Li Auto Inc. (LI) Q2 2025 Earnings Report, Transcript and Summary

Hello, ladies and gentlemen. Thank you for standing by for Li Auto's Second Quarter 2025 Earnings Conference Call. [Operator Instructions] 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, Darcy. Good evening, and good morning, everyone. Welcome to Li Auto's Second Quarter 2025 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 CTO, Mr. Yan Xie, 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 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 U.S. 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 the Li Auto's disclosure documents on the IR section of our website, which contain a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. Our CFO 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.

[Interpreted] Hello, everyone. This is Li Xiang and thank you for joining today's earnings conference call. In the second quarter of 2025, we delivered over 110,000 vehicles, bringing total revenues to RMB 30.2 billion. According to insurance registration data from the China Automotive Technology and Research Center, we captured a 13.4% market share in the RMB 200,000 and above NEV market in China, making yet another quarter where we have top segment sales among Chinese auto brands. As of the end of July, our cumulative deliveries exceeded 1.36 million vehicles. I would like to extend my sincere gratitude to those 1.36 million families who have placed their faith in us as well as our partners, shareholders and employees for being part of this journey. We launched Li MEGA Home in April this year. The sales results far exceeded our expectations, with approximately 3,000 units sold monthly, 14 months after launch in March last year Li MEGA has become the best-selling MPV priced above RMB 500,000 since May 2025. And then the top-seller among all BEVs in the same price range since June 2025. These achievements demonstrate our ability to quickly identify issues and grow while standing as a powerful testament to our product value and validated by the market at test of time. The refreshed Li L series that we launched in the first half of this year experienced sales fluctuations since June due to sales and service system adjustments and other market factors. Despite these challenges in June and July, we maintained our top sales -- top 3 position in the RMB 200,000 and above NEV market. We will draw on Li Auto's ability to thrive in challenging conditions and swiftly complete the restructuring of our sales and service systems. This includes enhancing sales and delivery capabilities, building an end-to-end marketing system and boosting sales team morale. Meanwhile, we will focus on creating value for our users to respond more effectively to market dynamics. We officially launched Li i8 in July 29 -- on July 29 with delivery starting on August 20. Li i8 showcases our latest innovation and redefines BEV SUVs by combining the versatility of off-roaders, the right at handling of luxury sedans and the comfort of MPVs. Its pioneering design is a key reason why users choose Li i8, validating our product philosophy. Since its launch, our focus has been on accumulating positive user word of mouth for this innovative product. We are especially pleased to see a test drive satisfaction rate of over 97%. As customers experience the product firsthand, Li i8 continues to gain momentum. Since deliveries began on August 20, we received glowing reviews from the initial batch of customers. We expect cumulative deliveries of Li i8 to exceed 8,000 units by the end of September. We're confident that over time, just like Li MEGA, Li i8 will establish itself as the best benchmark in its price range. Additionally, preparation for our 5-seat BEV actually, Li i6 is progressing smoothly. We plan to launch Li i6 and commence deliveries at the end of September. Li i6 will expand our product lineup to cater to a broader audience base. To support our BEV launch, we offer the largest charging network among automakers in China. As the automaker was the fastest- growing charging network over the past few years, Li Auto strives to empower BEV users with a hassle-free experience. As of now, we have more than 3,100 charging stations equipped with over 17,000 charging stalls. Among these charging stalls along the highways over 1,000 supercharging stations cover China's busiest 9 East-West and 9 South North Highway routes, a 150-kilometer interval on average. Additionally, more than 2,100 urban supercharging stations are spread across over 266 with an average coverage radius of 3.5 kilometers in first and second-tier cities. We're confident that we will reach our 4,000-station goal by the end of this year. Our charging network also leads the industry in terms of charging rate. Currently, all of our charging stalls support charging rates of 250 kilowatts or higher with over 61% being 4C and 5C chargers. All of our upcoming charging stations use 4C and 5C charging stalls, further enhancing the ultra-fast charging capability of our energy replenishment network. Furthermore, we continue to explore and build a new ecosystem for our automotive charging services. In June, we launched China's first pass-through supercharging station in Changzhou with functions like gas -- which