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

Thank you, Kelly. Good evening, and good morning, everyone. Welcome to Li Auto's first quarter 2025 earnings conference call. The company's financial and operating results were published in a 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 our Senior Vice President, Mr. James Liangjun Zou; and our 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 US Private Securities Litigation Reform Act of 1995. Forward-looking statements may 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's 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 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 with a content of a reconciliation of the unaudited non-GAAP measures to comparable 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] Hi, everyone. This is Li Xiang, and thank you for joining today's conference call. In the first quarter of 2025, we delivered more than 92,000 vehicles, an increase of 15.5% year-over-year, bringing total revenues to RMB25.9 billion. We performed strongly in RMB200,000 above NEV market in China, growing at twice the market rate according to the insurance registration data from the China Automotive Technology and Research Center. As of April 2025, we have been the segment sales champion among Chinese auto brands for 14 consecutive months. In particular, we topped the market with a 14.1% market share in April, further reinforcing our leadership. As of the end of April, we have delivered more than 1.26 million vehicles. As a pioneer and leader in EREV, the Li L Series continues to enhance user value through ongoing innovation and product iteration, maintaining a competitive edge despite challenges from newcomers. Recently, we launched the new Li MEGA and new Li L Series. The refreshed Li AD Max models received NVIDIA's latest Thor-U chip, while Li AD Pro models upgraded from Horizon Robotics Journey 5 to Journey 6M chips and include ATL LiDAR sensors co-developed with [indiscernible]. In addition to these upgrades for assisted driving, we have enhanced chassis control, exterior and interior design and smart cockpit across the new Li L Series. On April 23, we launched Li MEGA Home at Shanghai Auto Show 2025, reflecting our latest understanding of multigenerational families and their mobility needs. Featuring top-tier configurations for our flagship model, Li MEGA Home aligns closely with our mission to create a mobile home, create happiness. Since this launch, Li MEGA Home has accounted for over 90% of Li MEGA orders, demonstrating its strong value proposition and user recognition. Li MEGA currently has a robust order backlog with continuous…

Thank you, Xiang. Hello, everyone. I will now walk you through some of our 2025 first 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 first quarter were RMB25.9 billion or $3.6 billion, up 1.1% year-over-year and down 41.4% quarter-over-quarter. This included currently RMB24.7 billion or $3.4 billion from vehicle sales, up 1.8% year-over-year and down 22.1% 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 mainly due to different product mix. The sequential decrease was mainly due to the decrease in vehicle delivery, which was impacted by seasonal factors related to Chinese New Year holiday. Cost of sales in the first quarter were RMB20.6 billion or $2.8 billion, up 1.3% year-over-year and down 41.6% quarter-over-quarter. Gross profit in the first quarter was RMB5.3 billion or $732.9 million, up 0.6% year-over-year and down 40.7% quarter-over-quarter. Vehicle margin in the first quarter was 19.8% versus 19.3% in the same quarter -- same period last year and 19.7% in the prior quarter. The year-over-year increase was mainly due to cost reductions and the pricing strategy changes in the first quarter of 2024, which were partly offset by different product mix. Vehicle margin remained relatively stable over the prior quarter. Gross margin in the fourth quarter was 20.5% versus 20.6% in the same period last year and 20.3% in the prior quarter. Operating expenses in the first quarter were RMB5 billion or $695.5 million, down 14% year-over-year and 4.2% quarter-over-quarter. R&D expenses in the first quarter were RMB2.5 billion or $346.4 million, down 17.5% year-over-year and up 4.4% quarter-over-quarter. The year-over-year decrease was primarily due to decreased employee compensation and impact…

[Operator Instructions] Your first question comes from Tim Hsiao with Morgan Stanley.

[Foreign Language] My first question is about the volume growth because the Li Auto's the new L Series has received great market feedback. But in the meantime, we also noticed that competitors are trying very hard to benchmark the L Series with much more aggressive pricing and specs. So how would Li Auto keep growing vehicle sales two times faster than the overall high-end market throughout the rest of the year and keep gaining market share at expenses of peers in China? That's my first question. Thank you.

