Li Auto 3Q24 Conference Call Summary
The following is the summary of the conference call for the third quarter of 2024 for $Li Auto(LI.US) . For the financial report interpretation, please refer to Li Auto: Mixed Blessings, Can New Electric Products Support Li Auto Again? .
I. Core Financial Report Information Review:
II. Core Information from the Conference Call
1. Market Share: Increased from 14.4% in Q2 this year to 17.3% in Q3.
2. CEO Rewards: It is expected that sales will exceed 500,000 from Q1 to Q4 this year, and the CEO has unlocked the first batch of stock compensation rewards. In Q3, a stock-based compensation expense of RMB 593 million was accrued and confirmed, with an additional RMB 42 million to be added in Q4. The cost for each batch of rewards (for every 500,000 milestone) is the same.
3. Charging Stations: As of now, Li Auto has opened 1,000 Li Supercharging stations, equipped with 4,888 supercharging piles, covering 175 cities across 31 provinces nationwide, with 582 of them being high-speed supercharging stations.
When new BEV models are launched, the goal is to have over 2,000 charging stations in operation, expanding to 4,000 by the end of 2025. It is expected that by the end of next year, the number of cooperative supercharging stations in cities will exceed 3,000.
4. Intelligent Driving: In three months, the scale of model training data increased from 1 million flips to 4 million flips. The average takeover mileage (MPI) has increased by about 2.5 times.
On October 23, OTA 6.4 was pushed to the Mega and Li Auto L series models.
It is planned to fully push to all AD Max users before the end of December this year. At the same time, nationwide ETC non-exit passage capabilities will be pushed. The end-to-end value for users: 1) Longer takeover mileage, with significant increases in MPI as model training progresses. 2) The safety mileage for all scenarios (MPA) will also significantly increase, reaching 3-5 times that of human safety mileage. 3) AEB (Automatic Emergency Braking) and AES (Automatic Emergency Steering) will also see significant improvements.
5. Store Network: It is expected that the number of retail stores will reach 500 by the end of this year. Throughout this year, underperforming supermarket stores have been gradually replaced with automotive city stores. The proportion of automotive city stores will increase from 24% at the end of 2023 to over 40% by the end of this yearIn urban sinking.
The number of display stores in China is expected to increase from over 2,600 at the end of 2023 to 3,600 by the end of 2024.
6. Production Capacity: For the L6, the production capacity cannot meet the demand for orders, and the factory will expand production by the Spring Festival in 2025.
7. Overseas Market: The Middle East and Central Asia will be the primary target regions, with no plans to enter Western Europe and North America for now.
III. Q&A
Q: Regarding the growth potential of the Li Auto L series extended-range models, what is the growth potential for the L series next year? Will it come from the L5, a facelift model, exports, or penetrating lower-tier cities?
A: We hope that next year's sales growth will be twice that of NEV models exceeding 200,000 RMB.
Q: Regarding intelligent driving, Li Auto has launched the internal test version of the one-click smart driving from parking space to parking space. When will it start full deployment? Additionally, is there a chance for urban NOA to be available for the Pro model?
A: In the past 10 months, we have completed several major version iterations. Regarding the one-click smart driving from parking space to parking space, we plan to fully push it to all AD Max users before December this year. At the same time, we will also push the nationwide ETC non-exit passage capability. We will use the VLM model to identify ETC, and both urban NOA and highway NOA will not be affected by ETC exit in terms of user experience.
As for whether urban NOA has the opportunity to be available for the Pro model, urban NOA requires stronger perception capabilities and higher computing power. Currently, urban NOA does not support existing models. Please pay attention to our new product launch for future new models.
Q: When will the first pure electric model be launched? What is the price range? What are the expectations for this product?
A: We will share detailed product plans at an appropriate time through a press conference. Currently, confidentiality is very important. Overall, we are very confident about the subsequent pure electric models, and we will strive to make the pure electric SUV the top tier in the high-end pure electric market.
Q: Regarding the CEO's equity incentive, sales have not yet reached 500,000 units. How many sales were confirmed this quarter? How much expense will there be in the fourth quarter, and what are the principles for distinguishing and timing these expenses?
A: As of September 30, the company expects that the performance in the fourth quarter, combined with the previous three quarters, may reach the initial stock-based compensation reward required for the CEO's performance, meaning that the total delivery volume will exceed 500,000 for the first time within 12 months of sales. Therefore, we recognized a stock-based compensation expense of 593 million RMB in the third quarter, and an additional 42 million RMB will be added in the fourth quarter. Each batch of rewards, that is, the next milestone of 500,000, will have the same expense.
