Hello, ladies and gentlemen. Thank you for standing by for Li Auto's Fourth Quarter and Full-Year 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. Today's call is being recorded. I will now turn the call over to your host, Kobe Wang, the Head of Capital Markets of Li Auto. Please go ahead, Kobe.

Thank you, operator. Good evening, and good morning everyone. Welcome to the Li Auto's fourth quarter and full-year 2023 earnings conference call. The company's financial and operating results were published in a press release earlier today and 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 Tie Li. To begin with prepared remarks, our present, Mr. Donghui Ma; and the Senior VP, Mr. James Liangjun Zou will join for the Q&A discussion. Before we 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 informed inherent risk 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 filings with the U.S. SEC and the Hong Kong Stock Exchange. 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 discussion of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Please refer to Li Auto's disclosure document on our IR website which contains a reconciliation of unaudited non-GAAP measures to comparable GAAP measures. Our CEO will start his remarks in Chinese. There will be English translation after he finished all his remarks. With that, I will now turn the call over to our CEO, Mr. Xiang Li. Please go ahead.

[Foreign Language]. Welcome to today's earnings conference call. 2023 was a year of accelerated growth for Li Auto. We delivered a total of 376,000 vehicles for the entire year, exceeding our target setting at the beginning -- set at the beginning of 2023 and also making us the first emerging new energy automaker in China to exceed the 300,000 annual deliveries mark. Our total deliveries for the fourth quarter reached 131,805 vehicles, an increase of 184.6% year-over-year. In December, we reached another significant milestone of 50,000 monthly deliveries, setting a new record for Chinese premium car brands. According to China Automotive Technology and Research Centers insurance registration data in China's NEV market of RMB200,000 and higher, Li Auto's market share increased from 10.9% in Q1 2023 to 16.0% in Q4, making us a leading Chinese automotive brand by market share, the growth will continue in 2024. I would like to take this opportunity to express our sincere gratitude to all of our family users, business partners and our team for your unwavering trust, support and tireless efforts. Moving on to our financial performance. Our scale expansion, effective cost control and increasing operating efficiency have continuously improved our financial performance. Q4 total revenues reached RMB41.73 billion and annual revenues surpassed RMB100 billion mark at RMB123.85 billion. Additionally, we achieved full-year profitability for the first time in 2023, recording a healthy net income of RMB11.81 billion. By the end of 2023, our cash position reached RMB103.67 billion. In 2024, the virtuous cycle of our business growth will solidify our long-term profitability, cash generation -- generating capabilities and capital base. This trajectory will further deepen our R&D efforts across products, platforms and systems, ensuring consistent delivery of exceptional products and services to our users in the long run. 2024 will be an unprecedented…

Thank you, Xiang Li. Hello, everyone. I will now walk you through some of our 2023 fourth quarter financials. Due to time constraints, I will address financial highlights here and encourage you to refer to our earnings press release for further details. Total revenues in the fourth quarter were RMB41.73 billion or $5.88 billion, up 136.4% year-over-year and 23% quarter-over-quarter. This included RMB40.38 billion or $5.69 billion from vehicle sales, up 133.8% year-over-year and 20.1% quarter-over-quarter. The year-over-year increase was mainly attributable to the increase in vehicle deliveries, partially offset by the lower average selling price due to different product mix between the two quarters. The quarter-over-quarter increase was mainly attributable to the increase in vehicle deliveries. Cost of sales in the fourth quarter was RMB31.95 billion or $4.5 billion, up 126.8% year-over-year and 18.2% quarter-over-quarter. Gross profit in the fourth quarter was RMB9.79 billion or $1.38 billion, up 174.4% year-over-year and 28% quarter-over-quarter. Vehicle margin in the fourth quarter was 22.7% compared with 20% in the same period last year and 21.2% in the prior quarter. Excluding the impact of inventory provision related to true-up in the fourth quarter of last year and the true-up adjustments of warranty reserves in the fourth quarter of 2023 based on updated estimates of cost of further claims. The vehicle market remained relatively stable over the fourth quarter of 2022. The increase in vehicle margin over the third quarter of 2023 was mainly due to the aforementioned true-up adjustments of warranty reserves in the fourth quarter. Gross margin in the fourth quarter was 23.5% compared with 20.2% in the same period of last year and 22% in the third quarter. Operating expenses in the fourth quarter were RMB6.75 billion or $950.8 million, up 82.4% year-over-year and 27.2% quarter-over-quarter. R&D expenses in the fourth…

Thank you. [Operator Instructions] Your first question comes from Bin Wang [ph] with Deutsche Bank. Please go ahead.

