Hello, ladies and gentlemen. Thank you for standing by for Li Auto's Second Quarter of 2021 Earnings Conference Call. And at this time, all participants are in listen-only mode, and 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 (ph). Good evening and good morning, everyone. Welcome to Li Auto's Second 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 INR website. On today's call, we have our President, Mr. Kevin Yanan Shen, and our CFO, Mr. John Tie Li, to begin with, prepared remarks. Our founder and CEO, Mr. Xiang Li, and our CTO Mr. Kai Wang will join us for the Q&A discussion. Before we continue, please be reminded that today's discussion will contain forward-looking statements made, ended the safe harbor provisions of the US 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 wills expressed today. Further information regarding risks and uncertainties is included in certain filings of the Company with the U.S. Securities and Exchange Commission, and announcements published on the website of the Hong Kong Stock Exchange and the Company. The Company does not assume any obligation to update any forward-looking statements except as required and/or applicable law. Please also note that Li Auto's earnings press release in this conference call includes discussions of unaudited GAAP financial information, as well as unaudited non-GAAP financial matters. Please refer to Li Auto's press release and interim results announcement, 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. First of all, we are proud that our Class A ordinary shares started trading on the main board of the Hong Kong Stock exchange on August 12th, opening a new chapter for our Company. We are honored and also humbled by the support we received from all investors. With the Hong Kong due primarily listing, which significantly strengthened our [Indiscernible] base with over $1.5 billion of net proceeds rates. This will provide strong financial support for our R&D initiatives and the direct sales and servicing network expansion, as well as enhanced protection for our shareholders. We will continue to take the responsibilities associated with being a publicly-traded Company seriously. Work to build out our long-term vision and creates value for our users, shareholders, and our employees alike. Next, moving to the key highlights of our second-quarter results. Our 2021 Li ONE has been an exceptional performer since its debut on May 25th. Our 2021 Li ONE boasts an enhanced NEDC range of 1,080 kilometers, optimize mobility comfort, and a more intelligent cockpit. It has received rave reviews and strong user endorsements for its outstanding features and performance. Our second-quarter deliveries achieved 17,575 units, increasing 166% year-over-year. Our July deliveries reached 8,589, hitting a new record. In July, Li ONE topped sales charts in the New Energy SUV and Large SUV categories according to new car insurance registration data reported by China Automotive Technology & Research Center. It is a powerful testament to Li ONE's highly competitive product features, making us a leading domestic?iEV? manufacturer in China. While these ratings and the Li ONE's strong performance and popularity are exciting achievements, yesterday's home run does not win today's game. We will continue to be disciplined and dedicated. We…

Thank you, Kevin. Hello, everyone. I will now walk you through some of our financial results for the second quarter of 2021. Due to the time constraints, I will address our financial highlights here and encourage you to refer to our earnings press release for further details. Our total revenues in the second quarter of 2021 were RMB 5.04 billion or $788.4 million, representing an increase of 40.7% from RMB 3.58 billion in the first quarter of 2021. These included RMB 4.9 billion or $759.4 million from vehicle sales, which increased 41.6% quarter-over-quarter. This increase in vehicle sales was mainly driven by the increase in delivery of the 2021 Li ONE since its release on May 25th, 2021. Revenues from other sales and services were RMB135.7 million or $21 million in the second quarter of 2021, representing an increase of 21.7% quarter-over-quarter. The increase in revenue from other sales and services over the first quarter was mainly due to the increased sales of charging stores, accessories, and services in line with our higher accumulated vehicle sales. The cost of sales in the second quarter was RMB4.09 billion or US$632.9 million, representing an increase of 38.2% quarter-over-quarter. Gross profit in the second quarter of 2021 was RMB 952.8 million or US$147.6 million, or growing 54.5% compared with the first quarter of 2021. Vehicle margin in the second quarter was 18.7% compared with 16.9% in the first quarter of 2021. The increase in vehicle margin from the first quarter was primarily driven by a higher average deciding price in the second quarter of 2021 due to our launch of 2021 Li ONE in late May. Our gross margin in the second quarter of 2021 was 18.9% compared to 17.3% in the first quarter of 2021, which was mainly attributable to the increase…

Operator instructions]. [ Operator instructions]. And please standby while we compile the Q&A roster. And for the benefit of all participants on today's call, please limit yourself to 2 questions. And if you have additional questions, you can re-enter the queue. If you're going to ask a question in Chinese, please follow with English translation. [ Operator instructions]. Our first question is from the line of Fay Sang of Goldman Sachs. Your line is open. Please go ahead.

