Earnings Call Transcript - LI Q4 2025

Operator, Operator

Hello, ladies and gentlemen. Thank you for standing by for Li Auto's Fourth Quarter and Full Year 2025 Earnings Conference Call. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Janet Chang, Investor Relations Director of Li Auto. Please go ahead, Janet.

Janet Chang, Investor Relations Director

Thank you, operator. Good evening, and good morning, everyone. Welcome to Li Auto's Fourth Quarter and Full Year 2025 Earnings Conference Call. The company's financial and operating results were published in our press release earlier today and are 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 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.

Xiang Li, Chairman and CEO

Thank you for joining our earnings call today. Over the past year, Li Auto has been going through an important period of strategic adjustments. As we scaled, we've reassessed a number of core capabilities, especially how to sustain sales efficiency and organizational vitality in a direct sales model. The problem that we've identified is that in the past, we have used a dealership mindset to manage our storefronts. However, for our direct sales model, the key is really managing each storefront. Therefore, without dealers, we need to figure out how to manage the storefronts effectively on our own. Since the third quarter of last year, we've been focused on improving store rollout quality, strengthening day-to-day store operations and upgrading incentives, training and enablement for our teams. Ultimately, it comes down to one question: how do we sell well? With sales volume and productivity per salesperson as our key metrics, we implemented a series of targeted changes. First, we optimized division of labor and consolidated our sales force. By closing and replacing underperforming locations, we addressed site selection issues and moved sales teams from lower-traffic, second-tier malls to higher-potential locations, such as prime Tier 1 shopping districts and flagship stores in major auto hubs. This has directly improved store productivity and sales per head. To further enhance our frontline sales, we also upgraded our operating mechanisms. In March, we launched our store partner program, making each store the basic operating unit. Top store managers now have real operating decision power and profit sharing, shifting from a pure management role to true store operators. At a time when profitability is challenging across the auto retail industry, we want to develop store managers who can earn over RMB 1 million per year and enable our top performers to make 3x the industry average. Just as importantly, this strengthens our frontline capability and helps keep our orders and deliveries firmly in the top tier of the premium segment. Turning to products. We will officially launch the all-new L9 lineup in the second quarter. With comprehensive upgrades from powertrain and autonomous driving to chassis technology, we aim to create a clear step change in user experience versus competing models and regain leadership in the flagship SUV segment. The new Li L9 will come standard with an 800-volt architecture and 5C ultra-fast charging. It will also feature our next-generation full-stack in-house developed range extender 3.0 system, delivering higher generation efficiency and greater output. With further NVH improvements and our proprietary EGR low-temperature start technology, the new Li L9 offers cabin quietness and driving experience comparable to the best along with improved winter energy consumption. We will also debut the world's first AI-powered engine oil maintenance system, enabling long service intervals of up to 3 years or 30,000 kilometers. Our top-of-the-line Li L9 Livis, priced at RMB 559,800, reflects our vision for a flagship SUV as a mirror of embodied AI. It will feature the world's first mass-produced fully drive-by-wire chassis along with an 800-volt fully active suspension system, delivering best-in-class comfort and handling. Response speed and safety performance across steering, braking and suspension are also significantly enhanced, providing the execution foundation for autonomous driving and embodied AI. In addition, the Li L9 Livis will be powered by two in-house developed 5-nanometer M100 chips, delivering six times the effective computing power of the previous generation. Together with our data flow architecture and in-house intelligent driving stack, it enables end-to-end integration of our algorithms and computing platform. The success of the new Li L9 will directly determine the market potential of the entire L Series. If the previous L9's competitiveness was driven primarily by smart product definition, the new generation L9 will build its core advantage through technology. Our BEV models are also continuing to ramp up. With sustained efforts alongside our suppliers, the supply constraints on the Li i6 have been gradually easing. We will keep increasing capacity to further shorten delivery lead times. Meanwhile, as owners put more miles on their vehicles, positive real-world experiences have driven the Li i8 NPS up by more than 20%. In the NEV Brand Health Study recently released by Land Roads, the Li i8 also ranked #1 in NPS among all large SUVs. Improving experience and satisfaction are now translating into a recovery in orders and sales. Since March, Li i8 orders have increased 33% versus the same period in February and 179% versus January. Together, the Li i6 and i8 are strengthening the market foundation of our BEV portfolio. Our priority is to fully resolve the issues we encountered earlier to ensure our BEV offerings establish a solid foothold in the market. Looking back at the i6 launch last year, the Li i6 faced multiple timing-related headwinds after launch, including initial sales policies, the production ramp and the phaseout of purchase tax subsidies which pressured gross margin. At the same time, these factors also set the stage for our margin improvements this year. In the second half of 2026, we'll be launching the Li i9, a new flagship BEV SUV further expanding our BEV portfolio to meet a wider range of customer needs. 2026 will be a pivotal year in Li Auto's evolution into an embodied AI company. As competition intensifies in the NEV market, we will continue to strengthen our technology moat and complete our transformation from a smart EV company to an embodied AI company, positioning us for the next phase of the competition. In 2025, our R&D spending totaled RMB 11.3 billion, and approximately 50% was allocated to AI-related initiatives. We will maintain this investment strategy in 2026 as we continue to build the core capabilities required of an embodied AI company. For Li Auto, AI has two main dimensions: creating AI and applying AI, bringing our products to life while improving efficiency across the organization. On the Create AI side, we have rebuilt our R&D organization from the ground up to operate the way an embodied AI company should. We're developing capabilities and attracting top talent across interface chips, foundation models, software and hardware. At the product level, we see the vehicle as an intelligent agent with real vitality and AI is what brings that vitality to life. Built on our next-generation technology platform, our products will all evolve in ways you will see over time. There will not be near extensions of traditional cars or EVs. Instead, they will be proactive and increasingly life-like in how they learn and improve, and that will be reflected in our high-frequency experiences in daily life. From an efficiency standpoint, AI is helping reverse the slowdown in information flow and decision-making that can come with scale. By integrating AI and work-alongside agents, we are gaining the speed and agility of a start-up in iteration and evolution, and we are already seeing early results in day-to-day operations this year. In other words, AI is not only reshaping our tools, it also is enabling a more dynamic high-velocity organization. In closing, I want to emphasize that we will convert the capabilities and systems we've built from the Li L9 launch in 2022 to today's broader automotive and embodied AI technology stack into a real user experience and measurable business value. This will serve as the cornerstone of our long-term competitive positioning for the next decade. We look forward to your continued attention and welcome you to experience our next generation of products. With that, we will turn the call over to our CFO, Johnny, to walk you through our financial performance.