functions like a gas station. It allows users to stay in the cars while supercharging multiple vehicles at the same time, making the charging experience more efficient and more convenient. We're also testing autonomous charging robots, aiming to redefine smart charging in the future. We remain committed to ongoing investments in research and development to further solidify Li Auto's leading position in intelligence. We believe that intelligence is becoming an increasingly critical, maybe even the most critical driver of users' purchasing decisions. It will also reshape the automotive and mobility industry. We expect our AI investments this year to exceed RMB 6 billion, which will be allocated to infrastructure development as well as product and technology development. On August 20, we officially rolled out our proprietary VLA large model driver and Li Xiang Tong Xue Agent with the delivery of Li i8. As the industry's first VLA architecture to be delivered in production vehicles. The VLA Driver large model is scheduled to be deployed on all the AD Max models by OTA updates by mid-September. The VLA large -- Driver large model integrates spatial and linguistic intelligence with behavioral strategy. It boasts enhanced capability and precise spatial perception, chain of thought reasoning and decision-making natural language interaction just like human drivers and route diffusion generation and optimal path selection. By adopting a technical architecture that more closely resembles human intelligence. The VLA Driver large model significantly enhances user experience in areas such as defensive driving, smoothness and comfort 3- point turns, continuous task execution and underground garage navigation. Furthermore, through ongoing and reinforcement learning, it can become increasingly adept at understanding user preferences. Meanwhile, our proprietary foundation model, MindGPT-powered Li Xiang Tong Xue has evolved from a voice assist into an intelligent agent. The agent's enhanced capabilities greatly expand the in-car service ecosystem. For example, they can act as a life assistant to connect with food delivery apps and pick-up orders at restaurants or activate vehicles' external cameras and make payments by scanning and paying fees at parking lots. Its memory capability not only increases the diversity of tools but also makes Li Xiang Tong Xue more emotionally resonant and personalized. Going forward, we will continue to build our AI capabilities and harness our R&D achievements to continuously advance product iteration and evolution. With the vehicle as platform, we're committed to bringing the physical and the digital world, extending the benefits of AI to every user. Beyond AI, our R&D also focuses on core areas such as electric drive technology and 5C supercharging. For instance, our proprietary drive motors, including key components like silicon carbide power chips have significantly boosted vehicle energy efficiency and range. Another key R&D focus is 5C batteries. We have developed in-house batteries out and a thermal management system that can better support ultrafast charging and long driving range. The 5C battery can maintain a high charging power of over 300 kilowatts, while it charges from 0% to 80% of SOC. Additionally, the battery life span is exceptional, even after 1,500 full charge discharge cycles in supercharging mode, battery health remains above 80%, which is industry first. We will continue to leverage our in-house R&D advantages to further bolster product competitiveness and optimize production costs by developing key technologies in-house and manufacturing our work through joint ventures. Turning now to our sales and service network. A recent organizational restructuring will empower us to build our store-centric user operation capability, which we believe will help boost sales conversion and improve how we communicate our brand and product there. Meanwhile, we will continue to define our network structure by expanding and upgrading coverage in major auto parts and shopping malls. We will gradually increase the number of stores in lower-tier cities to reach more user cohorts. To better support our BEV launches, our store expansion schedule has been strategically front-loaded this year. As of now, we operate over 550 retail stores across more than 150 cities nationwide, with net additions of about 50 stores and 700 display spots since the end of last year. Throughout our journey, we have always believed in doing what we believe is right even when it's difficult. From EREVs Li ONR and Li L series to BEV, Li MEGA and Li i8, our commitment to developing advanced technology and better products remains unshaken, no matter how much adversity we face. This year, we've demonstrated progress in BEV innovation with offerings like Li MEGA Home and Li i8. Looking ahead, we will remain devoted to creating superior EREVs and BEVs while strengthening our brand. We will continue to leverage technological innovation to lead industry transformation. Through our long-term persistent efforts who will aim to provide our users with cutting- edge technology, extraordinary services and meaningful companionship. I will now turn the call over to our CFO, Johnny, to walk you through our financial performance.

