Li Auto Inc.

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

Thank you, Operator. Good evening and good morning, everyone. Welcome to Lee Otto's third quarter 2025 earnings conference call. The company's financial and operating results were published in a press release earlier today, and they were posted on the company's IR website. On today's call, we will have our Chairman and CEO, Mr. Xiang Li, and our CFO, Mr. Johnny Tia Li, to begin with prepared remarks. Our President, Mr. Donghui Ma, and 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 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 of the Stock Exchange of Hong Kong Limited and the obligation to update any forward-looking statements except as required in the applicable law. Please also note that LIADO's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial matters. please refer to Liado's disclosure documents on the IR section of our website, which contain a reconciliation of the unaudited non-GAAP matters to comparable 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. Xiang Li. Please go ahead.

Hello, everyone. I'm Li Xiang. The third quarter of 2025 is also the first quarter of the second decade of Li Xiang. We have gone through the product cycle, public relations, public chain expansion, policy changes, and other problems. These factors have also had an impact on our delivery and operation. But today I would like to talk to you about our long-term thinking. The second decade of Li Xiang How should the three most important key choices be made? They are organization, product, and technology. The first key choice is organization. The choice we face is the management model of a startup company or the management model of a professional manager. In the past ten years, ideal cars have been the management model of a startup company for the first seven years. As the scale expands, it reaches the sales scale that I have not experienced before. In 2002, many people would suggest that we go to the management mode of professional managers. Because in history, the century-old car companies such as Benz and BMW and the technology giants such as Microsoft and Apple have achieved great success in this mode. Over the past three years, we have worked very hard to make ourselves the governance machine of professional managers. After the real experience of cooperation, we realized that entrepreneurship companies and professional managers are two completely different management systems. It has nothing to do with the process and organization structure, but the difference in management concept and elements, as well as the different stages and industry environment. The management of professional managers can be very successful, but it needs three elements. First, the industry and technical cycle are relatively stable. Second, the company's industry position is leading and stable. Third, the founders and the creative team Either there is no power to do it, or it is no longer there. If these conditions are met, the management model of the professional manager is a very good choice. Apple and Microsoft have also grown from thousands of dollars to tens of millions of dollars since the establishment of the professional manager. The conditions of the startup companies are quite the opposite. First, there is a huge change in the industry and technology cycle. Second, the industry pattern is not certain, and the enterprise is not a leader. Third, The founders and the startup team are still working hard every day, full of motivation. In today's era of artificial intelligence in all sectors, the environment we are in, our own characteristics, are more suitable for the startup industry. The core of the management of a startup company is four things. First, more conversations, deeper conversations, rather than more reports. In high-speed changes, A deep dialogue is a key element to improve awareness and bold decision-making. Second, it's not just about paying for the value of the user. It's about paying for the value of the user. It's not just about completing all kinds of tasks. Third, it's about continuing to improve efficiency. It's not about taking in more resources. Last year, we spent $10 to do something. This year, we'll spend $8 to do something. So that there is more resources to do short-term non-creative income long-term investment and ability construction The fourth is to realize the key problem, not to create a new trend Only added value, increased efficiency, and the key problem solved Can be in a highly competitive, highly variable environment to continue to meet the needs of users In the past three years, I have been working hard with the startup team to learn the management system of professional managers To force yourself to accept all kinds of changes But we have become It has become worse and worse. And Invita and Tesla are still managed in the way of a startup company today. If the strongest companies in the world can use the management method of a startup company, what reason do we have to give up our best way? I have 27 years of management experience in a startup company since 1998. And I have never worked in any big enterprise in the way of a professional manager. At the moment, we are facing a big environment of industry competition and technological change. I love cars, love products, love artificial intelligence. Work is my biggest hobby. Why not use my best ability and way to manage ideal cars? This is the first important choice for ideal cars in the second decade. Therefore, from the fourth quarter of this year, we firmly return to the management model of the startup company. To face the challenges of the new era and new technology. The choice of the organization is the basis of everything. In the past ten years, the more important question is what problem do we really want the user to solve? What is the product? Where does the technology go? This is the fundamental principle of universal convenience. First of all, about the product, we also have to make a choice. What are our products going to be in the next ten years? Is it an electric car? Is it a smart terminal? Or a giant robot? When the product stops in the electric car, The logic of competition will become a war of parameters More than 20 kilometers or less than 20 kilometers The car is more than two centimeters long or less than two centimeters If it's just an electric car competition It's a bigger space, more lines, cheaper prices By the way, copy those designs that have been successfully verified For example, ideal wine All other research and investment are a waste of research and development cost Stronger sensors Stronger models Stronger diamond power Stronger active suspension It's a waste of entire cost It can even generate strong computing power and active space, etc. The energy it generates will also bring negative effects to the virtual world. If we choose to do the smart terminal, we will pay more attention to the things in the screen. It can become a repeat of the smart phone function. In the past few years, the industry has made a lot of innovations on the smart terminal. Basically, it is to move the function of the smart phone to the car, put the APP of the phone into the car, and make the car a bigger prototype in the car. Even hope to be able to do coding in the car Do deeper research in the car User buying a car Is it for work or for a better life? Obviously have a better experience on mobile phones and computers More natural use Why do you have to put it in the car? These investments in the value of the user are very limited Even the company's selfishness We can also make the car into a giant smart product in the physics world To put it bluntly, it's a robot The cartoons and movies of Game of Thrones clearly tell us that the biggest division of robots is in two forms. One is like a person, and the other is like a car. Peter the Raccoon and the Riding Hood also clearly tell us that the car is one of the core forms of robots. How to turn a car into a robot? Give it the ability to sense the eyes and ears, give it the ability to model the brain and the brain, give it the ability to calculate the same as the heart organ, and transform the hardware into a stronger body. Let the car robot have the ability to drive, not only can it drive, but also can welcome you every day, help you drive, help you charge, open and close the car door for you, and provide you with convenience, experience and care. It can also play the role of parent assistant civil servant, provide you with the most convenient life service and space care in the car. Just like the same way the plane serves Just like when I was a kid Mom has been taking care of and caring for us all the time How to define a good giant robot From passive machines to automatic machines Then evolved into proactive robots In the next ten years The most valuable product of the giant intelligence Must be a car with automatic and proactive capabilities The competition of the product is also the automatic and proactive capabilities to what extent And these values will integrate into the life and experience of the high-end 有了就再也回不去了 电动车的选择不是不好 而是不够 智能终端的选择也不是不好 而是不够 只有选择巨声智能 这个最难的题 我们才可以真正改变用户的生活 提供自动和主动服务的 巨声智能机器人产品 恰好它就是变形钢的 汽车形态机器人 是赛车总动员 皮尤侠的汽车形态机器人 新时代给予汽车企业 and the best opportunity and the most difficult challenge for creators. Next is the choice of technology. More specifically, it is the technical choice of a complete AI system. Is the language intelligence in the digital world or the physical world's giant intelligence? This means that we need to build a completely different system. To build a giant intelligence, the most important thing is to build a set of AI systems that are different from the language intelligence. It includes the perception of the giant body, which is equivalent to the eyes and ears, the model of the giant body, which is equivalent to the brain, the operating system of the giant body, which is equivalent to the nerve, the power of the giant body, which is equivalent to the heart, the essence of the giant body, which is equivalent to the human body. At present, there is no third-party supplier that can fully supply this system, and even none of them can be supplied. The biggest feature of language intelligence is to pay attention to models and calculations. Bigger models and bigger calculations will bring stronger capabilities. And the giant intelligence must increase the perception of the physical world. Models must also be based on the understanding of the physical world. Accuracy is the first task, and the second is the countermeasure. The operating system needs to ensure the softest and most superior fusion, improve higher accuracy, and the overall system must be fast and accurate. The sense, model, operating system, and so on provided by the giant body intelligence also needs to be supplied at the end, not at the end. Finally, it is necessary to change the hardware to become the body of the giant body intelligence. For example, three-dimensional neural control and active AI reduction systems to improve the efficiency and accuracy of the execution of the body. If you use the giant body intelligence and the entire AI system, you will find that there are too many changes that can be changed and need to be changed. First of all, it is the perception based on the existing perception model and the algorithmic calculation. The effective perception distance of the current 3D-BEV-OCC-ZEN network 2D-VIP I am talking about is effective and not the most theoretical, only more than 100 meters, far beyond the human eye. If upgraded to 3D-VIP, the effective distance can be expanded by two to three times. Today, we can naturally solve more than 50% of the common problems of service driving. 3D VIT is not only limited to the area of automatic driving, but also the active interaction and service of the car and the owner, and the active interaction and service of family members in the car, which has become possible. This requires a lot of research and development breakthroughs in the sense model. There must also be M100, such a chip customized for G-Sense intelligence, and a powerful translation team to be able to achieve it. The second is the model. With 3D VIT, there is a real understanding of the physical world. The VLA model of VLA can better understand and understand the physical world. Human data can be used more efficiently for training. The data of the world model can be used better to improve training. There is the best computing platform, a 4B MOE model. The operating truth is only 10 Hz, and the implementation system is 60 Hz. If the real speed of the model engine can be twice or three times faster, some of the problems that supplement the driving performance and reflect the size of the problem can be effectively solved. This also requires the deepest modification and customization of the traditional GPU architecture and computing power, as well as the specialized operating system. The M100 chip is developed to solve the fundamental problems of high-tech. The last is the body. The fastest acceleration of human brakes is around 450 miles per second. At present, the total range of automatic driving is around 550 mm. Sitting in the driver's seat, the instinctive response is much slower, like an old man driving. The control system can increase the response speed of the entire chain to 350 mm. Don't underestimate the gap of 200 mm. This can probably increase the rate of failure by more than 50%. And it makes people feel that driving is better and safer than themselves. It is both the true security of reason and the sense of security. With such a demand, the whole control method will become completely different If you just pay attention to the improvement of the model size like language intelligence The model size is doubled The improvement of computing power is only 5% to 10% If you look at the overall size of the giant intelligence, each link solves the most critical problem in the whole system Then the next round of automatic driving performance improvement should be five to ten times The ability of GSM to provide automatic and active fast interaction and real-time service for users is more than ever. Over the past three years, we have been fully technical prepared for the GSM system, allowing our next generation of products to be full of confidence. The year-round of GSM robots has been officially launched from car robots, and the early income is just the beginning. The above three key choices have determined the foundation of our second decade of development. It is more difficult and more challenging than the last decade. We know that the future competition is not in a moment, but in the direction of long-term selection and continuous investment. With a firm financial foundation, we will remain focused on using our favorite entrepreneurial management model to build the leading giant smart products to ensure that ideal cars can travel through the cycle and use technology to become a long-term enterprise that will create value for users and society. I also hope that in the future, in this way, Now translation for Mr. Lee.

