Hello, ladies and gentlemen. Thank you for standing by for Hesai Group's First Quarter 2024 Earnings Conference Call. Please note that today's conference call is being recorded. I will now turn the call over to our first speaker today, Yuanting Shi, the company's Investor Relations Director. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining Hesai Group's First Quarter 2021 Earnings Conference Call. Our earnings release is now available on our IR website at investor.hesaitech.com, as well as via newswire services. Today, you will hear from our CEO, Dr. David Li, who will provide an overview of our recent updates and address our financial results before we open the call for questions. Before we continue, I refer you to our safe harbor statement in our earnings press release, which applies to this call as we will make forward-looking statements. Please also note that the company will discuss non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported on the GAAP in our earnings release and SEC filings. With that, I'm pleased to turn the call over to our CEO, Dr. David Li. David, please go ahead.

Thank you, Yuanting, and thank you, everyone, for joining our call today. We demonstrated great financial resilience in the first quarter, navigating typical seasonal factors as well as slower demand in our robotaxi business compared to the previous year, as guided. Despite the challenges, our dedicated effort yielded first quarter net revenue and total LiDAR shipments exceeding our earlier forecast. Moreover, our effective cost management endeavors and the flywheel strategy we have implemented brought us closer to achieving profitability in the fourth quarter of this fiscal year. As the automotive industry landscape continues to evolve, it's essential to understand the development trajectories and strategies that will shape our future progress. Let's start with a brief review of the LiDAR industry in recent years. The past decade has been a pivotal period for the LiDAR industry marked by significant growth. LiDAR applications have expanded from robotaxis to ADAS, transitioning from prototype to product, and presently to merchandise, where customers now seek a balanced blend of price and performance. Looking closely at 2024, we believe it's likely to be a decisive year for the LiDAR industry's leap to mass market popularity. According to GGII, a renowned automotive research and consulting firm, the LiDAR adoption rate among EVs priced above RMB 150,000 is projected to surpass 16% this year, bearing towards 50%, in alignment with the famous crossing the chasm innovation adoption model. Given this industry's inflection point, we need a flexible and competitive product roadmap to support Hesai's future development. To better explain our dual strategy approaches for ADAS LiDAR development, I'll refer to Moore's Law, which delineates two pathways for technological advancements: ultimate performance and ultimate value to cost. First, a quick comment about ultimate performance. The trend towards more advanced ADAS functions is clearly gaining traction among OEMs, particularly global players, driving demand for high-performance LiDAR with significantly enhanced specifications to power advanced features for Level 3 autonomous driving. In response, Hesai has leveraged its technical know-how to define the next generation of groundbreaking LiDARs with products such as AT512. This 512-channel ultra high-performance LiDAR sets new industry standards by pushing the boundaries of every core performance metric for long-range LiDAR, boasting a detection range of over 300 meters at 10% reflectivity and image quality with a point rate of 12.3 million points per second. We designed AT512 to provide our OEM partners with the necessary components to craft autonomous driving solutions with the highest level of safety. In terms of ultimate value to cost, LiDAR technology's expansion to mass market is an inevitable trend poised to reshape the landscape. As mainstream consumers increasingly appreciate LiDAR's intrinsic value through its integration into autonomous driving systems and its pivotal role in enhancing safety, LiDAR is playing a great role in decision-making for car buyers. On the OEM side, LiDAR has become a necessity as it enables OEMs to quickly and affordably elevate their autonomous driving features. Current market dynamics support this view. LiDAR technology was exclusive to premium car models, but is now being integrated into more affordable vehicles. The growing demand for mass market LiDAR presents golden opportunities for us, revealing an enormous market with a potential tens of millions in shipment volume. We've implemented a flywheel strategy to capitalize on these prospects. By