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leidi.com lotte august 28

li auto (nasdaq: li; hkex: 2015) today announced its second quarter financial results for 2024. li auto chairman and ceo li xiang, president and chief engineer ma donghui, cfo li tie, and senior vice president of sales and service zou liangjun attended the conference call.

li xiang said in a conference call that hongmeng zhixing is ideal auto's strongest competitor in the market, and the two sides will coexist healthily for a long time. from another perspective, the core attitude of ideal auto is to learn from huawei's technology research and development system and business management system in the long term and continuously.

"as a start-up, ideal auto has a very important role model to learn from."

li xiang also said, "with the progress of our intelligent driving, we have entered the first echelon of the industry in terms of intelligent driving, and the competitiveness of the cockpit has also remained at the forefront."

li tie said in a conference call that the company is confident of achieving full-year deliveries of 500,000 vehicles, provided that the overall pv market remains healthy in the second half of 2024.

the financial report shows that ideal auto's revenue in the first half of 2024 was 57.312 billion yuan, an increase of 20.8% from 47.44 billion yuan in the same period last year.

ideal auto's interest income in the first half of 2024 was 1.4 billion yuan, compared with 849 million yuan in the same period last year;

ideal auto suffered an operating loss of 117 million yuan in the first half of 2024, compared with an operating profit of 2.031 billion yuan in the same period last year; net profit was 1.692 billion yuan, down 47.8% from 3.244 billion yuan in the same period last year.

after the financial report was released, li auto's us stocks plummeted by more than 17%; as of now, the company's stock price is us$17.48, with a market value of approximately us$18.5 billion.

below is the analyst q&a session:

question: ideal auto is focusing on the establishment of end-to-end algorithm and mass production r&d teams this year. how does management think the capital market should evaluate ideal auto's input-output efficiency in intelligent driving?

ma donghui: ideal auto has always had a relatively high input-output efficiency in intelligent driving. as for the measurement indicators, we believe that they are result-oriented and should be viewed from two aspects. first, whether users are willing to use it, such as the length of time the intelligent driving is used, the proportion of mileage, etc.; second, whether users are willing to buy it.

from the user's perspective, since the full launch of map-less noa in july, users' acceptance of smart driving has been increasing. the daily activity and mileage of urban noa have increased significantly, even doubling.

from the market perspective, intelligent driving has played a positive role in driving sales. the proportion of potential users coming to stores to test drive noa has doubled, and the proportion of ad max orders for various models is increasing, especially for models above 300,000 yuan, where the proportion of ad max orders has reached nearly 70%.

we believe that starting from end-to-end + vlm, the threshold for intelligent driving research and development has been established, because starting from this generation, artificial intelligence is truly used to do intelligent driving, and artificial intelligence requires a large amount of data and computing power. it will increase the advantages of companies with high-end intelligent driving vehicle ownership and sufficient r&d investment in intelligent driving, and actually promote sales growth. the increase in sales will in turn bring about an increase in ownership and r&d investment. this is a continuous positive snowball process.

hongmeng zhixing is the strongest competitor in the market

question: ideal auto and huawei are both leaders of new forces. the market is paying special attention to the recent q7 pro and subsequent family suv models. i would like to ask how the management views the impact of this on ideal auto’s sales in the second half of the year and in the future?

li xiang: hongmeng intelligent driving is our strongest competitor in the market. we believe that the two sides will coexist healthily in the long run. from another perspective, our core attitude is to learn from huawei's technology research and development system and business management system in the long term and continuously. as a start-up company, ideal auto has a very important role model to learn from.

question: ideal auto’s pure electric model has been postponed to next year. what changes and improvements will there be in appearance?

li xiang: regarding pure electric models, ideal mega has proven our strength in 800v high-voltage pure electric power, including high-voltage platform efficiency and complete charging experience and capabilities. with the progress of our intelligent driving, we have entered the first echelon of the industry in terms of intelligent driving, and the competitiveness of the cockpit has also remained at the forefront.