The third quarter of 2025 was also the first quarter in the second decade of the auto. We went through many challenges, including supply chain, product lifecycle, PR challenges, as well as changing policies. All these factors have had a negative impact on our operations and deliveries. However, today I want to take this opportunity to talk about our long-term thinking in the next decade and three most important choices that we need to make. organization, products, and technology. The first choice we need to make is organization. The challenges we're facing is whether to choose an entrepreneurial model or a professional management model. In the last 10 years of Lee Auto, the first seven of those years, we operated as an entrepreneurial model company. But as we scaled over time to a scale that we've never seen before, especially in terms of revenue, Around the time of 2022, many people suggested to us to shift to a professional management model because historically, whether it's Mercedes or BMW or any of these 100-year-old car enterprises, as well as Microsoft and Apple, which is the tech giants, have all operated under this model and have great success. In the last three years, we've tried very hard to make ourselves used to this professional management model. But after implementation, we realized, we came to the realization that the entrepreneurial model and the professional management model are fundamentally different and it is irrelevant to processes and organization structures. The difference really lies in management principles and key operating principles. And also they're tailored to different different stages of growth in an industry environment. The professional management model can be very successful, but it relies on three factors. The first one is that the industry and technology cycle has to be relatively stable. And the second is that the enterprise is already in a leading position, and the position is relatively stable. And the third one is that the founding... the founder and the founding team are either not their motivation or are not actively involved in the company. If all these three criteria are satisfied, a professional management model could be a very ideal choice. Whether it's Apple or Microsoft have both flourished after professional management took over and grew from hundreds of billion dollars in revenue to trillion dollar companies. However, The entrepreneurial model is catered to an entirely different environment. First of all, the industry and technology cycles are going through fundamental changes. And second, the industry is very unstable, and the company enterprise itself is not yet a leader. And thirdly, the founder and the founding team are still devoted to everyday work. with their full passion and fully motivated. As AI is shaping many industries today, the environment that we live in and considering the traits of this company, we think that we fit into the entrepreneurial model way better. The entrepreneurial model really is about four things. First of all, there needs to be more conversations as opposed to reports. In a rapidly changing environment, Deep conversations is really key to increasing our knowledge and judgment of the world as well as to making bold decisions. And secondly, it's focusing on user value as opposed to just short-term deliveries. Only those things that create value for the users are worthy to be delivered as opposed to only focusing on how many tasks that we've delivered on. And third one is keep increasing efficiency as opposed to occupying more resources. For example, if we spend $10 on doing something last year and this year we need to do it with $8, that's how we have resources to really spend on projects and investments that do not generate short-term revenue but really benefit us in the long term. And fourth, the key is to recognizing the key issues as opposed to just creating information asymmetry. And only as we create more value and increase efficiency and solve the key issues can we really thrive in a highly competitive and rapidly changing environment and consistently meet customer demand. In the last three years, me and my team have tried very hard to adapt to the professional managed model and we have forced ourselves to embrace all types of changes. However, we all realized that we became a diminished version of ourselves. NVIDIA and Tesla are still operating as an entrepreneurial company, and if the largest and strongest companies are all operating in the entrepreneurial model, there's no reason for us not to utilize our strength and what we're most used to. Since 1998, I have 27 years of running entrepreneurial companies, and I have never worked in any large corporation as a professional manager. Now we're facing a highly competitive and rapidly changing, an environment with rapidly changing technologies. I personally am passionate about products, about automobiles, and about AI. And work is my largest passion. So why don't I focus on what I'm most used to and what I'm best at to manage the auto? And that's how, that's the most important first choice as we look into our second decade. As a result, starting from Q4 this year, I and my founding team will firmly revert back to the entrepreneurial model and to embrace the new era and new technological challenges. The choice of organization model is the foundation of everything. Looking into the next decade, the next key question is how we really solve issues for our customers. First of all, what products do we build? Where is technology headed? That's always the essence of everything. First of all, on products, we also need to make an important choice. What kind of products should we really build for our users? Is it electric vehicles? Is it smart devices? Or is it embodied robots? If we only focus on electric vehicles, competition is really all about an arms race in spec sheet. Do you have more 20 kilometers of range more? Do you have a car that's two centimeters longer in dimensions? And if it's only focused on electric vehicles, it's all about larger space, more range, and cheaper prices. And maybe copy some proven designs, just like how the L9 has been copied. Other than that, all R&D investments are a waste. Stronger sensors, bigger models, more computing power, better active suspension, are always waste of cost. And even stronger, and stronger computation power and active ride suspension may even have negative impact on range. And secondly, if we choose to focus on smart devices, then we'd automatically be focused more on what happens in the screen. Features that used to belong to smartphones and smart tablets will be migrated to the car environment. In fact, most of the innovations in smart devices is really about moving what's already available in smartphones into vehicles, and moving mobile apps into head units, deploying larger language models in head units, and even do coding in cars and conduct deep research. But then we ask ourselves the question, when our users buy our cars, do we really buy it for their work or to live a better life? If certain experiences are already better in mobile phones and tablets or computers and more natural, why should we even bother putting them in cars? All these investments create very little incremental value for users. And thirdly, the third route is for us to make our cars into an embodied AI in the physical world, or in layman terms, robots. The moving transformer told us that There are broadly two types of robots. The first type looks like human beings, and the second type looks like cars. Knight Rider and cars, these TV shows or movies have clearly shown us car-shaped robots is going to be a mainstream form factor of robots going forward. So how do we transform our cars into robots? We need to give it ears and eyes for perception. We need to give it brains and nerves, which is modeling capabilities. We usually give it hearts, which is computing power, and we need to reshape the hardware to make it a stronger physical presence. Our robots need to parallel the top drivers and can not only drive but also pick you up, park for you, have to charge the car up, have to close the door, open the door, and meticulously make your life more convenient and safer. It can also play