Li Auto (4Q24 Minutes): Aiming to be a hardware giant in the AGI era?

The following are the minutes of Li Auto's Q4 2024 earnings call. For the earnings interpretation, please refer to《 [AI Difficult to Explain, Hybrid Battle, What Does Li Xiang Use to Support "Li Auto"?] 》.

Dolphin Research's summary of the minutes:

Overall, the incremental information is that the gross margin guidance for the automotive business in Q1 2025 is 19%. Although the gross margin guidance for the automotive business is still below market expectations before the earnings report, this guidance is acceptable given the significant decline in expected vehicle prices.

In terms of pure electric models, the number of models originally planned for launch this year has changed from 3 to 2: only the i8 and i6. The first pure electric SUV, the Li i8, will be released in July, while the Li i6 will be launched in the second half of the year. The benefit of this approach is that it can achieve better sales during the peak seasons of Q3 and Q4, and also accumulate enough orders to support deliveries in Q1 and Q2 of 2026. Investment in charging stations will continue to increase.

In other areas, Li Auto is focusing on AGI and has repositioned itself as a hardware manufacturer in the AGI era, with specific statements to be made in the Q&A section.

I. Core Information Review of the Earnings Report

II. Detailed Content of the Earnings Call

2.1. Market Performance:

Growth of the New Energy Vehicle Market: The new energy vehicle market in China is expected to maintain rapid growth in 2024. According to insurance registration data from the China Automotive Technology and Research Center, the penetration rate of new energy vehicles exceeded 50% in several months of 2024, reaching 45.9% for the year, a year-on-year increase of 12 percentage points. Li Auto maintained its position as the sales champion among Chinese automotive brands in the market for new energy vehicles priced above 200,000 yuan, with an annual market share of 15.3%.

Record Delivery Volume: In the fourth quarter of 2024, delivery volume exceeded 158,000 units, setting a new quarterly record, with total annual deliveries exceeding 500,000 units, becoming the first emerging new energy vehicle brand and Chinese high-end automotive brand to reach this milestone. Additionally, the cumulative delivery volume of the Li L series models L6, L7, L8, and L9 has exceeded 200,000 units.

As of December 31, 2024, there were a total of 32,248 employees.

Guidance: The expected delivery volume for Q1 2025 is between 88,000 and 93,000 units, a year-on-year increase of 9.5% to 15.7%; total revenue for the first quarter is expected to be between 23.4 billion and 24.7 billion yuan (approximately 3.2 billion to 3.4 billion USD), a year-on-year decrease of 8.7% to 3.5%.

2.2 Key Information from Executive Statements

1. Technology Research and Development:

Breakthroughs in Autonomous Driving Systems: In 2024, R&D investment exceeded 11 billion yuan, driving further breakthroughs and growth in autonomous driving systems. The company's autonomous driving solutions are at the industry-leading level, with the launch of AD Max V13 in January, upgrading the highway NOA to an end-to-end architecture, providing end-to-end capabilities for urban and highway driving scenarios introduced the AI reasoning visualization function for autonomous driving; in February, launched the latest end-to-end and VLM models trained on 10 million video clips for all AD Max users, becoming the first automotive manufacturer in China to deploy large models trained on 10 million video clips.

Next-generation model development: The development of next-generation models based on the Visual Language Action (VLA) architecture has been initiated, with plans to launch alongside the first pure electric SUV, Li Auto L8, this year, bringing users a brand new autonomous driving experience.

2. Progress of the Supercharging Network:

In 2024, we built 1,420 supercharging stations at an industry-leading pace. We operate the largest highway supercharging network in China. As of now, we have over 1,900 supercharging stations, with more than 10,000 charging piles in operation. We are accelerating its deployment to prepare for the launch of pure electric vehicles in 2025.

Our supercharging network covers various reasons, with fast charging speeds and high uptime. Even in winter, the Li MEGA can charge to 500 kilometers in 12 minutes with battery preheating. Even during the high load of the Spring Festival holiday, our target facilities achieved a 99.9% uptime. The overall charging experience and efficiency are crucial for BEV users.