Great. Thanks for the opportunity. Congratulations on the results. Can management talk a little bit about competition and regulation? So on competition, some of your incumbent peers have really speed up launching new products; Great Wall, Geely, BYD, for instance. The frequency of their launches has increased, and the hit rate sales also increased. So just wondering if -- if you have refreshed thoughts on their progress and also the potential for them to enter into the premium segment. That's the first question. The second is about regulation. What are your thoughts on regulatory risks around autonomous driving and assisted driving development? Do you think if there is any regulatory intention to slow down things a bit in order to perfect the safety and customer experience? [Indiscernible] [Indiscernible]

Fang, Fei, this is Kevin. Thank you for the question. Yeah. I think for the product development cycle, we have our own strategy and schedule to launch new products. So basically, we are accelerating our development, our next generation of the IED platform, and also the HPC BEV platform. As we shared before, we'll roll out our brand new models based on our next-generation EREV platform next year. And 2023 will be a big year for us. We will have 2 new models on the X platform and another to HPC BEV model launch. Yeah. And for the regulation impact, we have been closely communicating and engaging with the authorities. I think the intention of the MRIT is to standardize the overall smart electrical vehicle industry, and there is a technology requirement for the ADAS solution. I think overall, this is a good thing. This will ensure the healthy development of this industry. And I think as the impact to us is basically in the future, we need to be more cautious when we launch the product with ADAS solution. I think it will take us more effort to fully develop a function before the launch into the market, but that's was our original plan, so there is no change in our strategy. But overall I think -- our focus on ADAS will not change. Yeah.

That's a very helpful color. Thank you, Kevin.

Thank you.

Thank you. Thank you. Our next question is from the line of Tim Hsiao of Morgan Stanley. The line is open, please go ahead.

Thanks for taking my question, and congratulations on the solid results. I have 2 questions. The first question is could the management team shed some light on what components or types of changes are currently in short supply for Li Auto? Because if we look at the numbers, I think Li Auto's production since more resilient than its peers. So how can we manage their supply disruption that triggers and however peers? Are there any alternative sources Li Auto could secure the component and the support likely more than 12,000 multi-gram grades into the fourth quarter? So this is the first question about the supply. And my second question, I think Johnny touched briefly on, during the presentation. What's the progress in our new plans for capacity expansion in Beijing? What the? nameplate? capacity and [Indiscernible] the contribution from the new capacity started kicking in. [Indiscernible] [Indiscernible]

Thank you, Tim. This is Kevin. I will answer the first question about the shortage. Right now, the single-biggest shortage we are facing is an industry-common shortage due to the COVID-19 situation in Malaysia, especially from?ST.? This is an industry common shortage. And in the past several months, we have been fighting every day for the supply. I don't think we -- our situation is better than the other competitors. The outlook for the next quarter, if the COVID-19 situation we are getting better. We believe overall the industry supply will become more balanced. But the COVID-19 situations. And it's not that predictable. So it's still a risk for us. Yeah. John, do you want to comment on this?

Yeah. For the Beijing fights, I think we will release more details in the future. One thing we've made sure is on track to get ready for the BEV launch in 2023. Yeah. Thank you. Great. Thanks for sharing.

Thank you. Our next question is from the line of Ming Hsun Lee of [Inaudible] Securities. Please go ahead, your line is open.