leveraging our strong capabilities and vertical integration, our higher value-to-cost product will empower us to crack this larger LiDAR market and elevate shipment volume. Economies of scale will further reduce the cost per unit, creating a sell-through in the inverse cycle. This flywheel strategy, derived from our deep understanding of the industry's competitive landscape, has been steadily gathering momentum since the inception of our ADAS business and will be the driving force behind our future triumphs. By the end of the first quarter, Hesai has cumulatively shipped over 380,000 LiDAR units since our establishment. Our leading-edge technology and proven track record create tailwinds that propel our success and amplify the long-term benefit of scale. We are beyond thrilled to unveil recent collaborations with esteemed new customers, including two additional top 10 global automotive OEMs by revenue to provide ADAS LiDAR for their upcoming series production programs. We have now secured design wins with four prominent global OEMs, including three global OEMs' joint ventures, and most importantly, one global automotive OEM with a worldwide shipping program. These partnerships are landmark commercial wins for us, showcasing the trust we have diligently established with esteemed global OEMs renowned for their highest standards in vehicle safety and performance. Notably, some of those customers had prior engagements with our peers but have now chosen to partner with us for the first time. We are genuinely excited to receive their confidence in our LiDAR technology, and we couldn't be more thrilled to play an integral role in the next phase of these global OEMs' autonomous drive journey. Domestically, we forged a partnership with another new customer, GAC, one of China's leading OEMs to jointly develop and integrate our next-generation LiDAR product into their forthcoming line of passenger vehicles. These global and domestic partnerships reflect a substantial and steady stream of opportunities ahead. As our market share and delivery volumes continue to climb, our production cost per LiDAR will decrease, boosting our competitive edge in terms of value-to-cost and making our value proposition to partners even more attractive. While our flywheel strategy has already produced tangible positive outcomes, they are just the beginning of our journey. Our latest innovation, ATX, a cutting-edge, ultra-compact high-performance long-range ADAS LiDAR embodies the next phase. This groundbreaking innovation, where the X symbolizes endless possibilities, has every vehicle priced competitively among similar products while offering better performance across key metrics, representing a significant leap forward in our commitment to excellence and scalable safety. The ATX inherits the main capabilities of our best-selling AT128 LiDAR, retaining its market-validated one-dimensional scanning architecture while featuring a broad array of technological advancements. First, leveraging our state-of-the-art fourth generation technology platform, the ATX demonstrated our mastery in seamlessly integrating internally developed core components, boasting a maximum detection range of 300 meters and the world's first 140-degree horizontal field of view in a long-range ADAS LiDAR. The ATX sets a new standard for mass market LiDAR. With its 7x optical zoom capability, the ATX's maximum detection range can be extended even further, reaching 500 meters with a more concentrated field of view. This versatile feature enables the ATX to flexibly provide either a wide view of complex road conditions such as nearby vehicles and pedestrians or ultra-long-range visibility depending on the situation's needs. Additionally, the ATX's optimized optical and mechanical design makes it 60% smaller and 50% lighter than AT128. Its architecture not only optimizes the bill of materials cost, but also simplifies several manufacturing processes. This makes scale manufacturing significantly more efficient, boosting our flywheel strategy. In addition, the ATX's dedicated and compact design, coupled with its ultra-low power consumption of only 8 watts, enables versatile installation in various locations within the vehicle, whether mounted on a car through behind the windshield or integrated into headlamps; the ATX offers unparalleled flexibility. On a related note, we're proud to announce the strategic collaboration with Marelli, a global leader in automotive lighting, to integrate the ATX into Marelli's innovative headlamp designs. This ingenious placement provides vehicles with extraordinary environmental protection capabilities, significantly improving safety while saving costs without altering the vehicle's appearance and aerodynamic