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Hello, ladies and gentlemen. Thank you for standing by for Li Auto's First Quarter 2026 Earnings Conference Call. At this time all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Janet Zhang, Investor Relations Director of Li Auto. Please go ahead, Janet.

Thank you, operator. Good evening and good morning, everyone. Welcome to Li Auto's first quarter 2026 earnings conference call. The company's financial and operating results were published in a press release earlier today and were posted on the company's IR website. On today's call, we will have our Chairman and CEO, Mr. Xiang Li, and our CFO, Mr. Johnny Tie Li, to begin with prepared remarks. Our President, Mr. Donghui Ma, and our CTO, Mr. Yan Xie, 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 company filings with the U.S. Securities and Exchange Commission and The Stock Exchange of Hong Kong Limited. The company does not assume any obligation to update any forward-looking statements except as required under applicable law.

Please also note that Li Auto's earnings press release and this conference call include discussions of unaudited GAAP financial information, as well as unaudited non-GAAP financial measures. Please refer to Li Auto's disclosure documents on the IR section of our website, which contain a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. Our CEO will start his remarks in Chinese. There will be an English translation after he finishes all his remarks. With that, I will now turn the call over to our CEO, Mr. Xiang Li. Please go ahead.

[Non-English content]

Hello, everyone. This is Xiang Li. Thank you for joining today's earnings conference call. In Q1 of this year, our deliveries entered a growth trajectory. From January to April, Li Auto returned to the top position in sales among Chinese brands in the Chinese new energy vehicle market, priced at RMB 200,000 and above. Monthly sales of our BEV model, the L6 i6, have stabilized at 20,000 units per month, ranking top three among all BEV SUVs. On May 15th, we launched the all-new Li L9, with delivery starting on May 17th. The all-new L9 comes in two trims, Livis and Ultra, priced at RMB 509,800 and RMB 459,800 respectively. The primary goal of our all-new generation Li L9 is to achieve the market position of a flagship SUV.

In important aspects of flagship product perception, such as styling, suspension and chassis, range extender, and electric powertrain, as well as intelligence and computing power, it sets the standard for what the next generation of flagship SUVs must possess. Within just two weeks, the Li L9 Livis secured over 10,000 orders, with transaction prices of over RMB 500,000. We expect that it will maintain a market share of over 20% in the RMB 500,000 and above NEV SUV market. Starting in June, we will focus our communication and promotion efforts on Li L9 Ultra, aiming to capture a 20% market share in the RMB 400,000-RMB 500,000 NEV SUV market. The all-new Li L9 marks the beginning of a series of new product rollouts for the Li L series. In late June, we will launch the all-new Li L8, an exceptional five-seater flagship SUV.

As the five-seater version of the all-new Li L9, it is a complete overhaul from the previous generation, and it is no longer a downgrade from the Li L9. We believe the all-new Li L8 might be the best-handling large SUV globally while delivering the most comfortable five-seat experience in its class. With the launch of the all-new Li L9, we have successfully and fully deployed our proprietary Mach M100 chip and the MindVLA model. This mass production of our full-stack hardware-software solution was a key milestone for us. We're the first company in China to deliver full functionalities on a brand-new chip in its first-ever on-vehicle deployment. The Mach M100 chip is a five-nanometer automotive-grade AI inference chip built on an AI-native dynamic data flow architecture. This unique architecture and superior computing power establish a long-term technological moat for us.

With an integrated hardware and software design, our chip delivers three times the effective computer power per unit cost. Furthermore, the Mach M100 chip enables us to deploy our latest MindVLA model on our vehicles. The number of parameters in this new model increased 10-fold from the previous version. The rollout of Mach M100 and the MindVLA is just the starting point. Moving forward, with larger models and data training at higher precision and higher frame rates, we expect a massive leap in the autonomous driving experience. The May 15th event focused primarily on hardware and vehicle performance. We believe it would require a dedicated two to three-hour session to fully showcase our advancements in software and intelligence.

