Li Auto Q3 conference call: Production expansion is needed by the Spring Festival of 2025 to meet demand, with a goal of capturing over 25% market share in the high-end new energy segment

At 8:00 AM Eastern Time on October 31, during Li Auto's Q3 2024 earnings call, the management mentioned that the overseas market is very important, but the strategy is different. Li Auto is currently selling in a limited number of markets, with the Middle East becoming a target market, and does not plan to enter Western Europe and North America.

Chairman Li Xiang pointed out that the automotive industry tests comprehensive competitiveness, including technology, products, sales, supply chain, and services, and that range extension is just an important part of the technology. The L series will still be in its prime stage for the next 1-2 years.

Additionally, the Li Auto L6 is the most recognized new car in the global market from 2024 to date, which is a tangible result from the sales side. In the six months since its launch, the Li Auto L6 has accumulated over 139,000 deliveries, with production unable to keep up with order demand. The factory will also need to expand production during the 2025 Spring Festival to meet more consumer demand.

When asked whether the growth in the family market is nearing its peak, Li Xiang stated that Li Auto's exploration of this segment has just begun, especially as AI changes the experience of intelligence, the imagination space for the family market has become larger. From a pure electric perspective, there is actually more space to explore in the market for pure electric products priced above 300,000 RMB. Products like the Li Auto L7, L8, and L9 are competitive in the market, so Li Auto is not in a hurry to expand into other sub-markets, as one cannot beg for food while holding a golden rice bowl.

Li Xiang also believes that the biggest variable in the industry in the next 3-5 years will come from AI, including intelligent driving and smart assistants, which will bring consumers a completely different experience and mark the beginning of a true qualitative change.

Looking ahead, Li Auto's management also pointed out that the market share of Li Auto in the NEV market above 200,000 RMB is increasing every quarter, reaching over 17% in the third quarter, a historic high. The long-term goal is to capture over 25% market share in the NEV market above 200,000 RMB.

Li Auto's stock price on the US market fell nearly 14% after the earnings report.

The following is a transcript of the analyst Q&A session:

Q1. The full-year guidance of 502,000 to 512,000 represents an average monthly sales level of 53,000 for the L series in the fourth quarter. From next year's perspective, how much growth space is there for the Li Auto L series range-extended models? Is the growth space coming from new models like the L5, or updates to existing models, or exports, or penetration into lower-tier cities?

We hope that the growth rate of the company's new energy vehicle sales next year can reach twice the growth rate of the entire high-end new energy vehicle market (200,000 RMB and above).

Q2. In September this year, Li Auto launched the "one-click intelligent driving" beta version from parking space to parking space. When will Li Auto start full-scale deployment of intelligent driving? Additionally, will Li Auto's city NOA function further penetrate into the new Pro models next year with hardware upgrades? In the past ten months, Li Auto's intelligent driving has completed several major version iterations, shifting from a reliance on maps to a mapless and end-to-end approach. This also reflects the increasing recognition and expectations from everyone regarding Li Auto's intelligent driving. Regarding the "one-click intelligent driving" feature from parking space to parking space, we plan to fully roll it out to all AD Max users by the end of this year, specifically before December. At the same time, we will also push the nationwide ETC non-exit capability. We will use the VLM model to identify ETC, ensuring that the NOA from city to highway and from highway to city will not exit due to passing through ETC toll stations, providing users with a smoother experience.

Additionally, is there a chance that the current city NOA will be available for the Pro models? Since city NOA requires stronger perception capabilities and higher computing power, the current city NOA does not support the existing Pro models. Please stay tuned for our new product launch regarding subsequent new models.

Q3. What is the specific launch time, price range, and expected monthly sales for pure electric models next year? There are reports online that Li Auto will launch the Li Auto i6 around mid-next year; is this information accurate?

As for detailed product plans, we will share them at the appropriate time through formal product launch events. It is crucial to maintain confidentiality for such new products. Overall, we are very confident about the upcoming pure electric models. Just as our extended-range L series has performed well in the high-end new energy vehicle market, we will strive to position our pure electric SUVs among the top tier of the high-end pure electric market.

Q4. The management previously mentioned that once sales exceed 500,000, the CEO's equity reward can be confirmed. Currently, annual sales have not yet reached 500,000; how much equity reward expense has been confirmed this quarter? How much related expense will there be in the fourth quarter? What is the principle for the timing of this expense?

Regarding the CEO's equity incentive, as of September 30, the company expects that with the deliveries in the fourth quarter, the sales for the first three quarters may reach the initial equity incentive target, which is total sales exceeding 500,000 in the past 12 months. Therefore, we have basically confirmed an equity incentive expense of RMB 593 million in the third quarter. An additional RMB 42 million will be issued in the fourth quarter. The incentive expense for each time the 500,000 sales target is reached is the same.

