Li Auto (2Q25 Minutes): Returning to the Single SKU Explosive Product Model

The following are the minutes organized by Dolphin Research$Li Auto(LI.US) for the Q2 2025 earnings call. For financial report interpretation, please refer to "Li Auto: Can the i6 Turn the Tide?"

Key information extracted by Dolphin Research:

1. Product Adjustments:

Extended Range Model Adjustments: Starting in September, all AD Max versions of extended range models will be upgraded to the VLA intelligent driving system.

In terms of pure electric: Emphasize regional differentiation in marketing, optimize store layout by relocating inefficient stores, balance the ratio of mall stores and central stores, and quickly enter the fourth and fifth-tier markets with lightweight stores through the "Star Plan" to reduce costs and cycles, and increase coverage.

2. Progress in Self-developed Chips:

Regarding self-developed chips, tape-out was completed at the beginning of the year and has entered automotive-grade testing, progressing smoothly, with plans to be equipped in flagship models by 2026. The chip's performance in large model inference is twice that of the strongest existing chips, and three times in visual models, adopting a new data-driven architecture with full-stack collaborative design of hardware, compiler, runtime, and operating system, more suitable for large-scale neural networks, with continuous scalability.

3. New Product Launch Plan: The release and delivery schedule of new cars has not been affected, with the i8 delivered as scheduled, and the i6 to be launched as planned by the end of September.

4. Sales System Adjustment: Increase revenue levels by establishing an independent marketing department to acquire more online leads, provide growth opportunities, improve efficiency, etc.

5. Return to Single SKU Mode: The company will reduce the number of SKUs, return to a single SKU mode, focus on maximizing product competitiveness, and ensure each SKU has sufficient appeal.

6. Accelerated Product Iteration Speed in 2026: The past iteration speed was relatively slow, allowing competitors to gain an advantage in product rhythm. In the future, the company will accelerate technology and product iteration, aiming to lead in products and AI intelligence by 2026.

7. Q3 Gross Margin Guidance: Considering sales volume and pricing strategy, the overall gross margin for the third quarter is expected to remain around 19% (possibly referring to vehicle gross margin), consistent with the previous two quarters.

8. i6 Information: It will become the most competitive product in the five-seat pure electric SUV market, with a unique exterior design, leading space comfort, and range performance, while handling performance reaches the best in the company's history, equipped with the VLA large model.

9. Cash Flow Situation: Cash flow is expected to improve significantly in the third quarter, and if sales recover in the fourth quarter, it will bring stronger cash flow performance.

10. VLA Progress: In the next two years, VLA's safety is expected to reach ten times that of human drivers, with the company's goal to achieve L4 level autonomous driving by 2027.

I. Review of Core Financial Report Information:

(1) Delivery and Market Performance

Q2 Delivery Volume: Over 110,000 units.

Cumulative Deliveries (as of the end of July): Over 1.36 million units.

Market Share: Holds a 13.4% share in the Chinese new energy vehicle market above 200,000 yuan, maintaining the top three in sales among Chinese brands.

(2) Product and Brand Progress

Li MEGA: Launched in April, with monthly sales of about 3,000 units, becoming the top-selling MPV over 500,000 yuan since May 2025, and the top-selling pure electric model in the same price range since June.

Li i8: Released on July 29, deliveries began on August 20, with test satisfaction exceeding 97%, and cumulative deliveries expected to exceed 8,000 units by the end of September.

Li i6: A five-seat pure electric SUV, planned to be released and delivered by the end of September, targeting the young consumer market.

Charging Network: 3,100 charging stations and 17,000 charging piles have been built, covering 9 horizontal and 9 vertical highway networks and 260+ cities, with a target of 4,000 stations by the end of the year.

(3) R&D and Intelligence Investment

2025 AI Investment: Over 6 billion yuan.

VLA Large Model: Delivered with the Li i8 on August 20, and will be pushed to all AD Max models via OTA in mid-September.

Self-developed Chip: Tape-out completed and entered in-vehicle testing, expected to be equipped in flagship models by 2026, with performance 2-3 times that of market-leading chips.

5C Super Charging Battery: Supports charging power over 300kW from 0-80% SOC, with health remaining over 80% after 1,500 cycles.

II. Detailed Content of the Earnings Call

2.1, Core Information from Executive Statements

(1) Business and Market Performance

In the second quarter, the company delivered over 110,000 units, achieving revenue of 30.2 billion yuan, with a 13.4% market share in the Chinese new energy vehicle market above 200,000 yuan, continuing to maintain the top three in sales among Chinese brands. Cumulative deliveries exceeded 1.36 million units by the end of July. The MEGA Home launched in April far exceeded expectations, with an average monthly sales of about 3,000 units, becoming the top-selling MPV over 500,000 yuan since May, and the top-selling pure electric model in the same price range since June. The L series facelift models experienced fluctuations after June due to adjustments in the sales and service system, but still maintained the top three in the market. The company is accelerating the reconstruction of the sales and service system, including enhancing sales and delivery capabilities, building an end-to-end marketing system, and boosting team morale to better respond to market dynamics.

