理想汽車 (LI) 2020 Q3 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by for Li Auto's Third Quarter 2020 Earnings Conference Call.

(Operator Instructions) Today's conference call is being recorded.

I will now turn the call over to your host, Janet Zhang, Director of Investor Relations of the Company. Please go ahead, Janet.

Thank you, Rivati. Good evening and good morning, everyone. Welcome to Li Auto's Third Quarter 2020 Earnings Conference Call, our first earnings conference call since our IPO.

The Company's financial and operating results were published in the press release earlier today and were 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 to begin with prepared remarks. Our Founder and CEO, Mr. Xiang Li, 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 filings of the Company with the U.S. Securities and Exchange Commission.

The Company does not assume any obligation to update any forward-looking statement except as required under applicable law. Please also note that Li Auto's press release and this conference call include discussions of unaudited GAAP financial information as well as non-audited non-GAAP measures.

Please refer to Li Auto's press release, which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures.

With that I will now turn the call to our President, Kevin. Please go ahead, sir.

Thank you, Janet. Hello everyone and thank you for joining our call today. We are very excited to announce the results of our opening quarters as a public company following our July 30th listing.

In the third quarter, we achieved the robust results. We delivered 8,660 Li ONEs in the third quarter which represented a quarter-over-quarter increase of 31.1% versus our deliveries in Q2.

As of the end of October, cumulative deliveries in 2020 reached 21,852 vehicles. According to new car insurance registration data reported by China Automotive Technology and Research Center, in September and October, Li ONE became the best-selling new energy SUV amongst all models in China, a very strong testament to its highly competitive product features.

In addition, in October, our order showed strong growth setting a new monthly record and giving us solid confidence in our fourth quarter deliveries, which we expect to reach 11,000 to 12,000 units and achieve a new quarterly record.

At the same time we have improved our gross margin and operating cash flow due to increased deliveries, improved BOM cost, and overall operating and manufacturing efficiency. In the third quarter, our gross margin expanded to 19.8% compared to 13.3% in the second quarter. We also generated operating cash flow of RMB929.8 million, which is 105.8% higher than the prior quarter.

In terms of R&D, we will further increase our investment in this regard and continue to leverage technology to create value for users and to optimize our user experience. Through product and technology innovations, we are committed to providing our supplier -- users with safer, easier, and more cost effective mobility solutions ensuring we live up to their support and trust.

In September, we added the important new role of CTO to our senior management roster with Mr. Kai Wang joining our team from Visteon. This new addition reflects our philosophy and the pursuit of combining expertise from the automotive, smart device, and the internet industries and building an outstanding team across many disciplines to develop smart vehicles for our users. With Mr. Wang's visionary judgment and thinking, profound expertise, and impressive track record, we believe Mr. Wang will make crucial contributions to our product and Company.

To constantly provide a best-in-class experience to our users, we continually evolve and optimize our vehicles through FOTA updates throughout the entire vehicle lifecycle. We also continuously collect performance and behavior data from our users to drive our product iterations. By the end of October, we have released 10 major vehicle OTA upgrades to Li ONE users to provide them with a better driving experience.

Moving to our digitalized direct sales and service network, it's an essential component of our closed-loop business system. This network feeds direct user usage data and feedback to both our R&D team and service team for us to analyze and optimize vehicle features and after-sales services, ultimately aiming to optimize the user experience.

As of the end of October, we had 41 retail stores covering 36 cities in China, maintaining a high level of operational efficiency to each retail store demonstrate that we have completed closed-loop systems setup. Next, we plan further grow the system to create an efficient virtuous cycle of user feedback, vehicle development and service enhancement.

We cannot achieve our results without the support and trust of our users. As a user-driven automotive and technology enterprise, Li Auto always puts our users at the highest priority and will spare no effort to provide our users with safer, more convenient, and more value-added products and services to further realize our ideal of car and home.

This concludes my prepared remark. Now, our CTO, Mr. Kai Wang, will discuss more of the R&D aspect of our business. Please go ahead.

Thank you for the introduction, Kevin. Hello, everyone. It's my honor to join Li Auto recently, led by Entrepreneur, Mr. Xiang Li.

