Hello, ladies and gentlemen, thank you for standing by for Li Auto's Fourth Quarter and Full Year 2024 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 Chang, Investor Relations Director of Li Auto. Please go ahead, Janet.

Thank you. Good evening and good morning, everyone. Welcome to Li Auto's fourth quarter and full year 2024 earnings conference call. The company's financial and operating results were published in our press release earlier today and are posted on the company's IR website. On today's call, we will have our Chairman and CEO, Mr. Xiang Li; and our CFO, Mr. Johnny Tie Li, to begin with prepared remarks. Our President, Mr. Donghui Ma, and Senior Vice President, Mr. James Liangjun Zou, 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 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 views expressed today. Further information regarding risks and uncertainties is included in certain company filings with the US Securities and Exchange Commission and the Stock Exchange of Hong Kong Limited. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that Li Auto's earnings press release and this conference call include discussions of unaudited US GAAP financial information as well as unaudited non-GAAP financial measures. Please refer to Li Auto's disclosure documents on the IR section of our website, which contains a reconciliation of the unaudited non-GAAP measures to comparable US GAAP measures. Our CEO will start his remarks in Chinese. There will be English translation after he finishes all his remarks. With that, I will now turn the call over to our CEO, Mr. Xiang Li. Please go ahead.

[Foreign Language] [Interpreted] Hi, everyone. Welcome to today's conference call. China's NEV market maintained rapid growth in 2024. According to insurance registration data from the China Automotive Technology & Research Center, China's NEV penetration rate exceeded 50% for many consecutive months in 2024, reaching 45.9% for the full year, up 12 percentage points year-over-year. Leveraging our outstanding product portfolio, organizational efficiency and continuous breakthroughs in artificial intelligence, we further solidified our position as the sales champion among Chinese auto brands in the RMB200,000 and above NEV market, taking our full year market share to 15.3%. In the fourth quarter of 2024, we delivered over 158,000 vehicles, setting a new quarterly record. Our full year deliveries exceeded 500,000 units, making us both the first emerging NEV brand and first Chinese premium auto brand to reach this milestone. In addition, each model in our Li L series, including the L6, L7, L8 and L9, have achieved cumulative deliveries of over 200,000 units respectively, showcasing the strong user recognition of our products and our highly efficient and consistent delivery capability. These achievements will not have been possible without the effort and dedication of every team member at Li Auto, the support of our partners and the trust of our users. I would like to express my heartfelt gratitude to them and look forward to reaching new milestones in collaboration. As our business continues to expand, a number of our financial metrics have reached record highs for the quarter. In Q4 2024, total revenues reached RMB44.3 billion, taking full year total revenues to RMB144.5 billion. As of the end of 2024, our cash on hand has reached RMB112.8 billion. Our robust cash generation capabilities and substantial cash reserves provide solid support to our long-term investments in electrification and artificial intelligence, advancing our progress toward…

Thank you, Xiang. Hello, everyone. I will now walk you through some of our fourth quarter 2024 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 revenue in the fourth quarter were RMB44.3 billion or US$6.1 billion, up 6.1% year-over-year and 3.3% quarter-over-quarter. This included RMB42.6 billion or US$5.8 billion from vehicle sales, up 5.6% year-over-year and 3.2% quarter-over-quarter. Both the year-over-year and the sequential increase were primarily attributable to the increase in vehicle deliveries, partially offset by the lower average selling price. The year-over-year ASP decline was mainly due to different product mix, while the sequential ASP change was mainly due to the interest subsidies provided to customers. Cost of sales in the fourth quarter was RMB35.3 billion or US$4.8 billion, up 10.5% year-over-year and 4.9% quarter-over-quarter. Gross profit in the fourth quarter was RMB9 billion or US$1.2 billion, down 8.3% year-over-year and 2.8% quarter-over-quarter. Vehicle margin in the fourth quarter was 19.7% compared with 22.7% in the same period last year and 20.9% in the prior quarter. The year-over-year decrease was mainly due to different product mix. The sequential decrease was mainly due to the loss on purchase commitment and lower average selling price due to interest subsidies provided to customers. Gross margin in the fourth quarter was 20.3% versus 23.5% in the same period last year and 21.5% in the prior quarter. Operating expenses in the fourth quarter were RMB5.3 billion or US$721.6 million, down 22% year-over-year and 9.1% quarter-over-quarter. R&D expenses in the fourth quarter were RMB2.4 billion or US$329.9 million, down 31% year-over-year and 6.9% quarter-over-quarter. The year-over-year decrease was primarily due to the decreased expenses related to product portfolios and technologies and decreased employee compensation. The sequential decrease…

Thank you. [Operator Instructions] Your first question comes from Paul Gong with UBS.

[Foreign Language] So, I will translate my questions. The first one is regarding the BEV launch. Can you remind us the overall the latest launch and timing of the new models and also the highlights of your BEV models you could share with us? The second is regarding the AI strategy. We noticed management is spending more focus. It's increasingly more focused on the AI. Can you please share us with the latest development strategy? Thank you.

