On the morning of August 12, 2021, at 9:30 am, Li Auto was officially listed on the Hong Kong Stock Exchange.
Subsequently, Li Auto’s co-founder and CEO, Li Xiangnan, gave an interview to the media at Li Auto’s Beijing R&D headquarters on the topic of this listing.
Sales and Market Layout
Question: Li Auto achieved delivery volume exceeding 8,000 vehicles for the first time in July. What is the reason for this? When do you expect to exceed 10,000?
Li Xiangnan: The main reason for Li Auto’s delivery of more than 8,000 vehicles in July is that the product power of the new Li ONE has been highly recognized by users. In fact, our orders have already exceeded 10,000. As expected, we will surpass 10,000 in September. This is our goal, and we are very confident of achieving it.
Question: Li Auto has achieved excellent results in sales and service in the first half of the year. What are the expectations for sales in the second half of the year?
Li Xiangnan: We are very confident about the sales in the second half of the year. Before September, Li Auto will strive to surpass 10,000 vehicles per month. Recently, the outbreaks of epidemics in various parts of the country, including Jiangsu and Wuhan, have actually had a certain impact on us, so we cannot be overly optimistic. Our orders are very strong, but the final delivery will be affected by the epidemic to some extent, and the supply of chips is also an uncertain factor.
Question: Li ONE has had very good sales this year. In another month or two, the entire sales volume of Li ONE may exceed 100,000 vehicles. Does this mean that the platform for this vehicle has started to enter the profitability zone?
Li Xiangnan: From our financial report, it can be seen that we currently only have one model, and the profitability of this model can be seen clearly. According to previous estimates, the gross profit for this year will reach 19-20\%. As for net profit, due to our investment in research and development, we will have a relatively long period of time without profitability from the perspective of net profit.
Question: Independent brands have been active overseas since the beginning of this year. What are Li Auto’s plans for overseas markets?
Li Xiangnan: Li Auto has formed a team that is currently very focused on thinking and researching how we can enter the overseas market. Our thinking mode is that we hope to plan well before taking action, rather than simply going abroad for the sake of going abroad. We will consider how to win recognition in the overseas market, what competitive advantages we need to establish, and we ask everyone to be patient about this matter.#### Question: Although Ideal only has one car model right now, the sales efficiency of its stores is still very high. The company is currently discussing whether electric or new energy vehicles can only be sold in department stores and supermarkets. What factors will be considered in site selection and how do you see the future trend?
Shen Yanan: Indeed, the sales efficiency of Ideal’s single store is relatively high. In June, the sales volume was 80 units, and in July it was 79 units, which is indeed higher than the same industry. In terms of marketing channel mode, opening stores in supermarkets is actually more competitively priced than advertising. Supermarkets themselves have their own passenger flow, which will also help generate leads.
On the one hand, we will increase the coverage of supermarkets, and on the other hand, when our brand influence further expands and we no longer need to rely on supermarket passenger flow, we may also consider a center store approach. However, I think this is still a long-term development process.
Question: Ideal mentioned in February of this year that the product planning pricing was set at 1.5-5 million yuan, and this time the Hong Kong stock prospectus was adjusted to 2-5 million yuan. What was the reason for the adjustment?
Shen Yanan: Ideal has further clarified the positioning of its products, which is to make cars for families and serve more family users. The price range has been adjusted to 2-5 million yuan mainly because we see that this market is a rapidly growing market. In 2016, when we planned Ideal ONE, the market sales volume in this range was about 3 million units per year. This year it should exceed 5 million units, and it is estimated that this market will exceed 8 million units per year by 2025.
In the context of the overall passenger car market almost not growing or growing slowly, this market growth is relatively fast, so we are more willing to focus on this price range. In addition, this price range also matches our luxury intelligent electric vehicles’ relatively high-end positioning, so we will set the price at 2-5 million yuan.
Question: In February of this year, Ideal mentioned that the strategic goal for 2025 is to obtain a 20% market share. Regarding this goal, do we have a detailed implementation plan, such as what percentage of market share will be reached by the end of next year? How will production capacity be guaranteed?
Shen Yanan: Ideal has a very detailed plan to achieve a 20% market share, which we only announced after we sorted it out. There are several main preparations. Firstly, in terms of research and development, we will launch the second generation extended-range platform, X platform, in 2022. We will have two pure electric platforms, Whale platform and Shark platform, and will commence product launches from 2023. Therefore, we guarantee our products.
Translation:
Regarding the assurance of production capacity, we are making every effort to resolve more production capacity while adhering to the conditions set by national policies. In our plans, the Beijing factory will mass-produce our electric vehicle model in 2023.