performance. Last but not least, the ATX is equipped with Hesai's proprietary first of its kind Intelligent Point Cloud Engine, or IPE, which integrates 256 waveform processing cores and features a high sampling frequency of 24.6 billion per second. This innovation enables the ATX to intelligently mitigate the impact of rain, emitted gas, dust, etc., effectively filtering out 99.9% of environmental noise. It also ensures reliable recognition and minimizes false triggers, providing all-weather safety perception for intelligent vehicles. Moreover, the IPE alleviates pressure on the OEMs to develop algorithms with similar functions, showcasing our deep understanding of customers' needs and pain points. With these cutting-edge features and robust designs, the ATX has already received design wins and collaborative programs from four leading global domestic OEMs, including a leading domestic traditional OEM, a top-tier EV manufacturer in China, a leading new EV maker in China, and a major global OEM joint venture. These partnerships reflect industry-wide recognition of the ATX's potential to revolutionize intelligent vehicle technology and capitalize on the widespread adoption of LiDAR across various vehicle types. The ATX is expected to enter production in the first quarter of 2025, further propelling our flywheel strategy. Now let's briefly go through our operating and financial results for the first quarter of 2024. To be mindful of the time of our earnings call today, I encourage listeners to refer to our first quarter earnings press release for the details. We delivered a resilient financial performance for the first quarter with net revenue of RMB 359.1 million, USD 49.7 million, at the higher end of our forecast in line with our expectations, factoring in typical seasonal effects. Strong growth in domestic ADAS adoption drove quarterly total LiDAR shipments to over 59,000 units, a 70% year-over-year increase, offsetting slower demand in our robotaxi business compared to the previous year. Particularly noteworthy is our progress towards achieving profitability by the fourth quarter of this fiscal year, driven by effective cost management and our flywheel approach to cost and scale optimization. Now moving to our financial outlook. For the second quarter of 2024, we expect net revenue to be between RMB 440 million, USD 60.9 million, and RMB 460 million, USD 63.7 million, representing a year-over-year increase of approximately flat to 4.5%. For the full year of 2024, we anticipate annual revenue to be within the range of RMB 2.5 billion to RMB 2.8 billion, roughly USD 350 million to USD 400 million, as compared to our previous guidance of USD 400 million to USD 450 million, an adjustment of around 10%. In terms of shipments, we expect total LiDAR shipments to reach approximately 90,000 units in the second quarter of 2024 and over 500,000 units for the entire year of 2024. This updated forecast reflects our prudence in light of fluctuations in downstream EV sales during this year. With this adjustment, the contribution from high-margin robotaxi business is expected to increase to roughly half of our total revenue in 2024, pushing our blended gross margin guidance towards the higher end of the 30% to 35% range. Meanwhile, we anticipate that the proportion of revenue derived from the U.S. will be less than 20% of total revenue in 2024, driven by increasing demand outside the U.S. This outlook is based on the current market conditions and reflects the company's preliminary estimate of market and operating conditions and customer demand, which are all subject to change. The automotive industry worldwide is undergoing a significant revolution driven by the rapid advancement of autonomous driving solutions. We're thrilled to be recognized as a pioneer and leader in this transformative wave. To date, we secured ADAS design wins with a total of 18 OEMs and Tier 1 suppliers globally across approximately 70 vehicle models with a robust pipeline of SOP. We eagerly anticipate an accelerating second half of the year and beyond. As we look to the future, we remain committed to leading through innovation, using our technological capabilities to enhance safety, save lives, and create a more intelligent global transportation system. We continue to bolster our financial strength and global competitiveness as we progress towards profitability by the fourth quarter of this year. Thank you for your steadfast support and trust in our vision. We're excited about what lies ahead and remain confident in our ability to maintain our leading position and achieve sustained growth in our dynamic automotive industry. This concludes our prepared remarks today. Operator, we're now ready to take questions.

