理想汽車 (LI) 2021 Q1 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by for Li Autos first-quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Janet Chang, Director of Investor Relations of the company. Please go ahead, Janet.

Thank you, Annie. Good evening and good morning, everyone. Welcome to Li Autos' first-quarter 2021 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; our CFO, Mr Johnny Tie Li; and our CTO, Mr Kai Wang, to begin with prepared remarks. Our founder and CEO, Mr Xiang Li, 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 results expressed today.

Further information regarding risks and uncertainties is included inside the filings of the Company with the US 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 Autos' 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 Autos' 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 me on our call today. I will review the key highlights of the first quarter, as well as our newly released 2021 Li ONE, which offers best-in-class safety, efficiency, comfort, and intelligence.

In the first quarter, we delivered 12,579 Li ONEs, up 334.4% year-over-year, which brought about total revenue of RMB3.58 billion, 319.8% higher than the first quarter of 2020 and exceeding the top end of our revenue guidance by 11.2%.

In the first quarter our Li ONE was the second best-selling new energy SUV in China, as our compelling product offering and the superior user experience continues to delight customers and enhance brand awareness, while the unwavering support of our direct sales and servicing network underpins our growth.

We were also the only domestic brand ranked in the top 10 best sellers among all premium SUVs in the first quarter. In April, Li ONE remained the first among all new energy SUVs in China. In the rankings, including ICE cars, BEV, PIEV, and PHEV, Li ONE ranked as the second in the large SUV segment, and the fourth in the premium SUV segment.

On the profitability side, our gross margin stayed robust at 17.3%, amid our ongoing efforts to enhance investment in R&D, as well as to expand our direct sales and servicing network. Our operating expenses increased by 238.6% year-over-year, and 27.5% quarter-over-quarter.

Despite the deliberate increase on the expense side, we continued with a disciplined cash flow management strategy. Our free cash flow remained positive at RMB570.2 million. We also raised over USD840 million in net proceeds through our successful convertible senior notes offering in April, strengthening our capital base for future growth as we increased our R&D investment in leading technologies, prepared for new model launches, and geared up for further increase in demand.

We view our direct sales and servicing network as an integral component of our closed loop system that allows us to iteratively improve product features and add new functions for our users. By accelerating the expansion of our direct sales and servicing network, we remain committed to proactively serving our users, and anticipating future events for our pipeline vehicles.

As of 30 April 2021, we have 73 retail stores covering 53 cities, and 143 servicing centers and Li Auto-authorized body and paint shops operating in 105 cities. We are on track to reach our year-end target of 200 retail stores.

We have also started reconfiguring our state-of-the-art (inaudible) factory for our new model pipeline, especially the full-size premium SUV based on the next-generation REEV platform to be launched in 2022.

As a user-driven automotive and technology enterprise, we deeply value the tremendous trust and support our users bestow on us. During the 19th International Automotive Industry Exhibition in April, a large team of Li ONE owners came to our exhibition to volunteer as brand ambassadors, sharing their experience with the vehicle, their passion for it, and their acknowledgement of value Li ONE brings to their families' everyday life.

One of them, a Li ONE owner for 11 months, said Li Auto is not only a corporate, but also a spiritual partner. It is an integral part of our lives now. We are so grateful to see our mission and vision being recognized and echoed by our users.

As of 30 April, our cumulative Li ONE deliveries have exceeded 50,000 units. We took only 17 months to reach this milestone from the first delivery of Li ONE in December of 2019, creating the fastest record among all new energy vehicle companies.

Our users have driven over 500 million kilometers, with more than 65 million kilometers assisted by our data solutions, at a daily active rate of over 30%. In terms of safety, over 800 million early warnings were triggered, preventing more than 10,000 potential serious accidents while Li ONE's extended-range powertrain and data solutions that are a standard configuration enable a more free and safe travel experience for our users.

Its intelligent cockpit, featuring a comprehensive entertainment system, is another highlight of the vehicle. We pioneered the full-screen interactive in-car system that has been widely praised by our users for the smart space of mobility. It allows the users and each passenger offering private usage and voice-based interactive connections.

On average, users spend more than 40 minutes in our Li ONE every day while the car itself is parked. Our in-car karaoke function, which was first released before the Chinese New Year holiday, provided on-demand karaoke for more than 30,000 times during the Chinese New Year holiday, and more than 80,000 times during the May Day holiday, affirming our long-standing dream of creating extension of homes that bring happiness to the entire family.

