Li Auto Inc.

Hello ladies and gentlemen, thank you for standing by for Lee Otto's first quarter 2025 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. Jana Zhang, Investor Relations Director of Lee Otto. Please go ahead, Janet.

Thank you, Kelly. Good evening and good morning, everyone. Welcome to Lee Otto's first quarter 2025 earnings conference call. The company's financial and operating results were published in a press release earlier today and are posted on the company's IR website. On today's call, we will have our Chairman and CEO, Mr. Xiang Li, and our CFO, Mr. Johnny Tie Li, to begin with prepared remarks. Our President, Mr. Donghui Ma, and our Senior Vice President, Mr. James Liang Jinsuo, and our CTO, Mr. Yan Xie, 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 Dedication Reform Act of 1995. Forward-looking statements may 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 companies' 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 under applicable law. Please also note that Lee Otto's earnings price release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Please refer to Lee Otto's disclosure documents on the IR section of our website, which contain a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. Our CEO will start his remarks in Chinese. There will be English translation after he finishes all his remarks. With that, I will now turn the call over to our CEO, Mr. Xiang Li. Please go ahead.

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you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. replace the core functionalities of standard autosat operating systems. On top of that baseline, HALOS brings significant advantages in areas where traditional autosat OS doesn't do very well, such as more efficient resource usage and true -to-end time determinism. What is more, by redefining the system architecture, we are able to address some of the limitations of the relatively heavyweight autosat framework, especially when it comes to enabling faster, more agile innovation. Thank you.

In particular, the true -to-end model is an upgrade solution for the maintenance of new vehicles, which is also mentioned in the question, the ideal L6 and L8. The pure -to-end model is an upgrade solution for the maintenance of new resources. This is also the main market for the future after we launch the ideal I8 and I6 in the second half of the year. The second point is that we estimate that the market space for N1V with more than 200,000 units this year is about 3.8 million. Among them, PHEV is 1.69 million, and the pure EV market is 2.13 million. From here, we can see that after we launch the pure EV model, we will enter a bigger market space. Thank you.

The current ownership base of N1V cars. Our expectation for this year is that the overall N1V market, over R&B 200,000, will be about 3.8 million units this year, and among which 1.69 million will be PHEV and 2.13 million will be VAPs. Therefore, by introducing VAP models, we will be taking it to a bigger market. Thank you.

Thank you. Your next question comes from Tina Howe with Goldman Sachs.

Hi, management. Thanks for taking my questions. So I have two questions. The first one is regarding our balance sheet. So just wondering, what is our target leverage ratio and also sort of what is our payable cycle, including some of the bank bills, bills payable to the supply chain? And then the second question is regarding our upcoming I-8, the PHEV model. So could management share with us what do you think is the biggest selling point and advantage versus other VAP models in the same segment? And then the second question is regarding our upcoming I-8, our stock SUV. What do you think is the main advantage versus other VAP models? Thank you.

Okay. Tina, this is Johnny. I'll take the first question. We are very committed to maintain good relationships with supplier partners. We strive to maintain the payable days at a reasonable and healthy level, basically ranging from two to four months. So if you see our payable days at the end, it's because there are some reconciliation days need to be spent after we book the balance. And we will finally reconcile the balance with our suppliers. At the end of Q1, the payable balance didn't change much compared with the end of last year. So the total increase in the payable days was mainly due to the calculation, which is due to the lower cost of sales in the first quarter. Thank you. I

would like to talk about the advantages and disadvantages of the I-8. In addition to the latest VRV C-Class model, the I-8 has a new design design that satisfies the greatest space and uses the most effective combination to create the lowest cost. At the same time, I think the I-8 will have a very satisfactory stability and price-efficiency. In addition, the I-8 is close to the full charge. We have done it for 10 minutes and the high-pressure charging technology of 500 kilometers can be achieved on the I-8. And we can provide more than 2,500 superchargers when we deliver. And these superchargers are around the city and environment where our front-end car owners live. So I believe that the I-8 can provide very good upgrade and replacement cars to current storage of new car users.

So to brief a few points on the I-8's key selling points. Apart from the VLA driver model, which I mentioned earlier, the I-8 also has a very innovative styling, X-URE and IN-TUR. And the X-URE styling is really designed around smart packaging to allow for the most space inside as well as a very low drag coefficient. And in the meantime, I-8 also offers very good handling and ride comfort. Apart from that, I-8 also supports charging up to 500 kilometers in 10 minutes with this high-volt charging technology. And by the time we launch I-8, we'll also have built 2,500 supercharging stations to prepare for the launch of I-8. And all these charging stations are built around the surroundings and the travel routes of our potential customers. So we have reason to believe that the I-8 will be a top choice for existing owners of NEV cars as a replacement or upgrade to their current model. Thank you.

Thank you, Mr. Kuo. Thank you, Ms. Chen.

Your next question comes from Jin Cheng with CICC.