the role of parents, assistance or even flight attendants and to provide you the convenience and take care of you within the sphere of the car. Just like first class cabin and the services on planes. And it's also like when we're little that our mother takes care of us and makes us happy. So how do we define a good embodied robot? How do they make them to change from passive machines into an automated machine, and then further into proactive machines. In the next decade, the most valuable embodied AI product is going to be vehicles that are automated as well as proactive. And competition is really how automated and proactive can we make these products and how can we fuse them into high-frequency life experience. something that once we get used to, we can never go back. So whether it's electric vehicles or smart devices, these are not necessarily bad choices, but we think they're not sufficient. And only if we choose embodied AI, which is the hardest of all these three problems, can we really change the lives of our users and really provide automated and proactive services that only embodied AI products can provide. And it's really like what you see in Transformers movies. They're car-shaped robots. Or what we see in Cars or Knight Riders, they're robots that are shaped in cars. And I believe that this is the biggest challenge and opportunity that we entrepreneurs see in this new era. And the next choice is about technology, or more specifically, our full-stack AI systems. What do we choose? What kind of technology do we choose to power this full stack AI system? Is this something that's language-based, that's faced towards the digital world, or is this something faced towards the physical world? These two options require completely different system capabilities. If we want to build a good embodied AI, we need to build an AI system that's completely different from language-based AI models. including perceptions like eyes and ears, including the model itself like brains, including the operating system like nerves, and including the computation power, which is like hearts, and also the physical body itself, just like human body. At this moment, there's no third-party supplier that can provide this full-stack system. And in fact, not any company can provide even part of this system. And the focus of large language models is really focusing on the model itself and computation. Larger models and more computation probably is always gonna generate stronger capabilities. However, for embodied AI, we need to better understand the physical world, and the model is also built on our understanding of the physical world. Accuracy is the first priority, and generalization only comes next. Operating system needs to make sure the optimal integrations made between the hardware and the software, and also provide higher frequency. And also, the system needs to be fast and precise. And also, the computational power that powers the perception, the model, and the operating system needs to reside on the device side as opposed to the cloud side. And lastly, we'll also need to modify the hardware itself to become a really embodied And for example, our active suspension, it's just like a 3D nerve system, nerve control, and it can increase the efficiency and precision of execution in the physical world. So if we look at this entire AI system through the lens of embodied AI, you can see that there's so many changes that need to happen and desperately need to happen. The first change comes in perception. Based on the current model and the competition power that can be deployed on the device, the current 3D BDV or occupancy network or 2D vision transformer, the effective range of perception, I'm talking about effective as opposed to theoretical maximum, is only just about over 100 meters, which is way less than human eyes. However, if we upgrade it to 3D vision transformer, which is just similar to how human eyes work, This range can be improved by two, three times, and it can solve more than 50% of the common issues we see in autonomous driving. A 3D vision transformer is not only limited to autonomous driving, but it can also benefit interactions with the car inside and outside of the car. These can also all become possible. So that requires fundamental breakthroughs in perception models, both in research and also development. and also requires tailored chips for embodied AI, just like M100, which we have developed, and also requires a very strong compiler team and high efficiency cooperation. The next area of improvement is in models. It's only with 3D vision transformer can we really understand the world. The VL in the VLA is really, can really understand and perceive the world better. And human data can be more effectively used for training. And world model can also be used more effectively for training. For example, in the status quo computation platform, a four-billion parameter MOE model can only run at 10 hertz. But the execution frequency is 60 hertz. So we can increase the frequency of the model by two, three times. It can also automatically solve many issues, including comfort and speed of reaction in autonomous driving. And it also requires us to fundamentally modify and customize the traditional GPU architecture and to have a dedicated operating system. And M100, again, is really designed for solving these embodied AI problems. An athlete is the embodied hardware itself. A human being can typically react to braking and steering in about 450 milliseconds. And for a typical autonomous driving system, from perception to execution, the entire closed loop takes about 550 milliseconds. So for a typical driver today, they can easily, they're obvious to them that autonomous driving is much slower. It's like an elderly driving car. The drive-by-wire system can reduce the response time to about 350 milliseconds. And the difference of 200 milliseconds is not to be underestimated. It can roughly reduce the accident rate by over 50%. And it also feels better even than driving by itself, and it's also safer. It's safer both in the subjective as well as the objective sense. So based on these needs, all of the entire control mechanism will be different. And if we only focus on increasing the scale of model, just like we did in language models, for example, if we increase the size of model two times, and with corresponding increased interpretation power, the really performance increase is only gonna be five to 10%. But if we look at this from an embodied AI perspective, and to solve the key issues in every on every level of stack, the next generation autonomous driving can really increase the performance by five to tenfold. And that is what can empower embodied AI to perform fast and accurate and valuable services. That's the difference between zero and one. In the past three years, we have made a lot of progress in technology and systems for embodied AI. And that makes us very confident about the next generation of products. The start of embodied AI robots starts with car robots. And it's starting this year, I believe. And hundreds of billions of revenue is only a starting point. So the above three key strategic choices really laid the foundation for the next decade of our development. It's more challenging than the last decade. And we're deeply aware that real competition isn't really about short-term wins. It's about staying on the right path over the long term and having the dedication to keep investing in it. Backed by a strong financial foundation who will stay focused, embrace our beloved entrepreneurial management style, and build leading-body intelligence products. So Lead Auto can navigate market cycles, lead technological transformation, and become a company that creates unique, lasting value for users and society in the long run. Finally, I also look forward to engaging with you guys in this manner moving forward rather than presenting a quarterly report in a fixed format. And I want to express my gratitude to all of you for your support and trust, especially during our most challenging times. We're fully committed to making Lee Auto the best performing company in embodied intelligence and the greatest creator of user value within the next three to five years.