Thank you, Xiang. Hello, everyone. I will now walk you through our second quarter financial performance. Given time constraints, my remarks today will be limited to some key financial results. All figures will be quoted in RMB unless otherwise stated. For further details, including the corresponding U.S. dollar amount, we encourage you to refer to our earnings press release. Total revenue in the second quarter were RMB 30.2 billion, down 4.5% year-over-year and up 16.7% quarter-over-quarter. This included RMB 28.9 billion from vehicle sales, down 4.7% year-over-year and up 17% quarter-over-quarter. The year-over-year decrease was mainly due to lower average selling price caused by product mix changes, customer interest subsidies and higher sales incentives, partially offset by increased vehicle deliveries. The sequential increase was mainly due to the increase in vehicle deliveries. Cost of sales in the second quarter was RMB 24.2 billion, down 5.2% year-over-year and 17.3% quarter-over-quarter. Gross profit in the second quarter was RMB 6.1 billion, down 1.8% year- over-year and up 14.1% quarter-over-quarter. Vehicle margin in the second quarter was 19.4% versus 18.7% in the same period last year and 19.8% in the prior quarter. The year- over-year increase was attributable to lower average cost of sales mainly due to cost reduction, partially offset by lower average selling price caused by product mix changes, customer interest subsidies and higher sales incentives. Vehicle margin remained relatively stable over the prior quarter. Gross margin in the second quarter was 20.1%, versus 19.5% in the same period last year and 20.5% in the prior quarter. Operating expenses in the second quarter was RMB 5.2 billion, down 8.2% year- over-year and up 3.8% quarter-over-quarter. R&D expenses in the second quarter were RMB 2.8 billion, down 7.2% year-over-year and up 11.8% quarter-over-quarter. The year- over-year decrease was primarily due to decreased employee compensation. The sequential increase was mainly impacted by pace of new vehicle programs and higher expenses to support our product portfolio expansion and technology advancement. Our SG&A expenses in the second quarter were RMB 2.7 billion, down 3.5% year-over-year and up 7.4% quarter-over-quarter. The year-over-year decrease was primarily due to decreased employee compensation, partially offset by increased marketing and promotion activities. The sequential increase was mainly due to increased marketing and promotion activities. And income from operations in the second quarter was RMB 827 million, up 76.7% year-over-year and 204.4% quarter-over-quarter. Operating margin in the second quarter was 2.7% versus 1.2% (sic) [ 1.5% ] in the same period last year and 1% in the prior quarter. Net income in the second quarter was RMB 1.1 billion, down 0.4% year-over-year and up 69.6% quarter-over-quarter. Diluted net earnings per ADS attributable to ordinary shareholders were RMB 1.03 in the second quarter, versus RMB 1.05 in the same period last year and RMB 0.62 in the prior quarter. And now turning to our balance sheet and cash flow. We maintained a robust cash position of RMB 106.9 billion as of June 30, 2025. That cash used in operating activity in the second quarter was RMB 3 billion versus RMB 429.4 million in the same period last year and RMB 1.7 billion in the prior quarter. Free cash flow was negative RMB 3.8 billion in the second quarter versus negative RMB 1.9 billion in the same period last year, a negative RMB 2.5 billion in the prior quarter. And now for our business outlook for the third quarter of 2025. The company expects the delivery to be between 90,000 and 95,000 vehicles and quarterly total revenues to be between RMB 24.8 billion and RMB 26.2 billion. This business outlook reflects the company's current and preliminary view on its business situation and market conditions, which is started to change. That concludes our prepared remarks. I will now turn the call over to the operator to start our Q&A session. Thank you.

