Q3 2021 Li Auto Inc Earnings Call
Hello, gentlemen, thank you for standing by for Lee Autos third quarter 2021 earnings conference call. At this time, all participants are in a listen only mode.
Today's conference call is being recorded I will now turn the call over to your host.
Janet Django Relations director of Lee Auto lease go ahead Janet.
Thank you Rachel.
And good morning, everyone welcome to Liana <unk> third quarter 2021 earnings conference call.
Companys financial and operating results were published in the press release earlier today and are posted on the Companys IR website, and the Hong Kong stock exchange.
On today's call, we have our president Mr. Kevin Yeah nation, our CFO, Mr. Johnny Kelly to begin with prepared remarks, I'm, a founder and CEO, Mr. Shao Lee and our CTO, Mr. Taiwan 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.
For information regarding risks and uncertainties is included in certain filings of the company, which they you asked Securities and Exchange Commission and announcements publish on the website of the Hong Kong stock exchange and to the company. The company does not assume any obligation to update any forward looking statements.
Except as required under applicable law.
Please also note that <unk> earnings press release, and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures.
You referred to Lee Autos press release, and interim results and announcements with content, which contains a reconciliation of and audited non-GAAP measures to comparable GAAP measures with that I would now turn the call over to our President. Please go ahead Kevin.
Thank you Janet Hello, everyone and thank you for joining our call today.
We are excited to be part of this once in a century transformation from IC vehicle to smart electric vehicles. We are also pleased to see user acceptance.
He is reaching an inflection point.
As reported by the China passenger car Association the <unk>.
Penetration rates in.
In retail sales.
Excuse me rose significantly to 18, 5% in October from five 8% in 2020 looking out to 2022, we believe that extended rent system with a large battery capacity will usher in a year of explosive E.
E V sales against this backdrop and on the heels of the successful 2021 that you are launching in May we delivered a strong result in the third quarter achieving revenue growth of.
200.
And the nine 7% year over year.
Underpinned by record breaking quarterly delivery of 25100, and there's 16 units an increase of 190% year over year. This growth once again highlights the underlying strength of our 2010.
One do you want and these compelling appeal to family users.
Thanks to the dedicated efforts of our team and supply chain partners as well as continuous support from day, one users our October deliveries was.
7649 units, increasing 110 to seven 2% year over year.
Our order intake remains robust hitting a new monthly record of over 14500 units in October.
The rapid development of the smart EV industry has magnified the effects of the industry wide shortage challenging each oem's production and delivery schedule.
Well, we are enjoying the strong user endorsement of our product our delivery growth left our order growth due to the cheap supply shortage, which has constrained our production. Despite the lingering impact of COVID-19, and extreme weather conditions in certain.
Regions, we have resolved some of the cheapest to supply problems by working diligently with our supply partners and also internal teams. We delivered the 100000 Li one two hour family users in this month and expect our deliveries even know.
Or to exceed.
10000 vehicles in light of the ongoing industry wide semiconductor shortage, we expect the total delivery in the fourth quarter of 2021 to be between 30000 to 32000 vehicles.
As the development of the smart electric vehicle industry accelerate we think the challenge to the overall EV supply chain facing the industry will persist into the future going forward. We will continue to take actions and find multiple measures together with our supply chain partners too.
Mitigated the risk.
Turning to the profitability our gross margin stood at 23, 3% in the third quarter up three 5% year over year, and four 4% quarter over quarter.
Our operating cash flow was RMB two points 17 billion all U S dollar $336 7 million during the third quarter, reflecting our consistent and the relentless focus on execution and cost management.
During the third quarter, we made notable progress in the expansion of our direct sales and service network.
Which not only services.
As our user touch point for efficient sales and marketing, but also an integral component of our close loop integrated online and offline platform that help us manage user feedback to continuously enhance our products and services.
As of October 31st 2021, we had 162 retail stores covering 86 cities and the 200 and the <unk> servicing center and the Lee also authorized the Bobby and paint shops operating in 100, and the 65 cities.
We will continue to extend our coverage of lower tier cities, while deepening our penetration in first and second tier cities to reach our target of 200 retail stores by year end covering more than 100 cities in China.
This will increase our brand awareness and prepare us for searching user demand.
As we launch new models.
In terms of the product optimization, we upgraded the in car in voice assistant Visteon culture, and launched a new application store via and Otas update in early September the new diesel pusher is smarter and able to carry out a smoother and more.
Natural conversations.
You can also take separate commence from four different zoomed in the car providing full coverage in car voice control and creating a more fun and entertaining experience for families.
The new application store offers a streamlined into active designs supporting and application ecosystem similar to that on smartphones.
<unk> user to upgrade their in car application without the need of an OTA update with these upgrades our lead one continues to evolve and grow.
Meanwhile, we plan to release our OE.
