Operator: Hello, ladies and gentlemen. Thank you for standing by for Li Auto’s second quarter 2026 earnings conference call. At this time, all participants are in listen only mode. Today’s conference call is being recorded. I will now turn the call over to your host, Ms. Jenna Zheng, Investor Relations Director of Li Auto. Please go ahead, Jenna.

Jenna Zheng, Investor Relations Director, Li Auto: Thank you operator, good evening and good morning everyone. Welcome to Li Auto second quarter 2026 earnings conference call. The company’s financial and operating results were published in a press release earlier today and were posted on the company’s IR website. On today’s call, we will have our Chairman and CEO, Mr. Li Xiang, and our CFO, Mr. Johnny Tian Li to begin with prepared remarks. Our President, Mr. Ma Donghui and 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 SEC 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 laws. 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.

Li Xiang. Please go ahead.

Li Xiang, Chairman and CEO, Li Auto: 大家好，我是李想，欢迎各位参加今天的业绩电话会议。面对激烈的市场竞争和车型迭代期，今年上半年，理想汽车在20万元以上的新能源汽车市场，依然位居中国品牌销量第一。随着我们双轮战略的持续推进，理想汽车增程与纯电车型目前订单结构均衡，已经接近对半。二季度以来，理想L系列已经完成了全面换新，我们的一系列核心技术成果顺利上车，从自研玛赫M100芯片、玛赫VLA模型，到800伏主动悬架、全线控底盘，再到第三代智能助控器，以与5C超充电池，全方位软硬件的升级，重新定义了技术和体验的新标准。纯电方面，理想A6已经连续六个月位居20万元以上所有车型销量前三，它将与理想L6分别成为所在细分市场的头部产品，进一步巩固我们在20到30万元SUV市场的领导地位。纯电产品的迭代升级也在顺利推进。7月末，理想L8新增后驱长续航版本，并围绕用户反馈的问题和需求，增加了电动前备箱、前排双零重力座椅等配置，增强了产品力，也带来了销量的提升。9月2日，新一代理想MEGA即将上市。我们对其先锋造型做了进一步打磨，并带来了新一代的内饰设计、空间体验、智能平台和驾驶质感。全新纯电旗舰SUV理想A9也将于9月中旬上市，进一步完善理想汽车的纯电产品矩阵。预计后续纯电车型的订单占比会持续提升。随着下半年几款车的上市及爬坡，我们有信心在20万元以上中国乘用车市场进入所有品牌销量前三。通过核心技术的自研，我们持续巩固更深的护城河，并逐渐将其转化为用户价值和商业效率。目前，5C超充已经成为了用户选择的必要因素，理想自建超充站是重要竞争力之一。电池方面，我们已经实现了包括电芯、BMS和pack在内的全栈自研。继自研电机和电控之后，补齐了三电领域的最后一个版图。通过和整车系统的一体化设计，以及对于5C超充的技术的经验积累，理想汽车自研电池可以在质量、安全、寿命等方面有行业领先的表现。目前，理想汽车自研电池已经在全新理想L8、新一代理想L6和理想A8正式上车。未来几个月，我们在所有的车型上都将会搭载自研电池。我们坚定地认为，长期来看，电池和芯片会是汽车智能行业最重要的技术壁垒和护城河。5月，我们开始交付基于理想汽车自研玛赫M100芯片的整套智驾体系。目前，玛赫M100芯片交付已经超过了5万颗，并保持了良好的质量表现。芯片之外，我们在模型、控制器、软件系统等研发层面也在不断突破，并逐渐将整合为产品体验。7月底，通过OTA 9.1，玛赫VLA的性能整体较之前提升了20%，用户里程渗透率相较上一代算力平台也接近三倍的提升。9月，玛赫VLA也将推动至Thor和Orin平台的用户。后续，我们会基于理想汽车的数据积累，针对玛赫M100芯片加速模型训练与能力的提升，进一步发挥自研芯片的算力优势。七月的OTA 9.1版本，在反应速度上看齐和超越人驾驶员。十月的OTA 9.2版本，VLA将全面采用3D视觉transformer的感知，看得更远，更精准。年底的OTA 9.3版本，VLA的模型参数会成倍提升，在复杂场景的任务理解和推理能力上显著提升。反应更快，看得更准，推理更强，是今年玛赫M100和玛赫VLA最重要的三个提升。未来，我们将继续以打造最智能的汽车为核心战略，通过软硬一体的全栈自研与持续迭代，让汽车真正成为保护人类安全、独立完成任务、比人类更高效的智能级机器。下面有请我们的CFO李姐，为大家介绍我们的财务表现。

Johnny Tian Li, CFO, Li Auto: Hi everyone, this is Lisa. Thank you for joining our earnings conference call today. In the first half of this year, in the midst of intense market competition and a complete product refresh, Li Auto has remained the top selling Chinese automotive brand in the RMB200,000 and above NEV market. The continued rollout of our dual energy strategy has resulted in a healthy product mix, with EREVs and BEVs each accounting for 50% of total sales. Since Q2, we have updated the entire Li L series, showcasing our latest technologies. Key updates include our in-house Mach M100 chip running Mach VLA model, 800 volt active suspension and drive-by-wire chassis, and our third generation range extender with 5C supercharging battery. The hardware and software upgrades set new standards for the technology and user experience once again.

