Hello, ladies and gentlemen. Thank you for standing by for Li Auto’s First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Today’s conference call is being recorded. I will now turn the call over to your host, Ms. Janet Zhang, Investor Relations Director of Li Auto. Please go ahead, Janet.

Thank you, Amber. Good evening, and good morning, everyone. Welcome to Li Auto’s first quarter 2022 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 IR website. On today’s call, we have our President, Mr. Kevin Yanan Shen; and our CFO, Mr. Johnny Tie Li, to begin with prepared remarks. Our Founder and CEO, Mr. Xiang Li, 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 U.S. 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 filings of the company with U.S. Securities and Exchange Commission. 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 press release, 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. In the first quarter of 2022, the EV boom continued. According to the China Passenger Car Association, or CPCA, retail sales of new energy passenger vehicles in China reached 1.07 million in the first quarter of 2022, representing a year-over-year increase of 146.6%. And EV penetration rate climbed to a record high of 28.2% in March 2022. As the leader in the new energy vehicle market, we are excited to be one of the driving forces behind the industry continued innovation and evolution. Thanks to our Li ONE’s outstanding feature and the compelling appeal to family users. We delivered 31,716 Li ONE’s during the quarter, aiming industry-wide supply chain challenges, up 152.1% year-over-year and achieved a total revenue of RMB 9.56 billion, 167.5% higher than the first quarter of 2021. The past seven-months was undoubtedly a difficult period for all of us, given the headwinds caused by the COVID-19 pandemic. We have been no exception to the supply chain disruptions and rising material and logistics costs that challenged the entire auto industry. Our Changzhou manufacturing base is located in center of the Yangtze Delta region, which is home to over 80% of our part suppliers, especially in the city of Shanghai and Kunshan. The 2019 resurgence in this area since late March has incapacitated some suppliers in Shanghai and Kunshan. Some of them completely shut down their production and delivery, making it impossible for us to maintain production after exhausting our parts inventory. This materially affected our production in April, resulting in delayed deliveries to our customers. As a result, we only completed 4,167 deliveries in April. In light of the encouraging signs of the recovery from the pandemic in the Yangtze Delta region, we expect our…

Thank you, Kevin. Hello, everyone. I will now go over some of our financial results for the first quarter of 2022. To be mindful of the length of this call, I will address financial highlights here and encourage you to refer to our earnings press release, which is posted online for additional details. Total revenues in the first quarter of 2022 were RMB 9.56 billion or $1.51 billion representing an increase of 167.5% from RMB 3.58 billion in the first quarter of 2021. This included RMB 9.31 billion or $1.47 billion of vehicle sales in the first quarter of 2022, an increase of 168.7% from the first quarter of last year. The increase in vehicle sales over the first quarter of 2021 was mainly attributable to the increase in vehicle deliveries in the first quarter of 2022. On a quarter-over-quarter basis, total revenues and vehicles, vehicle sales decreased 10% and 10.3%, respectively primarily due to the decrease in vehicle deliveries in the first quarter of 2022. Revenues from other sales and services were RMB 253.4 million or $40 million in the first quarter of 2022, representing an increase of 127.2% from RMB 111.5 million in the first quarter of 2021, an increase of 3.6% from RMB 244.7 million in the fourth quarter of 2021. The increase in revenue from other sales and services over the first quarter of 2021 was mainly attributable to the increased sales of charging stalls, accessories and services in line with higher accumulated vehicle sales. Cost of sales in the first quarter of 2022 was RMB 7.4 billion, or $1.17 billion, representing an increase of 150.1% year-over-year and a decrease of 10.2% quarter-over-quarter. Gross profit in the first quarter of 2022 was RMB 2.16 billion or $341.3 million, representing an increase of 250.9% year-over-year and a…

Thank you. [Operator Instructions]. Our first question comes from the line of Fei Fang from Goldman Sachs. Please ask your question.

[Foreign Language] Great quarter. I have two questions. First, about the business outlook was the broader market level assumptions that management are working with in terms of both supply and demand. What is the specific launch timing for L9? How will production ramp up? Any comment on the broader market environment would be very helpful. Second is about margin. The first quarter margin was a beat. Kevin discussed a retail price increase in April. So can you refresh us on the margin guidance from here?

Thank you, Fei Fang. This is Kevin. Thank you for your question. Okay. On your first question, in fact, the outlook we gave just now is based on our expectation of the recovery of the production of our suppliers in Yangtze Delta region. Basically, you can see from end of April to now, although still a lot of suppliers are still struggling to recover, but we already see some of the positive signs that at least half of our suppliers already resumed their production. So therefore, there still are uncertainties for the next step. And in terms of the order, we have enough order to on hand, yes. So right now, the single biggest risk is still the production of our suppliers. And in terms of the March market launch plan for L9, as we just mentioned in the third quarter of this year. Yes, L9 will be delivered to our customers. And I think for the overall EV business, behind us, we already see that in the past two quarters, we have already seen a very strong growth both the production and the consumption. So looking to the future, I think there are uncertainties. First of all, is the recovery of the supply chain. On the other hand, if the pandemic persists for a longer time, our fear is that the consumers spending desire will reduce, yes. So that is another thing we are monitoring closely. On your second question, actually, right now, it is not time for us to provide another updated guidance for our gross margin.