Li ONE is a proven success, catering to the needs of families in China, and has effectively addressed the current challenge to BEVs in terms of energy replenishment. The success of Li ONE demonstrates our extraordinary product-defining capability, which lays a solid foundation for the development of our future models.

We will continue to develop new NEV models with best-in-class performance. In parallel, we are developing out next-generation extended-range platform, and high-powered charging BEV platforms, both of which will be deployed with our proprietary autonomous driving technologies.

We plan to introduce our next-generation REEV platform in our new vehicles planned for 2022 and 2023. With next-generation REEV we aim to support longer-range, higher energy efficiency, and better MHV performance of our REEVs. We are also investing in the research and development of next-generation electric vehicle technologies including high C-rate batteries, high-voltage platforms, and other ultra-fast charging technologies.

Leveraging these technologies, we are developing two platforms, Whale and Shark, for our future HPC BEVs. Starting from 2023, we plan to launch at least two new HPC BEV models each year. Our development progress, increased technologies have been on track and we plan to unveil our milestone achievement in the 2022 Beijing Auto Show. We are very excited to officially release our 2021 Li ONE yesterday.

The new Li ONE features comprehensive upgrades in areas such as the EREV powertrain, ADAS solution, intelligent cockpit, interior design for wide comfort and exterior design for style. Offering user premium features in standard configuration at a flat retail price of RMB338,000. Deliveries of the new Li ONE will commence on June 01, 2021.

We believe the new 2021 Li ONE is an outstanding product with advanced technologies and very competitive feature for our target customer group. It has alleviated the extended-range electric technology to a brand-new level. It features an all new 3-in-1 rare drive electric motor offering high energy efficiency as its energy efficiency in (inaudible) model is only 6.05 liters per 100 kilometers based on the NEDC standard operational condition.

Best in class among large sized four-wheel drive SUVs, with software and hardware optimization and its integrated powertrain system, the new Li ONE achieved an AEDC range of 1080 kilometers and WLTC range of 890 kilometers. We are very proud of our R&D team's successful effort to improve the range extended technology in keeping with the Company's core belief that 50 should be standard not optional.

The new 2021 Li ONE offers a full-stack self-developed ADAS in a standard configuration. All existing level two ADAS functionalities have been redesigned and optimized in-house by our own R&D team. We also launched the NOA system making the Company the first OEM to implement a full-stack self-developed NOA based on domestic application processors. The 2021 Li ONE is also the first model in the world with NOA capability as a standard configuration.

Li ONE has been well loved by family users for its spacious six seat interior layout. The new Li ONE enhanced its excellence in space, comfort, and intelligence by equipping the front and the second-row seats with lumbar massage function. The leg room for its third row is increased by 41 millimeters, while its trunk can still hold a 28-inch suitcase or a large sized stroller.

It also features a smarter in-car voice assistant, Li Xiang Tong Xue, providing a higher caliber and overall more spacious, more comfortable, and more intelligent space for families. We believe that 2021 new Li ONE is going to be a smart electric vehicle bringing happiness to all families it serves, with a powerful extended-range electric system that enables more pleasant road trips, ADAS in a standard configuration to ensure safety -- safe travel for everyone, and a spacious smart interior layout that enhances comfort for every occupant in the car.

We believe the new Li ONE will help us gain much higher market share than its predecessor. We have seen a very strong order intake just in the past 24 hours. Taking into consideration of the production ramp and the ongoing global shortage of semiconductors, we expect our delivery for second quarter to be between 14,500 and 15,500.

With that I would like to turn it over to our CTO, Kai, for a closer view of our technology advancements and of the new Li ONE.

Since Kai joined as CTO in September last year, we have made numerous breakthroughs in autonomous driving as well as intelligent cockpit technologies. Kai, please go ahead.

Thank you Kevin. Hello everyone. Let me provide more details about our 2021 Li ONE ADAS functions and other technical updates. As Kevin mentioned, the full-stack Level 2 plus ADAS functionalities were self-developed by our own R&D team. Beside in-house perception (inaudible) and Level 2 ADAS functionalities.

We also launched an NOA system and very proud of our achievement, the effort, and their dedication, and at the level we have reached in such a short time. The 2021 Li ONE comes equipped with two Horizon Robotics Journey 3 AI acceleration processors for automated driving. The two processors are dedicated to driving data, not only at a high efficiency but also with redundancy backup for enhanced safety.