Turning over to our BEV lineup, the Li L6 has been one of our top three selling models priced over RMB200,000 for six consecutive months. Li L6 and the L6 are the top sellers in their respective segments, further solidifying our leadership in the RMB200,000 to RMB300,000 SUV market. Upgrades to our BEV lineup is also underway. In late July, we launched the rear-wheel drive long range version of Li L8. Based on user feedback, we added features such as power trunk and zero gravity driver and passenger seats. These updates bolstered our product competitiveness and translated to a notable sales uplift. The new generation Li MEGA is scheduled for launch on September 2nd. We further polished its pioneering design and completely revamped the interior, the cabin experience, intelligent platform and ride quality.

Additionally, the all new flagship BEV SUV, Li L9, will also be launched in mid-September, further enriching Li Auto’s BEV product lineup. We anticipate BEV models to account for an even larger share of total sales over time. With new models launching and ramping up in the second half of this year, we’re confident in maintaining a top three position among all brands in China’s passenger vehicle market, priced above RMB200,000. By developing core technologies in-house, we’re continuously deepening our competitive moat, steadily translating these technological advancements into tangible user value and commercial efficiency. 5C supercharging has become a prerequisite in user purchase decisions, and a proprietary supercharging network stands as one of our key competitive advantages. On batteries, we’re able to develop cell BMS and pack fully in-house, completing the final piece of the electric powertrain puzzle, following electric motors and control units.

Through integrated design with the overall vehicle system, combined with the technology and experience we have accumulated in 5C supercharging, we’re confident that Li Auto’s in-house battery will deliver industry leading performance in-

Operator: Pardon me, this is the operator. Please hold and the conference will recommence shortly. The conference is reconnected. Please go ahead.

Johnny Tian Li, CFO, Li Auto: Apologies for the breakup. To continue with the CEO’s remarks. Through integrated design with the overall vehicle system, combined with the technology and experience we have accumulated in 5C supercharging, we are confident that Li Auto’s in-house battery will deliver industry leading performance in quality, safety, and service life. Our in-house batteries are already deployed on our all-new Li L8, the new Li L6, and the Li L8. Within the next few months, all of our models will be equipped with our proprietary batteries. We firmly believe that batteries and chips are going to be the most critical technological barriers in the embodied AI industry. In May, we started shipping our full stack AD solution based on the M100 chip. To date, shipments of the M100 chips have exceeded 50,000 units, maintaining excellent quality track record. Beyond chips, we are also making R&D breakthroughs across models, controllers, and software.

These achievements have steadily translated into product experience. In late July, with OTA 9.1, overall Mach VLA performance improved by 20%, and user mileage penetration nearly doubled compared to the previous generation computing platform. In September, we will also roll out Mach VLA to cars with NVIDIA Thor and Orin X chips. Building on the data we have accumulated, we will accelerate model training and iterations to fully leverage the compute advantage on our chips. The July OTA 9.1 update allows VLA to match and surpass human drivers in reaction speed. The October OTA 9.2 update will enable VLA to fully adopt 3D vision transformer, providing long range and better precision. The year-end OTA 9.3 update will see VLA model parameters scale exponentially, significantly enhancing task comprehension and reasoning capabilities in complex scenarios.

Faster reactions, sharper vision, and stronger reasoning are the three most crucial upgrades for the M100 and Mach VLA this year. Going forward, building embodied AI vehicles will remain at the core of our strategy. Through full stack in-house development across hardware and software with continuous iteration, our vision is that vehicles will become true intelligent agents that can not only look after human beings, but also complete tasks independently more efficiently than human beings. With that, I will turn the call over to our CFO, Johnny, to walk you through our financial performance.

Johnny Tian Li, CFO, Li Auto: Thank you, Li. Hello, everyone. Given time constraints, my remarks today will be limited to our second quarter financial highlights. All figures will be quoted in RMB, unless otherwise stated. For further details, including the corresponding U.S. dollar amounts, we encourage you to refer to our earnings press release. Total revenues in the second quarter were RMB25.7 billion, down 15.1% year-over-year and up 11.7% quarter-over-quarter. This included RMB24.1 billion from vehicle sales, down 15.7% year-over-year and up 11.8% quarter-over-quarter. The year-over-year decrease was mainly driven by reduced vehicle deliveries and a lower average selling price due to different product mix. The sequential increase was mainly attributable to a higher average selling price due to different product mix and increased vehicle delivery. Cost of sales in the second quarter was RMB22.8 billion, down 5.6% year-over-year and up 7.8% quarter-over-quarter.

Gross profit in the second quarter was RMB2.8 billion, down 53.3% year-over-year and up 56.9% quarter-over-quarter. Vehicle margin in the second quarter was 9.4%, versus 19.4% in the same period last year and 6.1% in the prior quarter. The year-over-year and sequential changes were mainly due to different product mix. Gross margin in the second quarter was 11%, versus 20.1% in the same period last year and 7.9% in the prior quarter. Operating expenses in the second quarter was RMB5.1 billion, down 2% year-over-year and up 6.9% quarter-over-quarter. R&D expenses in the second quarter were RMB2.8 billion, down 1.2% year-over-year and up 2% quarter-over-quarter. SG&A expenses in the second quarter were RMB2.3 billion, down 16.2% year-over-year, mainly on lower employee compensation, and up 11.2% quarter-over-quarter, mainly on higher marketing and promotion spending.

