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. Janet Zhang, Investor Relations Director of Lee Otto. Please go ahead, Janet.

Thank you, Kelly. Good evening and good morning, everyone. Welcome to Li Auto'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 Jingzhou, 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' filings 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 Li Auto's earnings price release and this conference call include discussions of unaudited GAAP financial information, as well as un-audited, non-GAAP financial measures. Please refer to Li Auto's disclosure documents on the IR section of our website, which contains a reconciliation of the un-audited, 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.

Hello, everyone. I'm Li Xiang. Welcome to today's phone call meeting. First, let's review the performance of Li Xiang's first record. In the first record of 2025, the total sales of the new car was 92,000 taels, which is 15.5% of the total growth. The sales volume and driving income reached RMB 259 billion. According to the data of the mid-term inspection, Li Xiang's performance was strong in the Chinese mid-term car market of more than 200,000 taels, which was twice as close to the big market. In addition, as of the end of April this year, The ideal car has won the Chinese car brand championship for 14 years in a row. Especially in April, the ideal car market share reached 14.1%. It has further occupied more than 200,000 new cars in sales and defense. By the end of April, the total delivery of ideal cars has exceeded 1.26 million. As a developer and leader of the upgraded model, the ideal car series continues to improve the value of users In the face of the challenge of the latter, it has always maintained its competitive advantage. Recently, we have released the smart changeable version of the Dream Mega and Dream 2 series. The changeable model with the ADMAX high-end support driving system has been upgraded from the Inreda Dual AuraX chip to the Su-2U chip. The changeable model with the ADPRO support driving system has been upgraded from the D-line GO5 chip to the GO6M chip. and standardize the ATL full-frame rear-view radar jointly developed by us and Hezai. The user brings a more intelligent and safe driving experience. In addition to the upgrade of the driver, we are still working on the control of the dashboard, the appearance of the TV, the smart seat, and so on. We have made further upgrades and improvements to the L-series change version. In addition, on the 23rd of April, we launched a list of the latest ideas we have for everyone in the Shanghai car exhibition. the ideal MEGA HOME special edition. MEGA HOME has the ideal flagship model. It is also the most close to the company's mission that we have built so far. It is a product that creates a mobile home and a new home. After the HOME version was launched, the overall ratio in the MEGA model exceeded 90%. It significantly improves the user's recognition of product power and innovation value. At present, the number of new orders is still high. In order to meet the daily needs of the users, we will continue to improve our production capacity. We expect to achieve the target of 2,500 to 3,000 orders in July. The ideal micro home, ultra, and ideal L series smart change versions have all been delivered this month. With the front-end delivery of the updated model, we expect that the delivery volume of the second-generation ideal car will reach 12.3 million to 12.8 million. The success of the ideal MIGRAN HOME has increased our confidence in the ideal pure metal SUV into the high-end pure metal market. Our pure metal SUV launch preparation work has progressed smoothly. Among them, the ideal i8 will be officially released in July this year, and the ideal i6 will be released in September this year. Currently, i8 test vehicles are registered nationwide and are in the final stages of optimization before mass production. The total test journey has exceeded 9.5 million kilometers. High-efficiency variable