(2) Product Progress

The i8, released on July 29, began deliveries on August 20, redefining the high-end SUV experience with its versatility, luxury sedan handling, and MPV comfort, with test drive satisfaction exceeding 97%. Cumulative deliveries are expected to exceed 8,000 units by the end of September. The i6 will be released and delivered by the end of September, further expanding the product line to meet a broader user base.

(3) Charging and Energy System

The company operates the largest charging network among domestic car companies, with 3,100 charging stations and over 17,000 charging piles built, including over 1,000 covering the "nine vertical and nine horizontal" highway network, with an average interval of 150 kilometers, and over 2,100 covering 260+ cities, with an average coverage radius of 3.5 kilometers, with a target of 4,000 stations by the end of the year. Over 61% are 4C and 5C fast charging piles, and new stations will all adopt new generation technology. In June, the first drive-through supercharging station in China was launched in Chengdu, along with testing of automatic charging robots, further optimizing the user experience.

(4) Intelligence and R&D Investment

The company is firmly advancing intelligent investment, with AI R&D investment expected to exceed 6 billion yuan for the year. The VLA large model was launched with the i8 delivery in August and will be pushed to all AD Max models via OTA in mid-September. The model integrates spatial, language intelligence, and behavior decision-making, closer to human driving logic, significantly enhancing defensive driving, smoothness, continuous task execution, and parking experience. The intelligent assistant is upgraded to an intelligent agent, with memory, emotion, and service capabilities, able to connect with external applications such as ordering and QR code payment.

(5) Core Technology Breakthroughs

In the field of electric drive and 5C batteries, the company has achieved self-developed breakthroughs. Silicon carbide power chips and self-developed motors improve energy efficiency, with 5C batteries maintaining over 300kW power during 0-80% charging, and health remaining above 80% after 1,500 supercharging cycles.

(6) Channel and Service Network

The company continues to expand its sales and service network, with over 550 stores nationwide, covering more than 150 cities, with about 50 new stores and 700 display points added this year, while accelerating penetration through lightweight store models to enhance user reach and conversion efficiency.

2.2, Q&A Analyst Questions and Answers

Q: The L series sales have declined this year. How will the company achieve its annual goals through product and channel strategies? Also, what is the latest progress on self-developed chips?

A: Recently, there has been significant sales pressure, and the company is responding from both extended range and pure electric dimensions. In terms of extended range models, the core strategy is to maintain leadership through intelligence.

Extended Range Model Adjustments: Starting in September, all AD Max versions of extended range models will be upgraded to the VLA intelligent driving system. The experience improvement of the VLA large model can be compared to the leap from ChatGPT 3.5 to 4.0, with parameter scale increasing by more than 10 times, significantly enhancing smoothness, comfort, and defensive driving capabilities, with new parking and summoning functions addressing user pain points. The company believes that the key to future intelligent driving competition lies in iteration speed, with reinforcement learning as the core. The company has built a simulation environment based on world models, capable of quickly generating complex scenarios to accelerate iteration.

In terms of pure electric: MEGA's monthly sales remain stable at over 3,000 units, establishing a foundation for the pure electric segment. Since its launch at the end of July, the i8 has received excellent test drive feedback, with satisfaction exceeding 97%, and cumulative deliveries expected to reach 8,000 to 10,000 units by the end of September. The i6 will be released at the end of September, balancing comfort and sportiness, with excellent space experience, mainly targeting young user groups, and is expected to become a new sales pillar.

In marketing, the company will adopt a regional differentiation strategy, such as promoting the range advantage of extended range models in the northern market and emphasizing the energy efficiency and intelligence of pure electric in the southern market. At the same time, the company will shift from the previous "good products speak for themselves" concept, increasing digital marketing investment, and building a full-process system covering from traffic acquisition to conversion.

Channel Aspect: The company will optimize store layout, relocate inefficient stores, balance the ratio of mall stores and central stores, and quickly enter the fourth and fifth-tier markets with lightweight stores through the "Star Plan" to reduce costs and cycles, and increase coverage.

Self-developed Chip: Regarding self-developed chips, tape-out was completed at the beginning of the year and has entered automotive-grade testing, progressing smoothly, with plans to be equipped in flagship models by 2026. The chip's performance in large model inference is twice that of the strongest existing chips, and three times in visual models, adopting a new data-driven architecture with full-stack collaborative design of hardware, compiler, runtime, and operating system, more suitable for large-scale neural networks, with continuous scalability.

Q: What is the current progress of the sales system adjustment? What is the logic behind the adjustment? Will it affect the launch schedule of new models?

A: In August, the company conducted a large-scale reorganization of the sales system, with headquarters directly managing 23 regions, and newly established sales operations, service operations, and marketing departments, reorganized the site selection team, and strengthened the training academy and delivery team. The reform adopts a "four-step method," with the core goal of addressing the three major needs of frontline sales personnel:

First, increase income levels. By establishing an independent marketing department to acquire more online leads, optimizing store location to increase in-store traffic, and granting sales teams the authority to formulate strategies during the off-season.

