理想汽車 (LI) 2022 Q4 法說會逐字稿

Thank you for standing by and welcome to the Li Auto Inc fourth quarter and full year 2022 earnings conference call. All participants are in listen-only mode. There'll be a presentation, followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key, followed by the number one on your telephone keypad.

I would now like to hand the conference over to Ms. Janet, LI Auto IR Director. Please go ahead.

Thank you, Operator. Good evening and good morning, everyone. Welcome to Li Auto's fourth quarter and full year 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 Founder, Chairman and CEO, Mr. Xiang Li, and our CFO, Mr. Johnny Tie Li; begin with prepared remarks. Our President, Mr. Donghui Ma, and our CTO, Mr. Yan Xie, will join for the Q&A discussions.

Before I continue, please be reminded that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the Company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain Company filings with the US Securities and Exchange Commission and the Hong Kong Stock Exchange. 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 matters. Please refer to Li Auto's 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 the remarks in Chinese, for the family. There will be English translation follows, after he finish all his remarks. With that, I will now turn the call over to our CEO, Mr. Xiang Li. Please go ahead.

Xiang Li: (Interpreted) Hi, everyone, and thank you for joining our call today. 2022 was another year of explosive growth for new energy vehicles in China as more consumers embrace NEVs. According to the China Passenger Car Association, the penetration rate of new energy passenger vehicles reached 31.7% in Q4 2022 compared to 14.8% in 2021 and 29% in Q3 2022.

Our business continued to grow rapidly. In less than a year, we launched three new models, L9, L8 and L7, fully covering the family SUV market between RMB300,000 and RMB500,000. These launches further solidified our market leadership. In the meantime, we continue to fortify our foundations across R&D, supply chain and sales and service networks. We have upgraded our overall business processes and org structure to prepare for ourselves in the one to 10 space.

Next, moving on to deliveries and recent updates. In December 2022, we delivered more than 20,000 vehicles, setting another record not only for ourselves but also all emerging automakers in China, putting us in a very good position for 2023.

While Li L9 has been dominating the full-size SUV monthly sales charts in China ever since its release in September, Li L8 continued Li One's sales success, becoming the top seller of all large SUVs in December 2022. We delivered 46,319 new vehicles in Q4 2022 and 2022 annual deliveries reached 133,246 units.

In December 2022, according to the insurance registration data from Chinese Automotive Technology Research Centre, we ranked first in both the SUV and NEV market in the price range of RMB300,000 to RMB500,000, establishing ourselves as one of the go-to brands for all premium SUV shoppers.

Furthermore, in the first quarter, a typical off-season for vehicle sales, we maintained strong order intake, showcasing the competitiveness of our product and services. I would like to hereby thank all of our users and their families for their trust and support along the way. Our revenues reached RMB17.65 billion in Q4 and RMB45.29 billion for the full year 2022, up 66.2% and 67.7% year on year respectively.

With our cost management capability and operation efficiency, we maintained a healthy gross margin of 20.2% and free cash flow of RMB3.26 billion in Q4 2022.

Moving on to our product line-up. On February 8 we officially launched Li L7, our five-seat flagship family SUV, with test drives starting the day after. Li L7 features exceptional second-row space, a comfortable interior, and a long list of standard features. Equipped with our in-house developed all-wheel drive range extension system, the L7 has a CLTC range of 1315 kilometers and zero to 100 kilometers per hour acceleration in 5.3 seconds.

L7 is developed with a G rating, the highest possible rating in the [CIC] 25% small overlap crash test for both the driver and passenger side. It also features a constantly evolving smart space entertainment system and our driver assistance system. Li L7 is available in three trim levels, Air, Pro and Max, fully covering the RMB300,000 to RMB400,000 price range.

Alongside the L7 release, we also released an Air model to our L8 line-up, which succeeded Li One in the same segment which covers the RMB300,000 to RMB350,000 price range. We will commence deliveries of Li L7 Pro and Max in early March and delivery of Li L7 Air and L8 Air will start in early April this year.

With the introductions of these new models, we have completed the deployment of L7, L8 and L9 for the entire RMB300,000 to RMB500,000 SUV market. The L7 also allowed us to reach a broader audience base. The L7 not only received raving reviews from customer test drivers but also brought in more diverse family users into our stores, which further led to new leads and orders for the L8.