[Operator Instructions] Your first question comes from Tina Hou from Goldman Sachs.

[Interpreted] I have 2 questions. The first one is regarding our sales volume because this year, we're seeing the L series, their sales volume has been declining. So how does management plan to achieve our full year target through product marketing as well as channel strategies going forward? And then the second question is regarding our self-developed chips, can management give us some update on this front?

[Interpreted] I'm translating for this Ma here. Focus -- there has been a big focus on sales recently. And because our product consist of BEVs and EREVs, so I will answer these questions on -- from 2 perspectives. First of all, on the EREV front, we will solidify our market position through intelligence. As a leader in range extended technology, we're enhancing product competitiveness through major upgrades in assisted driving. Starting in September, all the AD Max models across our EREV lineup will receive the VLA assisted driving system. We delivered the VLA preview version to users alongside VLA delivery. The performance improvement that VLA brings can be compared to the improvement from ChatGPT 3.5 to 4.0. The VLA Driver large model has 4 billion parameters over 10x higher compared to our previous end-to-end model. This is analogous to an increase in brain capacity. This has significantly improved experiences in 2 core areas. In daily driving, it delivers substantially improved smoothness and comfort, many users comment that it's now very difficult to tell a part, whether it's the car driving itself or the human driving. In addition, in terms of parking, users have praised our newly introduced VLA summon function and parking functions as it actually addresses pain points while at the same time, giving them better experience. From an industry perspective, we believe the VLA architecture is going to be highly aligned with human intelligence evolution. We're seeing more and more industry participants recognize and join the VLA camp. We believe that future competition of assisted driving will hinge on iteration speed for which reinforcement learning is the key. The simulation environment required for reinforcement learning has been built and is now operational. The core technology behind this is the world model, which is used to reconstruct and generate the scenarios and data required for reinforcement learning. Moving forward, we will leverage the system to rapidly iterate the VLA model so as to maintain its industry-leading position. That's our EREVs. On the BEV front, this year, our lineup with BEV will be released over time through 2 major models gradually opening up new growth opportunities. Li MEGA has steadily achieved monthly sales of over 3,000 units, stabilizing our BEV sales foundation. Since its launch, our Li i8 has received very positive feedback from test drives. We're now ramping up production capacity and striving to deliver between 8,000 to 10,000 units cumulatively by the end of September. In September, we will launch Li i6. The model has very attractive design. It drives very well; it balances comfort and sportiness and has excellent space experience. It precisely meets the needs of younger consumers and has the potential to become our sales driver in the BEV segment. On the marketing front, we will be adopting tailored strategies for different markets. Our sales servicing system is now built around 1 headquarter and 23 provincial regions, with the core principle being localization with strategies tailored to local markets. For example, in the northern region, we will be focusing on promoting EREV models, because of their range -- their advantages in range and performance in winter. And in southern regions, we're prioritizing BEV model, highlighting selling points like energy efficiency, spacious interior and smart features, aligning closely with the local consumer preferences. We'll increase marketing investment moving away from our previous assumption of great products will sell themselves. We'll fully embrace digital operations, building a sophisticated digital marketing platform and to track and optimize the entire consumer journey from audience targeting and lead generation to opportunity conversion. This enables precision -- precise decision-making on online marketing investments and significantly improving campaign effectiveness. On the channel side, for Tier 1, Tier 2 and Tier 3 cities, we're optimizing our store portfolio to improve consumer acquisition and conversion with a core focus on optimizing existing resources. We'll optimize store locations; we're proactively relocating stores in suboptimal positions for lower traffic areas to ensure higher consumer reach and operational efficiency. Meanwhile, we'll balance store mix. We're refining the ratio between mall-based stores and central stores in auto parts, leveraging mall store strength in high consumer traffic areas to attract visitors while utilizing central store's high conversion capability to close sales, creating a seamless acquisition to conversion loop and enhancing overall offline operational efficiency. To accelerate our coverage in lower-tier cities, we're adopting a lightweight model called [ Star Plan ] to deploy stores to unlock the new growth potential. Compared to traditional stores, these Star Plan stores require lower investments and have a shorter set of cycle, enabling rapid development in core locations within Tier 4 and Tier 5 cities. By increasing store density, will -- we boost brand visibility and fully tap into the potential of lower-tier markets and inject fresh momentum into our overall sales growth.

This is Yan. Let me share some information about our in-house design chip. The chip successfully tapered out and returned at the beginning of this year. And it is currently ongoing in vehicle testing and everything is in good shape. We expect to deploy it on our flagship models and deliver it to users next year. It takes about 3 years from setting up the project and to its shipment. As far as I know, it is the fastest among similar efforts. The performance is quite satisfactory, compared to the most powerful chips on the market, it could provide 2x performance when running GPT like large language models and 3x when running vision models like CNN. We designed a novel data flow architecture in which model competition is mostly driven by data, not instructions like other architectures. And in this way, the chip could achieve higher parallelism at the runtime, and we believe it is more suitable for large neural networks. The data-driven logic is orchestrated by our in-house design compiler allowing the hardware to be more efficient and running at a higher frequency than most comparables in the market. Quite different from other AI chips on the market, we adopted a truly -- a true hardware software co-design approach, the chip, the compiler, the runtime system and the halo operating system are designed together from the beginning. So we can vertically integrate the hardware and software modules to a more powerful AI inference system and more easily, and it could keep on scaling in the future. With the landing of VRA models on vehicles, we observed that computing power increase could translate to ADAS performance increase better than before, which means higher the computing power, the better the performance, and it's more predictable. We have very strong confidence our innovative architecture as well as the full stack development capability could become our continuous differentiated capabilities and grow even stronger in the future.

Your next question comes from Tim Hsiao from Morgan Stanley.

