Li Auto Inc.

Hello, ladies and gentlemen. Thank you for standing by for Lee Otto's fourth quarter and full year 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 Zhang, Investor Relations Director of Lee Otto. Please go ahead, Janet.

Thank you. Good evening and good morning, everyone. Welcome to Lee Otto's fourth quarter and full year 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 Tia Li, to begin with prepare remarks. Our President, Mr. Donghui Ma, and our Senior Vice President, Mr. James Liang Jinzhou, 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 a required and applicable law. Please also note that Li Auto's earnings price release and this conference call include discussions of unaudited U.S. GAAP financial information as well as unaudited non-GAAP financial matters. Please refer to Liado's disclosure documents on the IR section of our website, which contain a reconciliation of the unaudited non-GAAP matters to comparable U.S. GAAP matters. 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 conference. In 2024, China's new energy car market will continue to grow rapidly. According to the data from the mid-term year, China's new energy car penetration rate has broken 50% in multiple months. The previous year's new energy car penetration rate reached 45.9%, which is a 12% increase in the same ratio. Li Xiang Car, with its outstanding product power and organizational efficiency, as well as continuous breakthroughs in artificial intelligence, It continues to consolidate the Chinese brand sales champion position of more than 200,000 yuan. The previous year's market share reached 15.3%. In the fourth quarter of 2024, the ideal car delivery volume exceeded 15.8 million units, creating a new high in the quarter. In 2024, the total delivery volume of ideal cars in the previous year broke 500,000 units, becoming the first brand to reach 500,000 units per year. It is also the first Chinese luxury brand to reach this milestone. In addition, the total number of L6, L7, L8, and L9 vehicles in the ideal L series has exceeded 200,000. This highlights the high recognition of users for ideal products and our consistent efficiency in dealing with them. The achievements we have achieved are inseparable from the efforts of every employee in ideal vehicles, the support of cooperative partners, and the trust of users. Again, I would like to express my sincere gratitude We also look forward to continuing to work with everyone to cross the new milestone. As the scale of business grows, the multiple financial indicators of Dream Cars have also created a high historical record. In the fourth quarter of 2024, the total income of Dream Cars reached RMB 4.43 billion, and the total income of the whole year of 2024 reached RMB 1,445 billion. By the end of 2024, the company's in-hand cash reached RMB 1,128 billion, We will continue to grow in 2025. In the first quarter, we expect to reach 8.8 million to 9.3 million cars. There is no doubt that intelligent technology is the second half of the development of the automotive industry. For this reason, we continue to invest in R&D and acceleration innovation. The R&D and R&D investment of two to four years is more than 1.1 billion yuan. Effective R&D drives ideal cars. Intelligent driving has made further breakthroughs and growths. In terms of intelligent driving, ideal cars are the number one choice. Our industry's first DUN DUN DUN and VLM dual-system intelligent driving solution not only lead the trend of the industry, but also performance and other aspects to achieve the leading level in the industry. In January, we launched the new ADMAX V13. The high-speed NOA has also been upgraded to an end-to-end technical architecture, realizing the full-scale top cover of the city's high-speed end-to-end. We also launched the industry's first AI push-and-pull visualization function, so that users can clearly understand the way of intelligent driving. In February, we further realized the end-to-end Java 2.0 with 10 million clicks. large-model all-wheel drive, becoming China's first large-model car with 10 million kWh. From 1 million kWh to 10 million kWh in just seven months, ideal cars' intelligent driving speed continues to maintain the leading level in the industry. In terms of performance, the performance of the 10 million kWh ADMAX V13 also occupies the leading position in the industry. With the recent increase in car professional media, In terms of the ranking of the leading brands in China and abroad, ABMAX V13 has won the first place in multiple competitions. The advantage is very obvious from the level of average control. In addition, we have also launched the development of the next-generation technology structure VLA, which is the VG visual language action model. It is planned to be released at the same time as this year's first-in-summe pure-summe ideal i8. We look forward to bringing a new intelligent driving experience to users. In terms of charging network, with the launch of the pure electric SUV product in 2015, our construction is also in full swing. In 2024, we have newly increased the top line of 1,420 ideal supercharger stations, and the speed industry is leading. In addition, the ideal supercharger network has been built into the largest high-speed supercharger network so far. Even now, we already have more than 1,900 ideal superchargers and more than 10,000 charging stations in operation. The ideal car's supercharging network not only covers a wide range and fast charging speed, but also has a high stability of the device. Even in winter, after starting the automatic charging, the ideal mega can still achieve a charging efficiency of 500 kilometers in 12 minutes at the ideal supercharger station. In the spring and summer period, the recharging rate of charging devices is still at a higher level of 99.9% of the industry. Such a high-quality non-experience is exactly what pure electric users need. Looking forward to the future, we will continue to accelerate the deployment of super charging networks. The goal is to build 2,500 super charging stations when the first pure electric SUV ideal 8 is released, which will increase the number of super charging stations to 4,000 by the end of 2025. In terms of sales network, in 2024, our opening capacity and sales efficiency have significantly improved. By gradually transforming the north-side shopping mall into the central city of the capital city of Qicheng, the balance of central power has increased from 24% at the end of 2023 to 42% at the end of 2024. The total number of jobs in the country has increased from more than 2,600 to more than 3,700. From the point of view of the power school, the new Cangzhou-Gaoxin Central Power Plant, which opened in 2024, has only opened for four months, we have already reached 175 units in a month. This also fully demonstrates the efficiency of our new power. As of February 28, 2025, there are already 500 retail centers in the country, covering 150 cities. By 2025, we will continue to improve the efficiency of offline channels and continue to promote the expansion and construction of sales networks with rhythm and quality. We are also promoting the internationalization process according to the plan. In January of 2025, the German Research and Development Center of ideal vehicles opened in Munich. The German Research and Development Center is the first overseas research and development center for ideal vehicles. At the same time, it is also the first step for ideal vehicles to move towards a globalized research and development strategy. In addition, we have established a command and control service center in three regions in Kazakhstan, Dubai, and Uzbekistan. In 2025, we will increase overseas expansion and continue to build a market with high growth potential. We believe that there will be more and more ideal vehicles in different countries in the future. By the end of 2025, we will continue to focus on user value, maintain consistent product competitiveness, and do a good job of promoting pure electric SUV models while upgrading existing models. In addition, we will continue to embrace intelligent transformation, continue to strengthen research and development, technology innovation, and self-discovery capabilities to ensure sustainable long-term development and breakthrough in the era of intelligent transformation. Next, let's have CFO Li Tie introduce our financial statements.