On December 16, the L9 was awarded the Car of the Year in the 10th Xuanyuan Award. It is organized by the Auto Business Review and Austria based EMF Consulting. The Xuanyuan award is widely regarded as the Academy Award in the Chinese auto industry.

With Li L8's and L9's continued strong performance and the addition of the L7 to our family, we will set ourselves a stretch goal of 20% market share in the RMB300,000 to RMB500,000 premium SUV segment this year. Against this backdrop, we expect first quarter deliveries to be in the range of 52,000 to 55,000 units.

Next, on to supply chain. Despite continued supply chain challenges, our deliveries for both L9 and L8 exceeded 10,000 units in their first full month of delivery. This was only possible with the support of our suppliers and this was also a testament to our solid supply chain management capabilities. We remain confident of our parts supply in 2023 as we further improve our planning, risk management and cost management capabilities to cope with potential challenges and risks.

We take a modularized approach to supply chain management. While we work closely with our supplier base, we have also strategically identified core areas for in-house development and vertical integration in order to strike a good balance between cost and risk. Over the past three years, we have been deploying a series of manufacturing facilities in the range extender and electric drive units.

Next, moving on to the sales network. In Q4 2022, we continued to strengthen our direct sales and services network and to increase our user outreach and brand awareness in order to bolster our commercial capabilities and drive growth. As of January 31, 2023, we operated 296 retail stores, covering 123 cities as well as 320 service centers and Li Auto authorized body shops in 222 cities.

In 2022, while expanding our sales network, we focused on upgrading our existing retail stores to house multiple models in order to reach more different types of family. In the coming quarters, as our brand continues to gain momentum, we will have more multifunction stores in our sales network.

After more than three years of operation, the direct sales model has proven to provide better user experience and at a lower cost, which will remain our long-term commitment as the premium car brand. In 2022, our SG&A expenses were already lower than our R&D expenses and we expect to further reduce our selling expenses as a percentage of revenue in 2023.

In terms of R&D, it has always been a cornerstone of our value creation process for family users. [Excellent] user research and development capabilities have not only allowed us to stand out in the NEV market but also will ultimately allow us to emerge as a world-class tech company. In 2022, we made great strides in research and development.

On electric drive unit, our L series vehicles are powered by our inhouse all new range extension 2.0 system with our 1.5 liter four-cylinder turbocharged engine boasting a maximum thermal efficiency of 40.5% and coupled with our proprietary five-in-one drive unit has significantly enhanced the overall noise vibration harshness performance.

Supported by our proprietary hardware and software, the Li Magic Carpet air suspension provides top notch ride and handling and in particular, our own XCU vehicle controller is capable of handling complex vehicle information at high speeds, enabling [millisecond] grade vehicle control.

Our smart space continues to evolve. Li Xiang Tong Xue, for instance, has evolved with a new generation device-cloud integrator architecture and has been rolled out to all of our L series models. Featuring our in-house inference engine for in-car scenarios, LisaRT, it provides solid foundation for an in-car deployment of more powerful and complex algorithms.

Moreover, we have remarkable progress in the voice and vision-based interaction algorithms. On the speech side, with our innovative MIMO-NET algorithm that can accurately isolate different human voices in multiple zones. With our voice recognition algorithm, MSE-NET, Li Xiang Tong Xue's activation and recognition accuracy both reached 98% in real-world testing. These rates remain at over 90% in various demanding scenarios, including high noise, low voices and children's voices.

On the vision side, our MVS-NET algorithm can accurately recognize gestures of all occupants. Combined with innovative [unclear] by gesture technology, it makes interaction through gestures easier and more natural, allowing the whole family to enjoy the superpower of making contact and taking control over the air.

In terms of autonomous driving, we adopted the fusion BEV algorithm framework, jointly proposed by Tsinghua University, MIT and us, which can be flexibly deployed with Li AD Max and AD Pro's different hardware configurations. Our in-house highway NOA prediction algorithm enables organic automated lane change and a smooth acceleration experience.

As of now, over 220,000 family users have used our highway NOA features covering 100 million kilometers of distance. During the 2023 Chinese New Year holiday alone, our highway NOA mileage of all models reached almost 8 million kilometers. This year we will further expand our NOA features into urban driving scenarios with beta testing for early bird users planned on Li AD Max in the first quarter of this year.

In addition, we created the industry's first AEB function with LiDAR applications on Li AD Max and extended the LiDAR algorithms' safety scenarios from major traffic participants such as vehicles, cyclists and pedestrians, to cover irregular scenarios, including special vehicles as well as night driving scenes.