Thank you. Hello, everyone. I will now walk you through some of our third quarter financials. Given time constraints, my remarks today will be limited to the financial highlights. All figures will be called in RMB unless otherwise stated. For further details, we encourage you to refer to our earnings price release. Total revenues in the silk culture were RMB 27.4 billion, decreased 36.2% year-over-year, and 9.5% cultural culture. This included RMB 25.9 billion from vehicle sales, decreased 37.4% year-over-year, and 10.4% cultural culture. mainly due to lower vehicle deliveries. The sequential decline was partially offset by a higher average selling price due to the different products made. Cost of sales in the third quarter was RMB 22.9 billion, down 22% year-over-year and 5.3% quarter-over-quarter. Gross profit in the third quarter was RMB 4.5 billion, down 51.6% year-over-year, and 26.3% quarter-over-quarter. Vehicle margin in the third quarter was 15.5%, versus 20.9% in the century last year, and 19.4% in the prior quarter. The year-over-year decrease was mainly due to estimated the mega recall cost and the higher per unit manufacturing cost from a lower production volume. The sequential decline was mainly due to the same recall related cost. Excluding such recall costs, vehicle margin would have been 19.8% in the third quarter. Cross margin in the third quarter was 16.3%. versus 21.5 percent in the same period last year, and 20.1 percent in the prior quarter. Excluding the above-mentioned LIMEGA recall cost, cross-margin would have been 20.4 percent in the third quarter. Operating expenses in the third quarter were RMB 5.6 billion, down 2.5 percent year-over-year, RMB expenses in third quarter were RMB 3 billion, up 15% year-over-year, and 5.8% quarter-over-quarter. The year-over-year increase was mainly due to the impact of the pace of new vehicle programs and the increased investment in expanding our product portfolio and technology, along with expenses from the product configuration adjustment. The sequential increase was mainly due to those same product configuration adjustment expenses. SG&A expenses in the third quarter were RMB 2.8 billion, down 17.6% year-over-year, and up 1.9% quarter-over-quarter. The year-over-year decrease was mainly due to the resignation of share-based compensation expenses regarding the CEO performance-based award in the third quarter of last year. Loss from operations in the third quarter was RMB 1.2 billion versus RMB 3.4 billion income from operations in the same period last year. and RMB 827 million income from operations in the prior quarter. Operating margin in the third quarter was negative 4.3% versus 8% in the same period last year and 2.7% in the prior quarter. Net loss in the third quarter was RMB 624.4 million versus RMB 2.8 billion net income in the same period last year and RMB 1.1 billion net income in the prior quarter. Diluted net loss per ADS attributable to our ordinary shareholders was RMB 0.62 in the third quarter versus diluted net earnings of RMB 2.66 in the same period last year and RMB 1.03 in the prior quarter. Turning to our balance sheet and cash flow. Our cash position remains strong with a quarter-ended balance of RMB 98.9 billion. Net cash used in operating activities in the third quarter was RMB 7.4 billion versus RMB 11 billion. provided in the same period last year, and RMB 3 billion used in the prior quarter. Free cash flow was negative RMB 8.9 billion in the third quarter, versus RMB 9.1 billion in the same period last year, and negative RMB 3.8 billion in the prior quarter. And now for our business outlook. For the fourth quarter of 2025, The company expects the delivery to be between 100,000 and 110,000 vehicles, and the company's total revenue to be between RMB 26.5 billion and RMB 29.2 billion. This basis outlook reflects the company's current and preliminary view on its business situation and market conditions. which is not big 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 do wish to ask a question, please press star then 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 may re-enter the queue. If you are a Mandarin speaker, please ask your questions in Chinese first, then follow with English translations. Your first question comes from Yingbo Zhu at Citix. Please go ahead.