Hi, everyone. Welcome to today's conference call. China's NEV market maintained rapid growth in 2024. According to insurance registration data from the China Automotive Technology and Research Center, China's NEV penetration rate exceeded 50% for many consecutive months in 2024, reaching 45.9% for the full year up 12 percentage points year over year. Leveraging our outstanding product portfolio, organizational efficiency, and continuous breakthroughs in artificial intelligence, we further solidified our position as the sales champion among Chinese auto brands in the RMB 200,000 and above MEV market, taking our full-year market share to 15.3%. In the fourth quarter of 2024, we delivered over 158,000 vehicles, setting a new quarterly record. Our full-year deliveries exceeded 500,000 units, making us both the first emerging NEV brand and first Chinese premium auto brand to reach this milestone. In addition, each model in our Li-L series, including the L6, L7, L8, and L9, have achieved cumulative deliveries of over 200,000 units respectively. showcasing the strong user recognition of our products and our highly efficient and consistent delivery capabilities. These achievements will not have been possible without the effort and dedication of every team member at Liotto, the support of our partners, and the trust of our users. I would like to express my heartfelt gratitude to them and look forward to reaching new milestones in collaboration. As our business continues to expand, a number of our financial metrics have reached record highs for the quarter. In Q4 2024, total revenues reached RMB $44.3 billion, taking full-year total revenues to RMB $144.5 billion. As of the end of 2024, our cash on hand has reached RMB $112.8 billion, Our robust cash generation capabilities and substantial cash reserves provide solid support to our long-term investments in electrification and artificial intelligence, advancing our progress toward our long-term vision. Looking forward, we expect continued growth in 2024, aiming for 88,000 to 93,000 vehicle deliveries in Q1. There is no doubt that intelligence is the theme of the next phase of auto industry's evolution. We continue to invest in R&D and accelerate innovation. Our R&D investments exceeded R&D 11 billion in 2024, driving further breakthroughs and growth in our autonomous driving system. In terms of autonomous driving, we solidified our position as a top tier player in the sector. Our industry pioneering dual system autonomous driving solution, combining an end-to-end model with a vision language model, sets a trend in the industry with industry-leading pace of iteration and performance. In January, we rolled out ADMAX V13, upgrading highway NOA to an end-to-end architecture, providing end-to-end capability across both urban and highway driving scenarios. In parallel, we introduced a first-of-its-kind AI reasoning visualization feature for autonomous driving, providing users with a better understanding of how the autonomous driving function works. In February, we rolled out our latest end-to-end and VLM models trained on 10 million video clips for all ADMAX users, making us the first automaker in China to deploy large models trained on 10 million video clips. Our autonomous driving system has been evolving at an industry-leading pace, taking only seven months to grow from 1 million to 10 million video clips. In addition, our 10 million video clips ADMAX V13 boast industry-leading performance, which was clearly demonstrated in our recent press reviews that evaluated top-tier autonomous driving systems from global and domestic auto brands. ADMAX V13 secured first place in a number of these head-to-head reviews, with a significant advantage in terms of number of interventions. Additionally, we have already initiated R&D for our next generation model based on the Vision Language Action, or VLA, architecture. We plan to launch it alongside our first battery electric SUV, Li L8, this year, delivering refreshed autonomous driving experience to our users. Moving on to supercharging network. We're accelerating its deployment in preparation for the launch of BEV models in 2025. In 2024, we built 1,420 supercharging stations at an industry-leading pace. We operate the largest highway supercharging network of any auto OEM in China. As of now, we have over 1,900 supercharging stations with over 10,000 charging stalls in operations. Our supercharging networks covers a wide range of regions, boasting rapid charging speed and high uptime rate. Even in winter, LiMEGA can charge up to 500 kilometers in 12 minutes with battery preconditioning. Even under the heavy load of spring festival holiday, our charging facilities reach an uptime rate of 99.9%. The overall charging experience and efficiency are essential to BEV users. Looking forward, We will continue to accelerate the deployment of our supercharging network, aiming to have 2,500 supercharging stations by the time we launch DI8, our first battery electric SUV. We plan to expand to 4,000 stations by the end of 2025. Moving on to a sales and servicing network, in 2024, the overall quality and sales efficiency of our retail stores have improved substantially by replacing lower performing shopping mall stores with sales centers located in major auto parks, our proportion of sales centers has increased from 24% at the end of 2023 to 42% at the end of 2024. Total nationwide display spots increased from over 2,600 to over 3,700. In terms of same-store sales, taking the newly opened Cheongju Hitech Zone sales center as an example, Its same-store sales has reached 175 units per month in just four months since opening. This fully demonstrates the operating efficiency of our new sales centers. As of February 28, 2025, we had 500 retail stores in 150 cities nationwide. Looking ahead to 2025, while we continue to strengthen our offline presence, we will continue to pursue high-quality expansion of our sales networks at a reasonable pace, prioritizing operating efficiency. We're also advancing our overseas expansion as planned. In January of 2025, we opened our R&D center in Munich, Germany. This is our first overseas R&D center, marking the first step in our globalization R&D strategy. Additionally, we have established directly operated servicing centers in three regions. Kazakhstan, Dubai, and Uzbekistan. In 2025, we plan to enhance our overseas expansion efforts with a continued focus on markets with high growth potential. We believe that in the future, we will see an increasing number of V-auto vehicles on the road in different countries. Looking forward to 2025, we will maintain our product competitiveness with a relentless focus on creating user value. we will further upgrade our existing models and ensure the smooth launch of our new BEV models. In addition, we will continue to embrace intelligent transformation by strengthening our R&D, technological innovation, and cash generation capabilities to ensure sustainable long-term development and breakthroughs in this artificial intelligence era. I will now turn the call over to our CFO, Johnny, to walk you through our financial performance.