charging network is a key factor in the user experience of fully charged vehicles. With the fully charged vehicle market plan, we have established the largest city and high-speed supercharging network with the largest vehicle size. As of the end of the first quarter, the high-speed highway is more than 50,000 kilometers. At present, the ideal car has opened and operated 2350 ideal superchargers with more than 1280,000 superchargers. We are also in the whole country, including the G318 passing line. Twenty popular tourist attractions in the supercharging network are under construction. We will continue to speed up the supercharging layout. to ensure the completion of 2,500 ideal supercharging stations in June and to reach 4,000 agricultural targets by the end of the year. In the future, we will continue to expand the charging network advantage in our car, so that more users can charge without worries. In terms of supporting driving technology, we continue to quickly transform the retail market. We independently developed the new generation of supporting driving technology structure VLA Vita model, Unification, space, language, and behavior intelligence in a single model, so that the assistant driving system can sense, think, and adapt to the environment. The VLA-4G large model will bring the user a new product perspective and product experience. A vehicle with the VLA-4G large model is an intelligent body that can communicate with the user and understand the user's intentions, and can be heard, seen, and found. At the same time, our self-designed unified world model that rebuilds and generates clouds is able to construct a virtual environment that is close to the real world, and supports VLSG large model to achieve large-scale and comprehensive reinforcement learning in the virtual environment, and to learn from mistakes in real sense, and to continuously improve the efficiency and quality of the model. The VLSG large model will be released together with the ideal i8, and will then be launched by OTA to all ADMAX high-end support driving models. We believe that the VLA driver model will make the car become the bridge between the physical world and the digital world. In the future, we will continue to explore the deep integration of multi-mode interaction and driving decisions to provide users with a more natural driving experience. The ideal class is also growing steadily. Through the OTA delivery of the ideal class at the end of May, a new image was obtained. They also have the ability to remember and get to know each family member. The ideal student also has the ability to be an agent and become the life assistant of the user. The user can control the ideal student by voice, order, and check the express. In the future, we will also create a more personalized smart space to bring a different experience to the user. In April, we completed the release of the ideal golden OS technology YPS. The first key code has also been uploaded to the open source technology community. As the world's first open-source, self-sufficient, smart vehicle operation system, we hope to share the same vision with OS, assist our partners in the industry, and improve the industry together. In terms of the sales service network, we are preparing for the growth of expected sales this year and the launch of new vehicles. At the same time, we will continue to focus on expanding the network of headquartered car cities and shopping malls, and through the completion of the plan, we will further lower the cost and increase the cost-effectiveness of city coverage, As of April 30, 2025, Ideal Motors will operate 500 retail centers in 151 cities across the country. In 223 cities, it will operate 500 post-selective maintenance centers and spray centers. In the future, we will insist on using the customer as the center and innovation as the driving force to continue to achieve the leading product advantages in the industry and create happiness for more families. Next, let's welcome CFO Li Tie to introduce our financial statements in detail.