The first question today comes from Stanley Wang from Morgan Stanley.

So my first question is on Li Auto. Would Hesai be the sole supplier to Li Auto's upcoming BEV model launches? And if so, what would be the latest impact following the delay of some of those launches to the first half of 2025?

Thank you. This is David Li, the Co-Founder and CEO. First, as far as we are concerned, we are the only supplier moving forward. Of course, this is ultimately Li Auto's decision. And so, the answer is yes. The second question is how does fluctuation on Li Auto's volume change our shipments? Of course, it does impact us. But I just wanted to point out the fact that we have quite a few major EV makers we're shipping with, and Li Auto is only one of them. I tend to think that the aggregated amount tends to be stable, especially given the fact that the Chinese EV market is growing very fast and the adaptation rate of the LiDARs are increasing very rapidly. So overall, we remain long-term optimistic about the volume.

Great. Very clear. The second question is on the recent global OEM project wins. Could you elaborate a bit more on the scope and timing of these design wins? When will mass production begin for them, and whether they will start from China or take place overseas initially?

Thank you. I'd like to be a little more careful, as we have a very strict agreement on what we can or cannot disclose on this program. What we could tell you is that it is a program that ships globally. It's not a China-only program. And the second thing is, I wanted to point out the development we have recently— we explained that we have two additional top 10 global OEMs and when we say top 10, we mean ranked by revenue. Now, if you look at the total top 10 global OEMs by revenue, we have six out of four, and there are two global OEM in total. Out of the four, three are joint ventures while the other one is a program platform that ships globally. It's either directly or through their entity in their group, and these are design wins selected by the customer. Actually, some of these customers have engaged with our peers previously, so we're not the first LiDAR company they work with, but they have concluded that we are the better fit for the programs, and they recognize our outstanding track record of delivering on time with the highest quality as well as a robust pipeline of future advanced technologies. Securing this first worldwide shipping program is a landmark achievement for Hesai as a LiDAR company given that these global OEMs are renowned for their stringent standard sourcing and verification. We remain very hopeful that we will continue to work with more and more global OEMs.

The next question comes from Jeff Chung from Citi.

Hi, David. This is Jeff. I have two questions. First is the excellent gross profit margins that we achieved in the first quarter. Could you give us a little bit more breakdown on the gross profit margins by products? Compared with the peers, I think our ASP seems to be much higher. Is it going to be sustainable going forward? This is my first question. And the second question is about the second quarter volume and the margin trend guidance. And last but not least, can you give us some more update on the overseas achievements?

Thank you, Jeff. Two questions. One is the breakdown. Unfortunately, we don't provide additional information on the breakdown between ADAS and the robotaxi. I do want to point out the fact that robotaxi is a smaller volume but has a much higher average selling price, a relatively higher margin business that we have always had as a very important part of our business. The average selling prices, even for the robotaxi, have gone down, but it still remains at a much higher level than the ADAS, again also as a gross margin. That's one of the key reasons that we have the opportunity to have a reasonable blended gross margin. The second question is on the global OEM. I think I have just mentioned that we have six out of the ten global OEMs by Fortune 500 revenue.

For the second quarter, we are guiding total shipments to reach approximately 90,000 units. We adjusted our annual target to over 500,000 for the entire year. The updated forecast reflects our prudence in light of the fluctuations in the downstream EV sales. However, on the other side, our gross margin guidance has also been adjusted because the high-margin robotaxi business will reach around half of the total revenue in 2024, bringing our blended gross margin of 2024 to the higher end of the guidance, 30% to 35%. We are confident that we will reach GAAP level profitability by the fourth quarter of this year.

On the global side, I think one piece of information we didn't specifically mention for this call is that we now have 12 RFI/RFQs with 9 leading global OEMs. Of course, with the recent design win, one has been converted, but most of them are expected to conclude in less than 12 months. We definitely believe that having a top-tier OEM taking us is very helpful for the rest to understand our capabilities in developing and delivering products to the core platforms that are shipping globally as a Chinese company. So we're super excited to continue to ride the momentum to hopefully add a few more to the list by this year.

The next question comes from Tina Hou from Goldman Sachs.