Thank you.

Thank you. Our next question comes from Tim Hsiao from Morgan Stanley. Please ask your question.

[Foreign Language] So I have got two questions. The first question is about the sourcing strategy because we think the production recovery appear as a matter of time. But has Li Auto taken any extra precautions, for example, reviewing or changing your current sourcing strategies in the wake of the recent disruption in Yangtze River Delta region. As Kevin mentioned, 80% of our suppliers are currently located there. So any thoughts on further diversification in China or offshore? Second question is about the potential price hike or margin pressure. Because on top of the 11,800 price high of Li ONE since April, if there is any pressure on the further crisis adjustment or to spec inside of likely further price hike of key components, for example, like batteries into second half, especially production cost has substantially increased recently?

Thank you, Tim. This is Kevin again. So first of all, for the supply chain management. In fact, in the past, we already have the measurement to try to qualify more suppliers to supply us. So that will not change. And right now, of course, with the pandemic, we will definitely consider some short-term measurement to counter the impact because there are still uncertainties of the recovery of the dynamic in front of us. For the long-term, I don’t think we will take any dramatic measurement to change our supply chain management strategy. Because the dynamic is we think still is a onetime issue for us. And the supply chain strategy is a long-term thing. And for the price adjustment, in fact, with 2021 Li ONE, actually, when we increased the price on April 1st, we already took into consideration of all the foreseeable material cost increase, yes. But we will continue to closely monitor the volatility of the cost. So right now, we don’t see another need to further change our price, yes. But that is based on the current information we have.

Great. Thank you. Our next question comes from [indiscernible] from HSBC. Please go ahead.

[Foreign Language] My two questions. First is on the order book and the demand outlook. What is the new order book momentum post the price hike? And how would the new order book in April compared to January? And looking ahead, how would management would expect high-end pricing category, EV demand in second half looks like more gross quota are back-end loaded. And the second question is on the product cycle and product strategy. We may see L9 coming through and next year would be a big product cycle launching yes. Will we have your insight on how we plan the five models, five new models value proposition in the coming 18-months and the conviction or the product philosophy to enable them or potentially the segment winner?

Thank you, [indiscernible]. This is Kevin. I will take the first question and leave the second question to Li Xiang. As we all know that in April 1st, we increased our price. Naturally, a lot of sales leads were consumed in the end of March, yes. So therefore, in the very beginning of April because we have to restart the sales leads our pipeline. So therefore, the first half of April was a little bit slow. But since the last week of April and also the first week of May, we already see a very strong comeback of the order intake. The only exception is like Shanghai because the pandemic stopped us from taking orders. So overall, we are still very confident that how Li ONE will continue to be demand will continue to be very strong. Overall, for the high-end EV market. Overall, unless the dynamic persist very long time and hurt the economy very badly. Otherwise, we think the demand will continue to be stable, yes. But from our side, because our Li ONE and also our incoming L9, the product competitiveness is very, very strong. So therefore, despite the demand side fluctuation, we still have a very strong confidence that these two products will do very good this year in market.

[Foreign Language] This is Li Xiang. I’m translating for Li Xiang, the Founder of the company. When we launched our first product by the end of 2019, it was 1 single product, which became a big success. But from that time on, we started to look at our product portfolio as a combination of different products. And therefore, since then, we started developing five different platforms to support our product portfolio, including the range extended platform, 800 high-voltage electric vehicle platform, the autonomous driving platform, smart space platform and our electric e-architecture platform. So all these fly platforms combined together support our wide range of products across different price ranges. So by 2021, if you look at Li ONE as a product, in the RMB 300,000 to RMB 400,000 in EV market and already had a 30% market share and it is still increasing. And that is our standard for a successful hit product, and we think that is a very comparable market share in the target market. And with that in mind, we want to continue to deliver hit products in every price range within our target markets. And we look at our product portfolio with two perspectives. The first one is that we pair a different body type with different energy sources. And by that, I mean, pure electric vehicles will have one body type and extended range vehicles would have a different body type. So when we started building range extended vehicles, we realized that the best body type was SUVs because neither sedans or MPVs were a good fit from a packaging standpoint for range extended vehicles. And by the same logic, when it comes to electric vehicles, we realize that big SUVs are no longer a good fit because for energy efficiency reasons. And therefore,…

Great. Thank you. Our next question comes from Ming-Hsun Lee from Bank of America. Please ask your question.

[Foreign Language] So my first question is for the battery price and also the leasing supply. In the future, where you think the leasing supply will constrain the EV growth for China. And also currently, the battery price is still high. Do you think this is because of some speculative trading? Or it is really mainly because of real demand? Second question regarding your point of sales expansion, previously, your target is 400 stores by the end of the year. But under the pandemic, where you slowed down the progress? And also in terms of the charging pile, do you have any plan are all of your charging station based the supercharging infrastructure? Thank you.