Hi, everyone. This is Li Xiang, and thank you for joining today's conference call. In the first quarter of 2025, we delivered more than 92,000 vehicles, an increase of 15.5% year-over-year, bringing total revenues to RMB 25.9 billion. We performed strongly in the RMB 200,000 above NEM market in China, growing at twice the market rate according to the insurance registration data from the China Automotive Technology and Research Centers. As of April 2025, we have been the segment sales champion among Chinese auto brands for 14 consecutive months. In particular, we topped the market with a 14.1% market share in April, further reinforcing our leadership. As of the end of April, we have delivered more than 1.26 million vehicles. As a pioneer and leader in EREV, Li L series continues to enhance user value through ongoing innovation and product iteration, maintaining a competitive edge despite challenges from newcomers. Recently, we launched the new Li Mega and new Li L series. The refreshed Li AD Max models received NVIDIA's latest Thor U chip, while Li AD Pro models upgraded from Horizon Robotics Journey 5 to Journey 6M chips and include ATL LiDAR sensors co-developed with CloseEye as standard. In addition to these upgrades for assisted driving, we have enhanced chassis control, exterior and interior design, and smart cockpit across the new LiL series. On April 23rd, we launched LiMega Home at Shanghai Auto Show 2025, reflecting our latest understanding of multi-generational families and their mobility needs. Featuring top tier configurations for our flagship model, LeadMega Home aligns closely with our mission to create a mobile home, create happiness. Since its launch, LeadMega Home has accounted for over 90% of LeadMega orders, demonstrating its strong value proposition and user recognition. LeadMega currently has a robust order backlog with continuous inflow. To meet growing demand, we're increasing our production capacity to achieve 2,500 to 3,000 monthly deliveries by July. With the delivery of Li Mega Home, the new Li Mega Ultra, and the new Li L series in May, we expect second quarter deliveries to reach between 123,000 to 128,000 units. The success of Li Mega Home strengthens our confidence in becoming a top tier player in the premium BEV market with a robust DevPep pipeline. Preparations for our upcoming events are progressing smoothly, with VI8 and VI6 scheduled for launch in July and September, respectively. VI8 test vehicles are currently undergoing road tests across the country and have already locked over 9.5 million kilometers as part of our preparation for mass production. An efficient and convenient charging network is critical for electric vehicle user experience. To support our BEV launch, We have built the largest urban highway supercharging network among all automakers in China, covering over 50,000 kilometers of highways as of the end of the first quarter. Currently, we operate 2,350 supercharging stations equipped with over 12,800 charging stalls. Additionally, we completed the deployment of a supercharging network along 20 long-distance tourist routes. including the G308 Sichuan to Tibet Highway. We will continue to accelerate supercharging network deployment with plans to deploy over 2,500 stations in June and aim for 4,000 stations by the end of the year. We will further enhance our competitive edge over other automakers on charging network going forward, ensuring a hassle-free charging experience for our users. We continue to rapidly develop our ADAS technology, Our in-house developed VLA Driver model as our next generation ADAS architecture integrates spatial, language, and behavioral intelligence into a single model, enabling ADAS to perceive, think, and dynamically adapt to the environment. VLA Driver will redefine user experience and deliver innovative product formats, transforming vehicles into smart agents capable of communicating with users, understanding intentions, and acting as dedicated drivers that can comprehend, see, and locate. Our proprietary, reconstructive, and generative cloud-based world model creates realistic simulation environments that will support the closed-loop reinforcement learning of VLE Driver at scale. This will drive a continuous improvement in iteration efficiency and quality. We plan to launch VLE Driver with the i8 and then roll it out to all the ADMAX-equipped vehicles by OTA updates. We firmly believe that VLA driver will bridge the physical and digital worlds. Going forward, we will continue exploring opportunities to seamlessly integrate multimodal interaction to deliver a more natural human vehicle co-driving experience. Li Xiaopongxue also continues to evolve. The latest OTA update at the end of May introduced new design memory capabilities to recognize each family members and agent functions that allow it to act as an assistant for daily activities such as placing orders, making reservations, and tracking package deliveries via voice commands. Our aim is to create increasingly personalized smart space that can make human-vehicle interaction as intuitive as interacting with a family member. In April, we published the Lee Halo OS Technical Architecture white paper. and released initial code to the open source community. As the first automaker globally to open source's proprietary smart vehicle operating system, we hope to empower industry partners and foster industry-wide progress through the Halo OS. Moving on to our sales and servicing network, we're preparing for this year's expected growth in sales and new vehicle launches. We will continue to expand our network in the major auto parks and shopping malls while penetrating lower tier cities through the Star Plan to boost overall coverage efficiency. As of April 30th, 2025, we had 500 retail stores in 151 cities nationwide, alongside 500 servicing centers and Lee Auto authorized body and paint shops operating in 223 cities. Looking ahead, we remain committed to our user-centric approach driven by innovation and will continue to enhance our industry-leading product strength to deliver a greater happiness to more families. I will now turn the call over to our CFO, Johnny, to walk you through our financial performance.

