Hello, ladies and gentlemen. Thank you for standing by for Li Auto's First Quarter 2021 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, Janet Zhang, Director of Investor Relations of the company. Please go ahead, Janet.

Thank you, Annie. Good evening, and good morning, everyone. Welcome to Li Auto's first quarter 2021 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website. On today's call, we have our President, Mr. Kevin Yanan Shen; our CFO, Mr. Johnny Tie Li; and our CTO, Mr. Kai Wang, to begin with prepared remarks. Our founder and CEO, Mr. Xiang Li, 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 filings of the company with the U.S. Securities and Exchange Commission. 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 press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Please refer to Li Auto's press release, which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. With that, I will now turn the call over to our President. Please go ahead, Kevin.

Thank you, Janet. Hello, everyone, and thank you for joining our call today. I will review the key highlights of the first quarter as well as our newly released 2021 Li ONE, which offers best-in-class safety, efficiency, comfort and intelligence. In the first quarter, we delivered 12,579 Li ONEs, up 334.4% year-over-year, which brought about total revenue of RMB 3.58 billion, 319.8% higher than the first quarter of 2020 and exceeding the top end of our revenue guidance by 11.2% In the first quarter, our Li ONE was the second best-selling new energy SUV in China as our compelling product offering and superior user experience continues to delight customers and enhance brand awareness, while the unwavering support of our direct sales and servicing network underpins our growth. We were also the only domestic brand ranked in the top 10 bestseller among all premium SUVs in the first quarter. In April, Li ONE remained the first among all new energy SUVs in China. In the rankings, including ICE cars, BEV, EREV and PHEV, Li ONE ranked the second in the large SUV segment and the fourth in the premium SUV segment. On the profitability side, our gross margin stayed robust at 17.3%, amidst our ongoing efforts to enhance investment in R&D as well as to expand our direct sales and servicing network. Our expanding operating expenses increased by 238.6% year-over-year and 27.5% quarter-over-quarter. Despite the deliberate increase on the expense side, we continued with a disciplined cash flow management strategy. Our free cash flow remained positive at RMB 570.2 million. We also raised over USD 840 million in net proceeds through our successful convertible senior notes offering in April, strengthening our capital base for future growth as we increased our R&D investment in leading technologies, prepared for new model launches and…

Thank you, Kevin. Hello, everyone. Let me provide more details about our 2021 Li ONE ADAS functions and other technical updates. As Kevin mentioned, the full-stack Level 2 plus ADAS functionalities were self-developed by our own R&D team, with in-house perception algorithms and Level 2 ADAS functionalities. We also launched an NOA system and very proud of our team, their effort and their dedication and at the level we have reached in such a short time. The 2021 Li ONE comes equipped with two Horizon Robotics Journey 3 AI acceleration processors for automated driving. The two processors are dedicated to processing driving data, not only at a high efficiency, but also with redundancy backup for enhanced safety. The vehicle is the first production model in the world with eight megapixel, front-view camera, providing 4K definition. Compared with the mainstream today, the 8-megapixel camera has an effective visual range of 200 meters, wider lateral detection range and a stronger perception ability on ramp and lateral curve information. In short, it [indiscernible] more clearly, more widely, and is therefore safer. In addition, the 2021 Li ONE has 5 fifth-generation millimeter-wave radars made by Bosch that have a wider detection range, better resolution, higher accuracy and improved range of recognition. We have a detection range of 110 meters and 150-degree field of view, allowing 360-degree overall coverage without any blind spots in spectrum level. Supported by rich sensors and redundant capable hardware, along with full-stack in-house software, the 2021 Li ONE can recognize traffic lights, traffic cones, road curbs and other complicated objects. It supports a more efficient NOA feature for on and off ramp, automatic adaptive acceleration and lane change on certain limited access roads. It also supports fully automated parking assist feature known as FAPA, which is vision-based automatic parking function. We are confident the 2021 Li ONE delivers a safer, easier and more comfortable driving experience, exemplifying our deeply held core value that safety should be standard, not optional feature. As we roll out high-definition maps in cooperation with AutoNavi, the NOA will be made available to 2021 Li ONE users through OTA update, starting in the third quarter this year and will gradually cover more roads and areas in China. In addition to ADAS functions discussed above, the 2021 Li ONE will also provide users with a more intelligent space, including a smarter in-car voice interaction system. Looking ahead, we will continue executing the parallel development of EREV and BEV, further strengthening our ability and developing cutting-edge technologies. Now I will turn this call over to our CFO, Mr. Tie Li, to review our financial performance in the first quarter. Please go ahead.