I would like to share my thoughts on the R&D initiatives as CTO of the Company. I am a believer in progressive innovation because Rome was not built in one day. It has always been a better approach to follow the natural law of evolution to implement technological concepts, step by step, prioritizing user demand. This belief echoes well with Li Auto's guiding principle, leveraging technology to create value for users, to optimize user experience steadily and continuously.

From a technology roadmap point of view, the CTO office will focus on in-house development of anything that has direct impact to our end-user experience such as intelligent cabin, ADAS/autonomous driving, and the correlated cutting-edge technologies such as cloud, data mining, and so on. We will also leverage top tier partners support to achieve our objective.

In September, we announced a third-way -- a three-way strategic collaboration with global semiconductor giant, NVIDIA, and Chinese domestic leader, Desay SV, to be the first OEM in the world implementing NVIDIA flagship chipset Orin in a vehicle in order to provide a premium user experience. To support these R&D activities, we will increase our investment in R&D and the size of our team continuously. For example, we will expand our autonomous driving team size by three times by the first half of 2021. I'm confident in our capability to execute this roadmap and continue to build a leading position in the intelligent automotive industry.

Now, I will turn this call over to our CFO, Mr. Tie Li, for a closer look at our financial performance in the third quarter.

Thank you, Kai. Hello, everyone. I will now go over some of our financial results for the third quarter of 2020.

To be mindful of the length of this call, I will address financial highlights here and encourage you to refer to our earnings press release, which is posted online for additional details.

Total revenue in the third quarter of 2020 were RMB2.51 billion, representing an increase of 28.9% from RMB1.95 billion in the second quarter of 2020. This included vehicle sales in the third quarter of 2020, which were RMB2.46 billion representing an increase of 28.4% from the second quarter of 2020. The increase in vehicle sales was mainly due to a 31.1% increase in vehicle deliveries to 8,660 vehicles in the third quarter of 2020 from 6,604 vehicles in the second quarter of 2020.

Revenue for other sales and services was RMB46.1 million in the third quarter of 2020, representing an increase of 64.1% from the second quarter. The increase in other sales and services was in line with the increased vehicle sales and the increasing vehicle volume using our services.

Cost of sales in the third quarter was RMB2.01 billion representing an increase of 19.3% from the second quarter.

Vehicle margin in the third quarter was 19.8% comparing -- compared to 13.7% in the second quarter of 2020. The increase of vehicle margin was primarily attributable to the increase in purchase price of certain materials, including a one-time rebate received from a supplier and lower unit-manufacturing overhead cost due to increased production volume.

Gross margin in the third quarter was 19.8% compared to 13.3% in the second quarter, which was mainly driven by the increase in vehicle margin.

Total operating expenses in the third quarter were RMB676.7 million, representing an increase 55.2% from RMB436 million in the second quarter of 2020.

Research and development expenses in the third quarter of 2020 were RMB334.5 million representing an increase of 66.1% from RMB201.4 million in the second quarter of 2020. Excluding share-based compensation expenses, the adjusted research and development expenses were RMB278.8 million, representing a quarter-over-quarter increase of 38.4%. The increase was primarily attributable to the starting research and development for our next model as well as increased headcount.

Selling, general and administrative expenses in the third quarter of 2020 were RMB342.2 million, excluding share-based compensation expenses, the adjusted selling general and administrative expenses were RMB264.2 million, representing an increase of 12.7%. The increase was primarily driven by increased high cost as well as increased marketing and promoting expenses.

Loss from operations in the third quarter of 2020 was RMB180 million compared to a loss of RMB176.3 million in the second quarter of 2020. Excluding share-based compensation expenses, the non-GAAP adjusted loss from operations was RMB45 million decreasing 74.5% from the second quarter of 2020.

Net loss was RMB106.9 million in the third quarter of 2020 compared to RMB75.2 million loss in the second quarter of 2020. Excluding share-based compensation expenses and change in fair value of warrants and derivatives or liabilities, we achieved positive bottom-line with adjusted net income of RMB16 million in the third quarter compared to RMB159.2 million adjusted net loss in the second quarter of 2020.