Thank you, Xiang. Hello, everyone. I will now walk you through some of our 2025 first quarter financials. Due to time constraints, I will address financial highlights here and encourage you to refer to our earnings price release for further details. Total revenues in the first quarter were RMB $25.9 billion or $3.6 billion, up 1.1% year-over-year, and down 41.4% quarter-over-quarter. This included RMB $24.7 billion or $3.4 billion from vehicle sales, up 1.8% year-over-year, and down The year-over-year increase was mainly attributable to the increase in vehicle delivery, partially offset by the lower average selling price, mainly due to different product mix. The sequential decrease was mainly due to the decrease in vehicle delivery, which was impacted by seasonal factors related to Chinese New Year holiday. Cost of sales in the first quarter were RMB 20.6 billion or 2.8 billion US dollars, up 1.3% year-over-year, and down 41.6% quarter-over-quarter. Gross profit in the first quarter was RMB 5.3 billion or 732.9 million US dollars, up 0.6% year-over-year and down 40.7% quarter-over-quarter. Vehicle margin in the first quarter was 90.8% versus 90.3% in the same quarter, same period last year, and 19.7% in the prior quarter. The year-over-year increase was mainly due to cost reductions and the pricing strategy changes in the first quarter of 2024, which were partially offset by different production rates. Vehicle margin remained relatively stable over the prior quarter. Gross margin in the first quarter was 20.5%. versus 20.6% in the same period last year, and 20.3% in the prior quarter. Operating expenses in the first quarter will be $5 billion, or $695.5 million, down 14% year-over-year and 4.2% quarter-over-quarter. RMB expenses in the first quarter were RMB $2.5 billion or $346.4 million, down 17.5% year-over-year and up 4.4% quarter-over-quarter. The year-over-year decrease was primarily due to decreased employee compensation and the impact of of the pace of new vehicle programs, the R&D expenses remain relatively stable over the first quarter. SG&A expenses in the first quarter were R&D's $2.5 billion, or $348.8 million, down 15% year-over-year, 17.7% quarter-over-quarter. The year-over-year and the sequential decrease were primarily due to decreased employee compensation, improved operational efficiency, and decreased marketing and promotion activities. Income from operations in the first quarter was RMB 271.7 million, or 37.4 million US dollars. versus loss from operations of RMB 500, 84.9 million in the same period last year and income from operations of RMB 3.7 billion in the prior quarter. Operating market in the first quarter was 1.0% versus negative 2.3% in the same period last year and positive 8.4% in the prior quarter. Net income in the first quarter was RMB 646.6 million, or $89.1 million at 9.4% year-over-year and down 81.7% quarter-over-quarter. Diluted net earnings per ADS attributable to ordinary shareholders were RMB 0.62 or 0.08 US dollars in the first quarter versus RMB 0.56 in the same period last year and RMB 3.31 in the previous quarter. Turning to our balance sheet and cash flow, our cash position remains strong and stood at RMB 110.7 billion or 15.3 billion US dollars as of March 1st, 2025. Next cash use in operating activities in the first quarter was RMB 1.7 billion or 234.4 billion US dollars. versus RMB 3.3 billion in the same period last year and net cash provided by operating activities of RMB 8.7 billion in the prior quarter. Free cash flow was negative RMB 2.5 billion or negative 348.7 billion US dollars in the first quarter versus negative RMB 5.1 billion in the century last year, and positive RMB 6.1 billion in the prior quarter. And now for our business outlook. For the second quarter of 2025, the company expects delivery to be between 121,000 and 128,000 vehicles. representing a year-over-year increase of 13.3% to 17.9%. The company also expects second quarter total revenues to be between RMB $32.5 billion and RMB $33.8 billion, or $4.5 billion and $4.7 billion US dollars, representing a year-over-year increase of 2.5% to 6.7%. This business outlook reflects the company's current and preliminary view on its business situation and market conditions, which is subject to change. That concludes our prepared remarks. I will now turn the call over to the operator and start our Q&A session.