[Foreign Language]. Congratulations for the great results. I actually got two questions. Number one is that you previously mentioned you want to deliver 100,000 units months of September in this year and per unit for single products actually can reach more than 30,000 units. Because of pricing competition, do you change your guidance if now when you're seeing a monthly [indiscernible] which is 100,000 units and can you provide a breakdown of the 103,000 units by model. And second question is that the company previously guided to be the first tier in the self-driving technology in China. Can you ask what's the difference or gap between the leading players in China such as Huawei and when you see you can catch up and exceed on position? Thank you.

Okay. I will take the first question. This is James Zou Liangjun from Li Auto, SVP of the sales and service. So a very good question, Mr. Wang Bin. Our guidance remains unchanged. So we are still talking to sell over 100,000 models by end of this year. So starting from 2024 March, we will commence delivering of Li MEGA and also 2024 year model L9, L8 and L7 models making our entrance into a brand-new product cycle with the launch and delivery of more competitive new products, we anticipate our monthly deliveries to exceed 50,000 vehicles in March, which is next month and 70,000 in June. So the first half year. So when we hit the 70,000 monthly delivery milestone in June, the market will have a better understanding of all of our company's assumptions and dedication. We encourage you to watch our performance in the coming months. So I will hand over to Mr. Ma to answer your second question.

[Foreign Language]. We released our OTA 5.0 around the end of 2023. And NOA, full scenario NOA is now available in over 110 cities around China. And based on our statistics, two months after the release, the daily active usage for NOA has increased 50% compared to before the OTA, and we have accumulated over 100 million kilometers on NOA since the release. And NOA has helped our users with over 3 million parking maneuvers. AD has avoided over 30,000 accidents for our users. All this data and all the positive feedback from users and media are great testaments to our product competitiveness. In the second quarter of '24, our AD Max models will be delivering napless capability city NOA in all cities in China, and it will not be constrained by a number of cities and it will be delivered to all cars equipped with AD Max through OTA. In terms of AD Pro, cars equipped with AD Pro, we will also be deploying BEV big large models to upgrade highway NOA features, increasing the ramp experience and lane change experience. So we're very confident to say that 2024 in terms of our 80 products and R&D capabilities, we're among the top in China.

Thank you.

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

[Foreign Language]. So my first question is about the production and potential bottleneck, because Li Auto first quarter volume guidance of 100,000 to 103,000 units implies a very significant ramp in March to 50,000 units or more. So considering several new models are coming to the market at about the same time, including MEGA L6, [indiscernible] with a whole L Series. Would there be any risk of supply bottleneck into March and April? What has the company done so far to ensure this new production ramp deliveries, while keeping the [indiscernible]. So that's my first question.

[Foreign Language]. First of all, we have a lot of great experience in the new product launches and ramp up to achieve volume shortly after product launch. In the first calendar month after the launch of L7 and L9, respectively, we have been able to successfully produce and deliver over 10,000 units for each model. And we have collected all these best practices and lessons learned in and put them into our system. So whether it's new factories or new employees, they're all able to very easily replicate the success in the past. In terms of new models, on the R&D front, all the new vehicle lines are being developed on schedule. And in terms of production, we have already completed the construction of our factories ahead of time. And recruited and trained the relevant product -- blue collar workers. On the supply front, we have already built the supply capabilities and completed the risk analysis and have created plans and strategies based on the risks identified. And on the planning front, using our new integrated planning system we have connected supply and demand end-to-end and have lock down all of the necessary requirements from end-to-end. 2024 will be a big year for our -- in terms of new product launches and we're very confident to maintain the consistency and timeliness of our supply.

[Foreign Language]. The second question is about product planning. After the auto's launch of L6 in April, the group's model portfolio with a comprehensively cover segment about RMB250,000 or around $35,000. So well, we are considered to take into the sub $35,000 market, any time soon that presents a more sizable market for NEV conversion. And separately, is there any tech constraint or disadvantage likely preventing Li Auto from building compact or low-priced SUV remodel to compete with the local peers? So that's my second question.