Tie Li, CFO

Thank you, Li Xiang. Hello, everyone. Given time constraint my remarks today will be limited to fourth quarter financial highlights. All figures will be quoted in RMB unless otherwise stated. For further details, including the corresponding U.S. dollar amounts and full year financial results, we encourage you to refer to our earnings press release. Total revenues in the fourth quarter were RMB 28.8 billion, down 35% year-over-year and up 5.2% quarter-over-quarter. This included RMB 27.3 billion from vehicle sales, down 36.1% year-over-year and up 5.4% quarter-over-quarter. The year-over-year decrease was mainly due to lower vehicle deliveries. The sequential increase was mainly due to the increase in vehicle deliveries, partially offset by lower average selling price due to the different mix following the commencement of the i6 deliveries. Cost of sales in the fourth quarter was RMB 23.6 billion, down 33% year-over-year and up 3.3% quarter-over-quarter. Gross profit in the fourth quarter was RMB 5.1 billion, down 42.8% year-over-year and up 14.8% quarter-over-quarter. Vehicle margin in the fourth quarter was 16.8% versus 19.7% in the same period last year and 15.5% in the prior quarter. The year-over-year decrease was mainly due to different product mix. The sequential increase was mainly due to the estimated Li MEGA recall cost booked in the prior quarter, partially offset by lower average selling price due to different product mix following the commencement of the i6 deliveries. Gross margin in the fourth quarter was 17.8% versus 20.3% in the same period last year and 16.3% in the prior quarter. Operating expenses in the fourth quarter were RMB 5.6 billion or 5.8% year-over-year and down 1.3% quarter-over-quarter. R&D expenses in the fourth quarter were RMB 3.0 billion, up 25.3% year-over-year and up 1.4% quarter-over-quarter. The year-over-year increase was mainly due to the cost related to AI and other programs to support product portfolio expansion and technology advancements. SG&A expenses in the fourth quarter were RMB 2.6 billion, down 14% year-over-year and down 4.4% quarter-over-quarter. The year-over-year decrease was mainly due to decreased employee compensation. Loss from operations in the fourth quarter was RMB 442.6 million, versus RMB 3.7 billion income from operations in the same period last year and RMB 1.2 billion loss from operations in the prior quarter. Operating margin in the fourth quarter was negative 1.5% versus 8.4% in the same period last year and negative 4.3% in the third quarter. Net income in the fourth quarter was RMB 20.2 million versus RMB 3.5 billion net income in the same period last year and RMB 624.4 million net loss in the prior quarter. Diluted net earnings per ADS attributable to ordinary shareholders was RMB 0.01 in the fourth quarter versus RMB 3.31 diluted net earnings in the same period last year and RMB 0.62 diluted net loss in the prior quarter. Turning to our balance sheet and cash flow. Our cash position remains solid with a year-end balance of RMB 101.2 billion. Net cash provided by operating activities in the fourth quarter was RMB 3.5 billion versus RMB 8.7 billion provided in the same period last year and RMB 7.4 billion provided in the third quarter. Free cash flow was RMB 2.5 billion in the fourth quarter versus RMB 6.1 billion in the same period last year and a negative RMB 8.9 billion in the prior quarter. At the end of 2025, we had a total of 30,728 employees. And now for our business outlook. For the first quarter of 2026, the company expects deliveries to be between 85,000 and 90,000 vehicles and quarterly total revenue to be between RMB 20.4 billion and RMB 21.6 billion. This business outlook reflects the company's current and preliminary view on 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 to start our Q&A session. Thank you.