Thank you. [Foreign language] [Indiscernible] My first question is regarding the gross margin improvement chain, especially in the second quarter. Your S&P is increasing, but also you're close to, of course, sell the car is also decreasing, so could you elaborate more and also comment on the third quarter and quarter trends. This is my first question. My second question, could you give us more details regarding your collaboration with [Indiscernible] Power on the collaboration of EREV? Thank you.

Lee, thank you. This is Kevin. Very quickly, your first question, besides the sales price, the increase of the [Indiscernible] one, from the cost perspective, primarily we have the -- partially due to the bond costs of reduction from some of our suppliers. And also because of the sales volume increase, therefore the amortization will reduce. So that's result in the gross margin increase. I think for the third quarter and the fourth quarter will continue to see the gross margin will gradually improve also. We still see that overall for this year, the blended gross margin will be somewhere between 19 to 20%. The second -- your second question is about our joint venture with Xinchen [Indiscernible] . Actually, Xinchen [Indiscernible] is a leading engineering Company in China, especially they have been a long-term partner with BMW. We have this joint venture to jointly develop and manufacture our next-generation EREV engine with Xinchen. And for this joint venture, we have 51% of the share. Thank you, Lee.

Thank you.

Thank you. Our next question is from the line of Bing Wang of Credit Suisse, line is open, please go ahead.

Thank you. I've got 2 questions. Number 1, about long-term borrowing. So we found out in the second quarter our long-term borrowing actually got to 5.6 billion. Given you have so much cash on hand. Can you explain why the tapped have a big jump at the end of June? That's the number 1 question. Number 2, is [Indiscernible] volume guidance. You actually, you could be on September number can go to 10-K, but on third-quarter guidance, it seems much if we maintain the 10-K guidance for September ended August are very low [Indiscernible] So how should we think about the sort of quarter guidance? And yours actually at 1.6 million units by 2025. In price and maybe next year, profit about 150,000 units. What we're doing the next year 2022, the volumes should be 150,000 units. Thank you. [Indiscernible]. [Indiscernible]

First of all, a lot of them [Indiscernible] because of the long-term [Indiscernible] in April. So yeah. It's the [Indiscernible] .

Yeah. This is Kevin. Thank you Wang Bing for the question. I think when we give out the guidance for the third quarter, we have already taken to consideration of the potential risk of the impact of the COVID-19 militia. Yes. So, therefore, we don't want to be too aggressive. So I think today is already the 30s. So in the next 2 days, you will see our August number. Yeah. And for the next year, I think your estimation is within the range of our plan, yeah. Of course, we want to further increase the monthly delivery of Li ONE.

Thank you.

Thank you. Our next question is from the line of Chang Liu of CICC. Please go ahead. The line is open.

[Indiscernible] I will translate my question. My first question is about our financial expenses. Could you give us some details on the acceleration of SG and an in second quarter, and then the guidance on the full year on the January expenses? And my second question is down our pure and extra models to be launching 2023. Could you give us -- some updates on -- its development, especially some key miles high-pressure charging system. Thank you.

Yeah. So for the SG&A, this is Tony (ph). And for the SG &A, as I just mentioned, is so more adhere to the network expansion and also the marketing and promotion activities are in the Second Quarter. and also the increased high car and the rental expenses. And in the second half of this year, we will continue to expand our retail stores towards our target of 200. And for R&D, we still want to keep our -- the whole year of guidance, which is around 3 billion RMB. Well, second question. [Indiscernible] .

Yeah. This is Kevin. For the HPC BEV models, we are on track in terms of the R&D process. To share some of the milestones, for example, we already have we foresee new battery, heath sample ready. That's a big milestone. And also for our HPC, super-fast charging port design. We have already finished the concept design and we plan to have our first pilot charging station within this year. Yeah.

Thank you. Our next question is from the line of [Indiscernible] Fang of UBS. The line is open. Please go ahead.