Turning to our balance sheet and cash flow. The balance sheet of our cash and cash equivalents, restricted cash, time deposits and short-term investments was RMB18.92 billion as of September 30th, 2020 compared to RMB3.71 billion as of December 31st, 2019. The increase was primarily driven by the issuance of Series D private financing, the completion of our IPO, and the concurrent private placements.

Operating cash flow in the third quarter of 2020 was RMB929.8 million, more than doubled from RMB451.7 million in the second quarter of 2020.

Free cash flow was RMB749.9 million in the third quarter of 2020 representing an increase of 149.3% from RMB300.8 million in the second quarter of 2020.

And now for our Business Outlook.

For the fourth quarter of 2020, the Company expects deliveries to be between 11,000 vehicles and 12,000 vehicles representing an increase of approximately 27% to 38.6% from the third quarter of 2020.

The Company also expects first quarter total revenues to be between RMB3.11 billion, $457.8 million and RMB3.39 billion, $499.4 million, representing an increase of 23.7% to 35.1% from the third quarter of 2020.

Now I will turn the call over to the operator to start our Q&A session. Thank you.

(Operator Instructions) We have our first question comes from the line of Fei Fang from Goldman Sachs. Please go ahead.

Thanks. [Xiang Zong], [Tie Zong], Kevin, Kai, very impressive results. Congrats on the tremendous progress.

Let me start with two questions. First is about the supply chain. Reflecting on the Li ONEs' gaining sales, how do you plan to drive battery sourcing efficiency and prices from here. For example for battery price, which is obviously a chunky part of your BOM, what's the opportunity to cut costs further from here and also can management shed some light on the progress with NVIDIA's partnership, when do you plan to deploy the components?

Second is about the recall incidents in the past few weeks, can you discuss the latest progress with hardware replacement and also what has been the impact on Li ONEs' backlog, if any. For context, our own analysis is that this is a RMB10 million cost issue which is 0.1% of your annual revenues, so I want to see if you have any response to that? (Speaking in Chinese).

Okay. This is Kevin. Thank you, [Fang Fei].

I will answer your question. First, as we can see that since the launch of Li ONE, we have already seen some substantial improvements of our gross margin. This is due to the BOM cost reduction and also the manufacturing efficiency. So as our volume increase gradually, we'll be able to procure auto parts at a lower price and continuously reduce the manufacturing so this trend will not change. Some of the numbers that you already see -- you should already see that reflected in the financial numbers shared by -- shared by Li Tie, just now.

For the NVIDIA collaboration, I will turn over to Mr. Wang Kai, yes.

Yes. This is Kai speaking. So regarding collaboration with NVIDIA, I think everything is on track. In software part, we have already ported our software into NVIDIA [current] Xavier platform for vehicle level road test with already good results. We will continue on software development and testing until our Orin-based hardware is available.

In the hardware side, we are working closely with both NVIDIA and Desay SV. I think everything is in control with good progress, and I think in future, we will provide more update regarding the topic. Thank you.

Okay. Thank you, Kai. Then for the second question about the recent recall. Currently, the recall related work is progressing steadily and they are expected to take about three months for us to complete.

We handled this recall with transparency and efficiency. This is a reflection of our Company's core value. We always put our customer at first priority. That's why we got quite positive feedback from our existing users and potential buyers.

So far, after the announcement of the recall, the growth momentum of our new orders remain the same as before, so no any major impact observed. As for the costs related to this recall, we think your estimation is about right, yes. It's in line with our estimation.

Thank you. Thank you, Fang Fei, for the question, yes.

Thank you. We have our next question coming from the line of Tim Hsiao from Morgan Stanley. Please go ahead.

(Speaking in Chinese). So my first question is about the R&D spending. Based on the financials, third quarter results, we noticed that Li Auto's R&D spending in terms of the absolute amount or percentage [of] the revenues seem to be lower than other auto EV peers. So it's partly due to the [capitalization] (corrected by the company after the call) or cost control, but in light of the growing investments of the new model technology innovation and also autonomous driving next year, could management or the Li Auto keep such a relatively lower R&D spending or how should we think about the trajectory into 2021?