Thank you, Hsiang. Hello, everyone. I will now walk you through some of our fourth quarter 2024 financials. Due to time constraints, I will address financial highlights here and encourage you to refer to our earnings press release for further details. in the first quarter were RMB $44.3 billion, or $6.1 billion, up 6.1% year-over-year and 3.3% quarter-over-quarter. This included RMB $42.6 billion, or $5.8 billion, from vehicle sales, up 5.6% year-over-year and 3.2%, Both the year-over-year and the sequential increase were primarily attributable to the increase in vehicle delivery, partially offset by the lower average selling price. The year-over-year ASP decline was mainly due to different product mix, while the sequential ASP change was mainly due to the interest subsidies provided to customers. Cost of sales in the fourth quarter was RMB $35.3 billion, or $4.8 billion, up 10.5% year-over-year and 4.9% quarter-over-quarter. Gross profit in the fourth quarter was RMB $9 billion, or $1.2 billion, down 8.3% year-over-year, and 2.8% quarter-over-quarter. Vehicle margin in the fourth quarter was 19.7%, compared with 22.7% in the same period last year, and 20.9% in the prior quarter. The year-over-year decrease was mainly due to different product mix, The sequential decrease was mainly due to the loss on purchase commitment and lower average selling price due to interest subsidies provided to customers. Gross margin in the fourth quarter was 20.3% versus 23.5% in the same period last year and 21.5% in the prior quarter. Operating expenses in the fourth quarter were RMB 5.3 billion or $721.6 million, down 22% year-over-year and 9.1% quarter-over-quarter. R&D expenses in the fourth quarter for RMB 2.4 billion, or $329.9 million, down 31% year-over-year and 6.9% quarter-over-quarter. The year-over-year decrease was primarily due to the decreased expenses related to product portfolios and technologies and decreased employee compensation. The sequential decrease was primarily due to the decreased employee compensation. SG&A expenses in the fourth quarter were RMB 3.1 billion, or $421.5 million, down 5.9% year-over-year and 8.4% quarter-over-quarter. The year-over-year decrease was primarily due to decreased employee compensation and improved operating efficiency. The sequential decrease was primarily due to decreased employee compensation associated with recognition of CEOs' performance-based awards in the third quarter of 2024, partially offset by the increased marketing and promotion activities. Income from operations in the fourth quarter was RMB 3.7 billion, or $507.4 million, up 22% year-over-year and 7.9% quarter-over-quarter. Operating margin in the fourth quarter was 8.4%, improved from 7.3% in the same period last year, and 8% in the prior quarter. Net income in the first quarter was RMB 3.5 billion, or $484 million, down 38.6% year-over-year, and up 25.3% quarter-over-quarter. Diluted net earnings per share attributable to ordinary shares was RMB 3.31 or 0.45 US dollars in the fourth quarter versus RMB 5.32 in the same period last year and RMB 2.66 in the prior quarter. And now, turning to our balance sheet and cash flow, our cash position remains strong and stood at $112.8 billion or $15.5 billion as of December 31, 2024. Net cash provided by operating activities in the fourth quarter was RMB $8.7 billion or $1.2 billion, versus RMB $17.3 billion in the same period last year and RMB 11 billion in the private quarter. Free cash flow was RMB 6.1 billion or 830.1 million US dollars in the fourth quarter versus RMB 14.6 billion in the same period last year and RMB 9.1 billion in the prior quarter. As of December 31st, we had a total of 32,248 employees. For more information and details of our 2024 full-year financial results, please refer to our earnings press release. And now for our business outlook. For the first quarter of 2025, the company expects the delivery to be between 88,000 and 93,000 vehicles, representing a year-over-year increase of 9.5% to 15.7%. The company also expects the first quarter total revenue to be between RMB 23.4 billion and RMB 24.7 billion, or $3.2 billion and $3.4 billion, representing a year-over-year decrease of 8.7% to 3.5%. 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 and 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 are on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, please limit yourself to two questions. And if you have additional questions, you can 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 Paul Gong with UBS.