Thank you, Kai. Hello, everyone. I will now go over some of our financial results for the first quarter of 2021. To be mindful of the length of this call, I will address financial highlights here and encourage you to refer to our earnings press release, which is posted online, for additional details. Total revenue for the -- in the first quarter of 2021 were RMB 3.58 billion or USD 545.7 million, representing an increase of 319.8% from RMB 841.7 million in the first quarter of 2020. This included RMB 3.46 billion or USD 528.7 million of vehicle sales in the first quarter of 2021, representing an increase of 311.8% from the first quarter of 2020. The increase in vehicle sales was mainly attributable to the increase in vehicle deliveries with the continuous expansion of our sales network. On quarter-over-quarter basis, total revenues and vehicle sales decreased 13.8% and 14.6%, respectively, primarily due to the seasonal factors related to the Chinese New Year holidays as well as the localized COVID-19 outbreaks in Northern China in February 2021. Revenues from other sales and services were RMB 111.5 million or USD 17 million in the first quarter of 2021, comparing with RMB 10.6 million in the first quarter of 2020 and RMB 89.2 million in the fourth quarter of 2020. The increase in revenue from other sales and services over the first and fourth quarters of 2020 was mainly attributable to the increased sales of charging stalls, accessories and services in line with higher accumulated vehicle sales. Cost of sales in the first quarter 2021 was RMB 2.96 billion or USD 451.6 million, representing an increase of 277.6% year-over-year and a decrease of 13.5% quarter-over-quarter. Vehicle margin in the first quarter of 2021 was 16.9%, comparing with 8.4% in the same quarter…

[Operator Instructions] Our first question comes from the line of Tim Hsiao of Morgan Stanley.

Management Team, so I've got 2 questions. The first question, could you please update your effective capacity at the moment? Without that new Li ONE models suffer from a greater impact for the component bottleneck, for example, like a chip shortage or in the battery times or any other key components? And in that the case, when do we expect the output of new Li ONE could be back to a more normal level? My second question is, how is the gross margin of the new Li ONE compare to the previous version? With a RMB 10,000 price hike more than enough to offset the cost increase from the feature upgrade and raw material inflation and further advance second quarter gross margin?

[Foreign Language] Thank you, Tim. This is Kevin. I will answer the first question. Of course, as we all know, we are -- the whole industry is suffering from the shortage of the semiconductor. Right now, in terms of our capacity, our Changzhou factory, with two shifts already ready, we can do more than 500 per day. But of course, due to the ramp of the new Li ONE and also the -- some of the timing issue of the chips, we are -- the volume cannot achieve that high. We expect, starting from September, we expect our monthly production will be more than 10,000. And I will ask Johnny to answer the gross margin.

Tim, for the gross margin, in the long run, it's -- the -- remain at the same level of the current Li ONE, with some additional hardware, as you may know, for the NOA parts and also some savings from some traditional parts like the rear model. It's net-net. And for the second quarter, I think it will be a net of April, May with some promotion on the current new -- current Li ONE and also with 1 month new Li ONE with RMB 10,000 sales price [indiscernible] So it will be a mix.

Thank you, our next question is from the line of Fei Fang of Goldman Sachs. The line is open, please go ahead.