Q5. Will there be any adjustments to Li Auto's sales policies in the fourth quarter? The sales guidance for the fourth quarter has only increased by 10,000 to 20,000 vehicles compared to the third quarter, while last year's fourth quarter saw an increase of 26,000 to 27,000 vehicles compared to the third quarter. Despite having an additional model this year, the sales guidance seems conservative. Will this year's sales policy not have as many subsidies as last year?

In the context of intense market competition, the sales of the Li Auto L series remain strong, primarily due to the increased brand recognition, the delivery of 1 million vehicles, and breakthroughs in intelligent driving capabilities. Despite fierce market competition this year, Li Auto's market share has been continuously increasing. In the third quarter, Li Auto's market share in the new energy vehicle market above 200,000 reached 17.3%, setting a new high. Since its launch, the Li Auto L6 has had a monthly delivery volume exceeding 25,000 vehicles, with a total delivery volume exceeding 139,000 vehicles, making it the best-selling model among new cars launched this year In terms of sales network, Li Auto has launched a new round of marketing reforms, granting more operational autonomy to sales regions to carry out region-specific sales and marketing activities based on local market conditions, thereby enhancing brand awareness and market share. Li Auto will formulate targeted regional sales policies based on the competitive landscape in different provinces.

Q6. So far this year, it seems that the number of Li Auto stores has not increased much. Does management have specific expansion plans for the end of this year and 2025?

Li Auto expects the number of retail stores to exceed 500 by the end of this year. The company has made channel adjustments, gradually replacing underperforming shopping mall stores with flagship stores and center stores (AutoPark). The proportion of center stores is expected to increase from 24% at the end of 2023 to over 40% by the end of 2024. In the Chinese market, the total number of exhibition spaces is expected to increase from over 2,600 to over 3,600. At the same time, Li Auto is also expanding its sales and service network coverage in third-tier and some key fourth and fifth-tier cities. Specific store expansion targets will be announced after the first quarter financial report next year.

Q7. With more players in the extended-range hybrid market, competition will intensify. What are Li Auto's plans for improving and iterating its hybrid products? In particular, what rough directions does management believe can be further enhanced in terms of technology?

Automobile competition encompasses comprehensive operational capabilities, including technology, products, supply chains, sales, and services; extended-range technology is just one important part of it, but certainly not all. The Li Auto L series will remain in its "youth" stage for the next one to two years, continuously updating features and upgrading experiences to enhance product value. Li Auto is likely the best performer in the industry in terms of hardware-software integration.

Looking ahead to the next three to five years, artificial intelligence will be the biggest variable, including AI-based intelligent driving and smart assistants, which will bring a whole new consumer experience and mark the beginning of a true qualitative change. Additionally, the Li L6 is the most recognized new car in the global market from 2024 to date, which is a tangible result on the sales side. In the six months since its launch, the Li L6 has accumulated over 139,000 deliveries, with production unable to keep up with order demand, and the factory will need to expand production during the 2025 Spring Festival to meet more consumer needs.

Q8. Regarding overseas markets, does Li Auto currently have a more aggressive strategy? If so, what considerations are behind this strategic adjustment? Does the company have a rough plan for overseas markets internally? This includes entry into key markets, sales channel strategies, and whether the overseas market will become an important growth increment for Li Auto's sales in 2025?

The overseas market is very important for Li Auto, but the company's strategy differs from that of other automakers. Li Auto has established service networks in several countries and regions, including Kazakhstan in Central Asia, which help expand Li Auto's share in overseas markets. As for the selection of overseas sales markets, the Middle East and Central Asia will be the first target sales areas of focus. Based on this, the company will continuously explore and evaluate all markets with high growth potential to expand its global sales network. However, Li Auto is currently not considering entering the Western European and North American markets Q9. Li Auto officially pushes the "end-to-end + VLM dual-system intelligent driving solution" to all AD Max users. From the perspective of user experience, what is the biggest improvement of end-to-end NOA compared to the past? Additionally, has there been a significant change in the sales proportion of the AD Max version over the past three quarters?

With the push of the "end-to-end + VLM dual-system intelligent driving solution," the entire concept of intelligent driving will shift from "function" to a kind of "capability." In other words, it will transform from the functions of "urban NOA" and "highway NOA" into a truly supervised intelligent driving capability. This means a shift from rule-based algorithms to real AI large models.

The value brought by user experience is quite significant. To give two examples, first is the "takeover mileage," which we refer to as "MPI" (Mean Takeover Mileage) that will become longer. With the increase in model parameters and training data volume, the MPI mileage will significantly improve, meaning that companies with high-quality training data will have an absolute advantage in future competition. The second is the enhancement of safety. The all-scenario safety mileage (MPa) will also be improved, and it is expected that the "end-to-end version" will further increase the safety mileage to 3 to 5 times that of human safety mileage. Additionally, with the enhancement of large model capabilities, safety features such as AEB (Automatic Emergency Braking) and AES (Automatic Emergency Steering) will also see significant improvements, leading to a substantial reduction in the number of major accidents.