Going forward, we will continue to focus on developing our core EREV and BEV technologies in-house and further elevating our product level intelligence. To that end, we will consistently direct our R&D resources across products, platforms and systems to fuel our long-term growth.

In summary, we view our long-term success as a function of our continued investment in R&D and our business capabilities, which will support the creation of more hit models, enhance our brand value, and serve as critical pillars of our business flywheel. 2023 will be another year of rapid development of the NEV industry and for Li Auto in particular.

We have full confidence that we will be able to build an increasingly innovative and diverse model line-up and deliver outstanding products and services that will continue to exceed our users' needs. With that, I will turn over the call to our CFO, Johnny, for a deep dive into our financial performance.

Thank you, [Xiang]. Hello, everyone. I will now review some of our 2022 fourth quarter financials. To leave more time for the Q&A session, I will address our financial highlights here and I encourage you to refer to our earnings press release for more details.

Our total revenues in the fourth quarter of 2022 were RMB17.65 billion, or US$2.56 billion, representing an increase of 66.2% year over year and an increase of 88.9% quarter over quarter. This included RMB17.27 billion or US$2.5 billion from vehicle sales which was up 66.4% year over year and 90.9% quarter over quarter.

The increase was mainly attributable to the increase in vehicle deliveries as well as higher average selling price due to our delivery of Li L9 starting in late August and Li L8 starting in November. Revenues from other sales and [services] were RMB381.5 million or US$55.3 million in the fourth quarter, representing an increase of 55.9% year over year and an increase of 28.7% quarter over quarter. The increase was mainly due to the increased sales of accessories and services in line with higher accumulated vehicle sales.

Our cost of sales in the fourth quarter was RMB14.08 billion or US$2.04 billion,

representing an increase of 70.9% year over year and an increase of 72.6% quarter over quarter. Gross profit in the fourth quarter of 2022 was RMB3.57 billion or US$517.1 million, growing 49.8% compared with the fourth quarter of last year and 201.7% compared with the third quarter of 2022.

Vehicle margin in the fourth quarter of 2022 was 20% compared with 22.3% in the fourth quarter of 2021 and 12% in the third quarter of 2022. The decrease in vehicle margin over the fourth quarter of 2021 was mainly due to the different product mix between the two quarters. The increase in vehicle margin over the third quarter was mainly attributable to the losses on purchase commitments related to Li One in the third quarter of 2022.

Gross margin in the fourth quarter of 2022 was 20.2% compared with 22.4% in the fourth quarter of 2021 and 12.7% in the third quarter of 2022.

Operating expenses in the fourth quarter of 2022 were RMB3.7 billion or US$536.4 million, representing an increase of 47.1% year over year and an increase of 11.7% quarter over quarter.

R&D expenses in the fourth quarter of 2022 were RMB2.07 billion or US$300.1 million, up 68.3% year over year and 14.7% quarter over quarter. The increase was primarily driven by increased expenses to support our expanding product portfolios, as well as increased employee compensation as a result of our growing number of staff.

Our selling, general and administrative expenses in the fourth quarter of 2022 were RMB1.63 billion or US$236.3 million, representing an increase of 44.8% year over year and an increase of 8.1% quarter over quarter. The increase was primarily driven by increased employee compensation as a result of our growing number of staff, as well as increased rental expenses associated with the expansion of our sales and servicing network.

Loss from operations in the fourth quarter of 2022 was RMB133.6 million or $US19.4 million compared with RMB24.1 million income from operations in the fourth quarter of 2021 and representing a decrease of 93.7% from RMB2.13 billion loss from operations in the third quarter of 2022.

Net income in the fourth quarter of 2022 was RMB265.3 million or US$38.5 million, representing a decrease of 10.2% from RMB295.5 million net income for the same period in 2021, and compared with RMB1.65 billion net loss in the third quarter of 2022.

Turning to our balance sheet and cash flow, our balance of cash and cash equivalents, restricted cash, time deposits and short-term investments was RMB58.45 billion or US$8.37 billion as of December 31, 2022.

Net cash provided by operating activities in the fourth quarter of 2022 was RMB4.93 billion or $714.1 million. Free cash flow was RMB3.26 billion or US$472.3 million in the fourth quarter of 2022.