From a supply chain perspective, achieving a 20% market share of 1.6 million units requires very high supply capabilities throughout the entire supply chain, especially for innovative, core, and intelligent electric vehicle components. We are working with our partners to develop and deploy such components.
Q: From a customer perspective, which region has the highest number of Ideal Automotive users?
Shen Yanan: Our sales distribution is basically identical to the distribution of luxury car brands nationwide. Our good sales areas are also relatively developed economically, with no particular emphasis. We have good sales in North China, East China, and South China.
Q: Ideal Automotive entered cities with populations of 3-4 million, such as Zibo in Shandong Province, only this year. How extensive will Ideal Automotive’s terminal layout be in China?
Shen Yanan: Regarding market penetration, because the Ideal ONE is a range-extended electric vehicle, its distribution is very even throughout China. Our distribution is not concentrated only in first-tier or super first-tier cities like pure electric vehicles. Our market distribution is basically identical to the sales distribution of luxury car brands in cities nationwide. For us, it is quite simple: we determine our store configurations based on the sales distribution of all 200,000-500,000 RMB passenger cars nationwide.
Consideration of Hong Kong IPO
Q: After this round of financing, are there any new plans?
Shen Yanan: This round of financing mainly revolves around reserving funds for the research and development of Ideal Automotive’s next-generation products. Our research and development will focus on three areas: first, electric drivetrain technology, including next-generation range-extended technology under development as well as 400 kW high-speed charging technology; second, autonomous driving technology, which Ideal Automotive has always attached great importance to. The 2021 Ideal ONE already features full-stack L2+ ADAS functions developed in-house and is about to implement NOA functions; third, intelligent cabins. We hope to bring more innovative cabin intelligent solutions to our customers.
Q: After this new round of funding, will Ideal Automotive increase the speed of offline store deployment?
Shen Yanan: Yes, there are many areas where we will increase investment after this financing. We have already increased our investment in channels, and by the end of this year, we will have established more than 200 direct sales centers. (As of August 11, Ideal has 110 national stores.)
Q: The final offering price of this issuance is relatively low. What factors led to this?Shen Yanan: In fact, internally, we do not focus too much on short-term stock prices at the company. We consider more whether we can effectively develop efficient and convenient financing channels, reserve sufficient ammunition, and enable us to enter the next stage of competition effectively. In the intelligent electric vehicle arena, this race has just begun. In the early stage, everyone is showing off their strengths. As for Ideal Automotive, our advantage lies in three basic aspects and two core competencies.
Regarding the three basic aspects, firstly, we choose to compete in the entire passenger car market, not just the new energy vehicles market of 2.5 million units this year, but also in which 18 million users have chosen fuel vehicles. We need to ask ourselves whether we can produce better intelligent electric vehicles that allow more of these 18 million users to switch to new energy vehicles. This is the primary problem we face. Secondly, we focus on making cars for families and on luxury intelligent electric vehicles priced between 200,000 and 500,000 yuan. Thirdly, we will invest a lot of efforts in intelligent autonomous driving and intelligent cabins that match autonomous driving, and design the entire car as an intelligent space.
Our two core competencies are, firstly, our product capability. From the hot sales of the Ideal ONE, we can see that a vehicle with a specific configuration attracted a large number of users, proving that our ability to define a product is quite outstanding. The second competency is our organizational capability, which involves continuous iteration, the construction of the system, organizational culture, and organizational effectiveness. We believe that this is our core competence.
Question: Why did Ideal Automotive choose to go public in Hong Kong at this time, and what considerations are behind that decision? What is the proportion of pure electric and extended-range operations?
Shen Yanan: Ideal Automotive has planned to go public in Hong Kong since it was listed on the US stock market on July 30th last year. The main reason for choosing to list in Hong Kong is still three-fold. First, Hong Kong is an international capital market with a diversified group of investors and a very deep market. Second, we hope to attract more investors from the Asia-Pacific region, especially domestic investors, that is, Chinese investors to invest in our company. Third, dual-listing in Hong Kong and the US can resist some uncertainties.
Regarding pure electric and extended-range, we follow a two-pronged approach. As you can see, sales of the entire new energy vehicle in the first half of the year already exceeded 1 million units, and it is expected to reach around 2.5 million units for the whole year, and the growth rate is very fast. In fact, consumers can already accept intelligent electric vehicles very well, but the biggest purchasing bottleneck remains the charging and energy supplement issue.
Regarding charging and energy supplement, we are developing a 400 kW high-speed charging system, and we will also continue to invest in extended-range. These two solutions target different user groups. Users who have better charging conditions can choose our pure electric products in the future. Users who have poor charging conditions or range anxiety can choose extended-range products. These two products are equally important.#### Question: Ideal Auto is using dual-listing to bring itself closer to domestic investors. Does Ideal Auto plan to return to the A-share market in the future?