Operator, Operator

Your first question comes from Tim Hsiao with Morgan Stanley.

Tim Hsiao, Analyst (Morgan Stanley)

So my first question is about the channel. I think the management just mentioned that Li Auto now plans to optimize the sales networks and reportedly close up to 100 stores. What are the company's plans and progress regarding channel optimization? Separately, could you elaborate a bit more about the store partner mechanism? CEO just mentioned in addition to the incentive program to the store manager, any further implementation details you can share with us? And when should we expect it to show positive results? That's my first question.

Xiang Li, Chairman and CEO

I need to first start with a clarification on channel optimization. The rumor about closing 100 stores is false. In reality, we've always conducted routine optimization of our stores, closing out a small number of underperforming stores that cannot reach their sales targets. This is simply part of normal operations to address past issues like poor core store locations or declining foot traffic in certain shopping districts. Our core channel strategy this year is very clear: quality over quantity. We will add new stores this year. New stores will prioritize top-tier shopping malls and premium auto parks to strengthen brand presence and attract higher-quality traffic. As for city coverage, our footprint in lower-tier cities is already fairly complete. Going forward, we will focus on increasing store density in higher-tier cities aligned with our ramp-up of BEV sales. Meanwhile, we continue to improve sales and service experience, covering in-store reception, test drives, delivery, highway supercharging stations and staff attendance during holidays. As a result, we've been seeing user satisfaction and positive feedback keep climbing. While we are on the topic, let me also share a bit about our new store partner program officially launched on March 1. We're treating each store as a core business unit and building a great sales model that's truly unique to Li Auto. First, we remain fully committed to direct sales. This ensures consistent service quality and a unified national pricing strategy. Meanwhile, we're now delegating decision-making power and sharing profits with store managers to really motivate our frontline teams and enable them to think like real business operators. In terms of store operations, store managers now have autonomy in three areas: customer acquisition, day-to-day operations and managing their own teams. And we've changed how we evaluate them as well, no longer just on sales volume. Now performance is measured on operating results of the stores. The goal is to make every store manager feel like they're running their own businesses and be fully accountable for the results. This new model also helps us solve past problems at the root, like opening stores without thinking through other issues in store expansion. Going forward, store managers will be involved from day-to-day site selection with clear ownership and accountability. This way, we raise store quality right from the start, and the company will back it up with financial support and digital tools to empower our frontline team. We aim to see significant sales and operational improvements from Q3. Ultimately, we believe a healthy, efficient sales and service system is the foundation of strong sales and market leadership. Since last August, we've spent seven months to systematically recalibrate our direct sales management framework. This includes high-quality store expansion, refined operations and store manager incentives as well as frontline training. All of that is to build a truly sustainable competitive sales and service network for the long run.

Tim Hsiao, Analyst (Morgan Stanley)

My question is about the product—the new product for the upcoming all-new L9 and the L9 Livis. Could you please shed light on the launch timeline, pricing strategy, product competitiveness in a crowded race and vehicle profitability?