Thank you for accepting my question. Two questions. The first question is about the company's pure electric car model. I want to ask what the overall release rhythm of the management city is like this year. And then what are the highlights of this pure electric car model that can be shared with you? The second question is about the company's AI development strategy. I don't know if the management city has some latest information that can be shared with you. So I will translate my questions. The first one is regarding the BEV mount. Can you remind us overall the latest launching timing of the new models and also the highlights of your BEV models you could share with us? The second is regarding the AI strategy. We noticed management is spending more focus, is increasingly more focused on the AI. Can you please share us with the latest development strategy? Thank you.

Hi, I'm Li Xiang. Let me answer these two questions. My first question is, this year, there will be two new pure-summit SUVs. The first one, the pure-summit SUV Li Xiang i8, will be released in July, and the i6 will also be released in the second half of the year. This release pace will be similar to the release of the L9 and L8 in 2022. Besides being able to and get a better sales in the second half of the year. We can also store more orders for the first quarter of the next year. On the other hand, we will not publish too much product information before the press conference. We hope to make the quantity of the product and the real experience of the user, purchase and delivery, can be linked more closely.

We're planning to launch two pure electric SUVs this year, the first one being the VI8, which will be launched in July, and the second one, VI6, will also be launched in the second half of this year. The two cars will be launched – part of the reason we launch it in the second half of this year is partly to catch the sales momentum in typically the sales season of Q3 and Q4 and also partly to save enough orders to support deliveries for next Q1 and Q2. We tend not to release too much information before official product release because we think it needs to be considered holistically with users' buying experience, delivery experience. So please stay tuned for our official product release.

The second is about the strategic plan of AI. We believe that the most fundamental work of AI at the current stage is to achieve the important breakthrough of ability. For example, in the case of our most important active driving, under the rules and the rules of this algorithm, it is actually more similar to insects or some low-level animals. Then how to learn how to drive. Then we actually upgraded to the end-to-end plus VLM. In fact, the V2M is similar to a monkey driving and cooperates with some simple human auxiliary command. Although this ability has been improved a lot, it still cannot reach the level of a human top professional driver, because this is determined by the technical structure of the entire model. At the same time, the V2M is also in two different brain systems, and each brain system is not strong enough. So one problem we need to solve is How can big models learn to drive like humans? How can they understand the real physical world? How can they understand the software in navigation? How can they understand the needs of the passengers in the car? We need to put the different models of today's 3D fish in one seat for training, including spatial intelligence facing 3D vision. It also includes the language intelligence of today's big circle model. It also includes the giant intelligence realized by the end of the tunnel. Only by putting these three types under one seat, and then doing training, can it truly understand the physical world like a human being, understand the intentions of people, and understand everything about software, drive like a human being, and finally reach the level of a professional driver. This is our understanding of the breakthrough of artificial intelligence.

First of all, our overall view is that at this stage, the most important thing for artificial intelligence is to grow capabilities, improve capabilities. And I'll provide one example using autonomous driving. Under rule-based system, it's very analogous to teaching an insect or primitive creature to drive. And later when we move on to end-to-end and BLM, it's comparable to a monkey learning drive with a human on the side. It is an improvement versus previous rule-based system, but it's still nothing comparable to a professional driver. And this is determined by the fundamental architecture of the models because VLM and end-to-end are two separate brain systems, and neither of them are strong enough. So the real question for us is how can we allow a big model to operate just like human beings, like they can understand the physical world understand the software world, which includes navigation and a bunch of other things, as well as the intentions of the passengers. So we need to build a model that combines all three categories and build them into one foundational model, which includes understanding of physical space using 3D vision and understanding of language space using LLM and understanding the physical world using end-to-end. Only if we combine these three into one model can we understand the world just like human beings and drive like human beings. And this is our overall understanding of breakthroughs in artificial intelligence. And we don't tend to make specific plans in this area.

Thank you. Your next question comes from Tim Sao with Morgan Stanley.