Loss from operations in the second quarter was RMB2.3 billion, versus RMB827 million income from operations in the same period last year and RMB3 billion loss from operations in the prior quarter. Operating margin in the second quarter was negative 9%, versus 2.7% in the same period last year, and negative 13% in the prior quarter. Net loss in the second quarter was RMB1.7 billion, versus RMB1.1 billion net income in the same period last year, and RMB2.3 billion net loss in the prior quarter. Diluted net loss per ADS attributable to ordinary shareholders was RMB1.69 in the second quarter, versus diluted net earnings of RMB1.03 in the same period last year, and diluted net loss of RMB2.26 in the prior quarter. Now turning to our cash flow and balance sheet.

Net cash provided by operating activities in the second quarter was RMB15 million, versus RMB3 billion used in the same period last year, and RMB6.1 billion used in the prior quarter. Free cash flow was negative RMB1.3 billion in the second quarter, versus negative RMB3.8 billion in the same period last year and negative RMB7.4 billion in the prior quarter. Our quarter end cash position remained robust at RMB87.5 billion. This solid cash position gave us the flexibility to invest in product and technology innovation, while also returning value to our shareholders through share repurchase. To date, we have repurchased a total of 91.7 million Class A ordinary shares, including 23.7 million ADS, for total consideration of about US$631.5 million. Now for our business outlook.

For the third quarter of 2026, the company expects the delivery to be between 95,000 and 100,000 vehicles, and quarterly total revenue to be between RMB 26.6 billion and RMB 28 billion. This business outlook reflects the company’s current and preliminary view on its business situation and the 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: Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today’s call, please limit yourself to two questions, and if you have additional questions, you can reenter the queue. If you are a Mandarin speaker, please ask your questions in Chinese first, then follow with English translation. Your first question comes from Tim Hsiao with Morgan Stanley.

Tim Hsiao, Analyst, Morgan Stanley: [Foreign language] I have two questions. The first question is about L series. With the model year updates for the Li L series now completed, could the management provide an update on its market performance so far since launch? That’s my first question. Thank you.

Ma Donghui, President, Li Auto: Tim，你好，我是马东辉，我来回答这个问题。那今年的话，我们完成了完整的L系列的产品换代，从L9、L8，然后到L6，全部切换到新的一代平台。我们全系搭载了自研的Mach M100芯片，5C的增程核心技术，并且在L9车型上面，我们搭载了全线控的底盘，完成了20万到50万增程SUV完整价格带的一个覆盖。从上市交付的表现来说的话，高端版本用户接受度是超预期的。上市以来，L9 Max的版本订单占比大约是85%。大量用户愿意为全线控底盘、高阶智驾这些硬核的技术买单，也巩固了我们在40到50万家庭SUV当中的市场地位。L8上市以来的话，Ultra版本是走量的主力，门店试驾转化率表现良好。关于新一代的话，L6承接了上代产品的用户基本盘。上一代的话，L6我们累计交付已经接近的话40万台，也奠定了良好的市场基础。那在新一代L6上面，我们补齐了用户此前反馈的纯电续航里程短、充电速度慢、智驾能力的短板，并且零重力座椅和29英寸的场景屏进一步提升了乘坐的体验。那上市之后，订单热度是较好的，有望形成稳定的月销1万台的规模，这也是我们20到30万价位区间最重要的基本盘车型。那同时我们也看到换代切换期带来阶段性的扰动，像换代切换阶段受老款的清库、新品的上市以及政策衔接等因素影响，在经营端存在阶段性的压力，我们正在优化相关的环节。那接下来的话，我们会关注两件事儿。第一站的话是软件迭代，来持续提升我们产品的价值。我们这一代L系列的产品拥有扎实的硬件基础和性能，后续我们将通过OTA迭代持续释放智驾能力，逐步落地智臻智能等相关的功能。那第二点的话，我们会持续加密和覆盖自建5C的超充网络。那截止到七月末，已经投入运营了的理想超充站达到了4141座，充电桩超过了22800多根，完成了九纵九横18条国家级的高速贯通，覆盖全国近300多城市。那我们自建的超充5C网络，既可以服务纯电，也可以服务新一代的5C增程车型，并且已经成为用户购车的重要考量因素。那我相信L系列完成换代之后，会和I系列的纯电产品形成互补，共同来支撑整体业务的增长。那当前的话，增程和纯电订单结构接近的话是均衡。那后续的话，伴随着我们更多纯电产品的投放，纯电的订单占比有望进一步提升。谢谢。

Johnny Tian Li, CFO, Li Auto: This year we have completed the full refresh of the L Series from Li L9, Li L8 to Li L6 have all transitioned to the latest platform, which includes the Mach M100 chip, 5C range extension, and other core technologies. On Li L series models, we also carry our latest fully drive-by-wire chassis. With these, we have completed coverage of the RMB 200,000 to RMB 500,000 range extended SUV market. Since we started delivery, we have seen a few trends. First of all, our high-end models have exceeded users’ and our expectations. Since launch, the Li L9 L series version accounts for over 85% of all sales. Many users are willing to pay for this fully drive-by-wire chassis as well as high-end ADAS systems, as well as other core technologies. This also solidified our leadership in the RMB 400,000, RMB 500,000 family SUV market.