Thank you for answering my question. My first question is about our sales goals and some of the outlooks. Will we set a clear sales goal this year or will we adjust our price and quantity plan according to the change in the market? In the long run, the company has also made some calculations. Based on recent market changes, we have made some judgments on the market capacity of high-end SUVs and home-use models. What do you think about the domestic market space in the medium term? This is my first question. Regarding to our sales target and also some trends outlook, will we set up a clear sales target this year or will we flexibly adjust our volume and price strategy according to the market changes? Also in the longer term, previously, we have our calculations about the market size. Given the changes in recent two years, have there been any changes in our adjustment? Regarding to the mid to high-end SUVs and especially family-target cars, what is our mid-term sales target in the domestic market?

In the previous question, I also mentioned that in the past 20 million SUVs, we have had a market space of 3.8 million. Out of these, over 2.1 million are pure-fiber products. After the production of pure-fiber products in the second half of this year, we will be able to enter this market. Thirdly, in terms of market needs, I will give you an example. The domestic market space is very large. For example, in the 45-line cities, we recently announced the 100-line refurbishment plan. This plan will help us to strengthen the coverage of the 45-line cities. In the past year, we have also done some tests in some 45-line cities. Because we were mainly focused on the big cities like the first, second and third lines. In the past four years, I will give you an example. For example, in the city of Sichuan, Zigong and Dazhou, which are all four-line and five-line cities in China, since the opening of these two cities in September last year, in less than half a year, we have gained 28% of the market space in the PV market, which is more than 200,000. In Yan'an, Shaanxi, which is also a five-line city in China, we have also achieved 25% of the PV market in Yan'an. Due to the increase in the number of new energy vehicles, more and more consumers are buying new energy vehicles. At the same time, due to the launch of the L6 model, we have seen a greater market opportunity in the four- and five-line cities. So this year we will further promote our refurbishment plan to bring new energy to consumers. Our goal is to bring more energy to the four- and five-line cities this year. We hope that in 2026, only the expansion of the four- and five-line cities can bring more than 100,000 energy to the market. Thank you.

Thank you. Thank you. Thank you.

Thank you. My second question is regarding to AD. So Mr. Li Xiang elaborated in detail in how we do VLA in the previous AI talk, talking about our driver-lodge model, several progress, including pre-training of the foundation model and the different types of reinforcement learning, etc. So what difficulties do you think there and how we do to differentiate ourselves from peer companies?

So we have to understand the two parts of reinforcement learning. This is also a problem that all companies are solving. In the VLA driver-lodge model pre-training, we use the video data that we have specified, and let the model have the understanding ability to understand three-dimensional spaces. This is different from other models, which only have the understanding ability to understand two-dimensional spaces. In addition, the reinforcement learning of RL needs to be in the real model, and then continue to bring the ability of VLA driver-lodge model. We rely on the method and technology of reconstruction and production, to develop the model of the world that pursues the physical world rules, and to replicate all the traffic participants and elements. Based on the accurate imitation ability, VLA driver-lodge model can accurately verify the problem of reality in the world model with low cost, and the model is clearly evolved. Thank

you. The next step is to bring reinforcement learning into a VLA model, and then is reinforced learning with human feedback, or RLHF, and finally RL reinforced learning. This is how we train an experienced driver through AI. The hardest part of all this is the pre-training, which is the VL foundation model, as well as the last step, the reinforced learning step. This is a problem that all enterprises are trying to solve. First of all, in the VL foundation model training process, we're trying to add specific video data, so that the foundation model can understand three-dimensional space, as opposed to other models, which only understand 2D space. This is a key differentiation of our foundation model. Then in reinforced learning, requires us to train the model in real world, in simulated environments, to iterate the VLA model and improve its capabilities. Through reconstruction and generative processes, in a combination of these two methods, we can build world models that actually follow the physical laws, the laws of physics in the real world, and replicate traffic participants and other elements. With very accurate simulation capabilities, the VLA driver model can train at very low cost and very accurately verify real issues in a simulated world model, and it can also significantly reduce the iteration period. Thank you.

Your next question comes from Bin Wang with Deutsche Bank.

First, about the profit rate, and second, about the export. Can you explain the factors that increase the profit rate in the first quarter? We see a price change. What exactly is it? At the same time, can you tell us what the profit rate in the second quarter will be? After the new product, we have some repurchase discounts. Can you tell us if the profit rate in the second quarter will recover? The second is the export. We have some plans for exports. Can you give us some tips on when we can make more than a thousand dollars a month? Thank you. Let me translate. I've got two questions. One is about your gross margin, and the second one is about the export. In the first quarter, you actually are enjoying the margin expansion. You mentioned that pricing is a strategic change. Can you provide more detail about this strategic change? Meanwhile, what's your outlook for the second quarter? We think that when you launch a new system, it will actually reduce the cash subsidy. We assume your margin will actually increase in the second quarter. For the second question about the export, you previously said that this year will be the starting point for the export. Can you tell us when the meaningful volume will be emerged for the export business, when you can start to say the monthly export volume will exceed 1,000 units? Thank you.