Xiang Li, Chairman and CEO

First, to your question about products. This year, in Q2, we'll be launching our all-new Li L9 Livis equipped with our in-house developed M100 chips. We call it an embodied AI robot because we've completely revamped the technical stack—from sensing to brain to body—from three dimensions. On the autonomous driving front, in the past the technical paradigm was to have machines learn to drive by watching videos; they were not really understanding the physical world but rather imitating human behavior from videos. As we conducted R&D, we identified that the most efficient way is to understand the physical world. When we say VLA models, we're trying to use language to understand how the world works as opposed to just interpreting video. As we move from two-dimensional cameras to three-dimensional vision transformers, we can understand the 3D world much better. That requires a revamp of the full stack from video encoder to chips to algorithms so we can enable compute directly from a large model to actually enable physical behavior. I believe this will be a major technological shift across autonomous driving and physical robots happening this year. The language models will truly understand and reason about the physical world before making decisions to move. On the hardware execution side, the Li L9 will be equipped with a fully drive-by-wire system, which includes drive-by-wire steering, four-wheel steering, an electromechanical brake, and an 800-volt fully independent active suspension where pumps power the suspension at each wheel independently. What that combination will provide is a level of agility never achieved before in a vehicle. Beyond that, signals and decision-making won't happen through a traditional MCU; instead, we have large models to directly process these inputs and the outputs go directly to the actuators. That's what we believe a real smart car will be like, and we believe the L9 is the beginning of all this.

Operator, Operator

Your next question comes from Paul Gong with UBS.

Paul Gong, Analyst (UBS)

So my first question is regarding the 2026 sales volume target based on the current environment. More importantly, how should we balance the volume and market share targets versus our own margins? How important is the volume target in our overall balance of development?

Xiang Li, Chairman and CEO

2026 is going to be an important year from a product perspective as we release the third generation of product. We are very confident about our products, but we also recognize this will be the most competitive year to date. This year, you will see more cars released in the RMB 200,000 and above market than all previous years combined. At the same time, overall market growth is limited. Considering all this, our total goal is still to reach 20% year-on-year growth for 2026. To support this, we have a '3 plus 2' strategy. The three pillars to support our sales are: first, the sales system—we will continue to be committed to our direct sales model, and as we've implemented new mechanisms, we will start to see benefits this year; second, the L Series launch, starting with the L9—this new generation will be a key pillar to our sales this year, and we will ensure every detail from product release to supply and delivery is correct to ensure success; third, BEV ramp-up, which includes the i6, i8, i9 and MEGA. In the past few months we've addressed supply constraints and fixed issues around release, sales and marketing, so as the year goes on we believe volume on our BEV products will steadily ramp up and account for a significant share in the premium market. The two additional pillars are: first, AI-related investments. Over the past year we spent heavily on chips and models; 2026 is the year we believe many of these investments will start to bear fruit, delivering a differentiated product experience that is proactive and high-frequency in daily life. Second, our overseas strategy. This will be the first full year where we officially run our overseas markets. We believe this year will start to show results and support long-term growth; overseas remains a long-term opportunity.

Paul Gong, Analyst (UBS)

So my second question is regarding the impact of raw material cost inflation, including metals, memory and batteries. What is the company's strategy to face this challenge? Should we absorb that within the supply chain, or should we pass part of the cost inflation to the downstream?

Xiang Li, Chairman and CEO

We believe current cost pressure is still largely concentrated on key components like batteries and memory chips, which has had some impact on unit vehicle cost. In response, we've put in place the following measures. First, we are strengthening supply chain collaboration to stabilize pricing while securing supply. We've signed long-term agreements with core suppliers to lock in pricing and volumes for key raw materials upfront. This helps hedge against short-term market volatility. For AI-related components like memory chips, where allocation is tight, we are working with key suppliers to secure dedicated allocation and ensure priority support for production and new model launches. Where contracts include clear pricing terms and adjustment mechanisms, we adhere to those terms; where there is no such agreement, we work hand-in-hand with suppliers to share cost pressure and navigate the cycle together, aiming for mutual long-term benefits. Second, we are driving end-to-end cost optimizations across product, R&D, manufacturing, logistics and quality. We're maximizing economies of scale through platform-based development and higher part commonality across models. Our in-house developed range extender, electric drive units, power modules, domain controllers, silicon carbide power chips, autonomous driving chips and battery packs all help us manage costs. Third, we're taking a more rational and steady approach to new vehicle pricing. For our 2026 models, pricing will reflect a balanced consideration of raw material volatility, R&D investments and user value to ensure healthy and sustainable profitability. Our goal is to bring gross margins of new products back to a healthy range. Overall, by combining supply chain collaboration, long-term agreements, platformization, proprietary technologies and rational pricing, we can contain the impact of raw material price increases within a manageable range and maintain stable gross margins and operational quality.