Thank you for accepting my question. I have two questions.

So this is the first question. So my first question is about the sales growth. How should we think about the Liado's following sales growth this year against the backdrop of the top competition? When would you expect Liado's monthly sales could be returned to the previous peak level or even the chief record level considering the new phase fail series and together with the EV launches into second half?

That's my first question.

Hello. I'm Zhou Liangjun. Let me answer your question. This year, we will upgrade the product, expand the sales network, strengthen the marketing, and accelerate the expansion of the overseas market to achieve the growth and breakthrough of the sales chain. In terms of products, this year, we will continue to launch the L-series and MEGA self-driving version, as well as new pure electric SUV models, New power-saving SUVs will give us more market space. At the same time, after our own system has been upgraded to the V13 version based on the 10 million clips training, the self-driving capability has been greatly improved, and it has also laid the foundation for our sales growth this year. In terms of sales network, we currently have more than 502 sales stores. Based on this, we have also launched the anti-star plan, which is to increase the coverage in the four-line and five-line cities together with social service partners. In addition to these formal stores, we have also opened more than 200 retail stores and 60 fast-food stores nationwide this year to gain a larger customer opening. In terms of marketing, we have added a line of sales teams and added a dedicated live broadcast team. We will continue to increase in Latin America, Middle East, and investment in the European market. We have also gradually expanded our authoritative marketing work in the overseas market. Through the participation of authoritative marketing with high quality and experience, we are confident that we can achieve a good market growth in the overseas market this year. The improvement of product competitiveness by relying on technology and the flexible and precise market strategy and channel expansion

Our overall strategy for sales for this year consists of several aspects. One is product upgrades, expansion of sales network, as well as reinforced marketing practices and expansion overseas. First of all, on the product front, we'll be launching the 80 upgraded version of L-series and Mega-series this year, as well as our new completely new bad electric SUV model. The new pure electric SUV will help us tap into a bigger market. In the meantime, our upgraded autonomous driving system, V13, trained on 10 million video clips, has also improved its capability significantly, which also forms a solid foundation for our sales growth. On the sales network front, we currently operate 502 retail stores. And on top of that, we have started to work with after-sales partners to increase coverage in Tier 4 and Tier 5 cities. Apart from the official stores, apart from these permanent stores, we have also opened over 200 retail stalls and pop-up stores, 60 pop-up stores and shopping malls to open up our customer acquisition channel. On the marketing front, we have introduced professional live streaming sales representatives to help us open up our customer acquisition channel. In the meantime, with our dedicated DCC call center personnel, we can also increase conversion rate of these increased new customers acquired through those channels. On the overseas front, our overseas expansion plan is proceeding as planned. And we have made significant progress in Middle Asia, in Asia Pacific, and various other markets. We will continue to increase our investments in Latin America, Middle East, and European markets. We have also made progress in working with authorized dealers overseas. And through a group of high-quality and experienced authorized dealers, we're confident to achieve a major growth overseas this year. And overall, with technology improvements and nimble marketing strategies, as well as expansion of sales networks, I'm pretty confident about overall sales growth this year.

Thank you for your answer. My second question is also about AI-related issues. My second question is also related to AI. because Liata has been investing in AI aggressively over the past two quarters. What would be the scale of Liata's AI-related investment in the following years? And in addition to two key applications, one is MyGPD Empower, Liqiang Tongxuan APT, and the other one is Tom Driving. Will there be any new applications for or beyond Ecos in the following quarters?

That's my second question. Thank you.

Okay. Overall investments in AI-related initiatives will seek substantial growth in the next few years, but it will mainly be funded by our cash firm operations. Secondly, in terms of the application scenario, I think we can change our way of thinking. What is the positioning of our company in the future? I think this is what we need to think about. After determining our positioning, there will be requirements for our own capabilities and the real value provided to the users. If we look at what happened after 1975, In the first stage, when the personal computer technology changes, Apple's Mac will appear, as well as Microsoft's DOS and Windows. I think this is one stage. In the second stage, when we look at the mobile internet age, Apple's iPhone will appear, as well as Google's Android. One represents the middle end, and the other represents the operating system and open software platform. Yes, I think these two types of companies have achieved huge market success. But their own positioning is different from those of many other companies. For example, the middle end of the vertical integration like Apple, it will reduce certain openness, but it will provide a better user experience. If it is an Android ecosystem, it will choose to increase its own openness, but it will also affect a part of the experience. I think this is a completely different choice. If we go back to the ideal car, back to ourselves, which role should we play? This is the first question we should ask ourselves. We think that our role should be to be a mid-end enterprise in the AGI era. However, the mid-end requirements in the AGI era are different from those in the PC era and the mobile Internet era. For example, you can imagine the end of AGI in the physical world as a robot. It needs to have the ability to sense, the ability to make decisions, the ability to execute, and the ability to respond. It really works like a human being. On the other hand, the capabilities of the back end are different. The soft part has the capability of modeling, the capability of software, and the capability of operating systems. The hard part has the capability of the hardware itself, as well as the capability of computing. I think there are two challenges in terms of operation. One is how to operate AGI in this context, like the world model we are working on, It's not like writing a set of IT software can run AGI's robots. It also includes, in addition to managing these regular robots, it also includes the management of the human way of looking at the robot, which will be completely different. I think this is what we want to achieve in the future, the real challenge that AGI's middle-end enterprises face. I think this is what we are thinking about. This is the key to the problem. Also, if we look at the situation of our users, I think there are three types of robots related to their lives. One is a space robot with L4-level autonomous driving. It runs in an open space. And the second one is a robot that works with people. It's a robot that can enhance people's abilities. Apple Watch. Apple Watch.