[Interpreted] So my first question is about adjustments to the sales system. What's the current progress of the adjustment to the auto sales system. Could you comment on the rationale behind the adjustment and the result you expect to achieve? In the meantime, could this change is adversely affect short-term sales performances and the pace of the new model launches? That's my first question.

[Interpreted] Translating for Mr. Ma here. In August, we went through a major reorganization of our sales team. Now currently, the headquarter directly manages 30 -- 23 regions, we also established new departments for sales and service operations and marketing. We've also restructured the store site collection team, strengthened our training academy and enhance our vehicle delivery teams. The new organizational structure is now fully operational and operating smoothly. In driving the sales system transformation, we adopted a 4-step approach in internal methodology. The frontline experts clearly are identified as the key stakeholders. We focused on addressing 3 core needs of their -- of the frontline experts, while aligning with the company's goal of delivering the best direct sales store experience. So the first need we're trying to address is to ensure the frontline experts earn a competitive income. The income of frontline sales experts is directly hinged upon 2 things: order volume and sales. We have established a dedicated marketing department to generate more online needs and restructured the site selection team to boost offline foot traffic to stores. We now give authority for sales strategy development during non-peak periods. We've also strengthened the training academy, equipping our experts with high-quality product message and materials and tools to improve order conversion rates. Second, we will provide them with growth opportunities. We've built a dual-track career advancement path for frontline staff, offering both specialists and managerial tracks. We've launched targeted training programs for store managers, clearly defining long-term career pathways. This enhances team stability and strengthens frontline execution capability. And thirdly, we will enhance efficiency. We've reduced reporting layers and adopted a flatter and faster decision-making structure. Now feedback channels dedicated quality, and operations teams have been established, ensuring frontline concerns are heard, addressed, acknowledge and acted upon. This leverages our direct sales model to quickly resolve on-the-ground challenges. The sales system transformation is not a reactive adjustment, but it's a proactive strategic move to better align with frontline needs and further strengthen our direct sales advantage. While there may be some short-term adaptations in the long run, it will continuously enhance both user experience and team effectiveness. Regarding new vehicle launches, our timeline remains unchanged, and the support is now even stronger. Li Auto's new model rollout is progressing strictly according to our established part of the road map. Li i8 was successfully launched at the end of July, with deliveries beginning on August 20. Our production facilities are currently operating at full capacity. By the end of September, we expect to cumulatively deliver over 8,000 units of Li i8 and aiming to challenge the 10,000-unit mark. Looking ahead, Li i6 will also launch as scheduled in September. The sales system transformation is designed to provide stronger support for these new launches optimizing sales and service processes, elevating the consumer purchase experience and ensuring smooth new model launches and driving rapid sales growth. Thank you.

Your next question comes from Yingbo Xu from Citic.

[Interpreted] So I have 2 questions. The first one is that i8 has adjusted some of the configurations. What's our future strategy for the product and SKU for future models? And my second question is that, how do we see the gross margin level under the consumption of the third quarter sales and revenue guidance?

[Interpreted] First of all, we will be, for sure, reducing the number of SKUs back to the time of Li ONE and the Li L9, we'll be focusing on a single SKU and making sure it's competitive, is maximized and providing customers with the best product and value for money. In terms of technological platform and products, we will be iterating faster. The issue we're facing today is by the time we play one hand; our peers are -- have played 2 hands. The pace of iteration is equivalent to letting our peers see our cars while we're playing. So we must increase the pace of iteration of both products and technology and to make sure that we can play faster. We're confident that by 2026, both in terms of vehicle products and AI, we will be having a stronger lead compared to the time of L9 back in 2022.

This is Johnny. For the third quarter gross margin. I think with the current sales volume and revenue guidance. We expect to maintain our gross margin at about 19%. Yes, just as the second quarter and first quarter. Thank you.

Your next question comes from Paul Gong from UBS.

[Interpreted] So my 2 questions. The first one is regarding i6. Within the allowed scope. Can you please share more regarding the product positioning, the launching timetable as well as the marketing plan? My second question is regarding your overseas strategy. I'm not sure what is our latest thoughts. And I would appreciate if you can share more color on this?