[Foreign Language] If we look five years down the road, we have no plans to launch any vehicles below the RMB200,000 price point. Because if we think about long-term up to 2030, if we only focus -- even if we only focus on the market over RMB200,000 just family users, if we were able to take one-third of that market in China, our total sales were already to be more than RMB1 trillion. And if you consider overseas by 2030, this market will create a business close to the revenue of all iPhones sold worldwide combined, so this is huge gold mine that we think we've only mined a very, very small portion. So there is no need to distract ourselves at this point, but rather we would like to focus exclusively on over RMB200,000 family markets globally. And our strategy is to continue to dive deep into this market, create a brand and expand our market share.

Thanks for sharing all the great colors. And congratulations on great result again. Thank you.

Your next question comes from Yingbo Xu with CITIC Securities. Please go ahead.

[Foreign Language]. I have two questions. The first question is about the pricing and volume balance and how we see the profitability and the volume increase by adjustment of pricing in different periods. And my question -- second question is about the following EV models. How we plan after the mega model. Could you please give us more colors? Thank you.

This is Johnny. Yingbo, for the first question, I think for -- when we set up the full-year sales target. We have already considered about the competition and also the pace we launched our product. So when we consider that, we still -- what we want to say as before, we will maintain a healthy gross profit margin over 20% always. And based on the market competition, the gross margin will fluctuate between 20% to 25% in different quarters. Yes. And just like last quarter, I think everyone was worried about the competition in the fourth quarter, there will be some promotion, but for every quarter, there will be some other come out from the supply side and also from like the material price side. So net-net, it has seen from our fourth quarter. Even we have some promotion in the fourth quarter, but we have more good news from the [indiscernible] even though our gross margin increased, yes, some compared with the third quarter.

[Foreign Language]. For the first half of the year, we will be releasing in our March 1st spring event, Li MEGA as well as 2024 model year Li L7, L8, and L9 and also in first half, we'll be releasing the L6. In the second half of the year, as we've communicated before, we will be releasing yet another three pure electric SUV models, all standard common standard with 5C charging and all-wheel drive. And I would like to emphasize those cars are very, very competitive. And they will become the top choice for family users in their respective price segments. 2024 will be an unprecedented product year for Li Auto. By the end of the year, we will have four range extended models and four very competitive elect BEV models. A products are all very competitive, and they will together serve the needs of our family users.

Your next question comes from Tina Hou with Goldman Sachs.

[Foreign Language]. Thanks management for taking my questions. And congrats on the very strong results. So I have two questions. The first one is in terms of the BEV -- 3 BEV models in the second half of the year. So considering the battery price as well as 5C charging capability and initially smaller volume versus your EREV models. What kind of like margin difference should we expect for the BEV models? And then the second question is in terms of the overseas expansion, what is the management's latest thought for overseas sales volume target over the next three to five years?

Tina, this is Johnny. And for the gross margin, as we mentioned in the previous calls, both for the BEV and the EREV series, the overall blended gross margin will be 25% of both series. So when we start from MEGA, and then the nine series, the gross margin will start from higher to lower and also, we want still to emphasize the product gross margin are established when you define your product. It's -- our products are designed to ensure a healthy gross margin and also balance the customers demand for the car -- for each car. And also from the material side like the battery material, I think it's -- since the second half of last year, I think it's -- for us, it's a good timing for -- to launch our BEV models starting from this year. Thank you.

Okay, Tina, its James, I will take your second question. So first of all, the overseas market is very important to Li Auto, and we are aiming to start to explore the overseas market and we are accelerating it. So regarding our plan for overseas exports, we remain committed to our direct sales model in overseas markets, focusing on building a robust sales network and comprehensive aftersales service offerings and infrastructures. With Li Auto's growing popularity globally, we are accelerating the development of a sales service network and the spare parts supply chains to ensure outstanding service experience for our international customers. And by the way, we have successfully set up operations in Middle East and initiated the recruitment of local sales and service teams in Dubai. And in the first half year this year, we plan to establish dedicated after sales service network in Central Asia and Middle East. By the first quarter of this year, we will commence overseas delivery starting with the introduction of L9 and L7 models in local regions, which -- by the way, which is also customized for the local environment and local policies. Thank you.

Your next question comes from Ming Hsun Lee with Bank of America. Please go ahead.

[Foreign Language]. So my first question is still related to gross margin trend in first quarter and the second quarter. In first quarter because you are selling the 2023 version of L7, L8, and L9, so your gross margin slightly lower than 4Q. But in the second quarter, since you have a full quarter contribution from MEGA. So do you expect the gross margin to recover? And also, how is the L6 to overall margin [indiscernible]?