So when we think about this overall positioning of what we need to do in the AI period, I think the first fundamental question is our positioning. Because different positioning requires different types of capability and provide different types of user value. So let's take an example. After 1975 in the PC world, there emerged Apple making Macintosh, and there was Microsoft making DOS and Windows, and there were also device manufacturers. And similarly in the mobile age, there was iPhone and there was Android offering device, OS, and open platform, etc., Each one of these companies achieved great market success, but they chose different positionings, and they used different models, and they had to make different tradeoffs. For example, Apple chose a less open approach and provided better user experience, whereas Android had a more open approach, but the user experience may not be perfect at all times. So coming back to Lee Auto, which one of these positioning should we choose? First of all, we think in the AGI world, our positioning is to become a hardware or device manufacturer. But different from PC or mobile world, device manufacturer for AGI world requires a different set of capabilities and experience. So in general, device we make in the AGI world or the overall AGI device is, broadly speaking, a robot. Therefore, it needs to have the cognitive, the execution, the feedback, the reasoning, and decision-making capabilities. And that, of course, includes software, AI functionalities, OS on the software side, and on the hardware side includes not only the physical movement pieces but also the computing power. And on top of that, it also requires operation. We need a robust system to operate these devices in the AGI world. We can't simply rely on an IT software. Probably we need to use something more like a world model. So how do we manage these silicon-based devices is also going to change. And at the same time, how we manage carbon-based human beings are also going to change, and they're going to be managed differently. So in the AGI world, to sum up, we want to become a device maker providing with the above capabilities. The second thing we need to think about is user scenario. And from this point, I can see three types of robots in general. The first is more closely L4 vehicle, or we call space robot. It can navigate itself in open space with its own cognition and decision-making and execution power. The second type is the type of robot that enhances human capabilities. And the third one, which I think is the most difficult one, operates indoors. It has the shape of a human being and it can navigate itself. So these are the three different robots that I see in the AGI world. And they combine, pretty much cover all aspects of human life. And we want to be a maker of all these devices so we can provide services to our users in different scenarios. It is comparable, for example, to Apple, which provides the Macintosh, the iPhone, the iPad, and iWatch, which covers different aspects of users' lives. Here's our latest thinking for the next three to five years, and probably even longer, and we'll iterate over time. Thank you.

Your next question comes from Tina Ha with Goldman Sachs.

Thank you for your time. I have two questions. First, I would like to ask about the future of the car industry in the year 2026, including the overall sales of the car industry, including the market competition, because this year is mainly focused on the car market. Next year, we think the market competition may be more focused on which aspect. The second question is, My first question is in terms of the 2026 outlook. in terms of the, I think, overall auto industry and EV industry, your volume outlook as well as the competition intensity. And then also this year, the competition is mainly focused on autopilot. So next year, do you see a continuation or change in that? And then the second question is regarding autonomous driving itself. So in the future, in the world of L3 and L4 becoming more prevalent, Does management think there is a monetization method for these autonomous driving software? Thank you.

我来回答这两个问题。 第一个问题的话,关于2026年行业的话和竞争, 我们首先认为的话,2026年的话国内市场, 新能源的话渗透率仍然会持续的话上升。 The competition in the market will turn from real competition to pure competition. And then the brand will become more and more influential in every store. Consumers are more inclined to choose brands with a better reputation. In addition, in each price range, the top brands will use product technology. Brands and service comprehensive advantages market share will increase more and more. That is to say, In addition, in terms of technology, we also think that the competition will intensify, and many car brands will accelerate the layout of high-end car manufacturers, and the competition for intelligent driving will be more and more intense. In addition, we also think that the development and competition of multidirectional technology will still exist, such as the improvement of the technology of the smart control chassis that controls and comforts, as well as the improvement of the AI technology for handling projects, It may become 26 or even a point of competition in product power in the future. That's our own strategy. We will continue to improve the quality of the product. In 2020, we will also have a new product listing to complete the construction of the body of the car, and then to cover multiple levels of different price ranges to meet the needs of more consumers. In addition, we will also expand our investment in AI technology such as pricing. First of all, on industry and competition,