[Interpreted] For i6, I'm pretty confident that Li i6 will become the most competitive product in the large 5-seater that SUV market because it has a unique exterior design. It has industry-leading space and comfort and is very long range and one of the best real-world ranges. It would also be equipped with our industry-leading VLA Driver large model. It will also be the best handling Li Auto product for -- till today. On Li i6, we will be taking a more user-centric, a new way of marketing. We'll be speaking to our product value and experience in a way that users can understand more easily. And for sales deliveries and services teams, the training will also be more effective. And lastly, we will seriously take PR defense. We'll make sure that problems are addressed before they're extended.

Translating for Mr. Ma here. With our first program, Li ONE was delivered in volume that was back in -- in the beginning of 2020. We look at 2020 and through 2024 as the first stage of development for Li Auto, where we focus on the domestic market and on EREV products. The second phase is from 2025 to 2027. The markets we sell in will be formally expanded to global and domestic markets, and products extended to electric vehicles. And the third phase will be after 2027, where we will be focusing on all 4 autonomous driving and new form factors of AI agents. 2025 is the initial year of our global strategy. On the R&D front, we have built development centers in Germany and the U.S. On the sales channel side, we are formally starting to build overseas and after sales and after sales organization and building an overseas team as well as a range of IT systems. And on the product front, all of the products that we're developing to be launched in 2026, will be taken into account global regulations. And in terms of product road map, we are also -- in terms of marketing -- go-to-market strategy, we also have solidified our overall plan to focus on Middle East, Central Asia and Europe. The overseas market is both an opportunity and a challenge. For example, overseas, Li Auto is not a very well-known brand, just to name a few of the challenges. So the overseas market expansion will take time and effort, but we have enough patience and resolution. And in fact, the overseas market expansion has been one of the top medium- to long-term strategies for Li Auto. Thank you.

Your next question comes from Jing Chang from CICC.

[Interpreted] So I have 2 questions. The first is, we have seen that our operating cash flow or net cash flow outflow further expand in the second quarter. So may you explain what's the main reason? And how should we view the subsequent cash flow situation in the future? And the second question is about the autonomous driving. So we can see some [Technical Difficulty] changes in our autonomous sector. And also, we see the regulatory tightening on autonomous driving. Will that affect our future development and also our iteration and also deployment of our new VLA factors.

This is Johnny. I will take the first question. I think in the second quarter, as our payment term in -- by the end of last year was 3 months to 4 months. So basically, we are paying off most of the payables of last December, November and January, February, basically. So this is why the second quarter, we have some negative operating cash flow. And as you may know, we have already adjusted suppliers' payment term to 60 days to respond to the regulatory requirements and the industry trend. So basically, in the third quarter, the operating cash flow negative -- the operating cash flow used can be -- will be in the third quarter. And we expect that will improve the cash flow in the fourth quarter if we can have a better sales volume guidance in the fourth quarter. Thank you.

[Interpreted] Translating for Mr. Ma here. So to directly answer the question, yes, our assisted driving team has seen a few departures recently. But some level of talent movement is not uncommon in this blossoming industry. And the percentage of people involved are actually very small. So we'd like to extend our sincere thanks to those who have left for their contribution at Li Auto. And together, we have truly delivered many great products and experience for our users. Our current assisted driving team operates with a very clear organizational structure, a well-developed talent pipeline and strong strategic resource of talent. In light of recent changes, we have appointed new leaders who bring a more useful energy to the roles. They carry extensive experience from the past work and offer an international technical perspective. We have the kind of innovative thinking that will drive the team forward. And to add to that, Li Auto's strong brand appeal and promising prospects continue to attract outstanding talent from across the industry and bringing fresh energy to our team. We're steadily advancing our VLA product delivery. The VLA preview version we have already delivered featuring VLA driving, VLA parking and VLA summon capabilities. We expect to roll out a complete version with [indiscernible] all of the AD Auto Max users in September, adding the VLA command functions to deliver more convenient and intelligent assisted driving experience. We also have another major update scheduled for October to create additional user value. The increased regulatory focus on assisted driving really represents an important fact towards healthy and orderly growth for this industry. From our perspective, a stricter regulatory environment helps to truly capable companies with real technical expertise to stand out. And Li Auto safety and compliance have always been our top priority when developing new technologies. As we adapt to these evolving standards, we've been strengthening our testing protocols and quality control systems. This not only improves VLA's technological maturity and reduce potential risk but also helps us to deliver a safer and more reliable assisted driving experience for our users. Throughout VLA's development, we've maintained focus on user values and compliance boundaries, constantly striking a balance between safety validation and experience innovation. We're confident and fully capable of maintaining consistent progress in VLA's development and ensuring a timely rollout. Thank you.