Thanks for your time. I have two questions. The first one is in terms of ATX; it's a very exciting new product. Just wondering in a steady state, what kind of volume contribution would ATX need considering it's much more economical and typically more mass market models would be able to adapt that? That's the first question. The second question is in terms of the volume from the customers. If there is any fluctuation or if customers churn out, and their volume is lower than expected, do we have any pricing protection in place for us because we need to prepare the inventory and production lines for the customers? So just wondering, would we get a higher price if there is less volume than expected from some of the customers?

Thank you, Tina. I will probably do the second question first because that's kind of an easier question. It's always a step pricing. So normally, when we have a design win and a production contract with an OEM, it usually has ties to two conditions: One is, of course, timing by year. The other is volume because normally, when we offer a competitive price, it's under the condition of them taking this many units by this year. If they don't, they always have to renegotiate with us on a higher price or just fit back into the original stepping price, which is a slightly higher price if it's a lower volume. That's the standard for the industry. As for the volume and some of the transitions of the 128P and ATX, the ATX starts production in 2025, but AT128P accounts for the majority of the volume. The annual decline for the 128P is in the tens of thousands, and ATX is very competitively priced among similar products in the category. We expect more than 1 million units in the year 2025. In 2026, we expect that the ASP for the rest of the products will also remain stable. The ATX is designed for mass market adoption. Many of our customers expect the ATX to be a standard configuration, meaning they'll ship ATX with every car they ship. It’s a bold move, but I think it's the right choice.

In response to your question, Tina, I understand many analysts would be interested in exploring more information about the ASP and volume of our ADAS products. Let me share some more insights on this. In 2023, our ADAS LiDAR ASP was around $500. In 2024, as we guided before, the AT series LiDAR, which includes the ADAS LiDAR, ASP will be below $3,000. We want to make the LiDAR business long-term and sustainable. So our ASP is in a very healthy range. In 2025, because we are going to start production of our ATX product, which is more value-to-cost, we expect that in 2024 it will be just the beginning of production of the ATX products. This means the original AT128P product will still account for the majority of the shipments in 2025. The total LiDAR shipments are expected to exceed 1 million units in 2025, and in 2026, the ATX product is projected to account for most ADAS LiDAR shipments, with total shipments expected to exceed 2 million units. We are witnessing a very rapid increase in the adoption of LiDAR, driven by the swift development of the intelligent driving functions and a growing awareness of safety. While cost remains a crucial consideration for these OEMs, it’s not the sole determinant; the paramount priority is still to achieve optimal value-to-cost ratios.

The next question comes from Bin Wang from Deutsche Bank.

My question is about the assumption for your breakeven in the fourth quarter. Can you provide, for example, the volume assumption in the fourth quarter and the gross margin? Is that the breakeven driven by the huge amount of the robotaxi LiDAR? That's my first question. The second question is about the products; you mentioned there are 18 OEMs under Tier 1. Can those 17 OEMs be one Tier 1, or is it 18 OEMs including another additional Tier 1? Especially for the Marelli priced vehicle, we found that Marelli lights are actually based on a BMW vehicle. Can you assume you actually indirectly supply to BMW via Marelli?

I will answer the second question first. We do work with Marelli, and Hesai publicly announced a collaboration in which we put a lot of innovation to try to integrate the LiDAR into a headlamp. It’s very smart because you can do multiple configurations at the headlamp, looking forward or sideways, and it benefits from ease of cleaning and installation. Not having a LiDAR stuck on the top of your vehicle is helpful, especially for European and American OEMs. I wouldn't over-read this because the headlamp has to be installed on any car, and it does not necessarily mean that this will be the decision made by the OEMs that we already have contracts with. So I would not overread that.