Looking ahead, we will continue to accelerate the deployment of our supercharging network, aiming to have 2,500 supercharging stations when we launch our first battery-electric SUV, the i8. We plan to expand to 4,000 charging stations by the end of 2025.

3. Sales and Service Network

By 2024, the overall quality and sales efficiency of our retail stores have significantly improved. By replacing underperforming mall stores with sales centers located in major automotive parks, the proportion of our sales centers increased from 24% at the end of 2023 to 42% at the end of 2024. The total number of display boxes nationwide increased from over 2,600 to over 3,700.

In terms of sales and service network: In 2024, the overall quality and sales efficiency of our retail stores have significantly improved. By replacing underperforming mall stores with sales centers located in major automotive parks, the proportion of our sales centers increased from 24% at the end of 2023 to 42% at the end of 2024. The total number of showrooms nationwide increased from over 2,600 to over 3,700.

Looking ahead to 2025, while we will continue to strengthen the layout of offline stores, we will pursue high-quality expansion of the sales network at a reasonable pace, prioritizing operational efficiency.

4. Overseas Expansion

Establishment of R&D and Service Centers: In January 2025, the first overseas R&D center was established in Munich, Germany, marking the first step in our global R&D strategy. Additionally, direct service centers have been established in Kazakhstan, Dubai, and Uzbekistan.

Future Expansion Plan: In 2025, we will continue to strengthen overseas expansion, focusing on high-growth potential markets. We believe that in the future, we will see more Li Auto vehicles on the roads of different countries.

3. Q&A

Q: What is the release schedule for the company's pure electric models this year, and what highlights can we expect from future pure electric models?

A: This year, we will launch two brand-new pure electric SUVs. The first model, Li i8, will be released in July, and Li i6 will be launched in the second half of the year. The benefit of this approach is that it can achieve better sales during the Q3 and Q4 peak seasons and accumulate enough orders to support deliveries in Q1 and Q2 of 2026.

The company will not disclose too much product information before the launch event, hoping to connect product highlights more closely with users' real experiences and purchase deliveries.

Q: What are the latest updates on the company's AI development strategy?

A: First of all, our overall view is that at this stage, the most important thing for our artificial intelligence is to enhance capabilities. I will take autonomous driving as an example.

In the development path of autonomous driving technology, rule-based systems can be likened to "teaching a baby fixed driving patterns," while existing end-to-end systems are similar to "a monkey learning to drive with a safety officer"—although there is progress compared to rule-based systems, it is still far from the level of human drivers. This limitation stems from architectural flaws: the current visual language models (VLM) and end-to-end systems are disconnected technical routes and have not yet reached sufficient maturity.

The key breakthrough direction lies in constructing a foundational model that integrates capabilities from three domains: understanding the physical spatial environment through 3D vision technology, using large language models (LLM) to interpret navigation and other software system instructions, and combining end-to-end architecture to perceive traffic dynamics in real-time while synchronously integrating occupant intent recognition capabilities, ultimately forming a comprehensive decision-making system akin to human drivers.

Only by merging these three aspects into one model can we understand the world like humans and drive like humans. This is our overall understanding of breakthroughs in artificial intelligence, and we are not inclined to set specific plans in this area.

Q: How do you view the group's sales situation this year? Will it be more likely to return to last year's peak levels or the high levels before price adjustments only in the second half of the year?

A: This year, we will achieve a breakthrough in sales growth through product upgrades, expanding the sales network, strengthening marketing, and accelerating overseas market expansion. In terms of products, we will successively launch the L series facelift models, the new version of Mega's intelligent driving, and new pure electric SUV models. The new pure electric SUV will help capture a larger market, and the intelligent driving system will significantly enhance its capabilities after upgrading to the V13 version trained on 10 million clips, laying a solid foundation for sales growth.

Regarding the sales network, we currently have over 502 sales stores. Based on this, we will launch a new plan to increase coverage in tier 4 and tier 5 cities in collaboration with after-sales service partners. This year, we will also open over 200 retail showrooms and 60 pop-up stores in supermarkets nationwide. In terms of marketing, we have iterated the sales team's operational formation, increased a dedicated online live-streaming team to expand customer acquisition channels, and will continue to increase investment in regions such as Latin America work of authorized dealers in overseas markets has gradually commenced, and we are confident in achieving a good market increment this year in overseas markets. Relying on the improvement of product competitiveness brought by technological iteration, as well as flexible and precise market strategies and channel expansion, we are full of confidence in the company's sales growth this year.