for pure electric suvs, we need to solve two problems: one is the product design, and the other is to provide users with more than 2,000 supercharging stations when pure electric products are delivered. we are still very confident in the competitiveness of pure electric suvs, and we hope to enter the first echelon of high-end pure electric products in about two years.

question: what’s the gross profit margin guidance for q3?

li tie: last quarter, we gave a guidance of 18% for vehicle gross profit margin, and the actual gross profit margin reached 18.7%, with the increase coming from changes in product mix and an increase in delivery volume. with the optimization of scale effect and the adjustment of sales policy, the ideal vehicle gross profit margin is expected to rise slightly in the third quarter, reaching more than 19%, and the overall gross profit margin is expected to return to more than 20%.

we are confident that we can achieve 500,000 vehicle deliveries throughout the year

question: could the management share ideal auto's competitive strategy for the second half of the year? especially in the absence of new models, how to maintain sales stability or even improve sales to a certain extent?

zou liangjun: new models are only one of the reasons for the increase in sales. efficient sales operations are the important factor in promoting sustained sales growth, and this is what we are currently doing. next, we will further optimize the store layout, while strengthening the ability to obtain online leads, open the horn of our sales growth, and improve the efficiency of sales operations. in addition, with the company's recent increase in publicity and promotion of intelligent driving, it has also helped our sales growth, especially the ad max model.

data shows that among high-end new energy vehicles priced at rmb 200,000 and above, ideal's market share increased from 13.6% in the first quarter of 2024 to 14.4% in the second quarter. our goal is to increase this share to 16% by the fourth quarter of 2024.

li tie: assuming the overall pv market remains healthy in the second half of 2024, we are confident that we can achieve full-year deliveries of 500,000 vehicles.

question: under the new full-year sales guidance, how will the company guide the pace of subsequent capacity expansion and capital expenditure?

li tie: regarding the overall capital expenditure this year, it has been adjusted to us$1.1-1.2 billion. in terms of free cash flow, the free cash flow from june to july was positive. with the continuous optimization of capital expenditure and the improvement of capital utilization efficiency, we are confident that free cash flow will improve soon.

question: ideal auto has made a lot of adjustments in the first half of the year. has the expectation for full-year r&d expenses changed? what is the approximate amount?

li tie: at present, the annual r&d expenses will be controlled below rmb 12 billion.

question: how do you envision the future direction of end-to-end autonomous driving technology iteration? what is the progress of ideal auto in this regard?

ma donghui: in general, the iteration speed and effect of the end-to-end and vlm models are beyond our expectations. we started pushing out early bird tests to thousands of people at the end of july. in less than a month, the model has gone through 9 iterations, with an average update every 3-4 days.

the amount of model training data has also increased from 1 million clips at the beginning to 2.3 million clips. the model's capabilities have also increased significantly, and many early bird users have shared end-to-end videos on social media, demonstrating the excellent performance of this system on urban roads.

at the same time, the rapid iteration of the model is inseparable from efficient and automated capability assessment. we have built a simulation test system based on the world model. in this system, we have established a wrong question bank and test question set based on user feedback and using scene reconstruction and generation technology, so that the model can be fully trained and evaluated. this test system can also score the model in multiple assessment dimensions such as safety and comfort.

we believe that the research and development of autonomous driving has indeed undergone fundamental changes, from the past iteration of functions to the iteration of model capabilities. the speed of iteration depends on whether there is enough high-quality data and computing power, as well as an automated simulation test system.

our end-to-end + vlm system is expected to undergo a larger-scale test with tens of thousands of users in september.

question: the market is paying close attention to the launch of tesla's robotaxi. what is ideal auto's judgment or outlook on robotaxi?

ma donghui: regarding robotaxi, we believe that when l4 autonomous driving is achieved, the demand for online car-hailing and taxis will drop significantly. it will take a longer time to gain insight into this market.