Since the launch of L8, the Ultra version has been the key sales driver, and the conversion ratios in our storefront have been performing very well. Secondly, the new generation L6 has successfully retained the user base from the previous generation, with the previous generation laying a very good foundation by delivering almost 400,000 units. The new generation has addressed key user feedback such as EV range, charging speed, key intelligent platforms, and also completed the offering with two zero gravity seats in the front row and a 29-inch panoramic screen, which also enhanced user experience. Since launch, we have seen very good reception on L6 and we are hopeful that there will be a 10,000 units per month demand level steadily going forward. This is a core pillar for our sales in the RMB 200,000 to RMB 300,000 market.

In the meantime, we have honestly seen some temporary disruptions caused by the model refresh cycle, including clearing old inventory, ramping up new models, and sales policy transitions have all created short-term operational headwinds. We are currently working very hard to optimize our processes and address these challenges. Going forward, we will focus on two things. The first is to further enhance product value through OTAs. The all-new L Series has a very robust and industry-leading hardware as a basis. Moving forward, we will continue to unlock these hardware capabilities and AI features through OTA updates. Secondly, we will continue to build out our 5C supercharging network, increasing both density and coverage. As of the end of July, we have already 4,141 charging stations in operations and over 22,800 charging stalls. We have now a nine-by-nine grid covering 18 national-level highways and covering more than 300 cities.

Our in-house charging network as well as 5C charging capability have become a prerequisite for many of our users in their car purchase decisions. With the L Series refresh complete, it will now complement our I Series BEV to jointly drive overall business growth. Currently, EREV and BEV each account for half of our total sales, and we expect BEV share to rise further as we launch more BEV models later this year. Thank you.

Tim Hsiao, Analyst, Morgan Stanley: [Foreign language] My second question is about MEGA. Following today’s the release of the preview video for the new Li MEGA, could you share the key highlights of this refresh and your sales expectation? Thank you.

Ma Donghui, President, Li Auto: 好，谢谢。我是马东辉。我们今天发布了MEGA改款的预热物料。这次MEGA改款其实是基于老款MEGA上市以来大量真实用户的反馈，针对于大家核心痛点做的多项重点优化，主要是集中在三个方面。第一个是底盘和操纵体验的提升。针对于MPV车型尺寸大，城市掉头泊车不够灵活的用户反馈。在改款MEGA上面，我们将搭载后轮转向、线控转向以及主动防倾杆等配置，大幅来缩小转弯半径，改善过弯的侧倾，兼顾大车的空间和灵活的驾控。第二个是智能硬件会全面升级。升级全套的智驾感知硬件，会搭载我们自研Mach M100智驾芯片，补全侧向、后向的感知能力，强化城市的NOA，在复杂路口自动泊车的表现。座舱也将升级高通的高性能座舱芯片，带来更好的交互和娱乐体验。第三个方面是家庭的座舱和细节体验的优化。我们会延续MEGA家庭MPV的定位，升级二排和三排座椅的乘坐体验、内饰氛围、交互细节，更好地去满足多成员家庭出行的使用需求。MEGA作为我们50万以上价位的纯电家庭旗舰的MPV，它的定位非常清晰。这次改款补齐了用户集中反馈的短板，产品力也得到系统的提升。关于后续的销量和表现，取决于上市之后的订单转化、产能爬坡和市场需求的变化。我们接下来会全力做好产品的交付、门店的体验和用户的运营。上市后市场表现我们会持续和大家进行同步。

Johnny Tian Li, CFO, Li Auto: As many of you have noted, we have today officially released the first batch of teaser information on our new generation MEGA. This new generation is really based on real user feedback from the previous generation MEGA, and to address the important feedback and product shortcomings of the previous generation. They mainly fall into three categories. The first is improvements in the chassis and handling experience. Many view MPVs as very large and cumbersome in cities. The new generation MEGA will be equipped with rear-wheel steering, drive-by-wire system, as well as active anti-roll bars, which will greatly reduce the turning radius and reduce body roll in cornering, and also make the car more flexible and agile in cities. Second is upgrade to the intelligent platform. We improved the entire autonomous driving system with our in-house Mach M100 chips.

We’ve also completed the lateral and rear sensors to improve City NOA and handling complex intersections and auto parking. On the cabin side, we’ll also be upgrading to the latest Qualcomm chips to bring better interactive and entertainment experience. Thirdly is improvements in the cabin and details. To further drive the positioning as a family MPV, we’ve made significant upgrades to the second and third row, including the interior atmosphere, interactions to better serve the needs of large families. MEGA is voluntarily positioned as the flagship SUV over RMB 500,000. This new generation has really addressed user feedback and have completely revamped the product and improved the product. Obviously, the sales performance will depend on many things, including sales conversion, including product ramp up, as well as changes in the market. We will make sure to focus on delivery, store experience, as well as user operations.

We’ll keep updating everyone on the sales performance as we launch the product. Thank you.

Tim Hsiao, Analyst, Morgan Stanley: 谢谢管理层分享。

Operator: Your next question comes from Paul Gong with UBS.

Paul Gong, Analyst, UBS: 感谢，感谢接受我的提问。我有两个问题。第一个问题是，近期原材料涨价对于公司利润率的一个影响，我们是否能够在单车的一个层面上面有一个框算，也就说在二季度进入到三季度的时候，有一个方向性的一个指引，我们如何在采取什么样的措施来应对这样的原材料的涨价？So my first question is regarding the impact of commodity cost inflation. How much can you quantify in terms of the impact in Q2 and moving towards Q3?