Thank you. We will now begin the question and answer session. 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 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.

Hi, I'm Tim from Morgan Stanley. Thank you for answering my question. I have two questions. The first question is about the price of our car this year. After the launch of the LC version of the ideal car, the market reacted very enthusiastically. My first question is about the volume growth. Because the new L series has received great market feedback. But in the meantime, we also notice that competitors are trying very hard to benchmark the L-series with much more aggressive pricing and specs. So how would we also keep growing vehicle sales two times faster than the overall high-end market throughout the rest of the year and keep getting market share at expenses of peers in China? That's my first question. Thank you.

Hello, Tim. I'm Zhou Liangjun. Let me answer your first question. After the launch of the hybrid model, the sales performance is in line with our expectations, and it's growing steadily. Currently, the sales volume in the United States has exceeded 10,000 units. In May, we have reached 14.7% of the market share of the N1V, which is more than 200,000 units. We are confident that the sales volume of the hybrid model

After we launched the new VL series, its sales performance met our expectations and has shown healthy growth. Our weekly sales are now over 10,000 units, and months to date, our market share in the RMB 200,000 and over and higher NEV market has reached 14.7%. We're very confident the monthly deliveries of our new L-series will return to the $50,000 per month level pretty soon. Thank you.

Thank you. My second question is about the products. At what stage will the low-end vehicles consider entering the car market? Will this also compare to our current SUV, SUV and i-Series dual-engine strategy? So my second question is about the products. So, aside to the current SUV lineup, when would the Li Auto consider selling sedans? Will the company also adopt due powertrain strategies to include both EREV and the BEV for sedan product line to cater to a broader consumer base? That's my second question. Thank you.

I'm Li Xiao. Our current judgment is that we believe that after all of our authentic and pure SDOAs and DreamMaker are all integrated, we believe that the online market can support our annual revenue of 300 billion yuan. After reaching this level, including our products, we will follow the real market demand, and then we will launch MPVs that are more suitable for the price. These products will also meet the demand of China, as well as important Asian and European markets.

In our view, with LEED Mega, the LEED Range Extended SUV Series, and the LEED Beth SUV Series in full sales production, we can reach up to 300 billion RMB in terms of revenue. And after we reach that level of revenue scale, we will review, based on user demand and market condition, when to launch sedan models and MPV models covering a more affordable price range. And these products in combination will also be offered not only in China, but also other Asian markets and European markets. Thank you.

Thank you. Thanks a lot for sharing all the Insato information. Thank you.

Our next question comes from Yingbo Zhu with SciTech Securities.

Thank you, Guan Yicheng. I'm Xu Yingbo from China. I have two questions. First of all, we see that there is a lot of expectation for the new yellow line. Can you give us a more specific introduction on several aspects? One is how we should expect it to improve the intelligent level. Second, on the other hand, it is an impact on cost. What kind of consideration will it make in terms of cost reduction? Then the third one is that because everyone is more familiar with Autoswap, then what is the actual difference and improvement? I will also ask the second question together. The second question is that we see that there is time to plan about i8 and i6 now. Then this is actually a product problem. If we look at the existing L6 and L8, then our customer probably corresponds to the understanding of this car product. So I have two questions, and the first one is about the Halo OS. Could you please give me more colors about the intelligence level and how to cut in cost? and the difference between AutoSAR and HelloS. And the second question about product. For L6 and L8, what's the real difference between their users? And in future, how about I8 and I6? How can they want consumers in the BEV market? Thank you.

Hi, ,, this is ,, and I will answer your first question. Right now, we are seeing strong interest in our Halo OS from three main types of companies, automakers, chip manufacturers, and other ecosystem suppliers. In fact, some of these suppliers have already started contributing code to the open source community. For us, the stronger the overall industry ecosystem becomes, the faster we can iterate on our own products and technologies. partners grow in capability and collaborate with us more closely, we also see meaningful cost efficiency. And as the open source community matures, our investments in certain areas can be reduced, allowing us to focus more resources on what truly set us apart, our core strengths At the same time, our operating system gave us a unique opportunity to vertically integrate hardware, software, and algorithm capabilities. Over time, we're confident this will allow us to continuously enhance the AI user experience on Helios. So how does Helios compare to Autosa? First of all, Halo OS can fully replace the core functionalities of standard AutoSAR operating system. On top of that baseline, Halo OS brings significant advantages in areas where traditional AutoSAR OS doesn't do very well, such as more efficient resource usage and a true end-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 autosoft framework, especially when it comes to enabling faster, more agile innovation. Thank you.

英博,我来回答你的第二个问题。 首先,理想汽车的定位是中高端品牌, 那么我们对于增幻后为主的升级群体 是我们最主要的用户群体, To be more specific, the real estate model is the upgrade solution for the fuel car maintenance group, which is the ideal L6 and L8 mentioned in your question. The pure electric model is the upgrade solution for the new energy maintenance group. This is also the most important market after we launch the ideal i8 and i6 in the second half of the year. Second, The Li Auto brand is positioned as a premium brand.