Q: Regarding our sales policy for the fourth quarter, it is usually a period with many sales policies for car companies, so I would like to understand our plans for this year. At the same time, I noticed that the sales guidance for this year's fourth quarter has only increased by about 10,000 to 20,000 units compared to the third quarter, while last year's fourth quarter increased by 26,000 to 27,000 units compared to the third quarter.Q: Considering that we launched a new car this year, but the overall sales guidance is relatively conservative, does this mean that this year's sales policy will not be as aggressive as last year?
A: First of all, compared to our competitors, our L series sales remain strong, mainly due to our increased brand awareness, over 1 million deliveries, and rapid breakthroughs in autonomous driving capabilities. We are very confident in our sales for the fourth quarter. Since the beginning of this year, despite fierce competition, our market share has been continuously increasing. In the third quarter, our market share in the new energy market priced at 200,000 yuan and above reached 17.3%, setting a historical high since the beginning of the year. Since the launch of the L6, monthly deliveries have exceeded 25,000 units, with cumulative deliveries surpassing 139,000 units, making the L6 the best-selling model among new cars released this year.
In terms of sales, we have initiated a new round of transformation in the second half of this year, granting more operational autonomy to each region. The heads of each province will be responsible for overall operations, not just sales. Each province can carry out region-specific sales and marketing activities based on local market conditions to further enhance brand awareness and market share. The competitive landscape in different provinces will vary, and we will formulate region-specific sales policies based on local conditions.
Q: Regarding our sales network expansion plan, what is our target number of stores by the end of 2024 and 2025?
A: We expect to have approximately 500 retail stores by the end of this year. A key channel adjustment we have been implementing this year is gradually replacing underperforming hypermarket stores in our network with leading and automotive city sales centers. Therefore, the proportion of automotive city sales centers will increase from 24% at the end of 2023 to over 40% by the end of this year. The number of display stores in China is expected to grow from over 2,600 at the end of 2023 to 3,600 by the end of 2024. At the same time, we are expanding our coverage in third-tier cities and some key fourth and fifth-tier cities in terms of sales and service networks. We will announce our store targets for next year after the first quarter earnings call.
Q: In the extended-range hybrid field, we are facing an increasing number of new competitors. Our L series has been launched for nearly two years; what improvements and iterations can we make in hybrid technology?
A: I believe that competition in the automotive industry is a competition of comprehensive operational capabilities, including technology, products, supply chains, sales, and services. Extended-range technology is just one of the more important aspects, but it is by no means everything. The L series will remain in its prime stage for the next one to two years, and after consumers purchase Li Auto vehicles, we will continue to update features and upgrade experiences, continuously enhancing product value and the integration of software and hardware experiences. We should be the best performer in the industry in this regard.
Looking ahead to the next 3-5 years, I believe the biggest variable comes from artificial intelligence, including truly AI-based intelligent driving and AI-based intelligent assistants, which will provide consumers with a completely different experience from today and mark the beginning of a true qualitative change. Finally, I would like to remind everyone that as of 2024, the most recognized new car in the global market by consumers is the Li Auto L6. Since its launch six months ago, the cumulative delivery of Li Auto L6 has exceeded 139,000 units, and the production capacity clearly cannot meet the demand for orders. The factory also needs to achieve capacity expansion during the Spring Festival in 2025 to meet the needs of more consumers.
Q: Do we have a more aggressive strategy for overseas markets? If so, what considerations is this adjustment based on? Can you introduce whether there are some rough plans currently? Including whether there are key market entry strategies, and whether the overseas market will become an important sales growth point in 2025?
A: The overseas market is very important to us. Our overseas strategy is different from other automakers. So far, we have established a service network in some Central Asian countries, such as Kazakhstan. These service stores have also helped us expand our market share in overseas markets. Regarding the choice of overseas regions, the Middle East and Central Asia will be our primary target areas. Based on this, we will continue to explore and evaluate other markets with high growth potential to expand our global footprint. We are not currently considering entering the Western European and North American markets.
Q: What significant progress has been made with end-to-end NOA compared to before?
First, after the end-to-end and VLM push, the concept of intelligent driving will shift from functions (such as urban NOA, highway NOA, etc.) to truly supervised intelligent driving capabilities, which is a transition from rule-based algorithms to AI large models. This brings significant value to users.
1) The takeover mileage will become longer, and as the model parameters and training data volume increase, the MPI mileage will significantly improve, meaning that companies with high-quality training data will have a competitive advantage in the future.
2) The safe mileage for safety scenarios (MPA) will also be greatly improved. This end-to-end version is expected to further enhance the safe mileage to 3-5 times that of human safe mileage.
3) With the improvement of large model capabilities, such as in AEB automatic emergency braking and AES automatic emergency steering, safety will be significantly enhanced, and the number of major accidents will be greatly reduced.
Q: Has there been a significant change in the sales proportion of the AD Max version over the past three quarters this year?
A: The impact of AD Max on overall sales is indeed very significant, not only has the sales of AD Max versions above 300,000 increased to a certain level, but the proportion of AD Max on the Li Auto L6 is also continuously increasing.