What would be your strategy to counter for such cost inflation challenge and the margin pressure? Thank you.

Ma Donghui, President, Li Auto: 你好，我是马东辉。今年上游的核心原材料，还有零部件出现周期性的波动，给汽车行业也包括我们带来了很大的成本压力。那从细分来看的话呢，主要是包含像受AI产业高速发展，推动的像芯片、PCB板，整个市场需求是旺盛的，供给的话偏紧，价格的话上升。像存储芯片同样也出现了涨价，那我们依托前期锁量和长期的采购框架协议，受到的价格波动影响小于的话行业平均水平。还有电池，今年的话碳酸锂的价格也出现了较为明显的周期性的波动。所以说为了应对周期性的成本波动，我们有两个举措。一方面我们会持续推进精细化的运营，来实现降成本。那另外一方面，我们要依托全栈的技术自研和自主的供应链体系，来构建长期的结构性降本能力。首先，我们持续会建设高度自研自控的三电体系，夯实我们的技术和成本两方面的竞争基础。那在电驱动领域的话，我们已经实现了像电机、电控、碳化硅、芯片的模组自研自制，对于关键部件深度掌握。那依托一体化的集成架构，我们会不断地去优化能耗，迭代技术方案，来摊薄单车的硬件成本。那另外在电池系统方面的话，我们将电池pack和整车的架构同步开发，深度耦合。那这样的话可以实现像能耗、温控、安全以及空间的最优解，兼顾产品体验和成本的控制。那目前我们已经构建了像电芯体系的设计、pack的结构设计、热管理、BMS算法等核心的自主研发能力。我们会推动自研电池系统，在更多车型上面落地应用，在质量、性能和成本维度形成了话竞争力。那另外，我们通过自研的智驾芯片，会打造核心技术和成本的竞争优势。我们自研Mach M100的芯片，通过创新的数据流架构和软硬件的一体化设计，在算力表现和成本控制上具备显著的结构性的优势。总结来说的话，短期，我们会通过长单的锁量，精细化的运营，来平滑阶段性的对成本的压力，来进行控制。那中长期会依靠自研技术的规模化落地，稳固经营的话盈利水平来支持公司长期高质量的发展。谢谢。

Johnny Tian Li, CFO, Li Auto: This year, we’ve seen cyclical fluctuations in upstream raw materials and core components, which has created temporary cost pressures for both the industry and our company, which has then further impacted our gross margin. To look at this in more detail, on the AI side, because of the developments in the AI sector, this has driven demand for chips and PCBs, pushing prices up. On the memory side, memory chips prices have also risen, but with our early volume commitments and long-term procurement agreements, the price impact on us is less than the industry average. On the battery front, 碳酸锂 prices also experienced cyclical fluctuations this year. To navigate these cyclical cost fluctuations, we’re taking a two-pronged approach. On the one hand, we’re continuously driving cost reductions through more efficient operations.

On the other hand, we’re leveraging our full stack in-house technology and proprietary supply chain to build for long-term structural cost advantages. Specifically, first on the electric drivetrain front, we will continue to be committed to owning and driving the R&D and supply chain of the three key electric systems to solidify our dual modes in technology and cost. On the electric drive side, we have achieved in-house development and manufacturing of motors, controllers, and silicon carbide chip modules, which ensures our control over the critical components. By leveraging our integrated architecture, we’re continuously optimizing energy consumption and iterating on our technological solutions, which has steadily amortized the hardware cost per vehicle.

In terms of battery system, we develop in tandem and deeply integrate our battery packs with the overall vehicle architecture, which allows us to achieve the best possible balance between energy consumption, thermal management, safety, and packaging efficiency, which further delivers an exceptional user experience while maintaining strict cost control. We have established the in-house R&D capabilities in core areas, which includes cell pack, thermal management, and BMS algorithms. We’re accelerating the deployment of our proprietary battery systems across a broader range of models, establishing a strong competitive edge in quality, performance, and cost. Secondly, in in-house developed chips, we’re building a strong competitive advantage across technology and cost. Again, the proprietary Mach M100 chip is built on an innovative data flow structure, with integrated hardware and software customization, and delivers a structural advantage in compute performance and also cost.

So overall, in the short term, we are trying to smooth out the temporary cost fluctuations and pressures on our business through volume commitments and refined operations. In the medium to long term, we are relying on scale deployment of our in-house technologies to stabilize the gross margin and support the company’s high-quality, sustainable growth. Thank you.

Paul Gong, Analyst, UBS: [Foreign language] So if we are considering the raw material cost as well as the commoditized competition, what would be our latest gross margin target? Thank you.