[Foreign Language] [Interpreted] We're planning to launch two pure electric SUVs this year. The first one being the VL -- Li i8, which will be launched in July. And the second one, Li i6 will also be launched in the second half of this year. The two cars will be launched -- part of the reason we launch it in the second half this year is partly to catch the sales momentum in typically the sales season of Q3 and Q4 and also partly to save enough orders to support deliveries for next Q1 and Q2. We tend not to release too much information before official product release because we think is holistic -- it means, we consider holistically with users buying experience, delivery experience. So, please, stay tuned for our official product release. [Foreign Language] [Interpreted] First of all, our overall view is that at this stage, the most important thing for artificial intelligence is to grow capabilities, improved capabilities. And I'll provide one example using autonomous driving. Under rule-based system, it's very analogous to teaching an insect or primitive creature to drive. And later when we move on to end-to-end VLM, it's comparable to a monkey learning drive with a human on the side. It is an improvement versus previous rule-based system, but it's still nothing comparable to a professional driver. And this is determined by the fundamental architecture of the models because VLM and end-to-end are two separate brain systems, and either of them are strong enough. So, the real question for us is how can we allow a big model to operate just like human beings, like make it understand the physical world, understand the software world, which includes navigation and a bunch of other things, as well as the intentions of the passengers. So, we need to build a model that combines all three categories and build them into one foundational model, which includes understanding of physical space using 3D vision and understanding of a language space using LLM and understanding the physical world using end-to-end. Only if we combine these three into one model, can we understand the world just like human beings and drive like human beings. And this is our overall understanding of breakthroughs in artificial intelligence, and we don't tend to make specific plans in this area. Thanks.

Your next question comes from Tim Hsiao with Morgan Stanley.

[Foreign Language] So, my first question is about sales growth. How should we think about Li Auto's volume sales growth this year against the backdrop of tough competition? When would you expect Li Auto's market shares could to be returned to the previous peak level or even achieve record level considering the new [phase of] (ph) L series and together with EV launches in the second half? That's my first question.

[Foreign Language] [Interpreted] Our overall strategy for sales growth for this year consists of several aspects. One is product upgrades, expansion of sales network as well as reinforced marketing practices and expansion overseas. First of all, on the product front, we'll be launching the AD upgraded version of L Series and MEGA series this year, as well as our new -- completely new BEV electric SUV model. The new pure electric SUV will help us tap into a bigger market. In the meantime, our upgraded autonomous driving system, V13 trained on 10,000 -- 10 million video clips have also improved its capability significantly, which also forms a solid foundation for our sales growth. On the sales network front, we currently operate 502 retail stores. And on top of that, we have started to work with partners -- after-sales partners to increase coverage in four -- Tier 4 and Tier 5 cities. Apart from the official stores, we have -- apart from these permanent stores, we have also opened over 200 retail stalls and pop-up stores, 60 pop-up stores in the shopping malls to open up our customer acquisition channel. On the marketing front, we have introduced professional live-streaming sales representatives to help us open up our customer acquisition channel. In the meantime, with our dedicated DCC call center personnel, we can also increase conversion rate of these increased new customers acquired through those above channels. On the overseas front, our overseas expansion plan is proceeding as planned, and we have made significant progress in Middle Asia, in Asia Pacific and various other markets. We will continue to increase our investments in Latin America, Middle East and European markets. We have also made progress in working with authorized dealers overseas. And through a group of high-quality and experienced authorized dealers, we are confident to achieve a major growth overseas this year. And with -- overall with sales improvement, with technology improvements and nimble marketing strategies, as well as expansion of sales networks, I'm pretty confident about overall sales growth this year.

[Foreign Language] So, my second question is also related to AI, because Li Auto has been investing in AI aggressively over the past few quarters. What will be the scale of Li Auto's AI-related investment in the following years? And in addition to two key applications, one is Mind GPT empowered Li Xiang Tong Xue BEV, and the other one is the [autonomous driving] (ph), will there be any new applications for or beyond [indiscernible] in the following quarters? That's my second question. Thank you.

[Foreign Language] [Interpreted] Overall, investments in AI-related initiatives will see substantial growth in the next few years, but will mainly be funded by our cash from operations. [Foreign Language] [Interpreted] So, when we think about this overall positioning of what we need to do in the AI period, I think the first fundamental question is our positioning because different positioning requires different types of capability and provide different types of user value. So, let's take an example. After 1975 in the PC world, there emerged as Mac making -- Apple making Macintosh and there was Windows making DOS and -- sorry, there was Microsoft making DOS and Windows and there were also device manufacturing. And similarly, in the mobile age, there was iPhone, and there was Android offering device OS and open platform and et cetera. Each one of these companies achieved great market success, but they chose different positioning and they used different models and they had to make different trade-offs. For example, Apple chose a less open approach and provided better user experience, whereas Android had a more open approach and -- but the user experience may not be perfect at all times. So, coming back to Li Auto, which one of these positions should we choose? First of all, we think in the AGI world, our positioning is to become a hardware or device manufacturing -- manufacturer. But different from PC or mobile world, device manufacturer for AGI world requires a different set of capabilities and experience. So, in general, the device we make in the AGI world or the overall AGI device is broadly speaking, a robot. Therefore, it needs to have the cognitive, the execution, the feedback, the reasoning, and the decision-making capabilities. And that, of course, includes software AI functionalities OS on the software…

Your next question comes from Tina Hou with Goldman Sachs.