We're planning a separate launch event in June dedicated to software and AI, which will take the time to provide an in-depth walkthrough of the real-world experience across in-cabin interaction, foundation model, autonomous driving, system agents, and our Mach chip. We look forward to giving a deep dive into the many things we can bring to our lives through software and embodied AI. Please stay tuned. With the steady rollout of our core technologies and our updated product portfolios, we maintain our full-year sales growth target of 20%. With that, I'll turn the call over to our CFO, Johnny, to walk you through our financial performance. Thank you.

Thank you, Xiang Li. Hello, everyone. Given time constraints, my remarks will be limited to first-quarter financial highlights. All figures will be quoted in RMB, unless otherwise stated. For further details, including the corresponding U.S. dollar amounts, we encourage you to refer to our earnings press release. Total revenues in the first quarter were RMB 23 billion, some 11.4% year-over-year and 20.1% quarter-over-quarter. This included RMB 21.5 billion from vehicle sales, down 12.7% year-over-year and 21% quarter-over-quarter. The year-over-year decrease was mainly driven by a lower average selling price due to a different product mix.

The sequential decrease was mainly attributable to reduced vehicle deliveries due to seasonal factors related to the Chinese New Year holiday and lower average selling price due to different product mix. Cost of sales in the first quarter was RMB 21.2 billion, up 2.7% year-over-year and down 10.4% quarter-over-quarter. Gross profit in the first quarter was RMB 1.8 billion, down 66% year-over-year and 64.8% quarter-over-quarter. Vehicle margin in the first quarter was 6.1%, versus 19.8% in the same period last year and 16.8% in the prior quarter.

The year-over-year and the sequential decrease was mainly due to the different product mix. Gross margin in the first quarter was 7.9%, versus 20.5% in the same period last year and 17.8% in the prior quarter. Operating expenses in the first quarter were RMB 4.8 billion, down 4.8% year-over-year and 13.8% quarter-over-quarter. R&D expenses in the first quarter were RMB 2.7 billion, up 8.3% year-over-year and down 9.8% quarter-over-quarter. SG&A expenses in the first quarter were RMB 2 billion, down 19% year-over-year and 22.6% quarter-over-quarter.

The year-over-year and sequential decrease was mainly due to the decreased employee compensation and reduced expenses related to marketing and promotion activities. Loss from operations in the first quarter was RMB 3 billion, versus RMB 271.7 million income from operations in the same period last year and RMB 442.6 million loss from operations in the prior quarter. Operating margin in the first quarter was negative 13%, versus 1% in the same period last year and negative 1.5% in the prior quarter. Net loss in the first quarter was RMB 2.3 billion, versus RMB 646.6 million net income in the same period last year and RMB 20.2 million net income in the prior quarter. Diluted net loss per ADS attributable to ordinary shareholders was RMB 2.26 in the first quarter, versus diluted net earnings of RMB 0.62 in the same period last year and RMB 0.01 in the prior quarter.

Turning to our cash flow and balance sheet. Net cash used in operating activities in the first quarter was RMB 6.1 billion, versus RMB 1.7 billion used in the same period last year and RMB 3.5 billion provided in the prior quarter. Free cash flow was negative RMB 7.4 billion in the first quarter, versus negative RMB 2.5 billion in the same period last year and RMB 2.5 billion in the prior quarter. Our cash position remains solid with a quarter-end balance of RMB 94.3 billion. With this strong cash position, we continue to return to shareholders through a $1 billion share repurchase program announced in March. To date, we have repurchased a total of 17.5 million Class A ordinary shares, including 7.3 million ADS for a total consideration of $148.1 million. Now for our business outlook.

For the second quarter of 2026, the company expects the delivery to be between 95,000 and 100,000 vehicles and quarterly total revenues to be between RMB 24.1 billion and RMB 25.4 billion. This business outlook reflects the company's current and preliminary review of the business situation and market condition, which is subject to change. That concludes our prepared remarks. I will now turn the call over to the operator and start our Q&A session. Thank you.

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, please limit yourself to two questions, and if you have additional questions, you can reenter the queue. If you are a Mandarin speaker, please ask your questions in Chinese first, then follow with English translation. Your first question comes from Tim Hsiao with Morgan Stanley.