Thanks, management, for the opportunity, I have two questions. First about your store number, so you reported 52 stores by the end of 2020 and then you reported 73 stores by April and then you guided 200 stores by year end. So what that means is you have added 21 stores in the first four months of the year, but you plan to add 130 stores in the next eight months. Is that the right way to look at it? And also 130 stores in eight months is not something that we've seen before, so is there any execution risk with regard to that? Second is about pricing. Now, you've raised prices in the facelift which is obviously very different from some of your competitors, or other even manufacturers who have lowered prices over time. Does that mean that Li Auto plans to move further into the premium segment in the four product cycles? Thanks. [Foreign Language]

Okay, thank you, Fang Fei, I will answer your question. So as of today, right now, we have 75 stores and in the first quarter, because of the impact of spring festival and some areas have COVID-19 outbreaks, the pace of the opening new stores was a bit slower than our expectation. However, we have been making very good progress in our site selection. In fact, right now we have another 50 stores in our pipeline actually under construction. So therefore, for the whole year, the 200 retail store target remains unchanged. We are just a little bit behind the trap, we think we'll catch up in the second half. And for the pricing strategy, the methodology we took is to price our product based on its value to the customer. Li ONE is very, very competitive and delivered a lot of value and with more feature functions we added into the new Li ONE. We think just RMB10,000 higher price is very fair and the new Li ONE will be even more competitive than its predecessor.

Thanks for the comment.

Thank you. The next question is from the line of Ming Hsun Lee of BofA Securities. Your line is open, please go ahead.

Hi, good evening, management team, I also have two questions. The first question is regarding your new supplier of your processor, which is Horizon. So we know that Horizon should be able to give you a better exposure to the data you collect. Could you give us more details regarding your strategy to achieve this with Horizon [Indiscernible] and that in the longer term you will continue to use Horizon, or you will also consider some other foreign brand, this is my first question. The second question is actually regarding a detailed[Indiscernible] of your autonomous driving, currently you already give very detailed information about [Indiscernible] to be launched later this year. Could you give us some highlights for 2022 or 2023, what kind of new autonomous driving function you will provide in the next two years? [Foreign Language]

Thank you, Mr Lee. Kai, do you want to take these two questions? Thank you.

Yes, okay, thank you. So basically we have five criteria for SoC selection. So basically back in 2021 we chose our Journey 3 from Horizon Robotics as our SoC supplier. So the first one is the performance, of course, where we define the feature we want to achieve and the performance of the [Indiscernible] must meet the requirement. And from that perspective, Journey 3 is enough for the target. The target is level 2-plus functions, for example, [Indiscernible]. And then the second criteria is openness and flexibility. So for example, our previous generation we used mobile [eye] so it is not very flexible for our own intelligent developments. So from that perspective those are [Indiscernible] they are more open and we use our own [Indiscernible] there. So the third criteria is about the support. We need very solid support from our supplier so that we can keep up high speed, let's say, development and also the phase of iteration. So Journey 3 is from Horizon Robotics, their headquarter is also in Beijing, so from that perspective they can provide the best service and core support locally so the interaction between departments is much more convenient. The fourth criteria is regarding the SoC timing. So the chips actually -- every year there will be new chips available from the market, so from the timeline we SOC our 2021 Li ONE. So Journey 3 is better. So the fees [Indiscernible] our criteria is the price. So the price, so Journey 3 can offer capable performance. At the same time, the price is affordable. So basically overall, these five criteria eventually will come [Indiscernible] Journey 3. Regarding the roadmap of our autonomy, we already mentioned in the previous description that we will right now just right away launch our in-house [Indiscernible] be able to [Indiscernible] functions with our own perception, own execution planning, execution software. And then the fourth quarter we will provide NoA because we need some time for that adaptation of HD map covering more roads and areas in China. And then the next year they already introduced, let's say, the next generation platform on the basis of Orange and that one will provide even much more perception power and even richer to support more features. So hardware-wise we can get up to a level 4, but software-wise, of course, we need to step-by-step raise more functional [Indiscernible] that's the plan in general. Thank you.

Thank you. The next question is from the line of Bing Wang of Credit Suisse. Please go ahead.