[Foreign Language] After we launched the new Li L Series, sales performance met our expectations and has shown healthy growth. Our weekly sales are now over 10,000 units and month-to-date, our market share in RMB200,000 and over and higher NEV market has reached 14.7%. We're very confident the monthly deliveries of our new L Series will return to the 50,000 per month level pretty soon.

[Foreign Language] So my second question is about the products. So aside to the current SUV lined up, when would the Li Auto consider selling sedans? Will the company also adopt the [due] (ph) powertrain strategies to include both EREV and the BEV for a sedan product line to cater to or grow their consumer base? That's my second question. Thank you.

[Foreign Language] In our view, with Li MEGA, the Li range extended SUV series is the lead best SUV series in full sales production. We can reach up to RMB300 billion in terms of revenue. And after we reached that level of revenue scale, we will review based on user demand and market conditions when to launch sedan models and MPV models covering a more affordable price range. And these products in combination will also be offered not only in China, but also other Asian markets and European markets. Thank you.

Thank you. Thanks a lot for sharing all the information. Thank you.

Your next question comes from Yingbo Xu with CITIC Securities.

[Foreign Language] So I have two questions. And the first one is about Li Halo OS. Could you please give me -- us more colors about the intelligence level and how to cutting costs and the difference between AUTOSAR and Halo OS? And the second question about product. For L6 and L8, what's the real difference between their users? And in the future, how about i8 and i6? How can they won consumers in the BEV market? Thank you.

Hi, Yingbo, this is Yan. I will answer your first question. Right now, we are seeing strong interest in our Halo OS from three main types of companies, automakers, chip manufacturers and other ecosystem suppliers. In fact, some of these suppliers have already started contributing code to the open source community. For us, the stronger the overall industry ecosystem becomes, the faster we can iterate on our own product and technologies. As our partners grow in capability and collaborate with us more closely, we also see meaningful cost efficiencies. And as the open source community matures, our investments in certain areas can be reduced, allowing us to focus more resources on what truly set us apart, our core strength. At the same time, our operating system give us a unique opportunity to vertically integrate hardware, software and algorithm capabilities. Over time, we are confident this will allow us to continuously enhance the AI user experience on Halo OS. So how does Halo OS compare to AUTOSAR? First of all, Halo OS can fully replace the core functionalities of standard AUTOSAR operating system. On top of that baseline, Halo OS brings significant advantages in areas where traditional AUTOSAR OS doesn't do very well, such as more efficient resource usage and true end-to-end time determinism. What is more, by redefining the system architecture, we are able to address some of the limitations of the relatively heavy weight AUTOSAR framework, especially when it comes to enabling faster, more agile innovation. Thank you.

[Foreign Language] The Li Auto brand is positioned as a premium brand. Therefore, additional purchases and upgrades is a big part of our customer base. So specifically, our range extended models are catered towards customers who currently own ICE models, as an upgrade to ICE model. Whereas BEV models are upgrades for NEV car owners. So i8 and i6 will be targeted towards the current ownership base of NEV cars. And our expectations for this year is that the overall NEV market, over RMB200,000, will be about 3.8 million units this year and among which, 1.69 million will be PHEV and 2.13 million will be BEV. Therefore, by introducing BEV models, we'll be taking it to a bigger market. Thank you.

Your next question comes from Tina Hou with Goldman Sachs.

Hi, management, thanks for taking my questions. So I have two questions. The first one is regarding our balance sheet. So just wondering what is our target leverage ratio and also sort of what is our payable cycle, including some of the bank bills, bills payable to the supply chain? And then the second question is regarding our upcoming i8, the BEV model. So, could management share with us what do you think is the biggest selling point and advantage versus other BEV models in the same segment? [Foreign Language]

Okay. Tina, this is Johnny. I'll take the first question. We are very committed to maintain good relationships with supplier partners. We strive to maintain the payable days by a reasonable and healthy level, basically renewing from total format. So if you see our payable days at the year end, it's because there are some reconciliation that need to be spent after we book the balance, and we will finally reconcile the balance with our suppliers. At the end of Q1, the payable balance didn't change much compared with the end of last year. So, the quarter-over-quarter increase in the payable base was mainly due to the calculation [indiscernible] due to the lower cost of sales in the first quarter. Thank you.