We believe that the penetration rate of NEV will continue to increase in 2026. The market competition will transition from competing for growth to competing for market share. Brand will play a very important role in users' purchase decisions, and users tend to choose brands that are well-known and have good word of mouth. In different price segments, the top brands are going to increase market share through their advantages in product, technology, brand, and overall service experience. In other words, the market concentration is going to continue to increase. Another trend that we see is many car brands will continue to improve and accelerate their development of advanced autonomous driving. The competition here is going to be more intense. On the technology front, technologies like drive-by-wire, which includes write and handling experience, Technologies like AI cockpit, which includes user interaction experience, will also become a focus of competition in 2026 and beyond. And for LEA Auto, our strategy is to continue to complete our product portfolio with several cars launching in 2026. We will complete our full coverage of the range-extended pure electric product matrix. covering different price ranges and different segments, and to cater to more users, as many users as possible. In the meantime, we'll increase our investment in autonomous driving and other artificial intelligence technologies to maintain our lead in overall product experience. We will also expand our expansion for a supercharging network and increase coverage as well as service experience. and to fully eradicate range anxiety for our users. Apart from the domestic market, we will work with different types of partners through different methods to accelerate our growth in overseas sales and service networks. Thank you.

The second question is whether L3 and L4 will be limited in the future. We believe that the current smart driving, including L2 and L3, is still a tool to assist people in driving. There may be some differences in technical development, but it is only reflected in the range of use and the high and low of the ability to assist. In essence, people are driving, and there is no fundamental change in the relationship between people and cars. However, if the automatic driving evolves to L4 and becomes a driver, At this point, this system will turn from a tool to a assistant, and it can really replace people to drive, which is equivalent to hiring a dedicated driver. In this case, we believe that users will be willing to pay for it. Not only that, after users do not need to drive themselves, the car will also be upgraded to a space robot in the age of AI. At this point, the software and services in the car will be given a higher value. On L3 and L4, so coming back to the current stage of including L2 and L3, they're essentially machines

assisting humans to drive. They're really tools. There may be different approaches to L2 and L3, but the main difference is in the range of usage, the coverage of usage, and also the availability of different features. But fundamentally, it's really still the human driver taking control of the car. There's no fundamental change in the relationship between human and the car. But as we evolve to L4, The car will become an agent, or we call it a driver agent. So there's going to be a fundamental change between the human and car relationship. The autonomous driving system will evolve from just being a tool to become an actual agent that can replace human beings in driving. It's comparable to hiring a professional driver. In this scenario, we believe that users will be willing to pay for this kind of service. And on top of that, when users are relieved from the burden of driving, cars will become a robot or what we call space robot that can navigate the physical world in the AI age. And in this era, the in-car information, in-car software and experience and services will have greater value and may lead to new business models which give us more room for imagination. So with the huge potential of L4 era, our team is already very actively exploring, and our goal is to capture this very big opportunity when the time of L4 comes. Thank you.

Our next question comes from Bin Wang with Deutsche Bank.

Thank you. My first question is about finance. My first question is about the first quarter gross margin guidance. We have been noticing some of the positive side from the components pricing deduction. We also noticed that you provide some cash discount. So can you provide the first quarter gross margin guidance? Thank you.

Hi, Momin. This is . At the first quarter, the low season due to Chinese New Year and also we have some sales promotion after Chinese New Year. So all that conclude together. We expect our Q1 vehicle source margin

be around 19%. Yeah. Thank you. Great. Great. Second question. My second question is about the media reports say that and the chairman actually will no longer take care of the auto business, and the focus will shift into the AI R&D. My question is that, what's the change in the management allocation, and how to balance the vehicle business and the upcoming AI business? Thank you.

I'm Li Jiang. First of all, I'm the CEO of the company, and I manage the product line, product department, brand, strategy, and so on.

Mr. Li is still the CEO of the company, and he still oversees the different departments related to the car business, including vehicle lines, including product department, branding, and strategy departments. This remains unchanged from 2024, and we have allocated new responsibility under our BLM and DST framework, assigned new person in charge, and we remain devoted to relying on efficient collaboration across the company to support our success in the long term.

Your next question comes from Yingbo Zhu with SciTech Security.

Thank you, Manager Cheng. I have two questions. The first question is about the MEGA product. So I have two questions. The first one is how is the MAGA market performance and what's our expectation or plan for MAGA in future? And the second question is, what's our long-term plan for internationalization? Thank you.

你好,我是周良君。 那我回答你的这两个问题。 那首先是第一个问题,就是理想MEGA是一款定位50万以上的豪华纯电MPV, 已经连续多月保持在这一 This year, we hope that DreamMega can continue to maintain the top three status of this segment market, and achieve more than 10,000 to 15,000 full-year sales. In addition, DreamMega's user recommendation value, which is what we call NPS, continues to maintain its high position, which is the best performance of user reputation among all our products. In the long-distance travel scene such as the Spring Festival, Dream Mega's base plate, seat comfort, NVH, smart dining, smart driving, and high-speed 5C supercharged service have brought users a product experience that surpasses expectations. Therefore, Dream Mega's NPS and sales have increased significantly after the Spring Festival. This shows that users are highly satisfied with the products and services of DreamMega, and are willing to recommend them to those around them. At the same time, with more than 1,900 5C supercharger stations that we have built, Mega users can get 5C supercharger experience on the highway or on the city road, solving the problem of inconvenient user long-term charging. 我们还在继续加大5C超充网络的建设。 按照计划,我们今年一季度将会完成超过2000个超充站, 打通9横9纵的国家级高速公路。 我们将在理想I8发布的时候建设完成超过2500个站的超充网络。 在今年4月份,我们将建设完成G318公路的5C超充网络。 At this time, the ideal car owners will be able to drive the MEGA on the G318 line. We will continue to open more than 50 travel routes this year to provide the ideal car owners with a convenient and quick charging experience. By the end of the year, we will cover more than 67,000 kilometers of national-level high-speed rail lines and 10,000 kilometers of provincial-level high-flow high-speed roads. The total coverage is more than 77,000 kilometers. Currently, the four major economic areas in China have been built into 483 high-speed supercharger stations, with an average interval of 99 kilometers. At the end of this year, we will realize the full coverage of the four major economic highway supercharger stations. With the continuous improvement of this year's supercharger network, as well as this year's ideal i8 and other