Okay. Thank you, Manager Cheng. I'm Xu Yingbo from Central Stock Exchange. I have two questions. First of all, we are very happy to hear the ideal president's reflection on the past. We are also more happy to hear that the management plan is returning to the state of the startup company. We have also made a product plan and technical outlook for 10 years. We also agree that AI-era products are probably not a simple upgrade. It should be based on the new product design of AI-era user experience. Cars and巨神智能 are also important products of physical AI. They also have the same technology and similar underlying logic. But what we actually want to focus on is that any technology and product generation, research and exchange, it all takes time. It is very difficult to make it clear. So my first question is, if we only look forward to the future year, what technology and products we can expect in 2026, and based on the consideration of the next ten years, how far will our investors really be able to see a jump in company products and technology, and feel the real difference? So I have two questions. The first question is, is about we are very glad to hear the company's return to entrepreneurship and next decade's plan. But any R&D and development with time, so my first question is that if we're just to say next year, 2026, what kind of technology or product progress can we expect? And also from the investor's perspective, How long can we really see a technology or product jump in future? How long? And the second question related to BEV. The company's transition from EREV to BEV, these challenges. So can we please give us more information or confidence in this BEV part, how we prepare for the effective technology reserves, and the supply chain preparation. Thank you.

Yingbo, I would like to ask the first question. We believe that in 2026, or next year, when we equip our M100 chip with the core AI system and start to integrate it into the product, I think the real value and experience will change. I think the specific change is what I said before. It will make a car-like product from passive use to real automation and initiative to provide services to users. And this kind of service and experience does not mean that we have to do a deep research, or we do a coding, or we generate a video. Instead, it will reflect our daily life, and high-frequency experience, you will feel it every day. Every day you can experience the fundamental change of such value. I think this is the first point. The second point is that if in the next ten years, what kind of clear function or value can be presented? I think based on our understanding of artificial intelligence and advanced intelligence, it can't be compared to traditional programming or hardware functions. to give a clear function, such a characteristic. In other words, when we go to build the entire artificial intelligence's performance ability, as long as some of the most critical core problems are solved, or some of the key performance breaks through, it will bring a series of, and then experience in our life, or the value of the product, and then a series of changes, and these changes will even exceed our expectations. I think this is our correct, our own understanding of artificial intelligence and giant intelligence, Your first question is about 2026.

Next year, we'll be launching our AI system based on our internally developed M100 chips. And once this system gets in the car, that's where we'll start to see real value and change of user experience. As I mentioned earlier, our product would go from a machine that passively takes orders to a more automated machine and even a proactive machine that can provide services for the users. So, unlike large language models which can conduct deep research or video generation, this embodied AI products and really benefit our users in their everyday use at a very high frequency. And on the second part about the next 10 years, unlike programming or traditional rule-based programming, we do not have a feature list or a list of functions. Instead, AI really, for a complex AI system, if we can solve key issues in some important areas and improve performances in the bottleneck points, then we'll start to see a series of changes that are unimagined before. And that's our understanding of embodied AI and AI system. And this is really the room for imagination for the next 10 years.

Thank you. Hello, I'm Ma Donggui from DreamTrain. Let me answer the second question. About the development and supply layout of the 3D field. In fact, DreamTrain has always focused on 3D core technology, such as brainwashing, self-animation, and even drive. battery and air-conditioning technology breakthrough. In terms of the electrical system, we mainly focus on the energy efficiency and design experience that are valuable to the users. We are self-sufficient in the production and development of the power supply chip, and we are self-sufficient in the production and development of the power module and the electric motor controller. At the same time, Dream Car has also built its own exclusive the factory that drives the electric motor. In this way, it is built from carbon fiber power chip, then to the power module, and then to the whole chain of the electric motor, the natural ability. Moreover, our electrical technology is not only used on pure electric vehicles, but also on all types of vehicles in Zhengcheng. It can ensure that it is quiet and smooth during driving, and it is also effective in optimizing the level of energy consumption and improving the range of traffic in the car. In terms of battery technology, we focus on charging speed and safety. Then we surround it with 5C supercharged batteries, which also build up the self-reliability of the whole station, including the electronic chemical system, battery management system, BMS, control model and algorithm, as well as the layout and structural design of the battery pipe. It can achieve super fast charge, long battery life, long life, and triple core advantage. In terms of battery supply layout, we plan to use an external purchase and a dual-mode with a self-made box. Next year, we will also manufacture a self-made 5C battery. Then, through the landing of the self-made technology industrialization, we will further strengthen the safety performance of the battery and upgrade the user's experience. The last point is in the control. We use the full self-made software to create the ultimate driving texture. At the software end, we can achieve the control of power, the management of energy, and the standard of the engine, and so on. And then at the hardware end, like some core controllers, like PCB layout, and the self-development of the underlying software, we can do it all by ourselves. Through the collaboration of self-made chassis technology, we can achieve the precision optimization of the vehicle's driving and smoothness, and then create a good driving feature for a merchant.