Shen Yanan: Ideal Auto plans to expand its funding channels through both US and Hong Kong stock markets, as well as A-share market. Therefore, we do not exclude the possibility of returning to the A-share market.
Production and R&D
Question: Is Ideal Auto considering building a factory in Beijing, as it was mentioned in the prospectus that we signed a framework agreement with a local factory in Shunyi, is this factory going to produce pure electric vehicles?
Shen Yanan: Ideal Auto plans to increase production capacity in Beijing and prepares to produce pure electric cars.
Question: What market variables have caused Ideal Auto to launch new models earlier than originally planned and more actively carry out redesigns?
Shen Yanan: With the development of the intelligent electric vehicle industry, the speed of product updates and iterations is increasing, and Ideal Auto is more focused on providing more and better functions to everyone through OTA upgrades and software, which is our focus.
Question: This financing is mainly used for technology development, what is the ratio of R&D personnel to the overall team? At what peak level might the recruitment of personnel slow down?
Shen Yanan: Ideal Auto has a research and development team of nearly 2000 people. In the foreseeable future, we will continue to recruit more R&D talents. The intelligent electric vehicle industry has a very long race track, and the demand for talent is very, very high. So, we don’t think we will slow down our recruitment of outstanding talents.
Question: Chip supply continues to affect the automotive industry, what measures has Ideal Auto taken to maintain stable chip supply? Has the proportion of domestically produced chips in the entire vehicle increased?
Shen Yanan: In fact, Ideal Auto has been affected by chip supply issues for the past few months. Our orders have broken the 10,000 mark in June, but our delivery volume has not yet exceeded 10,000 units, which is also affected by chips. In addressing chip issues, we are able to flexibly certify some alternative solutions, which is our advantage. In addition, we need to be more active in obtaining more industry resources.
Question: Ideal Auto also said it will develop purely electric two-wheel drive vehicles during the listing this time. Charging infrastructure is crucial for the development of purely electric vehicles. Will the funds we raised, including future development, be invested heavily in charging infrastructure?
Shen Yanan: Ideal Auto is developing 400 kW ultra-fast charging technology, and when we launch purely electric vehicle models in 2023, we must have basic infrastructure. When we raise funds, part of the funds will also be planned to be used for laying the foundation for charging infrastructure.From our perspective, the future of serving users lies in a three-layer charging network architecture. The first layer is the home charging station; the second layer is our existing public charging stations, as well as the development of small direct current public charging stations in shopping malls and office buildings that have lower requirements for electrical capacity but are more convenient for consumers to replenish their energy on a daily basis. The third layer is our 400 kW high-speed fast charging solution, which can meet the user’s demand for fast energy replenishment on highways and in some densely populated areas.
Question: Previously, Bain & Company predicted that autonomous driving would account for 30% of the market share by 2030, but they have now revised the number to 4% to 9% by 2030. As a vehicle manufacturer, is Ideal Auto worth investing heavily in the development of autonomous driving technology?
Shen Yanan: Regarding autonomous driving, our perspective is actually completely different. Ideal Auto believes that after 2025, or in the near future, autonomous driving will become a basic operating system for vehicles.
This means that if a vehicle doesn’t have L4-level autonomous driving, it is like a smartphone without a camera today, and we think it is a basic function. With this basic function, we continue to invest in the development of intelligent cabins. When the car is in autonomous driving mode, the occupants inside the car will become passengers from drivers. Through the functions of the intelligent cabin inside the car, everyone can experience more functions and convenience during the travel process.
Question: Why did Ideal Auto choose Horizon Robotics chips?
Shen Yanan: Regarding the choice of Horizon Robotics, first of all, the cooperation between Ideal Auto and Horizon Robotics was very smooth. It took us a relatively short time to switch from Mobileye to Horizon Robotics’ solution. Mobileye’s solution was also good in the past, but because Mobileye is a closed system, it is a black box. The part of the core capabilities in autonomous driving that we can participate in is relatively small, so we chose a more open platform like Horizon Robotics.
As I just mentioned, our cooperation with Horizon Robotics has achieved full-stack self-research, which is very advantageous for our next stage of development. In terms of chip selection, we did not insist on choosing Chinese companies. As you may know, products launched in 2022 will be the world’s first models to use the Nvidia Orin platform.In general, we will grasp the core software of automated driving, the overall hardware architecture, and the sensor management to achieve full-stack independent development. As for which chip companies to cooperate with, it depends on the technology. The technology needs to match the launch time of our cars, followed by the ability of technical support and cost competitiveness.