Li Mega is a luxury pure electric MPV priced at over 500,000 RMB, and it has been the number two in sales in this segment for many consecutive months, only second to the Toyota Alphard. This year, we hope that Li Mega will remain top three in this segment and with expected annual sales between 10,000 and 15,000. On top of that, Li Mega is one of the cars with the highest net promoter score among our product portfolio. In periods like the Chinese Spring Festival, Li Mega has been widely praised for its chassis, seat comfort, NVH, smart cockpit, autonomous driving and highway 5C charging experience, it has significantly exceeded our user expectation, which further led to an increase in mega NPS after the Spring Festival, which speaks to user satisfaction with the product and services and their willingness to recommend the car to people around them. In the meantime, the number of our directly operated 5C charging stations has exceeded 1,900 So mega users, whether they're driving on highways or driving in cities, they have easy access to 5-seat charging experience, which eliminates any anxiety with charging on long road trips. In the meantime, we're also accelerating our rollout of more 5-seat supercharging stations. And as planned, we will have over 2,000 stations by the end of the first quarter connecting the nine transverse and nine longitudinal highway routes in China. By the time we launch the I-8 this year, we expect to have over 2,500 stations, supercharged stations. And in April this year, we plan to cover the entire distance of the G318, a well-known Chinese roadway, so that our mega users can drive their cars on G318. And we also have plans to open up 50 travel routes or road trip routes to provide easy charging experience for our users. By the end of this year, our charging stations will be covering over 67,000 kilometers of highway and over 10,000 of inter-province highways, totaling over 77,000 And we have already built 483 charging stations across the four major economic zones in China with an average interval of 99 kilometers. By the end of this year, we will be covering all of our four economic zones with highway supercharging stations. As we continue to build out our supercharging stations and as we roll out VI8 and other pure electric models, With the scale, economy scale, we are very confident in the sales volume of LeanMega.

那我接着回答第二个问题。 2025年,公司管理层已经明确了国际化和海外市场是公司的核心战略之一。 我们会认真的去开拓海外市场,并且从品牌营销,渠道,售后服务体系,组织和团队等方面, to build relevant capabilities. At the beginning of this year, we established an independent overseas market expansion department. We recruited a group of experienced people from the company to join this team. On the market side, we will rely on the luxury brand image that has been established in the market in Central Asia and continue to expand the market expansion. At the same time, we have been in Kazakhstan and Uzbekistan in the past year, A-Linqiu and other markets have established their own after-sales service centers for ideal vehicles. At the same time, we also provide local qualified after-sales service networks with original components and technical support services to ensure that overseas customers can get ideal vehicles that are always on top of the market and are provided with time-saving, cost-saving, and money-saving services. At the same time, we are also expanding the expansion of the Middle East, Latin America, and Asia-Pacific markets. We will work with excellent local partners to expand the overseas market. We will choose a group of excellent dealers as our local partners to expand the market together. At the same time, we will also expand local marketing investment in the above market to build a perfect social service network. 2025 is the year when the ideal car overseas market officially opened. With the help of the Chinese market accumulated over the past few years, In 2025, we are very aligned that overseas expansion is going to be one of the core strategies of this company.

So we will be devoted to expanding the overseas market and building capabilities across branding, marketing, channel and after sales, as well as organization and recruiting. At the beginning of this year, we had already established an independent overseas expansion department and have moved many experienced personnel from the company. On the market front, we will be building on this luxury brand image that we have already established in Middle Asia and other markets to expand our market share. In the meantime, in the past year, we have already built service centers and after sales centers in Kazakhstan, Uzbekistan, and UAE. At the same time, we'll also provide original spare parts and tech support to qualified after sales partners so that our overseas customers can enjoy the same level of service that we provide to our domestic customers. In the meantime, we'll also expand our market in Middle East, Latin America, and Asia Pacific. We'll be working with high quality local partners to expand our overseas market. We'll also be picking a small number of dealers as our local partners to expand the market together. We'll also expand our marketing and building out a very complete after sales network. 2025 is our first year of officially launching into the overall overseas market, and we will be building on capabilities that we have built in the domestic market, and we're confident to have made significant progress in the overseas market this year.

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. That's all for today. Thank you and have a nice weekend.