The vehicle is the first production model in the world with an 8-megapixel front-view camera providing 4K definition compared with the mainstream to date the 8-megapixel camera has a refractory visual range of 200 meters, wider lateral detection range, and a stronger perception ability on ramp and lateral curve information. In short, it (inaudible) more clearly, more widely, and is therefore safer.

In addition, the 2021 Li ONE has 5 fifth-generation millimeter-wave radars made by Bosch that have a wider detection range, higher resolution, higher accuracy, and improved range of recognition. It has a detection range of 110 meters and 150 degree field of view allowing 360-degree overall coverage without any blind spots in system level.

Supported by range sensors and a redundant capable hardware along with full-stack in-house software the 2021 Li ONE can recognize traffic lights, traffic cones, road curbs, and other complicated objects. It supports a more efficient NOA feature for on and off ramp, automatic adaptive acceleration, and lane change on certain limited access roads. It also supports Fully Automated Parking Assist feature known as FAPA, which is a vision based automatic parking function.

We are confident the 2021 new Li ONE delivers a safer, easier, and more comfortable driving experience, exemplifying our deeply held core value that safety should be standard not optional feature. As we roll out high-definition maps in cooperation with AutoNavi the NOA will be made available to 2021 Li ONE users through OTA uptake starting in the third quarter this year and will gradually cover more roads and areas in China.

In addition to ADAS functions discussed above, the 2021 Li ONE will also provide users with a more intelligent space including a smarter in-car voice interaction system. Looking ahead, we will continue executing the parallel development of new [RUV] and BEV further strengthening our ability and developing cutting edge technologies.

Now I will turn this call over to our CFO, Mr. Tie Lie to review our financial performance in the first quarter. Please go ahead.

Thank you Kai. Hello everyone. I will now go over some of our financial results for the first quarter of 2021. To be mindful of the length of this call I will address our financial highlights here and encourage you to refer to our earnings press release which is posted online for additional details.

Total revenue in the first quarter of 2021 were RMB3.58 billion or USD545.7 million representing an increase of 319.8% from RMB841.7 million (sic - RMB851.7 million) in the first quarter of 2020. This included RMB3.46 billion or USD528.7 million of vehicle sales in the first quarter of 2021 representing an increase of 311.8% from the first quarter of 2020.

The increase in vehicle sales was mainly attributable to the increase in vehicle deliveries with the continual expansion of our sales network. On a quarter-over-quarter basis total revenues and vehicle sales decreased 13.8% and 14.6% respectively primarily due to the seasonal factors related to the Chinese New Year holidays, as well as the localized COVID-19 outbreaks in Northern China in February 2021.

Revenues from other sales and services were RMB111.5 million or USD17.0 million in the first quarter of 2021 comparing with RMB10.6 million in the first quarter of 2020 and RMB89.2 million in the fourth quarter of 2020. The increase in revenue from other sales and services over the first and fourth quarters of 2020 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 2021 was RMB2.96 billion or USD451.6 million representing an increase of 277.6% year-over-year and a decrease of 13.5% quarter-over-quarter. Vehicle margin in the first quarter of 2021 was 15.9% comparing with 8.4% in the same quarter of 2020 and 17.1% in the fourth quarter of 2020. The increase in vehicle margins over the first quarter of 2020 was primarily attributable to lower material cost and a lower unit manufacturing overhead cost, derived from the increased production volume.

The slightly decrease in vehicle margin from the first quarter of 2020 from the fourth quarter of 2020 was primarily due to the lower average selling price cost by promotion activities launched in the first quarter of 2021, partially offset by the decreased material cost.

Gross margin in the first quarter 2021 was 17.3%, compared to 8% in the first quarter of 2020, and 17.5% in the fourth quarter of 2020, which was mainly attributable to the change of vehicle margin.

Now, operating expenses in the first quarter 2021 were RMB1.02 billion, or USD156.4 million, representing an increase of 238.6% year-over-year, and an increase of 27.5% quarter-over-quarter.

Research and development expenses in the first quarter of 2021 were RMB514.5 million, or USD78.5 million, representing an increase of 171.2% in the first quarter of 2020, and an increase of 37.5% in the fourth quarter of 2020.

Excluding share-based compensating expenses, non-GAAP research and development expenses, were RMB397.9 million, or USD60.7 million, representing an increase of 109.8% year-over-year and an increase of 7.8% quarter-over-quarter.