Q: Will the next L4 automated driving model from Li Auto be equipped with LiDAR? Which supplier will you collaborate with for LiDAR?
Shen Yanan: The next-generation models will come standard with LiDAR for automated driving, and we are collaborating with two companies, Hesai and DJI.
Q: Recently, China’s Ministry of Industry and Information Technology issued a favorable policy on electric vehicles. Will Li Auto have a new layout for SEV models?
Shen Yanan: We previously made SEV, but now we have returned to our own strategy, focusing on family cars priced between RMB 200,000 and 500,000. While the low-speed electric vehicle has explicit policies, we will continue to focus on our current business and not invest in SEV.
Q: How does Li Auto balance long-term interests and short-term profits? How do you balance R&D investment and profit?
Shen Yanan: Li Auto has always focused on long-term interests since smart electric vehicles are a long-term arena, so we must consider this matter in a long-term plan. We mainly look at two aspects internally. One is from a business perspective, mainly looking at the level of gross margin. With sufficient gross margin, it means that your business is very healthy and able to support continuous growth in R&D investment.
This is the first focus. The second focus is from the perspective of business security. We are also very concerned about the change in operating cash flow itself, whether it is through financing or the improvement of business efficiency, making our operating cash flow positive. Currently, our operating cash flow has been positive since the second quarter of last year.
Q: The industry generally believes that software income from electric vehicles will become a large cake in the future. Li Auto currently has standard assisted driving. Will you consider turning it into an optional mode in the future?
Shen Yanan: Regarding software income, Li Auto does not want to obtain software income through the optional mode based on the needs of the capital market. We still think more from the perspective of user experience. For example, automated driving is always standard because we make cars for families, and automated driving is a safety configuration.Ideal Car believes that autonomous driving should be a standard feature, rather than a subscription model. From a technological perspective, there are also great advantages to making it a standard feature. We do not want meticulously developed functions to have low usage rates because they require users to pay for them separately. From a development perspective, we believe that the more people who use driving assistance systems, the more helpful it will be for user experience. Therefore, we think it should be standard.
Question: Ideal Car’s first pure electric vehicle model will not be launched until 2023. During these two years, some competitors, including some friends, have already gained some market appeal with their electric vehicles. How can Ideal Car ensure the competitiveness of its first pure electric vehicle?
Shen Yanan: From a competitiveness perspective, Ideal Car does not simply compete in the pure electric vehicle market. We are more concerned with the entire passenger car market. In the entire passenger car market, whether it is through our extended-range or pure electric vehicles, we aim to replace traditional fuel vehicles. That is our starting point.
What is the bottleneck in replacing traditional fuel vehicles? Both extended-range and pure electric vehicles are recognized for leading in driving and riding sensation and intelligence. The reason why there are not more consumers choosing new energy vehicles is still due to the problem of charging experience. Therefore, our focus for pure electric vehicles in 2023 is to solve the user’s charging experience problem as much as possible. The reason why we are doing 400 kW high-speed charging is to provide our users with a charging experience that is basically equivalent to refueling for traditional fuel vehicles in terms of convenience and speed.
Question: What is the expected price range for the pure electric SUV and MPV models based on the pure electric platform?
Shen Yanan: From the perspective of the pure electric platform, Ideal Car will gradually launch it in 2023. We are not particularly concerned about the shape of the vehicles. Instead, we insist on making cars for families. Our price range is between 200,000 and 500,000 yuan, and based on this, we will figure out what type of vehicle shape is most suitable for the travel scenes of families to better satisfy our customers’ requirements.
Question: Ideal Car will launch pure electric products and there will also be a high-voltage platform in the future. Is the early layout of supercharging stations before product launch or after product launch?
Shen Yanan: For the deployment of charging stations, Ideal Car believes that it must be arranged in advance. You may see some of our actions later this year. Starting in the second half of 2023, when we start to promote pure electric vehicles, we must have a certain deployment of charging stations before the cars come out.
Question: Regarding extended-range electric vehicles. There are some indications that policies may no longer support free license plates for extended-range electric vehicles. I wonder if we are prepared for policy changes.Shen Yanan: Currently, as we effectively launch extended-range, more and more companies in the industry are also launching extended-range. We believe that in the medium and long term, both extended-range and plug-in hybrid electric vehicles will be a very good choice to replace fuel vehicles. We also believe that the country should support the development direction of such technology, so we are not particularly worried about the issue of licenses.
The policy changes you mentioned are mainly in Shanghai, which is relatively clear. Starting from 2023, there will be no license support for plug-in hybrid electric vehicles and extended-range in Shanghai. Of course, we are also preparing and looking for ways to deal with such changes. Except for Shanghai, the current national support policy for extended-range is relatively stable.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.