Therefore, additional purchases and upgrades is a big part of our customer base. So specifically, our range-extended models are catered towards customers who currently own ICE models as an upgrade to ICE models, whereas BEV models are upgrades for NUV car owners. So I-8 and I-6 will be targeted towards the current ownership base of NUV cars. And our expectations for this year is that the overall NEV market, over RMB 200,000, will be about 3.8 million units this year, and among which 1.69 million will be PHEVs and 2.13 million will be VEVs. Therefore, by introducing VEV models, we'll 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 BEV model. So could management share with us what do you think is the biggest selling point and advantage versus other BEV models in the same segment? 那我那个翻译一下中文。 感谢管理层接受我的提问。 我这边有两个问题。 第一个是关于我们的 I want to understand the leverage rate of our target and the supply cycle of the supplier. For example, it includes some bank receipts, etc. What kind of level is it? The second question is about the SUV that will be released in July, i8. What do you think is the main competitive advantage and the biggest selling point of this car? Okay, thank you.

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 quarter over quarter 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.

Hi, my name is Li Xiang. I would like to talk about the advantages and selling points of Li Xiang i8. In addition to the latest VLVC model, Li Xiang i8 has a innovative design. It not only satisfies the maximum space, but also uses the most efficient power supply to achieve the lowest power consumption. At the same time, I think i8 will allow everyone very satisfied with the stability of control and the comfortability of the frame. In addition, in terms of charging, the iPad is one step closer. We did it in 10 minutes, and then 500 kilometers of high-pressure charging technology can be achieved on the iPad, and we can provide more than 2,500 supercharging stations when charging, and these supercharging stations are surrounded by these cities and environments where our modern car owners live. So to brief a few points on IA's key selling points, apart from the VLA driver model, which I mentioned earlier,

I-8 also has a very innovative styling, exterior and interior. And the exterior 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 also would have built 2,500 supercharged stations to prepare for the launch of I-8. And all these charging stations are built around the surrounding and the travel routes of our potential customers. So we have reasons to believe that the VI8 will be a top choice for existing owners of NEV cars as a replacement or upgrade to their current models.

Thank you.

感谢管理层的分享。 Your next question comes from Jin Chang with CICC.

感谢接受我的提问。 My first question is about our sales goals and some trends. Will we set a more clear sales goal this year? Or will we adjust our volume and price strategy according to the situation of market change? For the long term, Shixian Company has also made some calculations. Based on some recent market changes, we don't know if there will be any changes in the market capacity, including some market capacity of high-end market SUVs. What do we think of the domestic market space in the mid-term? This is my first question. It's regarding to our sales target and also some trends outlook. Will we set up clear sales target this year or will we flexibly adjust our volume and price strategy according to the market changes? And also in the longer term, previously we have our calculations about the market size and given the changes in recent two years, have there been any changes in our adjustment? So regarding to the mid-high-end SUVs and especially family-target cars, so what's our mid-term sales target in domestic market?

Hello, Chen Ji. I'm Zhou Liangjun. Let me answer your first question. As before, we hope that the sales rate in 2025 will be more than 200,000 new cars in the market. This is the first point. Second, in terms of energy, with the release of our pure electricity series, we will enter a larger market. In the answer to the previous question, I also mentioned that in an energy market of more than 200,000, there is a market space of about 3.8 million this year. Of which, more than 2.1 million are pure electricity markets. After the production of pure electricity products in the second half of this year, it will help us enter this market. Third, let me give you an example of market demand. The market space in China is still very large. Let's take the four and five-line cities as an example. Recently, we have announced the 100-Centure Renovation Plan. This plan will help us strengthen the coverage of the four and five-line cities. In the past year, we have actually made some visualizations in some four and five-line cities, mainly because we used to focus on the first, second, and third-line cities. In the past four years, let me give you an example. For example, in Sichuan, Zhigong and Dazhou, these are the four 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 achieved more than 200,000 PV market. We have achieved 28% of the market share. In Yan'an, Shaanxi, This is also a China's five-line market. We also achieved 25% of the PV market rate of more than 200,000 in Yan'an. Due to the penetration rate of new energy vehicles starting to exceed 50%, more and more consumers are willing to buy new energy vehicles. At the same time, since the launch of the L6 model began last year, we have seen greater market opportunities in the four and five-line cities. So this year, we will continue to promote our transformation plan to bring new truth to sales. Our goal is to implement the transformation plan for the four and five-line cities this year. So we hope that in 2026,