Li Xiang, Chairman and CEO, Li Auto: 我是李想。因为今年的电池、存储、芯片等核心零件成本上涨，是整个行业都会面临的共同挑战。那理想汽车的整个产品智能化程度更高，所以存储和半导体的用量更大，受的影响也更为显著。除了这个BOM因素以外，理想汽车在制造费用端对模具、检具和其他设备的六西格玛也都按照严格的标准进行，包括对车型改款，然后事项的处理。随着今年新车型的陆续上市，毛利率正在逐步的改善，但也必须正视今年芯片、PCB等半导体成本上涨带来的影响。我们不会把成本上涨转嫁给消费者，而是会通过一体化的设计和供应链能力，包括对电池的进一步自研和搭载，补齐我们三电领域的自研和供应，通过更好的成本管理能力，也包含通过我们的整个销售体系的费用的效率提升，成本降低，再到改善，从而将降本的这个金额转化为用户可以实际感受到的实惠。那长期来看，我认为公司健康的毛利率会介于15%到20%之间。然后跟20%差异的主要的影响因素，就是未来各种原材料仍然可能会存在的变动。

Johnny Tian Li, CFO, Li Auto: As we can observe, this year we have seen a very big increase in the cost of batteries and memory chips. This is a common challenge for everyone in the industry. Because Li Auto’s products are more intelligent, which makes them consume more memory and semiconductors, we are more impacted. Apart from the impact on BOM, we are also experiencing amortization and depreciation on our tooling and production equipment. We follow more strict rules as well as the treatment to end-of-production items. As we launch new products this year all the time, we already are seeing improvements in gross margin. We must also face the increase in chip and PCB, as well as other semiconductor cost increase. We must face this as well.

We have made a decision not to pass these price increases over to our customers, but instead, we will continue to leverage our integrated design and supply chain, such as deepening our in-house R&D and deployment of our batteries to make our system more self-sufficient. Secondly, we will build better cost control, cost management capabilities. Thirdly, on the sales front, through our sales partner program, we have benefited from lower sales costs, better operational mindset and an increase in efficiency. All of these lower prices and low cost will be transformed to actual benefits that our users can receive. In the long term, my view is that a healthy margin for the company will be somewhere between 15%-20% gross margin, with the main driver here being the raw material cost. Thank you.

Paul Gong, Analyst, UBS: Thank you very much.

Operator: Your next question comes from Wen Gao with CITIC Securities.

Wen Gao, Analyst, CITIC Securities: 感谢管理层接受我的提问。我是中信证券的乔文座，我有两个问题。第一个问题是关于即将上市的理想L9的，想请问管理层目前有什么信息可以跟我们分享？So my first question is about the Li L9. What information could you please share about the upcoming Li Auto L9？

Ma Donghui, President, Li Auto: 你好，我是马东辉，我来回答这个问题。在这里的话有三点可以和大家做一个分享。第一个是关于产品的定位。L9是我们面向多成员家庭打造的旗舰六座SUV，也延续了我们之前深耕家庭出行的核心产品基因。那在产品矩阵上的话，L9和MEGA会形成精准的互补。一个是旗舰的SUV，一个是旗舰的MPV，共同覆盖高端多成员家庭的出行市场。那在产品正式落地之后，L6、L9也将进一步壮大我们的产品阵营，和L系列形成双轮协同，进一步完善20万到50万高端家庭用户市场的产品布局。第二个是核心技术的底座。L9也会搭载800伏5C的高压平台，会采用我们新一代自研的电气系统，依托我们全国自建的5C超充网络，为用户带来优异的极速补能体验。在智能方面，我们将搭载自研的Mach M100智驾芯片，为高阶智驾以及后续的具身智能功能的迭代提供充足的算力。座舱也将会搭载我们新一代的高通高性能的座舱芯片，来支撑多任务并行、AI智能交互等复杂的场景。最后是用户的核心价值。因为L9会聚焦多成员家庭的全员出行场景，我们重点优化超大空间的布局、全员舒适的乘坐体验，以及全域的智能交互能力，致力为车内每位乘客都带来旗舰级的综合体验。在发布节奏上，L9计划是在9月中旬正式发布。那具体的价格配置，敬请大家关注我们的正式发布会。谢谢。

Johnny Tian Li, CFO, Li Auto: There are three things about the Li L9 that I would like to share. First of all, product positioning. L9 is designed for large families as a flagship six-seater SUV, which continues our core DNA to build products for large families. In terms of product matrix, L9 will complement Li MEGA, one being a flagship SUV, the other being the flagship MPV. They will both together satisfy the needs of large families who want to buy an electric vehicle. As L9 lands, L9 will also be an important addition to our EV flagship, EV product line, as well as it will also complement the L series, with our independent range extended and BEV product lines. These all will complete our coverage up to RMB 200,000 to 500,000 high-end new energy vehicle market. Second thing I’d like to share is the technological foundation.

L9 will be equipped with 800 volt, 5C high voltage charging platform. It will be powered by our latest generation in-house developed electric motors, which also relies on our national 5C charging network to provide a very good charging experience for our users. On the intelligence front, L9 will carry the Mach M100 ADAS chip to power not only autonomous driving, but also embodied AI capabilities going forward. On the cabin front, it will also carry the latest Qualcomm high-performance cabin chip to support multitask parallel processing, as well as AI intelligent agents. Thirdly, in terms of users, L9 will be focusing on large families, on large families traveling together. So our focus will be on the interior experience, comfort for each family member, as well as a spatial interactive experience. In order to provide a flagship level experience for every member of the family.

In terms of release timeline, the Li L9 will be launched in mid-September. Unfortunately, due to disclosure regulations, I cannot say too much about pricing and specific trim levels. We will be releasing the complete information in the product official launch event. Please stay tuned. Thank you.

Wen Gao, Analyst, CITIC Securities: [Foreign language] My second question is about the autonomous driving. Could you please update us on the progress of the co-optimization between Mach M100 chip and autonomous driving models? What are the key milestones and quantitative metrics for autonomous driving algorithm upgrades in the second half of the year?