As of December 31, 2022, we had a total of 19,396 employees. For more of our 2022 full-year financials, please refer to our earnings press release for more details.

Now for our business outlook. For the first quarter of 2023, the Company expects the deliveries to be between 52,000 and 55,000 vehicles, representing an increase of 64% to 73.4% from the first quarter of 2022.

The Company also expects the first quarter total revenues to be between RMB17.45 billion and RMB18.45 billion or US$2.53 billion and US$2.68 billion, representing an increase of 82.5% to 93% from the first quarter of 2022.

This business outlook assumes supportive macroeconomic conditions, no significant disruption in the supply chain, and reflects the Company's current and preliminary view on its business situation and market condition, which is subject to change.

I will now hand the call over to the operator to start our Q&A session.

(Operator Instructions). The first question today comes from Tim Hsiao with Morgan Stanley. Please go ahead.

(Spoken in Chinese) My first question is about volume outlook. We notice that previously it has been shared that monthly deliveries could at least reach 25,000 after the delivery of L7 started, with a further [incline] to 30,000 after the Air versions of L7/8 are available. I wanted to double confirm how we came up with such a strong target. Are they based on the pace of the new order intake order backlog, or our assessment of total addressable market of 5-seater SUV?

How fast could Li Auto's monthly deliveries reach and stabilize in such levels? More importantly, could the supply chain coordinately ramp up their output at such a rapid pace? (Spoken in Chinese)

(Interpreted) 25,000 to 30,000 orders is our internal goal, and we expect to reach this level in Q2. April is the first full month where we delivered L7 Pro and Max, and May will be the first month we deliver the Air version of L7 and L8.

Second question about ramp-up, admittedly we experienced some issues in the second half of 2022 with our deliveries. We attribute it to two things. One is because we had to set a delivery goal because we were seeing really good order intake, so that placed a lot of pressure on the supply chain. The second cause was we were switching from a single model to multiple models, which again placed a lot of pressure on our sales and service networks.

Across Q4 and Q1 of this year, we have been going through a long process of upgrading our sales and service and manufacturing systems so that now we have a very robust system all the way from planning to delivery, to manufacturing and sales, so that we can handle the stress that comes in with our strong order intake.

That really helps us to make three things a lot better. The first one is resource allocation. We can really allocate the best resource to where it's most needed. The second one is our employees will feel more fulfilled as they achieve these goals. Third is that it also [applies] suppliers to reach higher efficiency on their side.

(Spoken in Chinese) My second question is about battery procurement cost and the potential impact to the margin[with the strong likelihood that battery prices will continue the downtrend this year. Previously, local media also reported (inaudible) and likely others are rallying to offer some aggressive pricing in exchange for long term contracts from Li Auto and other top (inaudible) makers. Could the management team comment on potential collaboration with battery makers? How should we think about the contribution to Li Auto's vehicle margin improvement in the following quarters in terms of scale and timing versus (inaudible)?

(Interpreted) In terms of battery pricing, there are many factors at play including the Li [mines] and battery pricing mechanisms, but in general our belief is that as battery cost continues to approach a more reasonable level, we think it is good for the industry not only for us as OEMs but also for suppliers and battery manufacturers.

As we expand to more models and as our sales continue to ramp up, we believe battery is a very strategic asset, and we will continue to commit to a multi-supplier strategy for two reasons. One is not only for the stability of our supply chain but also to meet the time requirements for developing multiple models at the same time.

In the long term, we believe that battery prices will continue to move toward a more reasonable level. As you can see in the past few days, the price of lithium carbonate has already reached about RMB400,000 per ton and we believe the long-term trend is still for the price to go down. We'll continue to work with suppliers to negotiate a good term, but there's not much detail I could share at this point.

(Spoken in Chinese). Thank you very much for the detailed update. Thank you.

The next question comes from Paul Gong with UBS. Please go ahead.

(Spoken in Chinese). My first question is regarding the gross margin. I think for this quarter the vehicle gross margin has been 20.0%, which is about 1 percentage point lower than second quarter and 2 percentage points lower than first quarter.

I think just now Mr. Li has mentioned it was due to the product mix that changed, but my understanding is L9 contributed about 60% of the volume for this quarter, which should be positive for the margin. Is that due to the initial ramping up stage, or is there any other reason you can share? This is my first question.