As we communicated before, we expect our growth in 2025 to be double the growth rate of overall RMB 200,000 and above NEV market. And in terms of energy type, as we launch our BEV models, we'll be taking it to a bigger tab. As I mentioned earlier, The overall market of NEV over 200,000 RMB and more is 3.8 billion this year expected, and 2.1 million, which is BEV. So our new BEV model launches will take us into this bigger market. And in terms of market demand, we think there's still great potential. And I'll give one example with Tier 4, Tier 5 cities. We recently announced what we call SAR program, which will – expand our coverage in Tier 4 and Tier 5 cities. And we ran some pilot programs last year in these Tier 4 and Tier 5 cities, like, for example, in Sichuan, Dazhou, and Zigong, both of which are Tier 4 and Tier 5 cities. And since we've opened our stores in last September, in less than half a year, we've reached over 28% market share in all passenger vehicle markets, over 200,000, regardless of energy type. And another example in Shaanxi, Yan'an, we've also reached 25 percent market share in all PV market over RMB 200,000 and above. And as the overall penetration rate of NEB reaches over 50 percent, more and more users are choosing new energy vehicles. And also as we launch L6 and other models, we are seeing bigger opportunities in Tier 4 and Tier 5 cities. So this year, we'll continue to expand our STAR program and bring incremental sales to the company. So our goal is to expand to 100 cities this year in Tier 4, Tier 5 cities and bring in 100,000 incremental sales in 2026.

Okay, my second question is about auxiliary driving. Yes, President Li explained to us how to do VLA in detail in the second talk of AIRtalk. So 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-led model, several progresses, including the pre-training of the foundation model and the different types of reinforcement learning, et cetera. So what co-difficulties do you think are there and how we do to differentiate ourselves from peer companies?

Hello, I'm Ma Donggui. The pre-training of VLT model and the post-training of VLA model RL, HF, and RL reinforcement learning. These four steps are to train an old driver to complete the process. The most difficult part is the pre-training of VL and the reinforcement learning of RL. This is also a problem that all enterprises are solving. In the pre-training of the VL machine model, we use specific video data to make the model have the ability to understand three-dimensional spatial intelligence. This is different from the other seven models that are only easy to understand for two purposes. In addition, RL strengthens learning. It needs to be in the real environmental environment, and then it is also in the effort of the VLA seven big models. We rely on the combination of reconstruction and production methods and technology to develop the world model that pursues the physical world law, and to replicate all traffic interpreters and elements, Our training process for basically replicating an experienced driver is divided into four steps.

Step one is training what we call a VL foundational model pre-training. Second step is post-training 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. And the hardest part of all this is the pre-training, which is the VL foundational model, as well as the last step, the reinforced learning step. This is a problem that all enterprises are trying to solve. So first of all, in the VL foundational model training process, we're trying to add specific video data so that the foundational model can understand three-dimensional space as opposed to other models which only understand 2D space. This is a key differentiation of our foundational model. And then in reinforced learning, requires us to train the model in real-world simulated environments to iterate the VLE model and improve its capabilities. So through reconstruction and generated processes and a combination of these two methods, we can build world models that actually follow the physical loss physics in the real world and replicate traffic participants and other elements. So with very accurate simulation capabilities, the VLE 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.

Okay, thank you. Thank you.

Your next question comes from Bin Wang with Deutsche Bank. Your next question comes from Bin Wang with Deutsche Bank. I've got two questions. The second one is about the airport. In the first quarter, you're actually enjoying the margin expansion. You mentioned pricing strategy change. Can you provide more detail about this strategy change? Meanwhile, what's your outlook for the second quarter? Basically, we think that when you launch a new festive electricity, actually reduce the cash subsidy. Can we assume your margin actually will increase in the second quarter? And for the second question about the export, you previously think this year will be the starting point for export. Do you think that when the meaningful volume will be emerged for the export business, when you can start to say monthly export volume exceed 1,000 units? Thank you.

Let me see this, John. I think our first, we expect the vehicle margin to still remain around 19% for the second quarter. As you know, the second quarter is we have April and May. The mega is not there. As of today, we have a lot of new mega-home order of hands that will still start a huge volume delivered from this week. Also, it's a switch from the 2024 or a version of L-Series to the 2025. So it's a combination. So we still keep the vehicle market around 19%. Thank you.