Q: Regarding charging stations, there are currently 1,000 charging stations. How many are expected to be reached by the end of next year? How many are self-built and how many are third-party? What is the relevant capital expenditure for this area next year? What is the current usage rate of charging stations? Since the current ownership of pure electric vehicle Mega is still relatively small, are many charging stations being used by other brands, so from a gross profit perspective, the increase in charging stations has not negatively impacted the gross margin?
A: Overall, we plan to establish the largest OEM charging network in the industry. Before the launch of our new BEV models, we expect to have more charging stations than Tesla in key sales cities. When our new BEV models are launched, our goal is to have over 2,000 charging stations in operation, expanding to 4,000 by the end of 2025.**
Next year, our supercharging station network will cover nine national highways, totaling over 54,000 kilometers, with a coverage ratio of 63% of the national highway trunk lines. By the end of 2025, we will build over 1,200 supercharging stations along highways, covering 90% of the national highways. In addition to highway and urban coverage, we will selectively cover medium to long-distance and non-long-distance autonomous driving routes to meet our users' family travel needs. For example, our Everest supercharging station was put into operation in October this year, and we expect to achieve end-to-end coverage of the national highways and National Route 318 by April next year.
Regarding cooperative supercharging stations in cities, we have built over 500 so far. We expect to exceed 3,000 cooperative supercharging stations in cities by the end of next year.
Q: Does the current brand concentration in the price range above 200,000 align with the management's judgment at the beginning of the year? How to respond to the competition from high-end models of all categories and other tech-background new forces?
A: Without launching a pure electric SUV series, Li Auto's market share in the NEV segment above 200,000 has been increasing every quarter, with a market share of over 17% in the third quarter of 2024. Li Auto believes that the current competition is about whether the products offered can provide leading product value to users in their respective price ranges. In the future, we will continue to gain more market share through both range-extended and pure electric product lines. The long-term goal is to capture over 25% market share in the NEV segment above 200,000.
Q: With the gradual increase in the supply of new models of mid-to-large-sized family SUVs and MPVs, do you think the market space for family users is nearing its peak? Are there still any segmented blue ocean opportunities?
A: The exploration of the entire family market has just begun. With the enhancement of artificial intelligence in autonomous driving and improvements in cabin experience, the product exploration in family space will become stronger. Li Auto is not in a hurry to explore more markets but will focus on doing better in the family user market. Additionally, the pure electric market above 300,000 has not yet found products with product strength like the L7, L8, and L9. From both artificial intelligence and pure electric perspectives, there is still greater market space for mid-to-large-sized SUVs in the future, so Li Auto does not plan to explore other markets.
Q: Can the company introduce the progress of autonomous driving and the future planning rhythm? From a medium to long-term perspective, will the iteration of autonomous driving technology slow down? If it slows down, will it lead to a narrowing of the technological gap among companies?
A: Currently, we are conducting technology research and product iteration in the direction of supervised intelligent driving, aiming to create a product experience that is seamless from parking space to parking space and across all scenarios. We also believe that human-machine interaction in intelligent driving requires product and technological innovation, which will be gradually pushed to all users. In the long term, we have already initiated L4-level autonomous driving pre-research, studying a reinforcement learning system that combines stronger vehicle-side VLM models and cloud perspective models based on the current technical route. At the same time, we will continue to increase investment in intelligent driving infrastructure to maintain leading training efficiency and intelligent training mileage. Regarding the technological capabilities of various companies, we believe that the gap will not narrow because, in the long run, autonomous driving requires significant investment in vehicle-side computing power, cloud computing power, and training data resources, with increasingly high demands on large model algorithm capabilities. The gap will only widen.
Q: What is your view on cost reduction in the future? As sales increase, what factors will contribute to future cost reduction opportunities, including procurement, technology, or depreciation?
A: Regarding cost reduction and efficiency improvement, we will look for cost reduction opportunities from end to end and across the entire chain, which naturally includes technological innovation, reducing procurement waste, improving the capacity utilization of partners, and optimizing logistics and distribution. This requires very refined operations. First, we believe that technological innovation is crucial for cost reduction, such as electric drive, system integration, and central control unit integration, which can enhance product capability and strengthen cost competitiveness. On the supply side, we have established a joint innovation platform to involve partners earlier in the process to jointly find better design and process solutions to lower costs. In terms of cooperation with partners, we always advocate a win-win philosophy, which is beneficial for the long-term development of the industry. Additionally, by creating popular products through component platforming, we focus more on volume to enhance capacity utilization and optimize costs. At the same time, we continuously leverage digitalization and intelligent applications to empower our factories and partners, reduce cost waste in the manufacturing process, and improve the operating rate of manufacturing equipment to optimize costs.
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