On the key in health bed-related technologies, we focus on three areas, electric drive, battery systems, and electronic control. First of all, on electric drive systems, Our focus is on efficiency and user experience. We have in-house developed and outsourced our manufacturing of silicon carbide power chips and in-house developed and in-house manufacturing of power modules and motor controllers. We'll also establish our own dedicated drive motor factory. We have built a full chain in-house development capability, spending from silicon carbide power chips, power modules, to electric motor assemblies. Our electric drive technology covers all BAMF and ERAMF models, ensuring quiet and smooth driving experience while also optimizing for energy consumption and vehicle driving range. And secondly, on the battery system, our focus is on ultra-fast charging and safety. We have built a full stack in-house capability around 5C ultra-fast charging batteries with full control over self-chemistry, BMS control modules and algorithms, as well as battery pack layouts and structural design, and achieving three core advantages across ultra-fast charging, long driving range, and long service life. On the supply front, we also have a combined strategy of external procurement and in-house development. Li Auto's own 5C batteries will enter mass production next year. This industrialization of in-house developed technology will further strengthen our battery safety and also improve user experience. And thirdly, on the electronic control system, our goal is to provide the best driving experience also through in-house developed hardware and software. On the software side, we have full-stack in-house development capabilities, powertrain control, power management, and engine calibration. On the hardware side, our core domain controller, PCB layout are all developed and announced, as well as the underlying software. Together with our in-house chassis technology, we were able to enhance driving smoothness and comfort and make the drive experience easy and intuitive to our users. So through a combination of three electrical technology, including battery, electric control, and electric drive, We provide our users with a special fast-charging, long-range, and smooth and safe driving experience. Thank you.

Thank you. Your next question comes from Tim Hsiao from Morgan Stanley. Please go ahead.

Hello, Mr. Guan. I'm Mr. Tian from Morgan Stanley. First of all, thank you, Mr. Guan, for sharing your ideas and thoughts on the strategy for the next 10 years. And thank you for accepting my question. I have two questions. I want to return to the short-term business challenges and progress. The first question is about the power supply. I want to understand the ideal i6 and i8 current order situation and exchange situation. How does the company solve this supply problem at the moment? And then if you look at the subsequent sales Then the second question I would like to ask is the cash flow Because we see the company's Q3 business activity cash flow The increase in flow has led to a decrease in cash flow What is the main reason? Then how do we look at the situation of cash flow in the future? So two quick questions focusing on the near-term operation. So the first one about the product, the I-series. Could the management team share the latest updates on orders and deliveries of LEED I-8 and I-6? In the meantime, how and when could you staff the current supply bottleneck of the LEED I-6 and I-8? And how should you think about the normalized sales volume of the two I-series models in the following month? Second question is about cash flow. We are actually registering increasing operating cash outflow of about 7.4 billion RMB or free cash outflow of 8.9 billion during this quarter. So this caused quite a significant drop in companies' cash reserve. We know why. Why is that and how should we think about the cash flow in the following quarters? That's my second question. Thank you.

Hello, Tim. I'm Ma Fugui from Ideal Motors. Let me answer the first question. This year, we built BEV products through I6 and I8. We covered the mainstream and high-end family battery market. We also established a solid foundation for the long-term growth of the battery business of Ideal Motors. For us, we have also completed the layout of products in the form of three-energy products. to meet the needs of different users. As for the core highlights of the pure battery type, the i-series products have made a significant breakthrough in the area penetration rate, especially for the core market of pure batteries such as Shanghai, Beijing, and Jiangzhou. In September, the orders in the upper region increased significantly. As for supply, the ideal i8 and i6 products We are going through the path of production climb, delivery, promotion, and market penetration. Starting from November, in order to solve the production climb, the supply of i6 batteries will officially start the dual supplier mode. But we will ensure that the performance and quality standards of the two supplier batteries are the same. And it is expected that the monthly production capacity of i6 will steadily increase to 20,000 units by the beginning of next year. Thank you for your trust and choice. Please give us more support and time. We will do our best to improve the production capacity, speed up the process of delivery. Thank you.

This year, we established our VEV portfolio with I-8 and I-6 models, and respectively, they cover the mainstream and premium segments for the family VEV market. These two cars create a solid foundation for the long-term stable growth of our VEV business. We also deployed our products to support the dual energy strategy, namely eREV and VEV, which effectively complement each other and to meet the diverse needs of our users. A key highlight that's worth mentioning is that we have made breakthroughs in key regional markets. The I series has successfully entered core band markets such as Beijing, Shanghai, Jiangsu, and Zhejiang, with orders in these areas starting to increase significantly from September. The I8 and I6 are steadily going through the path of production ramp up, delivery acceleration, and market penetration. And starting in November, to address production ramp-up challenges, we will officially start to begin a dual supplier strategy for our batteries on VI6. We will ensure consistent performance and quality standards between these two suppliers. We will expect monthly VL6 production capacity to steadily increase to about 20,000 units starting from early next year. We sincerely apologize to customers who placed orders and still waiting for the cars to be delivered. Due to constraints in the supply chain planning of key components and the pace of production ramp-up, your vehicle's delivery schedule has been affected. We deeply appreciate your trusted choice of the auto, and we kindly ask for your continued understanding and patience. Our team is working around the clock to accelerate production and expedite the delivery process.