Thank you for taking my question. The first one goes to the price per dollar [Indiscernible] payments but they actually raised the price by RMB10,000. Can I actually try to elaborate that, is RMB10,000 just the price for the [Indiscernible]? Can I have an explanation about that? That's number one. And number two actually I found one company called [Indiscernible] naturally has been involved in your R&D at level 3 [Indiscernible] so basically is the same product as the Li ONE 2021 version. Is this company [Indiscernible] in-house design and actually what's the [Indiscernible] in this project? [Foreign Language]

Okay, thank you, Wang Bin, I will take the first question. Actually the RMB10,000 is not specifically for early or for any new feature of the new Li ONE. As I just explained, this is overall our pricing strategy and Mr Li Xiang already stated that the safety is standard, not optional. Therefore, we make all the new ADAS solution a standard function without any charge to our customer. The second question, I will ask Kai to comment. Kai.

Yes, so regarding the role of [Indiscernible] is our [Indiscernible] tier 1 provider. So [Indiscernible] is mainly about product [Indiscernible] and also design consultation together with our team and then the final production. So as we already mentioned, actually for our ADAS team we have round about 300 people right now covering those hardware and software designs. So software-wise we already explained, it's a [Indiscernible] in-house software development, including the low level software like [Indiscernible] and also the middleware and all application software and close to [Indiscernible] environment completely [Indiscernible] actually we also design hardware parts to ensure that we have the complete transparency of the design. So that we can react if there is something wrong with our design during the lifecycle of the product. So we are also responsible for the complete hardware design, simulation and design implementation. So including those electronics and the mechanics. [Indiscernible] of [Indiscernible] drive. They will participate with the hardware design. Because from efficiency point of view we like leveraged the outsource resources to ensure we keep that in a very high level. So overall they will do the coordination, the product validation and then the production which we on purpose we don't want to touch because that will lower the overall efficiency. Also that's the part actually in tier 1 could have a better efficiency compared with [Indiscernible]. Thank you.

Okay, thank you so much.

Thank you. Next question is from the line of Paul Gong of UBS. Line is open, please go ahead.

Yes, hi, thanks for taking my question. Two questions. The first one is do you have switch from mobile IQ4 to this Journey 3 and you are going to switch to [Indiscernible] next year. How do you see the data format of all these three systems? Can you freely use the data connected in the previous system and to use now and further develop for the future either function or is it [Indiscernible] transition. The second question is regarding your BEV plan for [Indiscernible]. You mentioned the Whale and the Shark platform. How do you think after seeing the Shanghai Auto Show with so many new BEV models. Will this change [Indiscernible] of your timeline, your roadmap? Would you accelerate the process a little bit in view in view of the rising competition in the market? Thank you. [Foreign Language]

Okay, maybe I take the first question. So regarding different platforms. So actually that's the reason why we would like to do the in-house design. So when you have control, the algorithm developments there are cores of algorithms. Basically we utilize the same [Indiscernible]. So when we're developing something and then you can really base on different hardware and make a kind of a wrap of software. Then you can support different containers basically. That's our idea behind. From compatibility point of view there are really lots of common area you can re-use. Also on top of that. So you can see the current developments we do have age part and also the cloud part. The cloud part we utilize mass computing power for training. So both Journey 3 platform and [Indiscernible] platform we have the same BEV solution behind for training. So you can see right away there are already a bunch of common stuff you can share. So then we don't have any problem. Of course if you support more then you need let's say more effort for adaptation between platforms. So we will lower that of course then there is smart selection as we mentioned. That's the reason why we have a very strict criteria for associated action. Thank you.

Yes, Paul, this is Kevin let me take your second question. Of course we all see a lot of new car models launched in Shanghai Auto Show. However, as we reiterated many times that we think a charging solution is the key competitive niche advantage we need to gain to compete in the BEV arena. Therefore we will stay on our track to develop our Shark and Whale platforms with ultrafast charging capability. We think that's the key to winning the future competition. Yes, so therefore we will not alter our plan. Yes, we will stay very focused. Of course with more resources we of course want to accelerate the R&D process for sure. But right now the outlook is still in 2023, yes.

Thank you. As we are reaching the end of our conference call I'd like to turn the call back over to the Company for closing remarks. Miss Janet Zhang, please go ahead.

Thank you one again for joining with us today. If you have further questions please feel free to contact Li Auto's Investor Relations Team. And that's all for today. Thank you and have a good one.