And my second question is about the competitive landscape because we noticed that the competitive landscape this year is quite benign but looking into next year 2021, the market might be getting more crowded, with Tesla Model Y, Volkswagen MEB-based model. And in the meantime, we also notice all your local peers like [Innovati] and the [Baoneng] Group are also launching extended-range EVs, EREV. So how could Li Auto stay competitive in terms of the product and strategy.

So those are my two questions. Thank you.

(Speaking in Chinese).

Okay. Thank you, Li Xiang. This is Kevin. I will -- I will try to translate all these comments, yes. I have already wrote it down.

So for the -- for the R&D investments, this is -- this is -- this was our strategy, we decided four, five years ago, yes, we want to invest all our resources into one car model, yes. This is -- this was our strategy.

And for our Li ONE, as you may know that we only have this Li ONE and for Li ONE, we only have one configuration. This is today a big challenge to us, but also give us a lot of -- a lot of advantages.

First advantage is that the software upgrades because we only have one configuration, all the OTA become more -- much easier.

Secondly, so for the supply chain efficiency perspective, as you can imagine the -- our forecast is very accurate and the -- our suppliers, they are -- the efficiency of our suppliers also very high because we only have one configuration.

The third is our internal efficiency also very high because we only have one configuration, that's why we -- our R&D resources are no -- do not need to -- we do not need to invest the R&D money on different configuration, yes.

So the -- this was our strategy and the reality right now we see prove that our strategy was right. Actually as you already know that in the past 10 months, we have always been the number one selling model in the large-size New Energy SUV, yes.

So for the next step -- for the next step, we'll continue to maintain our efficiency, very high R&D efficiency, but at the same time our investment in R&D will be multiple times for our second generation of products.

Starting from 2022, each year, we'll have at least one car model and we'll -- but we'll stay with our strategy that for each car model, we only have one configuration. We want to focus our resources onto one configuration. And our strategy is for any car model, we launch into the market, it will -- our target is to make it the number-one selling model in its price segment, okay.

For your second question, is about the competitive landscape. First, next year, we're going to introduce more function into -- feature and function into our existing Li ONE to ensure that our competitiveness will not -- will not -- will continue to be improved.

You mentioned the Model Y. Actually compared with Model Y, Li ONE is the much bigger car with more space and is designed for the Chinese family and its performance and its size and feature is comparable with Model X, so we are not worried about the Model Y.

And for the -- for the EREV, for the range extension solution, actually you're -- you're right. There are a group of OEMs are introducing a new EREV models into the market next year, but from our viewpoint range-extension solution is not a technology choice, it's just a solution for us to help our customer to replenish the energy, right.

So Tesla working on their Supercharger, NIO working on battery swapping, we are working on EREV, these are all energy replenishment solution.

But for the customer really buying a car the -- a very convenient energy replenishment method is one -- only one consideration, ultimately the customer is buying an intelligent, I'll say, smart electric vehicle, so their focus primarily is first about the product, the product design, the product feature function, need to be very competitive. That's why we are not worried about the other people also build the EREV because the core of our competitive advantage is our product itself, okay.

Thank you. We have our next question from the line of Paul Gong from UBS. Please go ahead.

Hi. Thanks guys for taking my question. I have two questions. The first one is regarding the network expansion. So far you have a much smaller distribution network but you have demonstrated much higher efficiency than your close peers. Going forward, how do you foresee your distribution channel or expansion, do you have a net target to expand how many stores by the end of this year and of next year, and more importantly how do you foresee the per store sales volume could be maintained at which level?

My second question is regarding the autonomous driving roadmap. I heard Kai said, Rome was not built within one day but I would be really curious to know what would be your roadmap or timeline, at which year you're going to achieve certain level and what will be the hardware solution, would you include Lidar or would you include even more cameras and then today's solution and what do you aim to achieve at this -- in this stage?

And beside of that you have some -- some of your competitors are choosing to sell the software off -- for extra package or extra money but given that you have keep all Li ONE at same specs, will you choose to sell the software as an optional package, will you choose to install the software on every vehicle you sell just as you did in the Li ONE? (Speaking in Chinese).