For the second question, Tim, this is John. I think for the operating cash flow, it's about two reasons. First, as we guided in the last earnings release, the third quarter received great pressure on the deliveries. And the delivery decrease will make the revenue decrease, which will finally impact the operating and also the impact of shortening of the payment cycle to suppliers. And this is, as you may know, it's due to the government's authority starting from in the national wide. value our partnership with our supply chain partners and actively respond to their requirements. Currently, the specimen period for all our accounts payable is 60 days, and the payment is either the wire transfer or bank notes without any This is also some kind of certificate from just the normal bank note. Thank you.

Thank you. Your next question comes from Ming Heson Lee from B of A. Please go ahead.

Thank you, Mr. Guan. Thank you for giving me the opportunity to ask a question. I am Ming Heson Lee from B of A. I have two questions to ask. The first question is, So my first question is that because next year the trade-in subsidy policy will change and also the EV purchase tax will increase from 0% to 5%. If the subsidy declines next year, what will be your sales strategy for 2026? 那我第二个问题是这个,因为我们明年2026年的这个L系列也会有重大的改款。 那请问有哪一些亮点可以期待? So my next second question is that in 2026, your EREVL series will have a new generation. So how can we expect most of the new features, specs, and what will be the new advantages for your new models?

Thank you. Hello, I am Ma Longhui. I will answer these two questions. The first question is about the subsidy and the tax. We think this is a process of the car industry driving from the original policy to the market. This is also a highlight of corporate core competitiveness. And then the fall of the public tax policy, the short-term market will definitely fluctuate. Because users will be at the end of 2025, and then focus on locking in the discount, there will be a similar knock effect. And in the sales in Q1 of 2020, there will naturally be a drop in return. But in the long run, we are still optimistic. The rate of penetration of N-EV will also steadily increase. The rate of penetration of domestic car manufacturers in 2026, we estimate, may reach 55% to 60%. The rate of penetration of N-EV in the high-end market will break through 60%. Then for ideal car response strategy, first of all, in the expansion stage, we still have to protect the interests of users. And our new car development in 2020 to comply with the new legal regulations. In the coming period, we have also launched a safe purchase plan. For example, we will take advantage of the gap between the purchase period of i6, the number of units sold before the end of the year, and the purchase period of the user's cross-year delivery. And all of our i6 products will reach the requirements of the new policy. We can enjoy the benefits of the new policy in 2026. In the long term, we still need to strengthen the value of the user. the impact of the technology. There is no shortcut. In 2026, we will use 800V high-pressure platform and 5C supercharger to increase efficiency and reduce energy consumption. And in 2026, we will build about 4,800 superchargers, and the ratio of high-speed chargers is expected to exceed 3%. and the stable price of the mass-produced mass-produced mass-produced mass-produced mass-produced mass-produced mass-produced mass-produced

We believe this change marks the auto industry's transformation from policy-driven adoption to organic market-driven adoption. And it is precisely during this phase that the value of stronger players can really stand out. As the purchase tax policy phases out, there will be fluctuations in the first short term, we believe. we expect to see a pull-forward effect, namely if customers rush to lock in their ascendants at the end of 2025, that will naturally lead to a substantial dip in deliveries in Q1 2026. Looking into the longer term, we're optimistic about the penetration rate of NUE. In 2026, the NUE penetration rate in the domestic Chinese market will probably reach between 55 to 60% with the rate in the premium segment exceeding 60%. At the auto, our response strategy is to guarantee user benefits and adapt to new standards with our new vehicles rolling out during the transition period. And for the transition period, we have a peace of mind purchase program covering the purchase tax difference for I-6 customers who locked in their orders in 2025, but take deliveries in 2026. All of our 2026 models meet the new standards for gas and energy consumption, so they will qualify for 2026 incentives. In the longer term, we will continue to be dedicated to user value, For example, we will be fully adopting 800-volt high-voltage platform and 5C ultra-fast batteries to enhance efficiency and reduce energy consumption in 2026. We aim to operate about 4,800 supercharging stations by 2026, 35% of which will be on highway service stations. We'll continue to deepen our supply chain localization and leverage e-commerce scale stabilized pricing, while accelerated product iteration to keep all 2026 models at the forefront of product competitiveness. As to product strength, we must accelerate model iteration and accelerate further. In summary, this policy phase-out marks a watershed moment for the industry's shift towards high-quality development. Lee Auto is poised to achieve a historic breakthrough in deliveries in 2026. And we will navigate this cycle through superior product strength and user value, thereby consolidating our leadership in the premium market.

Regarding the second question, the 2026 L series of loans and car models, some practical highlights. Originally, it should be said that the specific release time and details of the product should be confirmed at the right time. Today, I still want to Let me explain a little bit. First of all, the big change of the 2026 series, we are based on user feedback and core technology accumulation, and then want to build a standby product, and then go to the results of 2026. We want to return to the overall target of the product, leading the overall target of the overall target of the product, and then in terms of the configuration of the chassis, we will review and return to the simple SQ mode. and the coverage of the market and the efficiency of this supply. We hope to realize the core experience, and then completely eliminate the pain of the entry-level experience. Then in terms of design, we will also continue the family's classic design genes, and at the same time strengthen the upgrade of luxury texture, and then to balance the brand's high-definition and user experience. to create a product that is more in line with family needs. In terms of technology, the whole department will be equipped with 5C super power technology. It is better to coordinate with our current super power network, and then it is better to solve the incompetent transaction. At the same time, it also relies on the advantages and technical permeability of the sincere field to further strengthen the ideal car, which is the brand recognition of sincere leaders. Usually on product release dates and more details, we need to choose an appropriate time to release publicly.

But today I still want to take the opportunity to give a glimpse on our product rollout for next year. The next year for L-Series is going to be a major generational upgrade. And the changes are based on deep research of users and their feedback, as well as our accumulation of technology over the years. And we want to build a very strong product that's also fundamentally different from the current generation. And all this is to support our goal of reclaiming leadership in the ERAP market in 2026. In terms of model configuration, we'll be going back to the simplified SKU approach, which balances market coverage as well as supply chain efficiency. So even the base model will not compromise in terms of user experience. It will have all features as standard. And in terms of design upgrades, while retaining our iconic design DNA, we will be upgrading the premium feel and craftsmanship. We'll strike a balance between strong brand identity and fresh user appeal and to refine our products to better serve the needs of family users. On the core technology front, 5C standard supercharging will be standard on all models and seamlessly integrating with our existing charging network to efficiently address range anxiety. And at the same time, we will reinforce our position as the E-Ref leader, building on our first mover advantage and deep expertise in E-Refs. The 2026 Altiers Refresh is about responding to market uncertainty with three certainties on technological upgrades, delivery cadence, and user value. We'll announce the specific launch timing and further details at the appropriate time. Please stay tuned. Thank you.