The impact of AD Max on overall sales is very significant. In the AD Max version priced above 300,000 RMB, sales have increased to a certain level; the proportion of AD Max in the sales of Li Auto L6 is also continuously rising.

Q10. Management mentioned that Li Auto already has 1,000 charging stations. How many do we expect to have by the end of next year? Currently, how many of Li Auto's charging stations are self-built and how many are from third parties? What is the company's capital expenditure plan for charging stations next year? How is the current utilization rate of Li Auto's charging stations? Given that the current ownership of Li Auto's pure electric vehicle MEGA is still relatively small, are many of Li Auto's charging stations being used by vehicles from other brands? From a gross profit perspective, the increase in charging stations does not negatively impact the company's gross profit margin. Is this statement accurate?

Our plan is to establish the largest OEM charging network in the industry. Li Auto plans to build more charging stations in key cities before the launch of new energy models, and the number should exceed that of Tesla. With the launch of our new energy models as a time node, our goal is to build over 2,000 charging stations and put them into operation, with over 4,000 charging stations built by the end of 2025. Currently, Li Auto's supercharging network covers 9 national highways, with a total mileage of over 54,000 kilometers and a coverage rate of 63%. By the end of 2025, Li Auto will build more than 1,200 supercharging stations along highways, covering 90% of national highways.

In addition to covering highways and urban areas, we will also selectively cover medium and long-distance self-driving routes to meet users' family travel needs. For example, the supercharging station we built at Mount Everest will be put into operation this October; next April, we will also achieve end-to-end coverage of the supercharging network on National Highway 318 As for the cooperative supercharging stations in the city, we have built more than 500 cooperative supercharging stations so far, and this number is expected to exceed 3,000 by the end of next year.

Q11. Is the concentration of brands in the price range above 200,000 RMB similar to the direction discussed by the management at the beginning of the year? In the process of industry consolidation, how does the management believe to respond to the side impact of high-end models from all categories and other technology-backed new force brands?

Even without launching a pure electric SUV product line, Li Auto's market share in the NEV market above 200,000 RMB has been increasing every quarter, reaching over 17% in the third quarter. Regardless of which brand enters the market, the core challenge is whether it can provide leading product value to users within its price range. Li Auto is confident that it can continue to gain more market share through its extended-range and pure electric product lines, with a long-term goal of capturing over 25% of the NEV market above 200,000 RMB.

Q12. With the gradual increase in the supply of new models in the mid-to-large-sized family SUV and MPV market, does the management believe that the boundaries of family users may have been partially reached? Are there any segmented blue ocean opportunities that the management is optimistic about?

Li Auto's exploration of the family market has just begun, especially after artificial intelligence changes the landscape of autonomous driving and cabin experience, the imagination and creativity of the family market space will become stronger. Li Auto is not in a hurry to expand into more markets but should focus on doing better in this market. From a pure electric perspective, many people believe that pure electric products priced above 300,000 RMB will be difficult to sell, but in fact, there is still more space to explore in the market for pure electric products above 300,000 RMB. If one wants to find products with product strength like Li Auto's L7, L8, and L9, one will find that such products are actually not available in the market. Therefore, Li Auto is not in a hurry to expand the market and cannot beg for food while holding a golden rice bowl.

Q13. Can the management share Li Auto's progress in autonomous driving and the structure of future planning? Looking at the future from a medium- to long-term perspective, will the iteration of autonomous driving technology slow down? If it slows down, will this lead to a narrowing of the technological gap among companies?

Currently, Li Auto is focusing on "supervised intelligent driving" for technology research and product iteration, creating a truly "parking space to parking space," full-scenario seamless product experience. At the same time, we believe that in intelligent driving, human-computer interaction also requires product and technological innovation. Li Auto has already started user internal testing and plans to gradually push it to all users.

In the long term, Li Auto has initiated L4-level autonomous driving rehearsals. Based on the current technological route, we will study a reinforcement learning system that combines a more powerful vehicle-side VLM model with a cloud-based visual model. Additionally, Li Auto will continue to increase investment in intelligent driving infrastructure to maintain a leading position in training computing power and intelligent training mileage.

Regarding the capabilities of intelligent driving among companies, we do not believe the gap will narrow. Because in the long run, autonomous driving requires significant investment in computing power on the vehicle side, cloud computing power, and training data resources, and the future requirements for large model algorithms in autonomous driving will become increasingly high I don't believe that the gap in autonomous driving capabilities among companies will narrow; instead, it may become even larger