Yes, Lee. This is Kevin. Thank you for the question. Three questions. First of all, we think right now the battery cost, especially the raw material cost is already deviated from the reasonable price of course. So with the supply increase, we will definitely see gradually the raw material cost should go down, yes. But overall for this year, we still expect probably the price will still stay in a relatively high position. That is our outlook. So of course, this high price of the raw material we will translate into the increase of the end consumer price Therefore, we will kind of hurt the market demand. But as I mentioned just now, with our Li ONE and our L9 because our product competitiveness is very high. We still have strong confidence that even with a slightly higher price, we can still get a lot of order. For example, for Li ONE even though we increased the price starting from April 1st. But as I have just mentioned, starting from end of April till now, we see the orders still are coming strong, yes. And in terms of the retail stores, we did have a quite aggressive plan by end of this year, we want to have more than 400 retail stores. Right now, of course, because of this pandemic issue, we are revisiting our plan. But we should all agree that the number of retail stores is a fundamental requirement for us to achieve a higher sales volume next year. So therefore, it doesn’t matter how big the impact the pandemic for this year. We still want to open as many retail stores as possible despite the impact of the pandemic. In terms of charging poles starting from this year, we already have a team starting to build the charging poles. Right now, the initial focus of this team is to primarily build charging poles along the highway, especially those highways connecting the big cities. So right now, the primary focus is still the highway to connect the cities. And within the city, it depends on the customer needs, we will choose carefully whether we want to build charging poles within city. That is the strategy right now we have.

Great. Thank you. Next question comes from Xue Deng from CICC. Please ask your question.

[Foreign Language] So my first question about - the financial question about other income of RMB 280 million in the first quarter. So where does it come from? And my second question is about the gasoline cost negotiation. Therefore that many car companies said that they frequently negotiate the cost quarterly or half semiannually on. So how about that? So if the price -- is the cost of battery yield continue to increase by the middle of this year. How do we reflect and will be further with our selling track to reflect the cost of increase? And last question about the product pipeline. And you can see that many brands they want to launch -- need to launch by few industries then the recent position -- price positioning of around RMB 200,000 this year, and the market has very high expectations for these totals. How to review the market of outpace the significant submarket? And going to our plan, if we are going to launch again and with the price below RMB 300,000 I think that it should be not before 2024. So I will be worried about if the entry to the market today to meet these market opportunities.

Thank you, Xue Deng. This is Tie Li. I will take the first question is the other gains, the increase of other gains compared with last quarter was mainly the VAT refund upon collection as well as our Company was qualified as a software company.

This is Kevin. For the battery cost, we agreed with our suppliers with a framework to kind of relate the battery price with the fluctuation of the upstream raw materials. So therefore, for the coming quarters, we don’t need to renegotiate everything. But of course, we will always come back to our suppliers as for cost savings. That is for sure. And also, as I just mentioned, the price increase already reflected our expectation for the raw material price in the coming quarters.

[Foreign Language] It is very clear to us that by 2025, our core customers will still be families with kids. And with that, three things become very clear. First is that we are always going to build vehicles with an acceptable level of interior dimensions for family users. And the second one is that all of our vehicles will be all-wheel drive. And third is that we want to make sure that every vehicle includes our latest autonomous driving and smart space solutions, so that every family members are able to enjoy them. And with these three things in mind, it is very natural that we will continue to focus on the RMB 200,000 to RMB 500,000 price range. And within this range, we will continue the mine of RMB 300,000, RMB 400,000, which is our starting point. And from there on, we will expand upward to the full-size market and downwards the midsize market. So this year, as you know, our focus will be the L9 release. And next year, we will be launching three new vehicles, including a completely new range extended vehicle and also our first battery electric vehicle. And you will also see our first product in the first -- in the 200,000 to 300,000 midsized market.

Great. Thank you. Our next question comes from Bin Wang from Credit Suisse. Please ask your question.

[Foreign Language] I only have a one question about the battery price. So can you know when do you start to come in for the price increase for battery? And because you mentioned the battery price increased by 30%. Is it from the January 1 or start from second quarter? If the first quarter already considering the price increase of the battery, you also actually increased price start from April 1st. It does mean the second quarter a marginal further increase. So can you some guidance on this? Thank you.

Yes, Wang, thank you for the question. It is a rather complicated question. So basically, the first quarter is financial performance already to consideration of the, of course, already to consideration of part of the battery cost increase. And the impact was not that dramatic primarily due to, as you know that we have inventories. So therefore, the cost, in fact, it is a rolling mix. So that is for the first quarter. From second quarter, we will have the best free cost increase, as you mentioned. And at the same time, from the beginning of this quarter, we will have a selling price increase. So therefore, it is not that we can expect some very high gross margin compared to last quarter, Okay.

Right. Thank you. As we are reaching the end of our conference call, I would like to turn the call back to the Company for closing remarks. Ms. Janet Zhang. Please go ahead.

Sure. Thank you once again for joining with us today. If you have further questions, please feel free to contact Li Auto’s Investor Relations team, and that is all for today. Thank you, and have a good one.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.