The increase in research and development expenses over the first and fourth quarter of 2020 was primarily attributable to, first, increased share-based compensation expenses, derived from incremental share options granted, with higher fair value in January 2021, while no share-based compensation expenses were recognized for stock options with service conditions under performance conditions related to our IPO in the first quarter of 2020.

Second, the increased R&D activities for the Company's next vehicle models. Third, increased headcount.

Selling, general administrative expenses in the first quarter of 2021 were RMB509.9 million, or USD77.8 million, representing an increase of 352% in the first quarter of 2020 and an increase of 18.8% in the fourth quarter of 2020.

Excluding share-based compensation expenses, non-GAAP selling, general and administrative expenses were RMB449.8 million, or USD68.7 million, representing an increase of 298.8% year-over-year and an increase of 5.4% quarter-over-quarter. The increase in selling, general administrative expenses over the first and fourth quarter of 2020 was primarily driven by increased marketing and promotion activities, increased headcount and rental expenses, with expansion of the Company's sales network and increased share-based compensation expenses.

Losses from operations in the first quarter of 2020 -- 2021 was RMB407.7 million, or USD62.2 million, representing an increase of 74.1% in the first quarter of 2020 and an increase of 416.7% in the fourth quarter of 2020.

Excluding share-based compensation expenses, our non-GAAP loss from operations was RMB224.8 million, or USD34.3 million, representing a decrease of 4% year-over-year and an increase of 216.2% quarter-over-quarter. Net loss was RMB360 million, or USD54.9 million in the first quarter of 2021. Comparing with RMB77.1 million net loss in the first quarter of 2020 and RMB107.5 million net income in the fourth quarter of 2020.

Non-GAAP net loss was RMB177 million, or USD27 million in the first quarter of 2021, compared with RMB253.4 million net loss in the first quarter of 2020 and RMB115.4 million net income in the fourth quarter of 2020.

Turning to our balance sheet and cash flow. Our cash and cash equivalent, restricted cash, cash deposits and the short-term investments total RMB30.36 billion or USD4.63 billion as of March 31, 2021.

Operating cash flow in the first quarter of 2021 was RMB926.3 million, or USD141.4 million. Free cash flow was RMB570.2 million, or USD87 million in the first quarter of 2021.

Now, our business outlook. For second quarter of 2021 the Company expects deliveries to be between 14,500 and 15,500 vehicles, representing an increase of 119.6% to 134.7% from the second quarter of 2020. The Company also expects second quarter total revenues to be between RMB3.99 billion and RMB2. -- oh, RMB4.27 billion, or between USD609.0 million and USD 641.7 million, representing an increase of 104.6% to 119% from the second quarter of 2020.

I will now turn the call over to the operator to the Q&A session. Thank you.

Thank you. (Operator Instructions). For the benefit of all participants on today's call, please limit yourselves to two questions, and if you have additional questions, you can re-enter the queue. If you're going to ask a question in Chinese, please follow with English translation.

Our first question comes from the line of Tim Hsiao of Morgan Stanley.

Hi, management team, thanks for taking my questions. I've got two questions. The first question, could you please update your factory capacity at the moment? Will the output of new Li ONE model suffer from greater impact for the component bottleneck? For example, like chip and chip shortage and the battery timers or any other key components? In that case, when do we expect the output of new Li ONE could get back to a more normal level?

My second question is, how is the gross margin of the new Li ONE compared to the previous version? Will the 10,000 price hike be more than enough to offset the cost increase from the feature upgrade and raw material inflation? And the (inaudible) the second quarter gross margin.

(Spoken in Chinese)

Thank you, Tim. This is Kevin. I will answer the first question.

Of course, as we all know, we are -- the whole industry is suffering from the shortage of the semiconductor. Right now, in terms of capacity, our chargeable battery, with two shifts already are ready, we can do more than 500 per day, but of course, due to the ramp of the new Li ONE and also some of the timing issue of the chips, well, the volume cannot achieve that high. We expect, starting from September, we expect our monthly production will be more than 10,000. And I will ask Johnny to answer the gross margin.

Hi, Tim. For the gross margin, in the long run, it's the (inaudible) is remain at the same level for the current Li ONE, with some additional hardware, as you may know, for the (inaudible) parts, and also some saving from some traditional parts, like the rear motor, and then that.