Hello, I'm Zhou Nianbing. I'll answer your second question about Chuhai. First of all, when we can provide hardware products, social services, and software intelligent services, we will enter a real market. Because what we sell is the middle of the artificial age. It's not just a product trade. In the next few years, we will focus on Asian and European markets. In these areas, we will attract mature retailers. At the same time, we are also rapidly recruiting a group of excellent people from the company to join overseas market teams. At the same time, we are also actively attracting people with international experience to join our team. Third, overseas market is a long-term strategy for us. We hope to continue to work hard to reach 30% of our total sales. Thank you.

We have three prerequisites for entering an overseas market, for entering any market, which is offering good hardware, and second is being able to provide after sales support, and third is to provide smart software services. Only when we meet these three conditions can we enter a new market, because we consider ourselves to be selling AI-era terminals as opposed to just selling physical products. Over the next few years, we'll be focusing on Asian European markets and recruit established distributors across these countries. And in the meantime, we're also stepping up our efforts to identify and assign top talents, internal talents to our overseas market team while also recruiting actively professionals with international experience to join our international team. Overall market, overseas market is a part of our long-term strategy. So we'll be working very hard with a goal of reaching 30% of overall sales overseas. Thank you.

Thank you.

Our next question comes from Paul Gong with UBS.

Thank you for accepting my question. There are two questions. The first one is the time when VLA is launched. The second one is what Megahome shows us. I should say that we just said that the VLA model will be released at the same time as i8. I want to confirm that this means that consumers can use it in July. Um, um, um, 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 governments. 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, and what do you think are the lessons learned, and what would be the lessons for the upcoming i8 and i6 launches?

Hello, I am Ma Duguay. I will answer the first question. VLA is a big model. We will continue to release it in July with the launch of the full-threaded SUV i8. And in August, we will officially launch the full-threaded ID Max. And we will be able to launch the full-threaded car in all parts of China. We believe that monitoring and managing the safety of service drivers is very important. In fact, this kind of management is better for a technology-based company. For us, our high-tech technology will solve the security problem. We always put safety first in the development process. But this will not have an adverse effect on our VLA release and research.

We're still on track to releasing our VLA driver model in July together with our Fab Electric SUV i8. We'll then be rolling out VLA driver to all of our users in August. And obviously our customers can also experience VLA driver in test drives in all of our stores. We view regulations on safety driving to be absolutely necessary. In fact, we view stringent regulations to be more favorable to companies with solid technical fundamentals. So for Lee Auto, our super alignment technology will address many of the safety concerns and allow us to prioritize safety as the top consideration in all development stages. Enhanced regulatory regulations requirements will not hinder our R&D efforts. Thank you.

Hi, I'm Li Xiang. In the past, we had a relatively stable price increase of about 1,000 yuan per month. We predicted that there would be a growth of about 50% in the new version. However, in the actual situation, the growth has exceeded 150%. So, we have been working hard to achieve a stable price increase of 2,500 to 3,000 yuan per month. Then I think in the past year, after some difficulties in Mesa, I think we have made the biggest change. We did not pay attention to the desire for competition, nor did we go because of the competitors entering the market, or because we have more and more competitors entering the market in various fields. We still focus on the value of the user and the customer. I think if we continue to innovate in this way, and if we look to the future, I think it will give us a huge opportunity. on the experience innovation of mobile space. We have just started. There are countless products that allow people to experience technology. Not only on hardware, but also on the integration of artificial intelligence technology. I hope that in the future, if you think about the interaction experience, So in fact, our previous study rate of mega-deliveries was about 1,000 per month, and our expectation was for it to increase by 50% with the launch of the new model.

But in fact, eventually, increased by over 150%, significantly exceeding our expectations. And obviously we hope to increase production capacity to maintain a steady state delivery rate of 2,500 to 3,000 as we expect. So 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. But in fact, we return to the users and focus on the 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. So 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's so many things that we can do to innovate around this mobile space experience and there's so much exciting product features that we're exploring because we hope the car going forward is not, the experience is 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. Janzen, 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. This concludes today's conference call. You may now disconnect your lines. Thank you.