[Non-English content] My first question is about L9. How's the order inflow for the Li Auto L9 currently? The waiting period for the Livis variant has stretched to nine to 11 weeks. Could you share the company's production capacity arrangement for this model? What is the targeted sales mix of the L9 in your second quarter delivery guidance? That's my first question. Thank you.

[Non-English content]

First of all, the order pattern for the L9 is very clear. The top-selling Livis version accounts for over 90% of all orders, and the already fully loaded Ultra version accounts for the other less than 10%, which reflects the customer recognition of our latest advanced technology and the willingness to pay for features and performance, and which also showcases our steady foothold in the market above RMB 500,000, which is a very positive trend for the brand. Later down the road, we're going to strengthen the promotion efforts on the Ultra version and continue to optimize the order mix. Secondly, on production capacity, the all-new L9 and L8 will both be manufactured in our Changzhou base, and the two cars can be adjusted flexibly between the production lines. In the long term, we're confident of the ability to manufacture these two models.

May and June will be the ramp-up period for these two cars, and the monthly production capacity will fall between 4,000 and 5,000 units per month. At the moment, the two-tone body color of Livis and also some of the unique parts on this model are slightly supply constrained. We're now working around the clock with core suppliers to come up with solutions to make sure that we can deliver these cars to our customers as soon as possible. In the meantime, we have ample production capacity for the Ultra version, and we'll be able to adjust our production based on market demand. Finally, on L9 deliveries in Q2. Concerning the production ramp-up, we expect to deliver around 8,000 units between the middle of May and the end of June.

After we fully ramp up in Q3, we're confident that the all-new generation L9 will reach a delivery level over the previous generation L9.

Thank you. [Non-English content] My second question is about the profitability. What's your profitability outlook for the second quarter? From a full-year perspective, when do you expect to see a clear inflection point for earnings? Given the rising raw material costs, is a return to profitability achievable this year? Separately, Li Auto i6 now accounts for nearly 60% of the total vehicle sales. What is the floor level of the overall gross profit margin? Lastly, could you also share the gross margin target for the L9 and the other upcoming models scheduled to launch later this year? That's my follow-up question. Thank you.

Hi team, this is Johnny. I will take this question. Our first quarter gross margin was impacted by several factors, including the model refresh cycle. We need to refresh our L-series starting from the L9, and also a higher mix of i6 and also i6 deliveries in this total amount and also purchase tax subsidy for the i6. However, with the launch and delivery of the all-new L9, we expect our gross margin to recover about 10% in the second quarter. Looking at the full year, as we complete our model refresh cycle and optimize our production layout, we expect a continued improvement in our gross margin. This year, our first priority is to successfully complete the refresh for the Li Auto series. We are pleased to see that the Li L9 delivery showcases our flagship capabilities and technology leadership.

It's gaining strong market recognition and was gaining market share about RMB half-million price range. The success of all these Li L9 deliveries, establishing a solid foothold in this price segment, marks a step forward, building upon the success of the original Li L9. This year's all-new Li Auto series, as well as our BEV portfolio, including the i9 to be launched, will feature extensive in-house developed technologies and lay a solid foundation for us over the next two years. Thank you.

Thank you.

Your next question comes from Wenxuan Gao with CITIC Securities.

[Non-English content] Let me ask in English. What are the real on-vehicle performance, user feedback, intelligent differentiation highlights, and actual cost reduction achieved by M100 chips and the Mach VLA large model, and what is the next development direction of the company's auto-driving system? Thank you.

This is Yan Xie. Let me answer your question. Compared to our ADAS 8.0 version, this 9.0 version, powered by our in-house Mach M100 chip, shows significant improvement. It mainly shows up in how cars make decisions in complex scenarios with more human-like control, both longitudinally and laterally, and a smoother, more comfortable driving and riding experience overall. 9.0 is our first AD version running on our in-house chips, which is already one of the best in the highly competitive market, but it's really just the beginning. With the new platform, the sensor will collect data at higher precision and higher frame rates, while the powerful compute of the M100 allows us to run larger and better algorithms. This new platform lets us improve data, compute, and algorithms all at the same time, and that's what will drive a much faster leap in our autonomous driving capabilities.

