each product we provide provide the leading product value for the user in the price range? This is the core of everything. We are still very confident in the long term. Today, even before we launched our pure electric SUVs, we have been increasing our market share very steadily every quarter, and it has reached 17.3% in Q3.

And for the longest time, no matter who enters the market, the fundamental challenge is the same for everyone. Can we offer products that provide the most value for our target users in their respective price range? That's the key to everything. And our long-term goal is still to, through our 3PEV and REV products, together capture over 25% of market share in the NDB market over 200,000 RMBs.

Thank you. Thank you, Mr. Zhang. I have a second question. In the medium-sized family-used large SUV MPV, we see that the supply of new vehicles is gradually increasing. Do we think that the boundaries of family users may have been partially met? Are there any opportunities to divide the blue sea? Is the management level still good? The second question is on the segment and boundary. We noticed there's more model supply among the mid to larger size, the family utility SUV and MPV. Will the company management see the boundary limit for the current segment, or will family use the market saturated to certain extent, which are the other segment that the company would identify promising?

然后我觉得我们对于整个家庭市场的拉结才刚开始, And then, especially the whole artificial intelligence for self-driving And then after a long experience and a change Then the space of this family can be imagined and the creativity will become stronger Well, I think this is actually still And then I'm not in a hurry to start more things You should do this better So I think on the other hand And then from the perspective of pure electricity In fact, many people say that it is not 300,000 or more pure electricity The product will be difficult to sell But the fact is . . . . .

My view is that we've only started to scratch the surface in terms of family users market, especially if you take into account the power of AI, the changes that will be powered by AI in terms of autonomous driving and smart cockpit experience. There's going to be so much room for imagination for family users. So in this regard, we're not in a rush for new markets. And the other opportunity is in pure electric or bath markets. If you look at the market of bath products over 300,000 RMB, there is no product that offers the equivalent or comparable product value to L7, L8, and L9. So there's simply no good supply, and we believe that's another big opportunity for us. So whether it's AI or bath market, we think there's a big – opportunities in terms of large SUVs for family users. So this is something we will continue to explore before we look at other potential markets or niche markets. And an analogy would be we actually have a golden bowl in our hands, and we shouldn't be bagging with the golden bowl.

Your next question comes from Gao Fei Zhang with SciTech.

Thank you for accepting my question. I have two questions. The first one is about automation. Can the company introduce the progress of automation and a rhythm of future planning? If we look at the future, from the point of view of the market, will the technology of automation be delayed? If so, will it lead to a decrease in technical differences in various companies? Next, I will translate it. My first question is about self-driving. So, could you give us some instructions about progress and plans in the field of self-driving? And I'm wondering that will the speed of self-driving iterations slow down in the long term, and will it then potentially lead to a narrowing difference between companies' technology? Thank you.

Hello, I am Ma Zegui. I will answer this question. Now, we are monitoring the direction of smart driving, and then we will carry out technical development and the delivery of Doha products. Build the real car seat to the car seat, and then the whole scene is a product that has no shortcomings. At the same time, we feel that in terms of smart driving, human-machine interaction also needs to carry out product and technical creation. At present, we have already started to carry out similar users. After that, it will also be continuously delivered to all users. In the long term, we also launched this L4-level automatic driving prediction. Then, on the current technical route basis, we will study more capable car ends, VLA models, and cloud world models to combine to strengthen learning systems. In addition, we will continue to expand our investment in smart driving and construction, and maintain the lead in training and computing, as well as the leading position in smart training. Regarding the ability of each company to drive, we do not think that the gap will be reduced, because from a long-term point of view, smart driving's computing of the car and the computing of the cloud, as well as the resources for training data,

Our current direction is to iterate on supervised autonomous driving and provide parking-to-parking autonomous driving experience and completely seamless user experience. In the meantime, we are innovating in terms of human-vehicle interaction when it comes to supervised autonomous driving, and we're currently running through some internal tests, and we will be releasing these to all of our users in the near term. And looking at the long-term, we've also already launched primary research on L4 autonomous driving, and it builds on top of our current end-to-end VLM model. and we're looking into reinforced learning systems that combines VLE models on the car side and a world model on the cloud side. And in the meantime, we will continue to invest in infrastructure and to sustain our leadership in computing power as well as autonomous driving mileage. And finally, in terms of autonomous driving capability and the gap between different players, I don't think it will narrow, but in fact, I think it will widen over time And the reasons for that is because, first of all, the requirement for car side and cloud side computing power, a requirement for training data and resource investment is continuously very large and has trend to increase. And there's also a higher requirement on the algorithm capabilities for autonomous driving. So overall, I think the gap will widen.

So my second question is about the future cost reduction. As we know that with our increasing sales, So how do we look at future cost reduction, including procurement, technology, depreciation, and other aspects? Thanks.

I will answer this question. Regarding the cost reduction, we will look for such opportunities from the turning point and the whole chain. Including the technical innovation we just mentioned, and also the purchase of huge amounts. reduce some of the material waste, and then improve the efficiency of our cooperative partners, and then even include a more efficient logistics delivery method. In fact, they all require a very detailed operation. To expand a little bit, that is to say, first of all, we believe that technology innovation is very, very important for reducing costs. For example, the integration of the whole system, including electric drive, and then the integration of central control units, and then not only can we improve productivity, but also reduce We can also increase our cost competitiveness. Then on the business side, we have established a joint innovative platform. Then let our partners enter more early. Then go together to find better design and engineering solutions. Then look for the opportunity to make money. In terms of cooperation with partners, we always advocate the concept of dual use. Then this is conducive to long-term development of the industry. On the other hand, we are through platforming, platforming that is invisible, and then building paid products, and then in terms of cooperation, we focus more on the mass, focus on the mass, and then increase the use rate of production, and then bring an opportunity to optimize the cost. First overall, we will look at the full value chain end-to-end to find opportunities to increase efficiency and lower cost, which includes technology innovation,

economy scale in procurement and reducing quality-related waste. And also includes working with our partners to increase their capacity utilization, more efficient logistics. All these require very detailed and very skillful operations. And to give an example in terms of technology innovation, it is key to driving lower costs over the long term. For example, with our REV system and our electric drive system, If we could integrate them and integrate the central control unit, it will not only make our products more competitive, but also make our cost more competitive. On the supplier end, we are building a joint innovation platform with the suppliers so that our suppliers can get involved much earlier. We can work together to find better solutions in terms of designs and processes to find opportunities for lowering cost. Also, in working with suppliers, a value has always been a win-win philosophy because only this is beneficial to the long-term development of the industry. On the other hand, we will design our parts so that they share the same platform and we enlarge the volume of each product, which we call hit product. And in terms of supplier strategy, our strategy has been to concentrate the volume on a smaller number of suppliers increase their capacity utilization, and drive costs down over the long term. And lastly, we will continue to leverage digitization, smart technologies on our factories, as well as to empower our partners to reduce waste in the manufacturing process, increase running rate or online rate of the equipment to drive down costs over the long term. Thank you.

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 Zhang, please go ahead.

Thank you once again for joining us today. If you have further questions, please feel free to contact Liado's investor relations team through the contact information provided at our website. This concludes this conference call. You may now disconnect your line. Thank you.