Hi, this is John. I think our first, we expect the vehicle margin to still remain around 90 percent for the second quarter. As you know, the second quarter is April and May. The mega is not there. As of today, we have a lot of new mega homes. All our home hand sizes will still start huge volume delivery starting from this week. Also, it's switched from the 2024 version of L Series to 2025, so it's a combination. We still keep the vehicle margin around 90 percent.

Thank you. Hi, I'm John. I'll answer your second question about the export. First, we can only provide hardware, social services, and software and smart services at the same time before we really enter a market. Because we sell the middle of the age of manpower, not only for the trade of products. In the second few years, we will focus on Asian and European markets. We will recruit mature retailers in these areas. At the same time, we will also step up and select a group of excellent employees from within the company to join the overseas market team. At the same time, we are actively attracting international experts to join our team. Third, overseas markets are a long-term strategy for us. We hope to continue to work hard to make overseas markets' sales volume reach 30 percent. Thank you.

In these three conditions, can we enter a new market? Because we consider ourselves to be selling AI here terminals as opposed to just selling physical products. Over the next few years, we'll be focusing on Asian and European markets and recruit established distributors across these countries. In the meantime, we're also stepping up our efforts to identify and assign top talents, internal talents to our overseas market team. We're also recruiting actively professionals with international experience to join our international team. Overseas market is part of our long-term strategy. We'll be working very hard with the goal of reaching 30 percent of overall sales overseas. Thank you.

Thank you.

Our next question comes from Paul Gong with UBS.

Can we use the UBS? Because recently, the government has been monitoring the support driver. Do we need more testing time to ensure its safety and usability? The second question is about the Mega Home. The Mega Home is very good compared to the previous one. What kind of insights can we learn from it? Let me translate. My first question is regarding the VLA timing for availability to the consumers, especially given the tightening of the regulation on the driving assistance recently by the government. Do we need more time to verify it, or are we still confident that it would be available for consumers to use in July? The second question is regarding the implication of Mega Home. This has definitely shown some improvement from the previous Mega sales. What do you think are the lessons learned, and what would be the lessons for the upcoming I-8 and I-6 launch?

I am Ma Duguiz. I will answer the first question. The VLA timing for the Mega Home will remain in July, with the official launch of the I-8 and I-7. In August, we will officially launch the I-9. The I-8 will be available for sale in all countries. We believe that supervision is very important for the security of the assistance. In fact, we think that this kind of management is even worse for companies that are more technically reliable. For us, our super technology will solve the security problem. During the development process, we have always placed safety first.

We are still on track to releasing our VLA driver model in July, together with our Fabelectric SUV I-8. We will then be rolling out VLA drivers to all of our users in August. Obviously, our customers can also experience VLA drivers in our test drivers. We have a lot of VLA drivers in our stores. We view regulations on safety and assisted driving to be absolutely necessary. In fact, we view stringent regulations to be more favorable to companies with solid technical fundamentals. For Lee Auto, our super alignment technology will address many of the safety concerns and allow us to prioritize safety at the top consideration in all development stages. Enhanced regulatory regulations requirements will not hinder our R&D efforts. Thank you.

In fact, the actual number of customers has exceeded 150%. We will work hard to ensure that the stable technical costs of 25,000 to 30,000 a month will continue to be met. I think that in the past year, after some difficulties occurred in Mesa, we have not paid attention to the desire to compete. We have not been encouraged to compete because of the number of competitors entering the market or the number of competitors in the market in various fields. We still focus on the user value and the family of the user. I think if we continue to do innovation in this way, and if we look at the future, I think it gives us a great opportunity to start with the experience of moving space. We have just started. There are countless products that can be experienced and realized. Not only on hardware, but also on the results of artificial intelligence technology. I hope that in the future, when we think of the interaction experience, the best company in the world is Apple. I hope that as we work hard to make people think of the definition of space experience, I hope that the first company in the world is the dream car.

In fact, our previous study rate of mega-deliveries was about 1,000 per month. Our expectation was for it to increase by 50% with the launch of the new model. In fact, it eventually increased by over 150%, significantly exceeding our expectations. Obviously, we hope to increase production capacity to maintain a steady-state delivery rate of 2,500 to 3,000, as we expect. As we look back at the previous year and how we got to where we are today, we realized the most important thing was not to focus on our own internal desires or focus too much on competition or on specific market segments, on which competitors enter this market and do things based on our fear. In fact, we return to the users that focus on their family users and what they actually need and how we can surpass what they're looking for or other products or offering in the market and innovate around their needs. One opportunity that we see as we see the success with the new Mega-Home and what we've done, the explorations we did last year was really this opportunity around mobile space. There are so many things that we can do to innovate around this mobile space experience, and there are so much exciting product features that we're exploring because we hope the car going forward is not the experience that's not going to be just focused on hardware, but actually an integrated AI experience enabled by hardware and software. So looking forward, we know when we talk about user-machine interaction, we think of Apple as a company that does it best in the world. We hope when people talk about space experience, people think of Lee in the future. Thank you.

Thank you very much. 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. Jianan Zhang, please go ahead.

Thank you once again for joining us today. If you have further questions, please feel free to contact the Liotto's investor relations team. This concludes today's conference call. You may now disconnect your lines. Thank you.