For the next step of autonomous driving, first, we will further scale up our input data and precision models, enabling more driving-related semantic information to be fed into the neural network, as this allows the model to see significantly more signals right from the sensors. Second, we will improve the model's cognitive capabilities, especially its ability to learn short-term cause-and-effect relationships. This empowers the model to go beyond simple behavior fitting, allowing it to make human-like judgments in more complex urban traffic scenarios. Finally, we will make the system much better at the execution stage. With more compute latency optimizations from our in-house operating system and a fully drive-by-wire chassis, the car will control motion more precisely and respond faster. That means the autonomous driving system will feel more confident and, more importantly, safer.

Because we design the software and the hardware together, our in-house M100 chip delivers triple the computing power of the previous generation platform at half the cost. Similar cost brings six times higher effective computing power. Under the same model, our input frame rate has tripled, with an even greater increase in inference frame rate. Our goal is to match the performance of Tesla's FSD v14 in the U.S. in the second half of this year. The higher-performance AI inference system built around the M100 chip gave us a strong foundation to make this happen. Thank you.

[Non-English content] Since the implementation of the store partner program, what specific changes have been observed in key metrics such as sales per unit area, average monthly sales per store, output per employee, and expense ratio in pilot stores as compared to before the reform? Has the program's current impact on sales volume met expectations? How does the company quantitatively evaluate the program's effect on boosting sales in Q3 and beyond? Thank you.

[Non-English content]

Since we started to roll out the Store Partner Program, as we grant the store managers genuine decision-making authority and profit-sharing rights, it has really fully unlocked the potential of our frontline sales team. First of all, on the store manager level, we can see a fundamental shift in mindset. They've transitioned from previous store executors to actual business operators. They are able to independently view the ROIs of different business activities and really focus on the operating efficiency. In the meantime, it has also increased the stability of core management teams and long-term commitment. The Store Management Programs have led the store owner to invest in the store long-term. They've shifted their focus from chasing short-term sales targets to cultivating the local user base, spreading word of mouth, and building the competitiveness of their stores in the long term.

From a timing standpoint, Q1 is a typical low season in car sales, and we're in the early stage of rolling out the Store Manager Program. On average, our stores have all beaten their monthly sales targets. We have also successfully cleared the inventory for the previous generation L series and also significantly increased user satisfaction. Going forward, as our store managers accumulate more operational experience, combined with our training system and support system, we believe that the operational efficiency and capability of our stores will continue to increase. Thank you.

Your next question comes from Tina Hao with Goldman Sachs.

[Non-English content] My first question is regarding the upcoming Li Auto L8 facelift. Wondering if there is any information that management can share at this point.

[Non-English content]

As we start to complete our L series product lineup, it is becoming clear that the L9 will be a flagship six-seater, and the new L8 will be a flagship five-seater. The two cars will complement each other and continue to strengthen our foothold in the high-end flagship market. The L8 has already been registered with the MIIT in April of 2026, and we're planning to launch and deliver it in June of 2026. Compared to the previous generation, the new car is larger in overall dimensions as well as wheelbase. The car will feature a five-seat configuration with a rear passenger space significantly improved and an overall riding experience also much improved. On the powertrain front, the car will also feature our in-house developed 1.5-liter turbocharged range extender system with a 72.7KWh, 5C large-capacity battery, which is exactly the same as the one seen on the L9.

The two cars will share the same technological platform and have great energy consumption and range performance. Apart from that, the L8 will also be featured in a two-tone body color as an option and also an electric running board as another option. For more information, please stay tuned for our launch event in June. Thank you.

[Foreign language] My second question is regarding AI. I'm wondering how management views the current competition and investment in the AI industry. Also, what is management's thought on the competition in the industry?