[Foreign Language] So, a brief -- a few points on i8 key selling points. Apart from the VLA Driver model, which I mentioned earlier, i8 also has a very innovative styling, exterior and interior. And the exterior styling is really designed around smart packaging to allow for the most space inside as well as a very low dry coefficient. And in the meantime, i8 also offers very good handling and ride comfort. Apart from that, i8 also supports charging up to 500 kilometers in 10 minutes with this high-voltage charging technology. And by the time we launch i8, we'll also would have built 2,500 supercharging stations to prepare for the launch of i8. And all these charging stations are built around the surrounding and the travel routes of our potential customers. So we have reasons to believe that Li i8 will be a top choice for existing owners of NEV cars as the replacement or upgrade to their current model.

Your next question comes from Jing Chang with CICC.

[Foreign Language] This is my first question. It’s regarding to our sales target and also some trends outlook, will we set up a clear sales target this year? Will we flexibly adjust our volume and price strategy according to the market changes? And also in the longer term, previously, we have our calculations about the market size. And given the changes in recent two years, have there been any changes in our adjustments? So, regarding to the mid- to high-end SUVs and especially family cars, so what's our midterm sales target in domestic market?

[Foreign Language] As we've communicated before, we expect our growth in 2025 to be double the growth rate of the overall RMB200,000 above NEV market. And in terms of energy type, as we launch our BEV models, we'll be taken into a bigger TAM. As I mentioned earlier, the whole market of NEV, over RMB200,000 and more is 3.8 billion this year expected, and 2.1 million, which is BEV. So our new BEV model launches will take us into this bigger market. And in terms of market demand, we think there's still great potential. And I'll give one example with Tier 4, Tier 5 cities. We've recently announced what we call Star Program which will expand our coverage in Tier 4 and Tier 5 cities. And we've run some pilot programs last year in these Tier 4 and Tier 5 cities. Like for example, in Sichuan Dazhou and Ziguang, both of which are Tier 4, Tier 5 cities. And since we've opened our stores in last September, in less than half a year, we've reached over 28% market share in all passenger vehicle markets over RMB200,000, regardless of energy type. And another example in Shaanxi, Yan'an, we've also reached 25% market share at all PV market over RMB200,000. And as the overall penetration rate of NEV reaches over 50%, more and more users are choosing new energy vehicles. And also as we launch L6 and other models, we are seeing bigger opportunities in Tier 4 and Tier 5 cities. So this year, we'll continue to expand our Star Program and bring incremental sales to the company. So, our goal is to expand to 100 cities this year in Tier 4, Tier 5 cities and bring in 100,000 incremental sales in 2026.

[Foreign Language] So my second question is regarding to AD. Mr. Li Xiang elaborated in detail how we do [indiscernible] in the previous AI talk. Talking about our driver [indiscernible] model several progresses, including the pre-training, the foundation model and the different types of the reinforcement, learning and et cetera. So what's co-difficulties do you think are there and how we do to differentiate ourselves from peer companies?

[Foreign Language] Our training process for basically replicating an experienced driver is divided into four steps. Step one is training what we call a VL foundational model, pretraining. Second step is post-training into a VLA model. And then there's reinforced learning with human feedback or RLHF. And finally, RL, reinforced learning. And this is how we train an experienced driver through AI. And the hardest part of all this is the pretraining, which is the VL foundational model as well as the last step, the reinforced learning step. This is a problem that all enterprises are trying to solve. So first of all, in the VL foundational model training process, we're trying to add specific video data so that the foundational model can understand three-dimensional space as opposed to other models, which only understand 2D space. This is a key differentiation of our foundational model. And then in reinforced learning requires us to train the model in real-world simulated environments to iterate the VLA's model and improve its capabilities. So through reconstruction and generative processes, in combination of these two methods, we can build world models that follow -- actually follow the physical laws -- the laws of physics in the real world and replicate traffic participants and other elements. So with very accurate simulation capabilities, the VLA driver model can train at very low cost and very accurately verify real issues in a simulated world model, and it can also significantly reduce the iteration period. Thank you.