Hi, this is Johnny. I think all the factors you mentioned is, yes, it's clear for the gross margin. And the company will also maintain a healthy gross margin of about 20% for the first quarter. And as we mentioned earlier, the company will also maintain a healthy gross margin, which means almost about 20% throughout of the full-year. And for the MEGA and the 2024 model of L series, it will be a positive factor for the gross margin starting from March. And the L6 will be negative if we want to say to be for the over 20% gross margin. And with our volume group, it will be a positive factor for the gross margin, yes. And it's for every quarter, there are some positive and negative, so I wish it is helpful for you.

[Foreign Language]. Li Auto plans to expand the charging station to 2,000 by the end of this year. How do we expect the total CapEx? Previously, Chairman mentioned the charging station could be a profitable investment project. So when do you expect your charging station can reach breakeven or cash flow breakeven? Thank you.

Okay. I will take this question, James. So by the end of 2024 and the company plans to build a total of 2,000 charging stations as you just mentioned. And by the end of this year, we will have built more than 700 highway supercharging stations covering 70% of the highways in China as well as 90% of the highways in the four major economic zones. With the successive launches of BEV models this year, we have also begun to simultaneously accelerate the expansion of charging stations in cities. We anticipate that by the end of this year, the number of charging stations in cities will exceed 1,300, so totally 2,000. The company's cash reserves are ample, and we have allocated sufficient capital for the construction of charging stations. The company has a detailed operating models for the evaluation of each charging stations. And by the way, personally, I'm looking after each and every charging station investment and each station has its own profitability and ROI target. From a long-term perspective, we are very confident in our charging stations profitability prospect. Thank you.

Your next question comes from Yuqian Ding with HSBC.

[Foreign Language]. Two questions. The first, we noticed the industry is going through a painful consolidation. While Li Auto booked a record high earnings, many are struggling. How to look at the inflection point of the industry consolidation against the weak car demand and continuous pricing mall, including Li Auto, which is Li Auto -- what is Li Auto's strategy priority list this year? And second question management do talk about OTA, LOA, more cities and scenarios. When would be the IPO moment for the autonomous driving development from a management perspective? And how to read, despite of the technology progress the current autonomous driving market offering might be running homogenous and lack of revenue model in the near term?

[Foreign Language]. So as we have always maintained before, we believe in the smart EV industry, there will be a very clear Matthew effect as we'll see in the very few -- very near future. Here, I'll make a prediction by Q4 this year in the market of RMB200,000 and above, the top three brands will command around close to 70% of market share, where will reach close to 70%, and we can test this hypothesis by the end of this year. And in order to prevail in this competitive environment, we will continue to focus on user value creation, which will convert into our competitive advantage. So on the product front, we will continue to focus on making all details perfect and delivering the full product experience to our users. And on the R&D front, we will invest in our autonomous driving, smart space and high voltage and range extended EV platforms and convert all these investments into user value. With that, our goal continues to be selling 800,000 units this year in 2024 and becoming the top one premium brand in China. And the team is all lined up to be ready to achieve this goal this year.

[Foreign Language]. Personally, I believe the iPhone 4 moment for autonomous driving will come in two to three years. iPhone 4 completely change people's perception of smartphones. The first -- the iPhone 4 itself may not be perfect, but it can compensate all of the important factors for success including industrial design, user interaction, hardware, software, and business model. And compare that to autonomous driving with L2 and L3 reaching scale and being delivered in volume and data continues to accumulate as well as the deployment of AI large models. I believe that autonomous driving will reach an inflection point, reaching an iPhone 4 moment. And maybe all of a sudden overnight, all of the cars equipped with a hardware maybe 100,000s of or even over 1 million will achieve autonomous driving. So for Li Auto, we continue to invest in making autonomous driving hardware standards for all of our vehicles. And we have no plans for a subscription of -- or extra charge at the moment. Making autonomous driving a standard will bring us as many users as possible, collect as much data as possible and help us to increase and improve our algorithms and improve the experience for our users, and that creates a very positive cycle.

As we are reaching the end of our conference call now, I'd like to turn the call back over to Kobe Wang for any additional or closing comments.

Thank you once again for joining us today. If you have any more questions, please feel free to contact the Li Auto's IR team. That concludes this conference call. You may now disconnect your lines. Thank you. Bye.