Let me clarify that Marelli is not currently counted in the number of 18 OEMs and Tier 1 suppliers. When we talk about the 18 OEMs and Tier 1s, they are largely our customers. Regarding the fourth quarter, we are expecting more than 200,000 units of LiDARs to be shipped with a very healthy gross margin level. We guided that the full year gross margin will reach the high end of the 30% to 35% range, which will apply to Q4 as well. By Q4, we are expecting to achieve GAAP level profitability. For the full year, I think the operating expense overall will be very healthy. We are adopting effective expense management. Conservatively, we are guiding 10% to 15% of operating expense increase, primarily through R&D, while G&A remains relatively stable, and sales and marketing account for another potential 10% or 15% of increase. The fourth quarter will be our largest quarter during the year due to seasonality, so we expect profitability will be achieved in the fourth quarter.

The next question comes from Jessie Lo from BofA.

Thank you, David and team, for taking my question. So my first question, I would like to ask about our other clients that are supposed to begin series production this year. I understand that we are lowering the numbers because of our large clients, but what about the other clients such as BYD, SIC, Xiaomi, Changan, Leapmotor, Great Wall, etc? That's my first question.

Yes. Thank you. I want to quickly remind people that we're shipping with a large number of OEMs this year and especially next year. A few of them, we didn't have the permission to mention their names, but you have Li Auto, Xiaomi, Changan, Great Wall, Leapmotor among others. The aggregate amount for this year is pretty special, and we expect significant volume from Xiaomi as well this year. We’re also very hopeful for Changan and Great Wall. They're all shipping this year. When you add them up, we are quite confident that we will deliver the numbers we expect.

Yes. For the full year 2024, I think for the volume guidance, Li Auto will still take the majority of our ADAS shipments. For the Tier 2 clients, several companies include Xiaomi, Changan, Great Wall, Leapmotor, and also another large EV maker we didn't specify the name for. Each of the companies in Tier 2, as I mentioned, will account for around 20,000 to 100,000 units each. The Tier 3 companies mentioned by David will add up to around 30,000 to 40,000 units. Altogether, these ADAS clients will deliver around 450,000 units of ADAS LiDAR in 2024, leading us to total shipments exceeding 500,000 units of LiDAR to be shipped.

I will answer the second part of your question about the DOD lawsuit. Following the company's inclusion on the CMC list, Hesai has faced significant challenges. Additionally, we have been the focus of intense media scrutiny, which has sometimes inaccurately portrayed our business activities. These developments highlight the urgency of addressing and rectifying the situation to mitigate the impact on our operations and stakeholder confidence. It's clear that misinformation spread by some competitors has affected perceptions among government agencies. With our continued efforts to clarify the facts, we have successfully convinced the U.S. government to revise their evidence regarding Hesai. I want to clarify and emphasize again that Hesai strictly operates within the civilian sector and has no connections or affiliations with any military applications. Our products are designed exclusively for civilian applications and are not validated for military use. We are committed to developing market-leading LiDAR technologies that reduce accidents, save lives and enhance global transportation safety. Protecting the interests of our shareholders remains our top priority. We filed a lawsuit to defend ourselves and seek a dialogue with the DOD to better understand why we were added to the list. Ultimately, we want to understand their concerns and are very willing to find a mitigation solution together. The lawsuit is ongoing, and because of that, we are limited in what we can discuss at this time. We'll continue to keep our shareholders and investors updated on any significant developments. I hope this answers your question.

The next question comes from Zhang Yu from Huatai Securities.

My first question is about the robotaxi era. We noticed that Tesla is about to release the robotaxi in August. What do we feel about the robotaxi industry? Is it warming up in the third quarter or the fourth quarter?

Excuse me, Zhang, would you mind repeating your question in Chinese? We can answer in English.

Excuse me, Zhang, would you mind repeating your question in Chinese? We can answer in English.

As of now, we didn't guide specifically for the robotaxi business in the second half of the year. But overall, for the entire year of 2024, we believe that the robotaxi business will account for roughly half of our total revenues in 2024. In the robotaxi business, we are seeing a very fast ramp-up of the non-U.S. business, which includes some of our leading Level 4 players, such as Baidu and Pony.ai. I think for one of the largest U.S. clients we have, we're seeing good positive updates as they reopen their testing rights. That's a good sign. However, we did not account for the potential upside in our current guidance.