Yan Xie, CTO, Li Auto: This is Yan, and let me answer your question. Our in-house Mach M100 chip began mass production with the all new L9 in Q2, and is now deployed across the all new L9, L8, and L6. Currently, the chip production capacity is sufficient to meet market demand. Our ADAS system, powered by our in-house Mach M100 chip, has been delivered to customers with the all new Li L9 since May. Leveraging the strong capabilities of Mach platform, we expect it to continue making significant improvement to our models. OTA 9.1 began rolling out at the end of July, further reducing end-to-end latency. We also introduced the two new speed preference modes for our Mach VLA model: efficient and comfort, improving responsiveness across a broad range of driving scenarios. The upcoming OTA 9.1 will represent a major architectural upgrade.

On the model side, we are evolving toward a full 3D vision transformer architecture, with three times the parameter count and 4.6 times the compute. This upgrade will deliver systematic improvements across key dimensions of ADAS, including safety, comfort, efficiency, and navigation. In Q4, our goal is to further enhance perception and decision-making capabilities of NIO VLA. Specifically, firstly, longer range perception. The effective perception range will exceed 250 meters, enabling early speed adjustment and path planning. We expect this to reduce undesirable behavior such as hard braking, hesitation, and unnecessary lane change by more than 30%. Secondly, higher perception accuracy. 3D spatial perception accuracy for key objects will improve to within 5 centimeters, increasing success rate in challenging scenarios such as narrow road driving, passing through gates, and other tight clearance maneuvers by 50%. Thirdly, a stronger scene understanding.

Rather than simply recognizing individual objects, the system will be able to infer intent based on the broader traffic context. In scenarios such as yielding on narrow roads and navigating around the construction zones and making unprotected turns, it will make more decisive yield or proceed decisions, reducing unnecessary stand-stills and hesitations by more than 20%. Additionally, Mach VLA 2.0 for NVIDIA Orin and Thor platforms will launch in early September. The share of driving mileage completed with ADAS engaged is a key metric for us at this stage. On the Mach platform, ADAS mileage penetration in urban scenarios has nearly doubled from previous levels. As deliveries of Mach-powered vehicles continue to ramp up, our all-scenarios NPI has increased by 25% in recent months. Thank you.

Operator: Your next question comes from Jing Chang with CICC.

Jing Chang, Analyst, CICC: Thank you. My only question is about the cash flow. We see the operating cash flow nearly turned positive in the second quarter, but free cash flow remained negative, and also we see some cash position decline. Could you share your outlook on the second half, whether our free cash flow will turn positive and our overview of the cash position?

Johnny Tian Li, CFO, Li Auto: Thank you, Tony. This is Johnny. I will take this question. From the third quarter with the delivery of our new models, we expected to maintain a stable operating cash flow on a quarterly basis. At present, we have ample cash on hand, which provides strong support for our product innovation, technology breakthroughs, and global expansion. This year, we remain committed to R&D investments and CapEx, including our supercharging network. We expect our full-year CapEx to be around RMB 6 billion. For the full year, achieving positive operating cash flow and free cash flow will largely depend on our fourth quarter deliveries. One thing is certain, that our overall cash flow performance this year will be stronger than last year. Thank you.

Jing Chang, Analyst, CICC: Thank you. My following question is about the intelligent driving. What are the key contributions do you think our self-developed chips and also software and hardware integration can deliver to advancing our intelligent driving capabilities? Thank you.

Yan Xie, CTO, Li Auto: This is Yan. Let me answer this question. The rapid progress we have made in intelligent driving, both in terms of performance and speed of delivery, is driven by the close integration of our in-house chip and full-stack system capabilities. Firstly, we have streamlined our organizational structure so that the chip and model teams can work much more closely together, jointly designing model architectures that can fully leverage the computing capabilities of Mach M100. From the hardware interface perspective, Mach M100 gives our model algorithm and operating system significant design flexibility allowing the chip algorithm and the system software to be optimized together for the best overall performance. Secondly, optimization of data and training. With our in-house chip as the foundation, we are able to explore and optimize the training process at a much deeper level.

In particular, our reinforcement learning approach built around the Mach platform has significantly enhanced the model capabilities within our world model framework. In addition, the data management and shadow data system built on the Mach platform enabled faster model iteration and improvement. Thirdly, system-level optimization through our in-house Halo OS. Halo OS enables deep integration between upper layer applications and the underlying chip, improving both resource utilization and overall system performance. At the system level, this also helps improving engineering quality and accelerates development cycles. Together, the chip, model, and OS form a tightly integrated full-stack architecture, creating a complete technology loop for our intelligent driving system. The value of our in-house chip is now extending beyond intelligent driving into embodied intelligence. A vehicle equipped with dual Mach M100 chips, we are able to run a fully multi-model foundation model entirely on device, supporting input across voice, language, and video.

The model is capable of general purpose problem understanding, environmental understanding, and task planning. This means the vehicle is no longer limited to executing predefined functions. It can increasingly understand user intention and the physical world, then plan and execute tasks toward a given object. We believe this will significantly expand the capability boundary of the vehicle as an embodied intelligent agent, and it represents an important new direction enabled by our integrated hardware, software architecture. Thank you.