[Non-English content]

In our view, the competition in the mid to high-end smart vehicle segment over the next three to five years will really be a competition of embodied AI. The highest technical barrier and the core determinant of a company's long-term success and competitive business will be a deeply integrated chip and large foundational model. Take our real-world experience with in-house developed chips as an example. As in the past, technology and information really flowed freely in the industry because everybody used NVIDIA chips, and others could easily poach our teams, our former employees, and reach a very close level of performance, despite our many innovations. However, with our in-house developed chips and much more computing power, much greater scale for our models, we use a completely different architecture, making this traditional approach ineffective because we're fully integrated vertically between hardware and software.

Going forward, we will turn our systematic ability into our core mode. Our capabilities and outputs will no longer be easily replicated by others. Another critical factor is time. It took us four years to bring our in-house chips from starting the program to vehicle production. In the next decade, while maintaining our technological and innovation edge, we will also ensure the technological barriers are sufficiently advanced and provide a long enough time horizon as a competitive advantage. Thank you.

Your next question comes from Yujie Jing with CICC.

[Non-English content] So my first question is about the intelligence. As just mentioned by Mr. Li Xiang, we will hold a more detailed intelligent technology launch event in June. I would like to ask if we have any updates on our current strategy and also planning regarding human robotics?

[Non-English content]

In the long run, we can clearly see whether it is our factories, or stores, or our users, all need humanoid robots. We believe that robots should not be limited to startups or medium-sized companies or large companies; they should not be limited to us. Robots will be standardized labor. It is something that any company who is willing to make a difference in their field should adopt. It is not limited to any specific type of companies. As long as a company needs human beings, it will use robots. It is only a difference between whether they purchase the robots from somebody else or they develop them in-house. That would be the only difference.

From a long-term standpoint, my belief is that for humanoid robots to reach full-scale development, deployment, and commercialization to a point just like where we got to with electric vehicles between 2010 and 2015. To get to that point will still take more than three years, because in every specific area, the technological path has not converged and there are many problems that remain to be solved. In between this period, we still need to work on solving many hard problems. Thank you.

[Non-English content] My second question is about the overseas market. Could you share more updates on our latest overseas strategy, including our plans for 2026 and also the following years, our pace, and also the contribution of international expansion, such as the overseas market, sales volume target, key regions, and also our product pipelines in overseas markets?

[Non-English content]

We're steadfastly advancing our internationalization strategy and taking a phased approach to this. Based on the local market size, industry landscape, and competitiveness, we will have to choose between a model including establishing local subsidiaries, working with local dealerships, or using a sole local distributor. In any case, we want to work with leading companies or partners locally and quickly build an integrated service system encompassing sales, delivery, and after-sales. Our product and brand have continued to be recognized globally. In the Beijing Auto Show in April, we have received a lot of attention from overseas media, users, and partners. We have also officially signed contracts with Saudi Arabia and UAE distributors. In the Middle East and Central Asia market, we will be taking our L series, the range extender product line, as the main product offer there.

The first product will be an overseas-dedicated, all-new Li L9, which is optimized based on local conditions in charging capability, UI and software ecosystem, and thermal management, including a series of hardware and software optimizations. Will be entering the middle East and Central Asia market in Q3. Starting in May, we will be gradually entering markets like [inaudible], China, Cambodia, Laos, and Myanmar to further cultivate our Southeast Asia market. In the second half of this year, we will introduce the all-electric Li i6 in Europe. Additionally, for right-hand drive markets, we will launch the right-hand drive version of our Li Mega in key Asia Pacific markets, including Hong Kong, China, and Singapore, by the end of this year. Regarding products, we're implementing a precise regional customization approach.

All of our upcoming models will incorporate compliance with overseas regulations right from the early stage of R&D to better support our ongoing global strategy. Thank you.

As we are reaching the end of our conference call now, I'd like to turn the call back over to the company for closing remarks. Ms. Janet Zhang, please go ahead.

Thank you once again for joining us today. If you have further questions, please feel free to contact Li Auto's investor relations team through the contact information provided on our IR website. This concludes this conference call. You may now disconnect your line. Thank you.