Hi. I'm not sure if this is my line, this is Paul Gong of UBS. I have two questions. The first one is regarding your split of the BEV versus the [Indiscernible] -- versus the EREV in terms of positioning. Starting from 2023, you have both. How do you position the different segments and the size of each segment? And how should we think -- is this going to be the EREV is more focused on the larger recall, our SUV NPV, etc, and the PUV more focused on the smaller vehicle, next to Sedan, etc. How should we think about the different positioning of the BEV versus a year-over-year? My second question is regarding your R&D spending split going forward, for the second half of this year, for next year, and going forward. How much portion is going to be spent on the BEV -- how much on the EREV and how much on the autonomous driving. And let me translate my questions quickly. [Indiscernible]

Paul, yeah. Let me take the first question. This is Kevin. So in the future, when we have a BEV and the EREV at the same time, actually we do not differentiate these 2 based on size or car form factor. So basically, the all these 2 driving power trains, we will, based on these developer cars to cover the price band from 200 to 500 RMB. And each will have a different size of cars designed for family users. I think the key difference between these 2 is based on customer preference. If they are more concerned about the BEV's range and anxiety and they don't have access to good charging infrastructure. They will choose -- we believe they will choose [Indiscernible] Yeah. If they have a good charging infrastructure, they will choose BEV. So that's our viewpoint. Yeah. Yeah. Are the expenses we still want to keep our original guidance from now to 2023 to $1 billion U.S. dollars. And yeah, that will cover the vehicle at the coming models, and also the autonomous driving and also some area we want In the next week or three and also some investments on the RD5 for the future [Indiscernible] side. Thank you, Paul.

Thank you.

Thank you. [Operator instructions]. Next -- our next question is from the line of Ying Bo Su of [Indiscernible] . Please go ahead, your line is open.

[Indiscernible] [Indiscernible] My first question is, how -- what's our pricing strategy? Are trying to maintain our high margin or maybe we have more flexibility, in the pricing power of items. And the second question is that considering a lot of newcomers in this sector, maybe 2023. is a period that a lot of newcomers join in, and they launch new models. And by the year 2025, maybe the market share is going to be concentrated again. So how do we expect the next 3 or 5 years of computation like technical products. [Indiscernible] So could you give us some colors? Thank you.

Thank you, Ying Bo. This is Kevin. First of all, about the pricing. From our point of view, for each of the products, we designed, based on a price point. And unless we see the competitiveness issue, Otherwise, we will not alter the price point of these products. I think to answer your question in another way to gain more volume definitely, well, we'll launch [Indiscernible] cover wider price band. Yeah. So as we mentioned that in the future, our product will cover between 200 K RMB to 500 K RMB. That's not to say, we are going to reduce the price of some of our products. We're going to design different products to cover different price points. That's our philosophy. And also, by the way, they -- the market size of between 200K to 500K is increasing. That's probably the only increasing segment. Segment -- the volume is increasing, yeah. And about the future competition starting from 2023, I think we will stick to our 3 key choices. Yeah. So the first one is that we're competing in the overall PV market. Yeah. That's why we designed -- that's why we believe that we have to solve the anxiety issue. That's one of the core values we want to deliver to our customers. That's why you see we already have an EREV solution and we're going to have our next-generation EREV solution to completely solve the range anxiety issue for our customer, and this is our midterm-long-term strategy. We'll continue to launch EREV products. On the other hand, we also see the opportunity to solve the range anxiety issue with high-power charging solutions. That's why we have this new whale and shark platform. This is the first choice. The second choice is our target customer choice. We want to focus only on the family users. We see this is our growing demand segment. And when we design our car, we want to design the car catering to the needs of all the family members. The third thing is that we will continue to focus on the autonomous driving solution development and also the smart cabin solutions development. So these three things are the fundamental building block of our product competitiveness. We don't think we'll -- we believe we'll stick to these 3 key things. Yeah.

Thanks, Kevin. That's very helpful. Thank you.

Thank you. And 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. Ms. Janet Zhang, please go ahead.

Thank you [Indiscernible] Thank you once again for joining us today. If you have any further questions, please feel free to contact Li Auto's in-retro relations team. Then that's all for today. Thank you, and have a good one.