[Foreign Language]

Your next question comes from Bin Wang with Deutsche Bank.

[Foreign Language] I got two questions. One is about your gross margin and the second one is about the export. In the first quarter, you are actually enjoying the margin expansion. You mentioned you had pricing strategy change. Can you provide more detail about this strategy change? Meanwhile, what's your outlook for the second quarter? Basically, we think that when you launch a new system, [indiscernible], assume your margin actually will increase in the second quarter. And for the second question about the export, you previously said you will be the starting point for export. Do you know when the minimum volume will be emerged for the export business when you can start to say monthly export volume exceed 1,000 units? Thank you.

Hi, this is Johnny. I think our -- first, we expect the vehicle margin to still remain around 90% for the second quarter. As you know, the second quarter is -- we have April and May, the MEGA is not there. And as of today, we have a lot of new MEGA Home order [indiscernible] will still start in Q1 and deliver starting from this week. Now it's a switch from the old 2024 version of L Series to the 2025, so it's a combination. So we still achieved the vehicle market [indiscernible] Thank you.

[Foreign Language] We have three prerequisites for entering an overseas market or enter any market, which is offering a good hardware, and second, being able to provide after sales support, and third is to provide smart software services. Only when we meet these three conditions can we enter a new market because we consider ourselves to be selling AI near terminals as opposed to just selling physical products. Over the next few years, we'll be focusing on Asian, European market and recruit established distributors across these countries. And in the meantime, we're also stepping up our efforts to identify and assign top talents, internal talents to our overseas market team while also recruiting actively professionals with international experience to join our international team. Overall market -- overseas market is part of our long-term strategy. So we'll be working very hard with the goal of reaching 30% of overall sales overseas.

Thank you.

Our next question comes from Paul Gong with UBS.

[Foreign Language] So my first question is regarding the VLA timing for availability to the consumers, especially given the tightening of the regulation on the driving assistance recently by the government. Do we need more time to verify it? Or are we still confident that it would be available for consumers to use in July? The second question is regarding the implication of MEGA Home. This has definitely shown some improvement from the previous MEGA sales. And what do you think are the lessons learned? And what would be the lessons for the upcoming i8 and i6 launch?

[Foreign Language] We're still on track to releasing our VLA Driver model in July together with our BEV electric SUV, i8, then we'll be rolling out VLA Driver to all of our users in August. And obviously, our drivers can -- our customers can also experience VLA Driver in our test drives in all of our stores. We view regulations on safety in assisted driving to be absolutely necessary. In fact, we view stringent regulations to be more favorable to companies with solid technical fundamentals. So, for Li Auto, our super alignment technology will address many of the safety concerns and allow us to prioritize safety at the top consideration in all development stages. Enhanced regulatory regulations requirements will not hinder our R&D efforts.

[Foreign Language] So, in fact, our previous study rate of MEGA deliveries was about 1,000 per month. And our expectation was for it to increase by 50% with the launch of the new model. But in fact, it eventually increased by over 150%, significantly exceeding our expectations. And we hope to increase production capacity to keep -- maintain a delivery, steady-state delivery rate of 2,500 to 3,000 as we expect. So as we look back at the previous year and how we got to where we are today, we realize the most important thing was not to focus on our own internal desires or focus too much on the competition or on specific market segments on which competitors enter this market and do things based on our fear. But in fact, we return to the users that focus under the family users and what they actually need and how we can surpass what they were looking for or other products are offering in the market and innovate around their needs. So one opportunity that we see as we see the success with the new MEGA Home and what we've done with the exploration we did last year was really this opportunity around mobile space. There are so many things that we can do to innovate around this mobile space experience and there's so much exciting product features that we're exploring because we hope the car going forward is not -- the experience is not going to be just focused on hardware but actually an integrated AI experience enabled by hardware and software. So, looking forward, we know when we talk about user machine interaction, we think of Apple as a company that does it best in the world. We hope when people talk about space experience, people think of Li in the future. Thank you.

Thank you so much. Thank you.

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. This concludes today's conference call. You may now disconnect your lines. Thank you.