I would answer in a slightly different angle. The fact that Tesla is making efforts to bring robotaxis to the general public—potentially even in China—is a good sign and consistent with what Elon has said. Their strategy believes that the biggest productivity boost is coming from robotaxis. It does not necessarily mean they will use LiDAR, but it's clear they see enormous value being created in this industry. We are seeing steady development in the robotaxi industry globally, even if it's not the exponential growth people expected a few years ago. What I want to emphasize is that the concept of robotaxi is fluid; it can include other applications beyond just people movers. We see steady growth this year, not just in traditional applications but across different areas like robotrucks, robo-sweepers, and grocery delivery boxes, which need slightly lower-performance LiDAR but in larger volumes. We're optimistic about the market's steady growth, but I wouldn't say we're counting specifically on Q3 or Q4 since we're already the biggest player in this industry.

My second question is about AT512. We see the performance of the AT512 is really strong. Is it possible to replace the LiDAR in the robotaxi?

Yes, we definitely expect robotaxis to use various types of LiDAR. We have not claimed that they will be limited to a specific kind. For instance, Baidu's recent robotaxi launches, where they are a long-term partner and investor, utilize our AT128 series. They have announced plans to deliver over 1,000 robotaxi vehicles, which should be helpful for your evaluation. The AT512 is significantly more advanced than the AT128 in two key aspects. It offers eight times the resolution, with a range expected to exceed 300 meters. Our architecture allows for flexibility, enabling us to offer a cost-effective model like the ATX from the AT128 platform, or step up to the more capable AT512, which shares the same technology framework. We anticipate that the higher-end AT512 platform will gain traction among European and American OEMs for Level 3 applications, while the ATX will serve as the budget-friendly option for Chinese OEMs focusing on Level 2+ applications. We are pleased to have already secured sufficient data points and design wins globally, particularly in China.

The next question comes from Michelle Jing from HTI.

Hi, everyone. This is Michelle. I'm so excited, of course, to hear about our wonderful performance and also our innovation. My question is based on the previous questions from the analysts. As you talked about penetration rates increasing tremendously, we expect more LiDAR product to be used in vehicle models priced at 100,000 to 150,000. As you previously talked about price expectations, can you please share how does the company view and respond to future competition? In addition to competition, can you talk more about your future cost and scale optimization strategy and just your general strategy?

Your question is on the price competition becoming more intense as we dive into the category of below RMB 150,000. How do we combat this competition from a company strategy perspective? The biggest strategy we have is internalization and in-house ASIC development, which we've always explained. The Chinese market demands are relentless for cheaper options, and we have to address that, and we have. Instead of losing money to win business, we focus on innovation to own our supply chain and assembly and continue to improve integration and internal development to reduce costs to achieve reasonable margins. I am pretty confident that we are on the right path, as we've led the industry in terms of internalization rates and the amount of semiconductors. Price isn't the only factor in competition. Even in China, if someone wants something extremely cheap, they often won't choose LiDAR at all. Many OEMs choose to use LiDAR to enhance their vehicles' intelligence. For that reason, we assist OEMs in promoting their products by utilizing the best Hesai LiDAR with the best brand reputation in the industry. This encourages OEMs to invest more in smart features. Our goal is to control costs while continuously building our brand and competing globally to make our product the go-to LiDAR in every vehicle. Ultimately, we aim to penetrate the entire passenger vehicle market.

Thank you. That does conclude the question-and-answer session. I will turn the call back over to the company for any closing remarks.

Thank you, once again for joining us today. If you have any further questions, please feel free to contact our IR team. This concludes today's call, and we look forward to speaking to you again, next quarter. Thank you, and goodbye.