[Foreign Language] Thanks management for your time. So, my first question is in terms of the 2026 outlook in terms of the, I think, overall auto industry and EV industry, your volume outlook as well as competition intensity. And then, also this year, the competition is mainly focused on autopilot. So, next year, do you see a continuation or change in that? And then, the second question is regarding autonomous driving itself. So, in the future, in the world of L3 and L4 becoming more like prevalent, does management think there is a monetization method for these autonomous driving software? Thank you.

[Foreign Language] [Interpreted] First of all, on industry and competition, we believe that the penetration rate of NEV will continue to increase in 2026, but market competition will transition from competing for growth to competing for market share. Brand will play in a very important role in users' purchase decisions and users tend to choose brands that are well-known and have good word-of-mouth. In different price segments, the top brands are going to increase market share through their advantages in product, technology, brand and overall service experience. In other words, the market concentration is going to continue to increase. Another trend that we see is many car brands will continue to improve and accelerate their development of advanced autonomous driving as the competition here is going to be more intense. On the technology front, technologies like drive-by-wire, which includes riding and -- ride and handling experience of technologies like AI cockpit, which includes user interaction experience will also become a focus of competition in 2026 and beyond. And for Li Auto, our strategy is to continue to complete our product portfolio with many cars -- several cars launching in 2026, we will complete our full coverage of the range-extended at pure electric product matrix, covering different price ranges at different segments and to cater to more users -- as many users as possible. In the meantime, we'll increase our investments in autonomous driving and other artificial intelligence technologies to maintain our lead in products and overall product experience. We will also expand our expansion of our supercharging network and increase coverage as well as service experience and to fully eradicate range anxiety for our users. Apart from the domestic market, we will work with different types of market partners through different methods to accelerate our growth in overseas sales and…

Your next question comes from Ben Wang with Deutsche Bank.

[Foreign Language] My first question is about the first quarter gross margin guidance. It has been noticed, some of the positive side from the component pricing deduction. We also noticed that you provide some cash discount. So, can you provide first quarter gross margin guidance? Thank you.

Hi, good morning. This is Li Tie. The first quarter is the low season due to Chinese New Year and also we have some sales promotion after Chinese New Year. So, all that conclude together, we expect our Q1 vehicle gross margin to be around 19%.

[Foreign Language] My second question is about media reports that the Chairman actually were no longer take care of the auto business and the focus was shifting to the AI R&D. Can I -- my question is that what's the change in the management allocation and how to balance the vehicle business and the upcoming AI business? Thank you.

[Foreign Language] [Interpreted] Mr. Li is still the CEO of the company and he still oversees the different departments related to the car business, including vehicle lines, including product department, branding, and strategy departments. This remains unchanged from 2024. And we have allocated new responsibility under our VLM and [PVST] (ph) framework, assigned new person in charge and we remain devoted to relying on efficient collaboration across the company to support our success in the long term.

Your next question comes from Yingbo Xu with CITIC Securities.

[Foreign Language] So, I have two questions. The first one is how we see MEGA's market performance and what's our expectation or plan for MEGA in future? And the second question is, what's our long-term plan for internationalization? Thank you.

[Foreign Language] [Interpreted] Li MEGA is a luxury pure-electric MPV priced at over RMB500,000, and it has been the number two in sales in this segment for many consecutive months, only second to the Toyota Alphard. This year, we hope that Li MEGA will remain top three in this segment and with expected annual sales between 10,000 and 15,000. On top of that, Li MEGA is one of the cars with the highest net promoter score among our product portfolio. In periods like the Chinese Spring Festival, Li MEGA has been widely praised for its chassis, seat comfort, NVH, smart cockpit, autonomous driving and highway 5C charging experience that has significantly exceeded our user expectation, which further led to an increase in MEGA NPS after the Spring Festival, which speaks to user satisfaction with the product and services and their willingness to recommend the card to people around them. In the meantime, we are -- the number of our directly-operated 5C charging stations has exceeded 1,900. So, MEGA users, whether they're driving on highways or driving in cities, they have easy access to 5C charging experience, which eliminates any anxiety with charging on long road trips. In the meantime, we're also accelerating our rollout of more 5C supercharging stations, and as planned, we will have over 2,000 stations by the end of the first quarter connecting the five transfers and -- the nine transfers and nine longitudinal highway routes in China. By the time we launch Li i8 this year, we expect to have over 2,500 stations of supercharging stations. And in April this year, we plan to cover the entire distance of the G318, a well-known Chinese roadway so that our MEGA users can drive their cars on G318. And we also have plans to open up 50 travel…

As we are reaching the end of our conference call now, I'd like to turn the call back over to the company for closing remarks. Ms. Janet Chang, please go ahead.

Thank you once again for joining us today. If you have further questions, please feel free to contact Li Auto's Investor Relations team. That's all for today. Thank you, and have a nice weekend.