more sales rights are delegated to provinces and regions

question: recently, the company's l series sales have continued to grow amid weak domestic consumption. are there any special reasons for this? is it benefiting from the improvement in the competitive environment in the high-end car market?

zou liangjun: i believe that the main reason for the recent sales growth is the strong product competitiveness of the l series, as well as the company's adaptability and rapid adjustment capabilities in the market.

in the second quarter, in addition to continuing to make efforts in traditional sales channels, we also opened up new online channels, such as the tiktok platform, which brought the company a significant increase in sales leads and helped us achieve sales growth.

in addition, the company is carrying out a new sales system reform, delegating more power to the provinces and regions. on the premise of achieving the company's given profit targets, local areas can flexibly adjust sales according to local conditions, thereby fully unleashing the sales potential of each province and region.

finally, starting from june 2024, the new energy penetration rate in the market above 200,000 has exceeded 50%, which is a critical node, and the market position of new energy vehicles will be further consolidated. i believe that the high-end new energy vehicle market will experience an increase in concentration. and ideal auto will definitely become one of the main beneficiaries of this market concentration increase process.

question: can you share some of the preparations for next year's pure electric models? are there any changes in the adoption of new technologies? and what is the scale of the production capacity preparation plan in the industrial chain?

ma donghui: ideal auto will launch a number of 800v high-voltage pure electric models in 2025.

in terms of r&d, the overall development progress is normal. at present, several small batches of prototypes have been trial-produced, and according to the calibration and test verification plan, relevant tests and performance surveys such as high temperature and high humidity, fatigue durability, etc. have been completed.

in terms of the capacity preparation of the industrial chain, the overall progress is also progressing normally, and the capacity planning of pure electric models can meet sales demand. the factory building for producing complete vehicles has been completed, and the production lines of the four major processes are being installed and debugged; in addition, our pure electric models will be equipped with self-developed and self-made core components, which are also undergoing performance testing. the capacity planning and development progress of external supplier partners are also proceeding smoothly as planned.

we are confident that we can ensure the delivery of pure electric vehicles as planned.

question: it was previously said that the l8 booth arrangement would be adjusted to boost high-price products. is the channel adjustment effective?

zou liangjun: with the opening of more center stores, the number of l8 booths is gradually recovering. in addition, we have also opened up new online channels, such as the douyin platform, to ensure that l8 can obtain sufficient sales leads. therefore, since april, the sales volume of l8 has been steadily increasing. at present, the monthly delivery volume of l8 has recovered to the level of 6,000-7,000.

question: in terms of marketing network, after reviewing the first half of the year, ideal auto has made many improvements and adjustments, such as increasing the proportion of central stores. can you share the logic behind the above changes in more detail? what adjustments and preparations do the current channels need to make for the launch of pure electric vehicles next year?

zou liangjun: first of all, we will continue to adhere to the direct sales model and display all our products in retail showrooms as much as possible. the central store has a large area and can display 9-11 cars. we will display all our models on sale.

this year, we have made several adjustments to our sales channels, gradually replacing the stores at the tail end of the existing network with central stores in leading auto cities. we will focus on the best auto cities in the top 150 cities in the country and open high-quality large stores in these best auto cities.

judging from the current achievements, the proportion of central stores has increased from 24% at the end of 2023 to 31% at the end of june 2024, and it is planned to further increase to nearly 50% by the end of this year. next year, we will continue to increase the proportion of central stores and the number of booths.

as the proportion of central stores increases, the capacity of store showrooms has also increased. the number of ideal auto store booths has increased from 4.6 units/store at the end of 2023 to 5.1 units/store at the end of june 2024, and is planned to be further increased to 6 units/store by the end of this year. the total number of ideal auto booths nationwide has increased from 2,642 at the end of 2023 to 2,919 at the end of june 2024, and is planned to be further increased to more than 3,600 by the end of this year.

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