Operator, Operator

Your next question comes from Jing Chang with CICC.

Jing Chang, Analyst (CICC)

So my first question is in response to recent media reports about the company's consideration of share buybacks. Please confirm if there are any related plans.

Tie Li, CFO

Yes. Hi, this is Johnny. As a dual primary listing company in the U.S. and Hong Kong Stock Exchange, we recognize that share buyback is one of the tools we should consider for enhancing shareholder value. With respect to share repurchases, currently we don't have any additional information that needs to be disclosed.

Jing Chang, Analyst (CICC)

My second question is about R&D expense. What will be our guidance for R&D expense in 2026? Last year, we spent almost half of our R&D on intelligence or AI-related areas. What is the portion guidance for this year?

Tie Li, CFO

Thanks for your question. We expect R&D expenses this year to remain around RMB 12 billion with AI-related initiatives accounting for half of the cost. This includes investment in AI infrastructure such as in-house chip development and computing power as well as R&D for AI products like autonomous driving systems and the Li Xiang engine invested in the last several years. To clarify, automotive R&D and AI are not independent businesses. We invest on the R&D side to build AI capability and embed it across the company and monetize the R&D investments through our current business model—it is not a separate business model.

Operator, Operator

Your next question comes from Feixiang Gao with Citic.

Feixiang Gao, Analyst (Citic)

So my first question is about the i Series. Could you give us some details about i8 and i6 orders and sales, especially about ramping up production of the i6? And how do you evaluate Sunwoda battery safety and its cost reduction contribution?

Xiang Li, Chairman and CEO

Let me start with the Li i8. Since its launch in July last year, user satisfaction has continued to rise as owners accumulate miles on their vehicles. Owners are satisfied particularly with driving, charging experience and autonomous driving. The NPS of the i8 has risen by over 20% compared to the early post-launch period. During the Chinese New Year holiday, our 5C ultra-fast charging and OTA 8.3 autonomous driving upgrade received strong user acclaim, pushing NPS to an all-time high. In Land Roads' second half of 2025 survey, Li i8 ranked #1 in NPS among all large SUVs. Fueled by strong word of mouth, Li i8 orders have steadily rebounded. Daily orders in early March were up nearly 180% versus January. This clear upward trend reflects strengthening market demand. Now turning to the Li i6. We've successfully moved past the most challenging phase of production ramp-up and are now in the stable delivery phase. The Li i6 product strength has been validated with its distinctive exterior design, spacious interior, efficient energy consumption and agile handling. It precisely meets the needs of young families and experienced strong order momentum since launch. All supply chain bottlenecks have been resolved. We used to face short-term volatility in battery supply, but we worked closely with our core suppliers to scale production capacity. We also introduced a purchase tax subsidy and extended care policy. I want to thank Li i6 users for their understanding and patience. We expect the Li i6 to sustain steady monthly sales of around 20,000 units, and we are on track to efficiently deliver the current order backlog within the next one to two months. Most importantly, Li i6's success shows that Li Auto's brand appeal has successfully extended from the EREV segment into the BEV segment. Moving on to our battery strategy: we are committed to an open partnership approach while retaining control in those partnerships. When it comes to vehicle performance, we lead battery architecture design and rigorously control quality at every step. Regardless of which partner supplies the cell, all batteries must meet Li Auto's unified standard for performance, quality and safety. To users, the experience is identical; there are no differences. Additionally, starting in 2026, all Li Auto vehicles will be equipped with batteries from only two brands: Li Auto's designated partner and CATL. This marks a deeper level of integration with our core partners. Please continue to trust the Li Auto brand—our quality has never depended on any single supplier. It is defined by our full-stack in-house R&D, our rigorous quality control systems and the core values we've upheld from day one. When people choose Li Auto, they're choosing the most reliable assurance.

Feixiang Gao, Analyst (Citic)

My second question is about the in-house chips, the M100. Could you give us more color about these chips such as mass production timeline, and where can we see the cost savings and efficiency gains? In addition, how should we understand the company's software and hardware integration and when we'll see the gap between different automakers because of this integration?