This is Kevin, thank you, Paul. I will take your first question and Mr. Wang Kai will take your second one.

So for the -- for the retail stores, we expand, we plan to expand the number of retail stores to 50 to 60 across most of the cities in China by end of this year. We -- as we extend our direct sales and service network, we are quite confident that we can leverage our growing brand recognition and to maintain the sales efficiency of each store, yes.

And if we compare with some of our peers, we took a different approach, yes. So some of our peers their approach is to quickly expand the number of retail stores to cover more cities then try to slowly improve their sales efficiency at a later stage.

We took a different approach. We implement gradually. We implement gradual expansion of our sales network and we try to maintain a high level of sales efficiency per store. Okay. Kai?

Yes. Yes, this is Kai. I will take over the question regarding the roadmap of autonomous driving.

So regarding ADAS/ autonomous driving roadmap, I think we will continuously improve our existing software and develop more features for users. So with our current hardware platform, new features such as fully-Automated Parking Assist aka app APA on the basis of fusion of [ultrasonic] and vision inputs will be released via FOTA in 2021. And also more feature will follow as well. We will unveil more in future.

In 2022, we will launch brand new architecture for our new vehicles, which contains scalable and hardware upgradable ECU and sensor set along with more use case updates via FOTA so that our product could achieve up to Level 4 autonomous driving progressively, that's our goal.

Based on current research and technology baseline, we don't believe Level 5 fully autonomous driving without any interfering by human come in the near future because it -- it really requires technology breakthrough in areas such as quantum computing and other such kind of algorithms along with it. So therefore our focus will be on what kind of real value we can bring to our customers towards let's say progressively and steadily to level -- kind of a Level 4 experience. That's the most important topic for us.

We believe with clear goal setting and also excellent execution, we will become the leader of autonomous driving in the industry. To achieve this plan, I think I already described roughly the timeline, so our team size will be tripled in 2021 as already mentioned versus current situation.

We already have very good progress recently on senior level experts and management hiring, the newcomers either well-known from industry or with graduation from top universities such as Stanford or Berkeley and so on.

On top of that, we also have established a strategic collaboration with our partners different from the normal cooperation, they are tightly integrated with our team with on-site co-development as part of fuel for our R&D acceleration.

So regarding your last question about if we're going to charge our user regarding the software part. We won't charge anything below Level 3 because we think that's essential features for them, so everything below Level 3 will be for free. Thank you.

Thank you. We have our next question from the line of Lei Wang from CICC. Please go ahead.

Good evening. This is Wang Lei speaking from CICC. Congratulations on the great margin and also bottom line. I believe I just (inaudible) positive non-GAAP targets. That's starting a great move. Congratulations. (Speaking in Chinese)

So the first question goes to CFO, Mr. Li Tie. So how may Li Auto actually keep roughly 20% of GPM, with barely 8,660 a quarter deliveries because Tesla actually [barely] achieved 19% of [duty] on the first half of last year, with almost 10 times your deliveries.

And then the second question goes to CTO, Mr. Wang Kai, for the [second one], if you don't mind. You know, actually (inaudible) on [drive core] and proposed weakening OEM leading roles and can you provide more colors on the update opinion since you now joined in OEM yourself? (Speaking in Chinese)

Okay. This is Li Tie. I will take the first question. As I mentioned earlier, the increase of margin this quarter was primarily attributable to the decrease in purchase of certain materials including one-time rebate from -- received from a supplier and also the lower unit manufacturing overhead cost as our volume -- production volume increased. And we are very confident the GP margin for the whole year will around -- 16% and improve steadily next year.

And I think for Tesla, I think you know, you guys should be you know, more familiar than us. Starting from the very early stage of -- like a Tesla Model S and Model X, Tesla has around from 15% to 20% margin and also Model 3. And then the -- if they've got a better BOM cost, then they will lower the price so they just keep their margin around 20%. I think this is their strategy.

So it's -- now, they use this volume to reach -- to reach that GP margin because [they have seen] in the -- in their first model versus big volume model of Model X, yes. Then I will pass to Mr. Kai. Yes.

Yes. Regarding your question -- yes, regarding your second question. It is a very good question.