Thank you. Your next question comes from Paul Gong at UBS. Please go ahead.

感谢管理层接受我的提问。 我有两个问题。 第一个问题是关于Mega的造回的。 我们了解到造回是四季度宣布的 为什么成本是基在三季度 然后金额是怎么确定的 有多少是由供应链承担 多少由我们自己承担 它对于四季度的毛利率会有些什么影响 然后在当前造回的情况的更新 以及最新的Mega的订单 能否也分享一下 这是第一个问题 So let me translate. I have two questions. The first one is regarding the recall of the mega. I noticed this was announced in Q4. Why are you booking it in Q3? And how did you determine the amount and the sharing between yourself and the supply chain? What's the impact for the Q4 GP margin? And if possible, please also update us about the latest situation of the callback of the recall as well as the latest order of MEGA My second question is regarding the AI. Can you please update us on the latest development of VLA, word model, and the user feedback? If possible, please also give more color for the future targets and upgrades process. Thank you.

I think I will shortly we'll respond to your questions very shortly. For instance, we recognize this Q3 is just to regard this event as a subsequent event. So it will be accrued in the most recent quarter. So it's a big one. And for the recall, I think we have I don't want to repeat most of the details covered. And currently, we just make all the battery pack to fulfill the recall requirement, the demand, which means we lower the delivery of our 2025 megas delivery, so which means all the ship most of them to replace the 2024 recall. I think that's better for the customer's benefit. And that's the company's value proposition.

Thank you. Hello, I'm Ma Donghui. I'd like to answer the second question. Regarding the VRA's current progress and the speed of delivery, And then the ideal VLA-11 large model is already in September, and then the full amount is promoted to the AP-4 model. And we use the ability to connect models to quickly cover from the new i-series to the second model L9, and then let all users be able to experience its core capabilities at the same time, and then realize that the old car can also enjoy new technology and new experiences. Through the feedback and data analysis of the users, the upgrade of the body is obviously effective, especially for the i-series car owners. The use of the frame is very strong. Then the user's day fire and MPI, which is an upward trend of an average number of hours before the control, and the user also generally feedbacks. Then the VLA is in the direction of control. VLA's sensing ability. And then at the end of December, we will upgrade the architecture. The point is to strengthen the interaction between language and behavior information to optimize the process of development decisions. And it will be suitable for the launch of the M100 self-propelled chip in 2026. In the future, we will have more innovative features that will be launched one after another. We will launch the first defense-type AES function in the industry. And then we will upgrade the ability to protect safety. We rolled out our VLA driver to all of our ADMAX vehicles in September.

And with the strong migration capability of our model, CROBORN releases, All of our ADMAX users have access to this new model, including the new I-Series users, as well as the L9 users who bought the card back in 2012. And they're able to experience its core capabilities across the board. User feedback and data analysis have very clearly showed the effectiveness and the level of experience improvement. We can see that the L-Series and I-Series owners have a strong, the I-Series owners stronger willingness to use VLA driver with both DAU and MPI showing improvement. In the meantime, users generally report the VLA to be smoother, especially in longitudinal control, and more proactive and decisive in detours, and more accurate in route selection at complex intersections. And with ongoing iteration, the functions of VLA will continue to achieve further breakthroughs. For OTA 8.0, which is our first full-scale rollout, The priority is mostly focused on safety. And in early December, we will release the OTA 8.1, which further enhances VLE perception capabilities for more precise and responsive behavior. And by year end, we will deploy an architecture upgrade to strengthen language behavior interaction and streamline the decision-making process, which will be compatible with our upcoming in-house developed M100 chip. Beyond core system improvements, we're rolling out a series of innovations, including the industry's first defensive driving AES feature to enhance safety capability, and any point to any point full scenario automated parking, and a smart finder to find charging stations and park automatically. And all this completes the smart mobility ecosystem. Thank you.

Thank you. Your next question comes from Tina Hu from GS. Please go ahead.

感谢管理层接受我的提问。 我是高盛的Tina。 由于时间关系,我就问最后一个问题。 想请问一下,就是刚才多次也提到咱们自研的芯片, 所以想问一下这个自研芯片以及自研操作系统, 咱们开源的一个进展和后续的规划, Thanks, management, for taking my question. So I just have one question. What is the progress in terms of our in-house developed SOC as well as the operating system and then the progress in terms of open source and then future development? Thank you.

Hi, Tina. Let me answer your question. With the AI, the system is a core foundation for intelligent vehicles. To achieve this efficiency, the system must be designed as integrated architecture, not as separate parts. Our in-house design controller hardware and operating system have enabled us to reduce development time from an industry average of 15 months to 9 months, while lowering costs by 20%. Many modules in the inference stack still come from suppliers. To innovate faster together, we open-sourced the Halo OS, enabling collaborative development with our partners and ecosystem. In September, we established the Halo OS Technical Steering Committee, and assisting companies across intelligent vehicle value chains signed the community charter, including OEMs, chip makers, software and hardware service providers, and component suppliers. At the same time, we are undergoing our own vehicle foundation model for physical AI. Our focus is to improve perception, understanding, and response so the model can see further, understand better, and react faster. The AI inference chip is the computing engine of this system. Our controller built with our in-house design chip M100 is now undergoing large-scale system testing. We expected commercial development to take place the next year. Co-designed with our foundation model, compiler, and software system, we expected the M100 within our next generation VLA-based autonomous driving system to achieve at least three times the performance-to-cost ratio of today's high-end chips. On the basis of highly efficient AI inference and execution systems, our next priority will be faster iteration, continuous performance improvement, and lower cost. Development of our next generation platform and chip has already begun. Thank you.

Thank you. As we are now reaching the end of our conference call today, I would 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.