Yan Xie, CTO

Let me answer your question. The M100 is delivered with the new L9 series, and we have already started mass production. With the same silicon area, the M100 delivers significantly higher effective compute, giving our VLA algorithms much more design space. For example, we can run a VLA model with about six times the parameters and ten times the compute of the previous generation while still achieving high frame rates and faster inference. More importantly, as our in-house models, compiler stack and operating system evolved together through codesign, we are beginning to unlock the real potential of our fully self-developed autonomous driving stack. The performance gains we see today are important, but the bigger impact is that this system integration will significantly accelerate how fast our autonomous driving capabilities improve over time. Once the system is officially deployed, we expect the pace of capability improvement to increase substantially. The M100 also works closely with Halo OS and the vehicle-by-wire system, coordinating autonomous driving compute, pre- and post-processing and vehicle control. This shortens end-to-end latency from sensor photon input to vehicle actuation to around 200 to 300 milliseconds, directly improving the driving experience. The higher local compute also allows us to deliver more intelligent capabilities beyond autonomous driving. Over time, the car will behave more and more like a robot. Some of these capabilities will first appear on the new L9, and we will continue to expand them in the future. The M100 also brings significant cost advantages. First, the BOM cost per chip is much lower than external solutions. Second, we removed the previous generation XCU controller by replacing it with M100 combined with Halo OS virtualization, saving over RMB 1,000 per vehicle. Third, thanks to our data flow architecture and codesign of model and chip, we achieve higher long-term efficiency and maintain much greater headroom for future performance improvement. When we started developing our own chip in 2022, we believed that by 2025 the industry would move into a new phase where models, chips and operating systems had to be designed together. That kind of vertical integration creates real differentiation in performance, efficiency and user experience. Over time, the gap between companies will start to look like the gap between Apple and Android in the smartphone world. Once you achieve full-stack hardware-software integration, the advantage becomes structural and keeps widening.

Operator, Operator

Your next question comes from Tina Hou with Goldman Sachs.

Tina Hou, Analyst (Goldman Sachs)

My first question is regarding embodied AI. For the next one to two years, what's the strategic plan for Li Auto? What kind of products should we expect to see and what is the timeline? Also, in terms of strategic priority, how do you decide between EVs, robotaxi and humanoid robots?

Xiang Li, Chairman and CEO

On the embodied AI strategy, first of all, on the technological and product front, we believe there's a lot of commonality across different physical product forms. This is an area where we will invest heavily because these investments will be shared across different product shapes and forms. This includes device-side inference chips, foundation models, operating systems and the entire data training workflow. On the commercial side, we will be careful as we invest and explore. We'll adopt a start-up model in areas like AI glasses and robots instead of using a traditional large-company approach where we invest heavily in unverified directions. We will work more like startups to explore new initiatives and iterate. Regarding strategic priority among EVs, robotaxi and humanoid robots, the shared foundational technologies enable multiple product forms, but we will prioritize commercial viability and user value. EV product development and the transition into embodied AI for consumer vehicles remain our core, while other products are explored with a startup mentality and staged investments.

Tina Hou, Analyst (Goldman Sachs)

My second question is regarding your R&D restructuring. Has the restructuring been completed and under the new structure, how is the progress regarding autonomous driving?

Xiang Li, Chairman and CEO

We went through a major organizational change in January, where we completely revamped our hardware and software functions to build a silicon-based digital human or smart human. To achieve this, we've regrouped functions by the specific part of the human they are responsible for, rather than by product business units. This reorganization centers on three areas. First is the 'brain', which includes datasets, chips and the operating system, organized together to work through pre-training and post-training and infrastructure. My rule for these teams is they should not directly touch applications; they should build a robust brain usable across hardware and software applications. Second is the applications or 'core software' team. This includes software tools like MCP, agents, skills and memory systems, all designed to work with a shared operating system so the system can actually plan and execute tasks. These teams focus on the 'body' and application logic and must fully utilize the common brain. Third is the hardware team, building dedicated hardware for embodied AI, including energy, electric drive and controllers. We are moving toward a model where large models can directly talk to MCPs for different components, making control more intelligent and efficient. Putting these three teams together improves cross-product collaboration and removes silos. For example, the autonomous driving team used to iterate models every two weeks; after the change, they can iterate daily, a 14x improvement, thanks to the collaboration of teams working together. This reorganization also coincided with several senior R&D departures early this year. Many of these leaders had been with the company for over five years and were part of the 0-to-1 cycle. I want to acknowledge and congratulate them for their new ventures and wish them success. At the same time, this change has enabled many young leaders—post-90s and post-95s—to step up and take on responsibilities. We've seen strong contributions from younger colleagues, including those born after 2000, making major contributions to our products and technology. This is an exciting time and gives me confidence about the next decade.

Operator, Operator

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 Chang, please go ahead.

Janet Chang, Investor Relations Director

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 lines. Thank you. Portions of this transcript that are marked as interpreted were spoken by an interpreter present on the live call.