Thank you, Paul, this is Johnny from [accounting]. First, gross margin is healthy and consistent with our guidance and starting from the fourth quarter, our revenue and gross margin gross profit is a mix of different product offerings. The majority of this volume comes from the L9 and L8 and both products are under the ramping up period.

As you know, our supply chain needs to ramp up for some period and to release the gross margin (inaudible) in coming quarters. Our L-series platform overall across margins is 25% with material delivery in the future [monthly delivery]. Thank you.

(Spoken in Chinese). My second question is regarding to your upcoming pure electric perhaps [on NPV]. I understand the selling point might be fast charging, but we also see some competitors' and some peers' fast charging BEV models recently launched didn't really match the high expectation. So how should we define our products by maintaining the competitiveness, while trying to achieve certain margins that is hopefully comparable to our existing EV products?

(Interpreted). I'll answer this question on three levels. I'll start off with why we decided to build our EVs in the first place. It was really two things, right? One is because battery costs were very high and second was charging was difficult at the time for electric vehicles. It was not only difficult to find charging stations, but also very slow to charge.

So moving over to EVs, we also intend to solve these three issues. The first one is about charging. With our EVs, our strategy has been to use gas on highways and use electricity in the local environment. So EV we saw the same issue by charging rapidly, charging 400 kilometers of range in 10 minutes, which is very comparable to gas cars.

But that's not the complete picture, so it's like when we had 4G mobile phones, but if we only have 2G networks it still wouldn't work. So another piece of the puzzle is infrastructure. So with (inaudible) charging capabilities and infrastructure, we are able to provide a level of charging experience comparable to our EVs or fast vehicles.

The second one is cost. As you can see, we've invested a lot on our 800-volt high voltage architecture as well as our own in-house silicon carbide factory and many of these innovations combined allow us to significantly increase the efficiency of our EV architecture compared to 400-volt IGBT systems. We observed almost 15% of energy efficiency compared to similar models on the 400-volt architecture and that saves a significant amount of battery and therefore cost of the vehicle.

The third level I want to talk about is product. I can assure you that on our EV product lineup we'll be able to provide a similar level of product and experience differentiation that can significantly exceed our user expectations, even more so than our EV models.

(Spoken in Chinese). Thank you so much.

The next question comes from Wang Bin with Credit Suisse. Please go ahead.

(Spoken in Chinese). I've actually got two questions. Number 1 is about L7 order, for your guidance you say that (inaudible) 25,000 units sales, but after that you've got 30,000 units, which means will be (inaudible) L7 Air. So can [I think] the overall L7 be bigger than the total order flow for L8 and L9? That's the first question about the order flow for L7.

The second question about the margin, I actually tried to quantify the margin impact in the number 4 quarter because we see a few factors. Number 1 is that - and this impact actually increasing quite big in number 4 quarter compared with number 3, increasing from 400,000 units (inaudible) to more than 500,000 in the (inaudible). Is that going to be the number 1 reason?

Number 2 is about the promotion for the Li ONE. We saw that in the last quarter last year, each month we sell around 1,000 units of Li ONE. So does that create an inventory, second reason why the margins did not increase?

And third about component supply, normally for carmakers in the first months (inaudible) you actually have the higher costs after (inaudible) you have lower cost. So that's the reason I'm trying to understand what's the margin trend in the first quarter of next year, 2023, thank you.

Okay (inaudible) I will both your questions. First, I think for the new L7, as (inaudible) we still need some time to ramp up for the Q1 guidance will include several thousand L7. Most of the deliverables will be L9, L8 and as we mentioned, April or May, May will be the whole month we deliver our series, including Air. So we have some Air orders but as you know, the Air (inaudible) test drive hasn't start so a lot of the customers need to test drive so the mix (inaudible) you have seen from the (inaudible).

For the second question I think all the factors you mentioned were the factors that makes our 20% gross margin in the fourth quarter, and all this as a whole had the impact of 2% of the margin. So I think I don't want to break into too much detail and for this year, considering the market conditions, we still want to keep our guidance to be above 20%.

Thank you so much.

The next question comes from Ming Hsun Lee with Bank of America. Please go ahead.

(Spoken in Chinese). My first question is regarding the license plate policy change in Shanghai. So what is the sales contribution from Shanghai City in 2022 and 2023? Among that, how many percentage of the customers this year they use their current license plate to buy our product?