Second, provide growth opportunities. Establish a dual-track career development path, with both expert and management paths, while strengthening store manager training to help the team remain stable in the long term.

Third, improve efficiency. By flattening management to reduce reporting levels, establishing feedback and quality control mechanisms to quickly resolve frontline issues. This reform is not a passive response but an active adjustment to further strengthen the advantages of the direct sales model. In the short term, it may bring adaptation, but in the long term, it is beneficial for user experience and team stability.

The release and delivery schedule of new cars has not been affected, with the i8 delivered as scheduled, and the i6 to be launched as planned by the end of September.

Q: What are the future strategies for product SKU and gross margin?

A: The company will reduce the number of SKUs, return to a single SKU mode, focus on maximizing product competitiveness, and ensure each SKU has sufficient appeal. The past iteration speed was relatively slow, allowing competitors to gain an advantage in product rhythm. In the future, the company will accelerate technology and product iteration, aiming to lead in products and AI intelligence by 2026. In terms of gross margin, considering sales volume and pricing strategy, the overall gross margin for the third quarter is expected to remain around 19%, consistent with the previous two quarters.

Q: Can you provide more specific information on the product positioning and marketing strategy of the i6?

A: The i6 will become the most competitive product in the five-seat pure electric SUV market, with a unique exterior design, leading space comfort, and range performance, while handling performance reaches the best in the company's history, equipped with the VLA large model.

In marketing, a more user-oriented approach will be adopted, using more understandable language to convey product value and usage experience.

At the same time, the sales and service team will undergo more targeted training to ensure conversion efficiency. In terms of public relations, the company will strengthen "defense," promptly responding to and resolving potential negative public opinion, ensuring brand and user perception consistency.

Q: What is the latest situation and long-term strategy for overseas market expansion?

A: The company views 2025 to 2027 as the starting point for its globalization strategy. In terms of R&D, centers have been established in Germany and the United States; in terms of channels, overseas after-sales and IT systems are being built; in terms of products, new cars launched in 2026 will fully comply with global regulations. In market strategy, the company will focus on expanding the Middle East, Central Asia, and European markets. Due to low brand awareness overseas, penetration requires time and patience, and the company will gradually establish the brand through a "direct sales first, then franchise" approach. Globalization has been established as a core long-term strategy, and the company will invest continuous resources and effort to advance it.

Q: Why was there a significant net outflow of operating cash flow in the second quarter? What is the future cash flow situation? Also, has the auxiliary driving team been affected by personnel fluctuations?

A: The significant net outflow of operating cash flow in the second quarter was mainly due to the concentrated payment of supplier accounts from the end of last year to the beginning of this year. The company's previous account period was 3-4 months, resulting in a need to concentrate a large amount of payables from the first to the second quarter. The account period has now been adjusted to 60 days, in line with regulatory and industry trends. Cash flow is expected to improve significantly in the third quarter, and if sales recover in the fourth quarter, it will bring stronger cash flow performance. The auxiliary driving team has indeed experienced slight personnel movement recently, but the proportion is small, and the core team remains stable. The new leader has an international background and a youthful advantage, and the company's brand attractiveness continues to attract outstanding talent in the industry. The full version of VLA functions, including driving, parking, and summoning, will be pushed in September, with a major update in October. Stricter regulations help truly capable companies stand out, and the company always prioritizes safety and compliance, continuously optimizing verification and quality control systems to ensure product safety and reliability.

Q: Does the company plan to open its charging network to other brands? If opened, will it affect the user experience of the brand?

A: The company's charging network has advantages in coverage, speed, experience, and cost. It currently covers national highways and urban core areas, being the largest supercharging network in China. Users can replenish 500 kilometers of range in just 10 minutes, with features such as intelligent planning, reservation, and plug-and-charge, combined with lightweight design, especially suitable for female users. In terms of price, brand users enjoy exclusive preferential electricity prices and can use points for deductions, with charging costs significantly lower than other brands. Some piles have been opened to other brands, but the best experience relies on car-pile integration, thus remaining exclusive to brand users. The company will always ensure brand users have priority.

Q: After VLA, how does the company plan the iteration direction of intelligent driving technology?

A: Early 2025 was the most challenging stage for intelligent driving, with technological progress and regulatory pressure overlapping, but VLA has already demonstrated a clear path. By combining large models and world models, the company can generate a large number of complex scenarios, such as rare construction zones and sudden obstacles in reality, to train agents for faster improvement. In the next two years, VLA's safety is expected to reach ten times that of human drivers, with the company's goal to achieve L4 level autonomous driving by 2027. Future autonomous driving needs to have both a "stronger brain and a more powerful heart": the brain refers to the model scale, continuing to expand from the current 4 billion parameters; the heart refers to the vehicle's computing power, which needs to be significantly enhanced to support larger models. With reinforcement learning, model expansion, and computing power enhancement, the company is confident in quickly surpassing existing routes and achieving industry breakthroughs in the future.

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