So actually my philosophy still stands. Probably -- maybe I -- please allow me to explain the spirit of the philosophy. So the tree structure represents let's say the automotive profit distribution structure and collaboration [among], let's say, the old partners here. So you can imagine traditional way, there are lots of trees in a hill -- a forest so --

Yes.

-- every OEM control the tiers precisely, I mean the margin of them because they control the key, let's say, the barrier, the core barrier, this is gasoline engine. But nowadays, the situation is totally changed because now we enter to -- from industry era to intelligent era, is complete new business model need to be applied if you want to win from the market.

And then I introduced so-called not ring structure but round table structure. That means now, there are lots of alliance among OEM, among Tier 1, Tier 2, whatever you can call it even the new let's say business model provider such as Uber or like Didi.

And then the key thing above the whole thing is, time to market in this new game. And then you need to base on your position choose a table, sit down together with strong partners and then really win the game as early as possible just like you know, you're going to dinner with your friends and then you finish the main course, now you can get dessert, much earlier than others. That's the key spirit of it.

And we believe -- because you know, when I was in Tier 1, I need to choose my table wisely, yes, but now as a leading OEM, actually our profile is more like we already take lots of let's say the work of Tier 1, traditional Tier 1 because we can do in-housing, we need to have the best experience for user and do the FOTA. And then we need to be fast so that's a different game.

So back to the main point, so the philosophy still stands but now I'm in another table.

Thank you. We have our next question from the line of [Mei He] from U.S. Tiger Securities. Please go ahead.

Hi. Good quarter. Thank you for taking my question. I have a few ones about EREV. There has been market chatters in your policies regarding NEV license plate can be changed in Tier 1 cities like Beijing or Shanghai. So how could you prepare for such changes if EREV is no longer entitled to NEV license in one particular important city. How could that impact your overall sales target?

And secondly, at a higher level, what do you think of government support on EREV? Lastly, if we -- for longer horizon, what's your plan for BEV transition such as this? (Speaking in Chinese).

Yes. This is Kevin. I will try to answer the first half of your question. Then leave the second half to Mr. Li Xiang to comment on our BEV strategy.

So for the -- for the government policy, actually we have a -- being very proactively communicate with our -- all kind of government bodies. However, we cannot predict or comment on the policy which will be introduced by the local government.

But to answer your question, actually I give you a -- an example. Even in Beijing, you know, Beijing is a city where the license policy is most restrictive to us. Our sales are still very, very strong, yes. So our sales in cities where do not have license plates restrictions accounted for more than 60% of our total sales in both September and October. That's to say our vehicle sales are not dependent on the policy incentives, are not very sensitive to the car plate policy, yes.

So and also for the overall National Policy, in general China's National Policy and regulation encourage the coexistence of multiple forms of New Energy EV vehicles including BEV in -- also plug-in hybrid, EREV and even the hydrogen new energy.

So for us, we already see that the direction, this coexistence direction has already being further confirmed by the recent released National New Energy Automotive Industry Development Plan, yes. So overall, the National Policy is in favor of EREV.

And for the BEV plan, I will turn -- turnover to Mr. Li Xiang to comment.

(Speaking in Chinese).

Okay. Thank you, Li Xiang. I will try to -- this is Kevin again. I will try to translate what Li Xiang just explained.

First of all, our goal is to build a high-level premium smart electric vehicle, so this is our goal. When we look at this market, the key issue we need to solve is the -- the charge -- the charging issue, right, how our customers replenish their energy is the key for the user experience.

And we are -- we are -- keep a very close eye on the second-generation charging solution which is -- which is a very clear to us is a 400-kwatt charging infrastructure which will -- which can charge a car four to five times faster than today's infrastructure.

For this -- for the second-generation charging infrastructure, it will benefit both the customer and the business. From the customer's perspective they do need to -- they -- their car can the charged in 10, 15 minutes. They don't need to leave their car when the car is being charged so they can stay in the car.

And for -- from the business perspective, when the charging speed becomes that fast the business model become viable, yes because today for the slow-charging -- actually the charging station cannot make money, the business model doesn't work but when the charging speed becomes faster the business model becomes viable, yes.