(Spoken in Chinese). My second question is regarding your product pipeline. So first question, will you launch the BEV this year for the MPV and also for your new product pipeline L6 is launching next year? Also besides L6, next year for BEV product, will you start to launch more other products, for example, such like SUV or sedan?

(Interpreted) In terms of orders, in Shanghai the general order flow was not very good and that was understandable because most of the demand was released in November and December last year. But we haven't seen a very significant recovery since February and over the long term we look at this issue from a market share standpoint.

We believe that steady state of market share in Shanghai will be comparable to that in Beijing, because moving forward in either of these markets our EV purchase will be incentivized by free license plates. So we think Shanghai will eventually move towards a market share similar to that in Beijing.

First of all, in terms of flagship EV product, the timing of the product release is highly tied to the cycle of technology innovations. In particular in this case, at the end of this year there will be a big milestone where Qualcomm will be releasing their 8295 chips.

So the delay in our EV product is highly tied to this, because we want to meet the development cycle so that we can release our flagship vehicle with the new chip as early as possible. We cannot have our flagship model only carry the last generation chip when it comes to market.

The second one is terms of the EV lineup, the EV lineup will basically mirror something similar to what we have with the L-series which fully covers the RMB200,000 to RMB500,000 price range.

(Spoken in Chinese) Thank you.

The next question comes from Yingbo Xu with CITICS. Please go ahead.

(Spoken in Chinese) My first question comes from -- it is just now we mentioned that we aim to get 20% market share on the SUV market, with a price from between RMB300,000 to RMB500,000. So, my question is that how we have confidence in this market share, and could you please talk a little bit more on how we consider that the market of SUV between the price RMB200,000 to RMB300,000? This is my first question. Thank you.

(Interpreted) First one, about the RMB300,000, RMB500,000 price range, we were at a market share of 5.5% last year, as you mentioned, and this year we expect the whole market side to be between 1.4 million to 1.5 million units, and our goal is to double the share, because we believe at 20% share, is where we could reasonably steadily stay as the brand champion, and that's how our goal came about.

The RMB200,000 to RMB300,000 market is a lot more competitive, so, our plan is to approach the market at a second stage, where we have much greater economy of scale and a stronger core competency.

(Spoken in Chinese) My second question is that considering the pretrain transformer the air technology has influenced, in different sectors, in different industries, so, my question is how will that impact auto industry we are working now? And in future, how can that influence? And for the consumers, for the users, what kind of change we can experience, in short? Thank you.

Hello, Yingbo. This is Yan. Let me take your question. We have invested in the development of AI-based cognitive technologies for quite a long time, especially in the compositional AI and gesture combination. We think they are very important in smart space, and we see our customers very good user experience. So, current - recently, we are paying close attention to ChatGPT, and we think its technology, the technology behind, like large language models, and [per train] models are very similar to what we are doing right now in smart space.

We also believe that these technologies have good potential in visual tasks, like self-driving, and the related study and the development is still in progress.

Xiexie.

The next question comes from Yuqian Ding with HSBC. Please go ahead.

(Spoken in Chinese) I only got one question is that within our current three SUV model portfolio, how do we evaluate the potential cannibalization, given by different version of different models, the pricing points overlap? Should these three models combined sell between per month 20k to 30k, what's roughly the margin rate we will expect, given these three SUV models have the shared cost space?

(Interpreted) In fact, in practice we've seen very clear userbase differentiation between L7 and L8. There hasn't been as much overlap as we had been expecting. As we've seen in showrooms, the L7 is really attracting families with the two to three members, one kid, and L8 is attracting either families with two kids or those that are three generations under the same roof.

Another good thing is that the interest in L7 has also helped us view orders for L8. So with L8, L7 and L9 we really formed not just a product line but in fact, a product network. We want -- any family who is willing to buy an SUV will come to our network and find -- and think about whether it's L7 or L8 or L8 or L9 that they should buy, rather than comparing us to other brands and pick which brand to buy. That has been our core product philosophy with the product line above L7, L8 and L9.

For the gross margin, as we just mentioned, for L series platform with all these product offerings and with some scalability of the design, gross profit is - the profit margin is 35%, but considering this year's battery price and also the macroeconomic we still want to keep our guidance just above 20%. Thank you.

There are no further questions at this time. I'll now hand back to Ms. Chang for any closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact Li Auto Investor Relations team. That's all for today. You may disconnect your lines. Thank you.

That does conclude our conference for today. Thank you for participating, you may now disconnect.