For the second quarter, I think it will be a match of April, May, with some promotion and the current Li ONE, and also with one month (inaudible) with RMB10,000 sales (inaudible). So it will be a mix.

Got it, thank you. Thanks for the answers.

Thank you, our next question is from the line of Fei Fang of Goldman Sachs. The line is open, please go ahead.

Thanks, management, for the opportunity, I have two questions. First about your store number, so you reported 52 stores by the end of 2020 and then you reported 73 stores by April and then you guided 200 stores by year end.

So what that means is you have added 21 stores in the first four months of the year, but you plan to add 130 stores in the next eight months. Is that the right way to look at it? And also 130 stores in eight months is not something that we've seen before, so is there any execution risk with regard to that?

Second is about pricing. Now, you've raised prices in the facelift which is obviously very different from some of your competitors, or other even manufacturers who have lowered prices over time. Does that mean that Li Auto plans to move further into the premium segment in the four product cycles? Thanks.

(Spoken in Chinese)

Okay, thank you, Fang Fei, I will answer your question. So as of today, right now, we have 75 stores and in the first quarter, because of the impact of spring festival and some areas have COVID-19 outbreaks, the pace of the opening new stores was a bit slower than our expectation.

However, we have been making very good progress in our site selection. In fact, right now we have another 50 stores in our pipeline actually under construction. So therefore, for the whole year, the 200 retail store target remains unchanged. We are just a little bit behind the trap, we think we'll catch up in the second half.

And for the pricing strategy, the methodology we took is to price our product based on its value to the customer. Li ONE is very, very competitive and delivered a lot of value and with more feature functions we added into the new Li ONE. We think just RMB10,000 higher price is very fair and the new Li ONE will be even more competitive than its predecessor.

Thanks for the comment.

Thank you. The next question is from the line of Ming Hsun Lee of BofA Securities. Your line is open, please go ahead.

Hi, good evening, management team, I also have two questions. The first question is regarding your new supplier of your processor, which is Horizon. So we know that Horizon should be able to give you a better exposure to the data you collect. Could you give us more details regarding your strategy to achieve this with Horizon (inaudible) and that in the longer term you will continue to use Horizon, or you will also consider some other foreign brand, this is my first question.

The second question is actually regarding a detailed(inaudible) of your autonomous driving, currently you already give very detailed information about (inaudible) to be launched later this year. Could you give us some highlights for 2022 or 2023, what kind of new autonomous driving function you will provide in the next two years?

(Spoken in Chinese)

Thank you, Mr Lee. Kai, do you want to take these two questions? Thank you.

Yes, okay, thank you. So basically we have five criteria for SoC selection. So basically back in 2021 we chose our Journey 3 from Horizon Robotics as our SoC supplier. So the first one is the performance, of course, where we define the feature we want to achieve and the performance of the (inaudible) must meet the requirement.

And from that perspective, Journey 3 is enough for the target. The target is level 2-plus functions, for example, (inaudible).

And then the second criteria is openness and flexibility. So for example, our previous generation we used mobile [eye] so it is not very flexible for our own intelligent developments. So from that perspective those are (inaudible) they are more open and we use our own (inaudible) there.

So the third criteria is about the support. We need very solid support from our supplier so that we can keep up high speed, let's say, development and also the phase of iteration. So Journey 3 is from Horizon Robotics, their headquarter is also in Beijing, so from that perspective they can provide the best service and core support locally so the interaction between departments is much more convenient.

The fourth criteria is regarding the SoC timing. So the chips actually -- every year there will be new chips available from the market, so from the timeline we SoC our 2021 Li ONE. So Journey 3 is better.

So the fees (inaudible) our criteria is the price. So the price, so Journey 3 can offer capable performance. At the same time, the price is affordable. So basically overall, these five criteria eventually will come (inaudible) Journey 3.

Regarding the roadmap of our autonomy, we already mentioned in the previous description that we will right now just right away launch our in-house (inaudible) be able to (inaudible) functions with our own perception, own execution planning, execution software. And then the fourth quarter we will provide NoA because we need some time for that adaptation of HD map covering more roads and areas in China.

And then the next year they already introduced, let's say, the next generation platform on the basis of Orange and that one will provide even much more perception power and even richer to support more features. So hardware-wise we can get up to a level 4, but software-wise, of course, we need to step-by-step raise more functional (inaudible) that's the plan in general. Thank you.

Thank you. The next question is from the line of Bing Wang of Credit Suisse. Please go ahead.