Q: What is the scale of AI-related R&D investment for Li Auto in the next three years? Besides the large model Li Xiang APP and autonomous driving, will there be new AI application scenarios (including vehicle and non-vehicle) in the future?

A: The company's investment in artificial intelligence-related fields will significantly increase in the coming years, but the main funding will come from the operating cash flow generated by car sales.

When determining the strategic positioning of the enterprise, it is necessary to clarify the unique value proposition in the AI era—different positions require differentiated capability combinations: referring to the mobile phone era pattern: Apple provides an excellent experience through a closed ecosystem vs. Android builds an open operating system (although the user experience is not perfect). Both companies have achieved tremendous market success, but they have chosen different positions and used different models, thus making different trade-offs.

For Li Auto, it will position itself as a hardware device manufacturer in the AGI era, but it needs to break through traditional paradigms. AGI essentially refers to robots with the following capabilities:

Cognitive Layer: Multimodal environmental understanding and reasoning decision-making; 2) Execution Layer: Physical motion control and task planning; 3) System Layer: Autonomous operating system integrating world models; 4) Hardware Layer: Heterogeneous computing architecture and mechanical transmission devices.

In terms of technical implementation paths, through 1) Software Architecture: Deep integration of AI operating systems (OS), foundational models for agents, and domain-specific algorithms; 2) Hardware Architecture: Breaking through traditional electromechanical design to build a "sensing-computing-execution" trinity heterogeneous system (integrating high-performance computing chips and precision transmission mechanisms), while also needing to build an AGI operation and maintenance platform that surpasses traditional IT architecture, with the core being an autonomous management system based on world models. This brings about a dual transformation: silicon-based device management: shifting from code-driven to cognitive autonomous operation and maintenance paradigms, and carbon-based human-machine collaboration: reconstructing the interaction protocols and boundaries of rights and responsibilities between humans and agents.

The second factor we need to consider is user scenarios. From this perspective, robots can be divided into three main categories:

Spatial Robots: Agents with L4-level autonomous driving capabilities that can achieve autonomous environmental perception, decision-making planning, and task execution in open environments.

Enhanced Robots: Human-machine collaborative devices centered on extending human physical/cognitive capabilities.

Humanoid Robots: Fully autonomous service units in high-dynamic indoor scenarios, needing to achieve humanoid movement and complex interaction capabilities.

These three types of devices will cover all scenarios of human life (from industrial environments to home spaces). Our strategic positioning is to become a "full-scenario device manufacturer" in the AGI era, analogous to how Apple covers users' digital lives through its product matrix of Mac, iPhone, Watch, etc. This is what the company aims to do and its positioning for the AGI era over the next 3 to 5 years or even longer, continuously iterating and optimizing during the implementation process.

Q: What is the overall sales outlook and market competition situation for the automotive industry in 2026? Will it focus on autonomous driving competition? What are the company's response strategies?

A: In 2026, the penetration rate of new energy vehicles in the domestic market will continue to rise. Market competition will shift from incremental competition to stock competition, and the impact of brands on sales will become increasingly significant, with consumers more inclined to choose well-known brands with good reputations. In all price segments, leading brands will further convert market share due to their comprehensive advantages in products, technology, brand, and service, leading to an increase in market concentration. Competition in technology will also intensify, with many automakers accelerating their layout in advanced manufacturing and intelligent driving. Additionally, the development and competition in intelligent information technology that enhances control and comfort, as well as cabin AI technology that improves interaction experience, will continue to exist. The company's strategy is to continuously improve its product matrix, with new products launching in 2026 to complete the construction of a pure electric vehicle matrix that covers different levels and price ranges to meet more consumer needs; maintaining product leadership in AI technologies such as intelligent cabins; continuously accelerating the layout of supercharging networks to improve coverage and service quality to alleviate consumer range anxiety; and, in addition to the domestic market, accelerating the establishment of overseas sales and service networks through various cooperation methods.