So to achieve this 400-kwatt charging solution, there are three technology dependencies. First is the 800 volt -- high-voltage vehicle platform. Second is the -- is the government regulation on the 500 amp current regulation. And the third is, very important is the battery cell which can sustain 4C charging.

So we are -- again, we are keeping a very close eye on these three-technology evolvement and we cannot disclose yet when we're going to build BEV, but when these three-technology become mature and available to us we'll -- we'll -- we'll definitely work on the BEV solution.

But overall, again, to emphasize range-extension solutions from our viewpoint is a long-term solution. It's not an interim solution because the EREV solution is the -- is the best fit for the larger-size SUV to -- so even when the second-generation of charging infrastructure becomes available, EREV is still one of the -- our viewpoint, one of the mainstream of the technology choices.

Thank you. We have our next question from the line of [Yingbo Xu] from Citic. Please go ahead.

Thank you for the opportunity. I have a quick question about -- it appears that Tesla has launched their own autonomous chip, and also NIO has announced that they're trying to launch their own autonomous chip. So my question is self-developed autonomous chip advantage (inaudible) or the autonomous vehicle, and what's our plan on that? Do we plan to launch our self-developed chips too? Thank you. (Speaking in Chinese).

Okay. Thank you. This is Kai speaking. Maybe I take over this question.

Decisions on either in-house or outsource chipset is determined by efficiency. When I talk about efficiency, it's two parts, commercially and technically. So commercially, let's say from OEM side, let's say, I think this is until you have really massive volume, it will be a risk because chipset industry is very asset-heavy investment and also a long-return cycle.

Because of myself, I have direct plus indirect experience in China and also in Finland making chipset, SoC chipset myself, close to -- maybe close to 10 years so usually it takes -- chipset design two, up to three years just for development. And then you have three years usually the lifecycle and then you need to think about change. So think about six years all together. This is a really commercially risky, maybe without-efficiency if OEM development by itself.

So from technical side, I think there's one condition and you can really seriously think about making chipset for yourself because software maturity or a very deep understanding of the system is really the essential condition to build your chipset yourself.

Like Tesla, they have a good understanding already at least at that time, they cannot find a very good fit in the market then they choose design by themselves. But the problem is from semiconductor point of view, they were also involved during the whole process. So to make a chipset decision is really a cautious decision, OEM need to really think about from both ways.

In short time, we don't think we will enter to that business. Technically, I think we still need some time to really understand how to let's say make our software really mature and really good enough into the business. Thank you.

Thank you. We have our next question from the line of Robert Cowell from 86Research. Please go ahead.

Hi, Management. Thank you for taking my question. So congratulations on the results for the Lixiang ONE. It seems like its first model has really proven itself and your guidance is showing that the momentum continues.

My question is how we frame the -- frame of thinking about when is -- when is the right time to develop a second model and then strategically what types of vehicles are we looking at for the second -- for the second model. In particular I want to ask about a concept that Chehejia released back in the early years of the Company for a compact sedan. I think it was called the SEV. I'm wondering if that is a design that is still under consideration.

So I'll quickly translate it to Chinese. (Speaking in Chinese).

(Speaking in Chinese).

Okay. Thank you, Li Xiang. This is Kevin. I will -- I will translate what Li Xiang just described.

So first of all, we are still in our initial phase of our Company. We focus -- we focus on one car model and one product. Our goal is to achieve the -- with the Li ONE, we want to achieve -- become the top-selling model in its price segment which is RMB300K to RMB350K price segment.

With this first product, Li ONE, we want to leverage this first product to build and also to prove that our sales -- our sales, our service, our supply chain and our R&D are all closed-loop system.

Secondly, of course we are working on -- already are working on our second product so as we already disclosed, 2022, we're going to launch our next product which is a full-size EREV SUV.

As for the SEV, actually we already stopped this project in the end of 2017, yes, and we have no any further investment in this project. We think we are in a very good position in this SUV segment for family, so we will stay in this segment. We will stay with -- we're very focused on our existing segment.

Yes. Robert, thank you.

Thank you. I would now like to turn the call back over to the Company for any closing remarks. Ms. Janet Zhang, please go ahead.

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