Your next question comes from Ming-Hsun Lee from Bank of America.

[Interpreted] So right now, Li Auto already built a lot of 5C supercharging station. In the future, will you open your charging station for other brands? How will you operate the charging station? If you start to give other brand to use, will it impact your own brand car owners, user experience? And my second question is regarding to the autonomous driving technology. So right now, you have a very good VLA technology. But after VLA, how do you expect the development direction of autonomous driving and the technology iteration?

[Interpreted] Translating for Mr. Ma here. For Li Auto vehicle owners, I can ensure that the experience with our charging stations will always be the best. I can summarize the experience with 4 words: coverage, speed, experience and value for money. First of all, coverage. We're absolutely #1 among all automakers in terms of the number of supercharging stations. We have about 1.5x the number of charging stations compared to Tesla. Wherever our users go, they can easily find our charging stations. We completed the coverage along the G318 Sichuan-Tibet best highway route and core sections of the 9x9 highway network in China. We now operate the largest urban and highway supercharger network of any automaker in China. Second, speed. Our charging network supports 500 kilometers of driving range with only 10 minutes of charging. Just the time of buying a cup of coffee, it's really, really fast. And experience, our charging network provides our -- a very integrated experience between the vehicle and the charging stall. And with very intelligent charging planning, charging reservation and plug-in charge functionality. Combining that with a lightweight charging, charging poles designed to be easily handled with one hand and is especially user- friendly for female users. In terms of value for money compared to the owners of other EV brands, Li Auto vehicle owners enjoy a dedicated preferential electricity charging rates, saving on every charge. And in addition to that, our owners can use their loyalty points to offset our charging costs. These aren't just numbers on paper. They translate into real everyday charging experience that our users can come -- provide positive feedback on every day. Our 2C and 4C charging stalls have been open to vehicle owners of other brands. But those other owners won't be able to have the same level of experience as our vehicle users because the best experience requires seamless integration of the vehicle as well as the charging stations. Thank you.

[Interpreted] And in fact, in the beginning of 2025 has really been the most challenging period for assisted driving with technological and experience progress slowing down, at the same time, regulatory pressures have grown. However, I see this as the darkest just before [Technical Difficulty] The VLA represents a clear pathway towards L3, L4 and even L5 autonomous driving. As it operates really in a way like human, only we can expect it to perform 10x or even 100x better than human drivers in the future. VLA is a true agent in the third stage of AI, and we build these capabilities in 2 ways. First, it requires human experience by learning from human data and the foundational model through large-scale operation of SFT and RLHF to achieve performance on par with human drivers. It's like an apprentice learning from a master. But more importantly, it undergoes reinforcement training within environment generated by a world model using RLAIF to train agents. For example, we many times see L4 vehicles in China as well as overseas following to track for example, construction zones. And this kind of data is very limited in the real world and cannot be used for training. However, with the world model, we can generate countless variations of cars falling into these traps and enabling the agent to learn rapidly and resolve these issues effortlessly through reinforced practice. The world model provides data that is more difficult, more comprehensive and higher in quality and more challenging than real-world data. This approach effectively addresses critical issues in real-world data such as underrepresentation, imbalanced distribution and the impact of unavoidable polluted data on agent. We believe that ongoing iterative training and development, the VLA will achieve a level of driving safety, at least 10x that of a human driver within the next 2 years or so. The challenge behind this lies in equipping the agent with both a more powerful brand and a stronger heart. By brain, we refer to model scale. The end-to-end model has 0.3 billion parameters, while our VLA model has 4 billion parameters, which remains far inferior to human capabilities and expanding this scale will substantially enhance generalization capability. Scaling the model will also require significantly more computing power on the device side, which access the heart to supply the brain with the necessary resources to supply larger models. And in the meantime, the realm of world models and RLAIF, we will likely require at least 10x more computing power for reasoning than before to generate the environment and data necessary for RLAIF training. We anticipate that with the enhancements in reinforcement training, a lot of scale and computing power, the speed of our progress will far exceed anything we've seen with our previous approaches. I believe that in the next 35 years, the largest application of agents in the digital world will be programming, coding. While in the physical world, it's going to be autonomous driving. And I believe that Level 4 autonomous driving will be achieved by 2027.

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 through the contact information provided on our IR website. This concludes this conference call. You may now disconnect your lines. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]