Q: Can the management team initiate a paid model for autonomous driving? After the arrival of the L3 and L4 stages, will autonomous driving software have monetization capabilities?

A: Currently, intelligent driving is still mainly a tool to assist people in driving, and the relationship between people and cars has not fundamentally changed. However, when autonomous driving evolves to the L4 stage, the system will transform from a tool to an assistant, truly replacing human drivers, akin to hiring a dedicated driver. In this case, users will be willing to pay for automation, and cars will upgrade to spatial entities in the AI era, with in-car software services being assigned higher value, creating new business models that make software monetization more promising. The company team is actively exploring this and aims to seize market opportunities in the L4 era.

Q: What is the approximate gross margin for vehicles in the first quarter?

A: The first quarter is a low season due to the Chinese New Year. Additionally, we have some promotional activities after the Chinese New Year. Therefore, considering all factors, we expect the gross margin for vehicles in the first quarter to reach about 19%.

Q: Media reports suggest that Li Auto is focusing on AI and no longer paying attention to the automotive business. Has there been an adjustment in management responsibilities, and how to balance the automotive business and AI business?

A: Li Xiang, as the CEO of the company, manages teams related to the automotive business, including product lines, product departments, and brand strategy, which is completely consistent with 2024. We have allocated new responsibilities under the VLM and PDST frameworks and appointed new leaders. We remain committed to relying on efficient internal collaboration to support our long-term success.

Q: How does the management view the market performance of MEGA over the past year, and what issues does this product still face?

A: The Li Auto MEGA is a luxury pure electric MPV positioned above 500,000, and it has maintained the second position in sales in this segment for several consecutive months. This year, we hope to continue to maintain a top-three position in this segment, achieving annual sales of over 10,000 to 15,000 units. Its Net Promoter Score (NPS) continues to remain high, making it the best-performing product in terms of user reputation in long-distance travel scenarios such as during the Spring Festival, the chassis, seat comfort, NVH, intelligent cockpit, intelligent driving, and high-speed communication services provide users with an experience that exceeds expectations, resulting in a significant increase in NPS and sales after the Spring Festival. With over 1,900 5C supercharging stations already built, MEGA users can enjoy the 5C supercharging experience on both highways and urban roads, addressing the inconvenience of long-distance charging.

In the future, we will continue to increase the construction of the 5C supercharging network, completing over 2,000 supercharging stations in the first quarter, connecting the national-level highways in a grid pattern; when the Li Auto I8 is launched, over 2,500 supercharging stations will be completed; this year, over 50 tourist routes will be opened successively; by the end of the year, the coverage of national-level highway trunk mileage will exceed 67,000 kilometers, with 10,000 kilometers of provincial-level high-traffic highways, totaling over 77,000 kilometers of coverage. Currently, 483 high-speed supercharging stations have been built in the four major economic belts of the country, with an average interval of 99 kilometers, and by the end of the year, there will be full coverage of supercharging stations on the four major economic highways. With the improvement of the supercharging network and the introduction of other pure electric models to the market bringing scale effects, we are confident in MEGA's sales.

Q: How do you view the company's internationalization strategy planning in the medium to long term?

A: In 2025, the company's management has identified internationalization and overseas markets as one of the priorities, and will seriously explore overseas markets, building relevant capabilities in brand marketing, channels, after-sales service systems, organization, and teams. At the beginning of this year, an independent overseas market expansion department was established, with experienced personnel being recruited. In terms of the market, we will continue to expand based on the luxury brand image established in markets such as Central Asia; in the past year, after-sales service centers have been established in Kazakhstan, Uzbekistan, the UAE, and other markets, providing locally qualified after-sales service networks with original parts and technical support services. We will also increase expansion in markets such as the Middle East, Latin America, and Asia-Pacific, selecting excellent dealers as partners, increasing marketing investment, and building a complete after-sales service management system. The year 2025 will mark the beginning of Li Auto's overseas market expansion, leveraging the product, sales, and service system capabilities accumulated in the Chinese market over the past years to explore overseas markets.

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