Operator: Your next question comes from Ming-Sun Li with BofA.

Ming-Sun Li, Analyst, BofA: 管理层您好，我这边有两个问题请问。第一个问题，可不可以请管理层这边更新一下海外战略的进展跟规划？第二个问题是，为了自身智能的战略，公司是否会在目前的竞争格局之下持续进行比较高投入的研发开支？我也翻译一下英文。So my first question, could you update your overseas markets development strategy and also the progress? And the second question is, to develop your embodied humanoid robot product, will you continue to invest high R&D amid the current competition background? Thank you.

Ma Donghui, President, Li Auto: 我是马东辉，我来回答第一个关于海外的问题。海外的话是公司的长期战略。目前市场的拓展和产品的布局整体进度是符合我们的预期。然后在区域的布局上面的话，关于中东和中亚的市场，我们将会以理想L系列的中程车型作为主力的产品。七月份，我们全新的L9已经正式登陆了哈萨克斯坦、乌兹别克斯坦。在九月份，我们计划在迪拜举办新产品的上市活动，陆续会开启中东市场的销售。那同时呢，我们也和哈萨克斯坦头部的汽车集团达成了战略合作，推进当地本地化的组装合作落地。依托现有车型的海外本地化适配以及本土的组装项目，我们也正在逐渐去搭建研发、产品、生产、销售和服务的全球化业务的能力框架。那在欧洲市场的话，我们会优先导入纯电的产品。理想A6计划借助十月份巴黎车展完成首次海外的公开亮相，并计划在今年Q4开启欧洲市场的布局。那针对右舵市场，除了计划在年内推进Mega在中国香港、新加坡等右舵区的落地，我们还会推出右舵的A6，持续来完善右舵市场的产品矩阵。当然，海外的业务的扩展也会有很多客观的挑战，包含地缘环境、市场的法规等不确定的因素。理想在海外会坚持高端品牌的定位，我们会结合自身的能力，以及各个区域市场的差异化特点，把控发展的节奏，同步做好产品合规以及售后服务网络的搭建和品牌建设。谢谢。 Overseas expansion has been our long-term strategy, and we have made some steady progress in market expansion and product deployment.

Overall, the progress has been on track and within our expectations. In terms of regional strategy for Middle East and Central Asia, we will be focusing on our L series range extended models as the key offering.

Johnny Tian Li, CFO, Li Auto: In July, we have launched the all-new Li L9 in Kazakhstan and Uzbekistan. In September, we are planning to launch in Dubai to kick off our sales in the Middle Eastern market. In the meantime, we have already formed a strategic partnership with Allur, a leading local car group in Kazakhstan to drive the local assembly of our vehicles. By pushing forward the local adaptation and the local assembly of our current models, we are steadily building out a complete global presence across R&D products, manufacturing, sales, and service. In Europe, we will be prioritizing BEV models. The Li L6 will be launching at the October Paris Motor Show and officially start selling in the European market in Q4.

For right-hand drive markets, in addition to launching Li MEGA in Hong Kong SAR and Singapore by the end of this year, we will also be rolling out the right-hand drive version of the Li L6 to complete our model lineup in the right-hand drive markets. With all that being said, expanding overseas comes with its own set of challenges, particularly uncertainties around the geopolitical environment and market regulations. We aim to position Li Auto as a premium brand in overseas markets as well, and we will carefully manage our pace, tailoring our approach to our strength and the unique dynamics of each market. At the same time, ensure the products are compliant, build after-sales service networks, and continue to build our brand. Thank you. I will answer the question on R&D. If you look at the history of Li Auto, the first 10 years is really our startup phase.

Going forward, the next stage is going to be continued investment in R&D to build our competitive barrier. Among all of this, developing chips in-house is a core strategy, long-term strategy, that we have established from a very long time ago, and we will remain committed to keep investing and to improve and iterate on our in-house chips over time. If we look at chips as a core competitive advantage, the model is going to be the competitiveness. Other than chips or AI, we have also been investing in the core components of the electric powertrain. Taking batteries as an example, we have in-house developed our cells pack, BMS, and even including thermal management system. This entire offering, including its pairing and adaptation to our actual vehicle products.

With an integrated R&D approach, we have accumulated a ton of experience around 5C charging and technologies, which makes us confident in terms of our in-house batteries’ quality, safety, and life expectancy. Starting from the second half of this year, we will be rolling out Li Auto-branded batteries across all of our vehicles. I need to emphasize, by choosing to develop these components in-house doesn’t mean that our suppliers’ products aren’t great. We developed our in-house Mach M100 chips. That doesn’t make NVIDIA any less respectable as the best chip company in the world. As we develop our in-house batteries, that doesn’t make CATL any less respectable as the best battery companies. Well, CATL as well as many other brands, which are all great battery brands. That doesn’t make them any less respectable.

We believe that in the era of embodied AI, chips and batteries are going to be the most important competitive advantage. Electric powertrain and great products will be the key to our competitiveness, our product competitiveness. Choosing to develop these technologies in-house only shows that we want to be like companies like Apple and Huawei, to really hold the key components of our competitiveness in our own hands. Thank you.

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 Zhang, please go ahead.

Jenna Zheng, Investor Relations Director, Li Auto: Thank you once again for joining us today. If you have further questions, please feel free to contact Li Auto’s investor relations team. This concludes this conference call. You may now disconnect your line. Thank you.