Thank you for taking my question. The first one goes to the price per dollar (inaudible) payments but they actually raised the price by RMB10,000. Can I actually try to elaborate that, is RMB10,000 just the price for the (inaudible)? Can I have an explanation about that? That's number one.

And number two actually I found one company called (inaudible) naturally has been involved in your R&D at level 3 (inaudible) so basically is the same product as the Li ONE 2021 version. Is this company (inaudible) in-house design and actually what's the (inaudible) in this project?

(Spoken in Chinese)

Okay, thank you, Wang Bin, I will take the first question. Actually the RMB10,000 is not specifically for early or for any new feature of the new Li ONE. As I just explained, this is overall our pricing strategy and Mr Li Xiang already stated that the safety is standard, not optional. Therefore, we make all the new ADAS solution a standard function without any charge to our customer.

The second question, I will ask Kai to comment. Kai.

Yes, so regarding the role of (inaudible) is our (inaudible) tier 1 provider. So (inaudible) is mainly about product (inaudible) and also design consultation together with our team and then the final production.

So as we already mentioned, actually for our ADAS team we have round about 300 people right now covering those hardware and software designs. So software-wise we already explained, it's a (inaudible) in-house software development, including the low level software like (inaudible) and also the middleware and all application software and close to (inaudible) environment completely (inaudible) actually we also design hardware parts to ensure that we have the complete transparency of the design.

So that we can react if there is something wrong with our design during the lifecycle of the product. So we are also responsible for the complete hardware design, simulation and design implementation. So including those electronics and the mechanics. (Inaudible) of (inaudible) drive. They will participate with the hardware design. Because from efficiency point of view we like leveraged the outsource resources to ensure we keep that in a very high level.

So overall they will do the coordination, the product validation and then the production which we on purpose we don't want to touch because that will lower the overall efficiency. Also that's the part actually in tier 1 could have a better efficiency compared with (inaudible). Thank you.

Okay, thank you so much.

Thank you. Next question is from the line of Paul Gong of UBS. Line is open, please go ahead.

Yes, hi, thanks for taking my question. Two questions. The first one is do you have switch from mobile IQ4 to this Journey 3 and you are going to switch to (inaudible) next year. How do you see the data format of all these three systems? Can you freely use the data connected in the previous system and to use now and further develop for the future either function or is it (inaudible) transition.

The second question is regarding your BEV plan for (inaudible). You mentioned the Whale and the Shark platform. How do you think after seeing the Shanghai Auto Show with so many new BEV models. Will this change (inaudible) of your timeline, your roadmap? Would you accelerate the process a little bit in view in view of the rising competition in the market? Thank you.

(Spoken in Chinese)

Okay, maybe I take the first question. So regarding different platforms. So actually that's the reason why we would like to do the in-house design. So when you have control, the algorithm developments there are cores of algorithms. Basically we utilize the same (inaudible). So when we're developing something and then you can really base on different hardware and make a kind of a [wrap] of software. Then you can support different containers basically. That's our idea behind.

From compatibility point of view there are really lots of common area you can re-use. Also on top of that. So you can see the current developments we do have age part and also the cloud part. The cloud part we utilize mass computing power for training. So both Journey 3 platform and (inaudible) platform we have the same [OM] solution behind for training.

So you can see right away there are already a bunch of common stuff you can share. So then we don't have any problem. Of course if you support more then you need let's say more effort for adaptation between platforms. So we will lower that of course then there is smart selection as we mentioned. That's the reason why we have a very strict criteria for associated action. Thank you.

Yes, Paul, this is Kevin let me take your second question. Of course we all see a lot of new car models launched in Shanghai Auto Show. However, as we reiterated many times that we think a charging solution is the key competitive niche advantage we need to gain to compete in the BEV arena. Therefore we will stay on our track to develop our Shark and Whale platforms with ultrafast charging capability.

We think that's the key to winning the future competition. Yes, so therefore we will not alter our plan. Yes, we will stay very focused. Of course with more resources we of course want to accelerate the R&D process for sure. But right now the outlook is still in 2023, yes.

Thank you very much, yes.

Thank you. As we are reaching the end of our conference call I'd like to turn the call back over to the Company for closing remarks. Miss Janet Chang please go ahead.

Thank you one again for joining with us today. If you have further questions please feel free to contact Li Auto's Investor Relations Team. And that's all for today. Thank you and have a good one.