Upgrade to 2021 Lee while users in December we are confident that 2020, while he was with Oh, a functions will provide family users with safe enhanced convenience and the effective Adas functions.
Following the.
Upgrade through Otas, all 2021 what will be equipped with this feature we are prepared to provide oh eight to over 60000 defended the users by year end gaming at dominant leadership in this regard in China.
In terms of <unk>, we are making good progress developing our technologies to support high power charging we have completed the fourth C battery packs test on vehicles and demonstrated that it can support a driving range of more than four.
Hundreds of kilometers with only 10 minutes charging.
With the proceeds raised through our due primary listing we will build upon our recent success and deploy R&D capital to drive parallel development in <unk>, and Bbs and advancements in smart cockpit and Adas technologies Amy.
Aiming to introduce more products catering to firmly users' needs.
And competing with both I see the coast and the electric vehicles. We also made headway in expanding our production capacity in October we officially commenced the construction of our manufacturing based in Beijing, the manufacturing base.
Is scheduled to be appreciable in 2023 and will serve as an important production base for our premium dev's.
Now I will turn this call over to our CFO Mr.
Kelly.
To review, our financial performance in the third quarter.
Thank you, Kevin and Hello, everyone.
Now I'll walk you through some of our financial results for the third quarter of 2021.
Due to time constraints I will address our financial highlights here and encourage you to refer to our earnings press release for further details.
Total revenue in the third quarter of 2021 were RMB 778.
Eight bidding.
One point to one being U S dollar.
Representing an increase of 297%.
RMB.
Coupon five one bidding in the thirdquarter of plenty plenty on the increase off.
54, 3% from RMB Biopolymers zero for bidding in the second quarter.
Of this year.
It's included.
RMB seven parts three nine beating all 1.15 billion U S dollars from vehicle sales, which increased 199, 7% year over year and 15 pardon six perfect cultural culture.
The increase in revenue from vehicle sales from the third quarter of 2000.
2020, and the second quarter of 2021 was mainly attributable to the increase of vehicle delivery in the third quarter of 2021.
Revenues from other sales and services were RMB 389 point fall meeting or 60 points.
Fall meeting U S dollars in the third quarter.
Representing an increase of 745, 1%.
Over a year and the increase of 587% part of our culture.
The increase in revenue from auto sales and the services.
Over the third quarter of 2020, and the second quarter of 2021 was mainly attributable to the sales of <unk>.
Regulatory credits as well as increased sales of charging thoughts accessories on our services.
Line with a higher accumulated vehicle sales.
Cost of sales in the third quarter of 2021, both RMB <unk> nine.
Nine six building 900.
<unk> $5.5 million, representing an increase of 100.
96, 1% year over year, and an increase of 45, 9%.
Part of our culture.
Gross profit in the third quarter of 2021 was RMB one eight.
Eight 1 billion or 281.2 bidding.
Meaning U S dollars.
Growing 200.
64.8% comparing with the third quarter of 2020, a 19, 2% compared with the second quarter of <unk>.
This year.
Vehicle margin in the third quarter.
Fourth.
21, 1% compared with.
19, 8% in third quarter of.
2020.
And the 18, 7% in the second quarter of 2000.
Yes.
21.
The increase in vehicle margin.
While it is primarily driven by higher average selling price our troops.
It's both too.
Increasing deliveries.
Of 2020, while he was in the third quarter of 2021.
Gross margin in the third quarter.
Sure.
It was 20.
23, 3% compared with 19, 8%.
In the third quarter of 2020.
And 18, 9% in the second quarter of this year, mainly driven by the increased used vehicle margin.
Operating expenses in the third quarter.
Or RMB 191 billion.
296, $4 million, representing an increase of 182, 2% year over year and an increase of.
28, 3% quarter over quarter.
R&D expenses in the third quarter.
<unk> 2021.
RMB 888, 5 million or 137.
$9 million, representing an increase of 165, 6% year over year and the increase of.
36% quarter over quarter.
The increase in R&D expenses over the third quarter of 2020 in the second quarter of this year was primarily attributable attributable to increased employee compensation.
As a result of growing.
Research and development staff as well as increased cost associated with new product developments.
SG&A expenses in the third quarter were RMB 1.02 billion or 158 5 million U S dollars.
Representing an increase of 198 five year over year and an increase of.
22, 3% cultural culture.
The increase in SG&A expenses.
Over the third quarter of 2020 was primarily driven by increased marketing and promotion activities.
As well as increased employee compensation and rental expenses.
Associated with the expansion of the company's distribution network.
The increase in SG&A expenses over the second quarter of this year was primarily driven by the increased employee compensation and rental expenses.
With the expansion of the Companys distribution network.
Loss from operations in the third quarter of 2021.
Was RMB 797, 8 million or 15 points to meaning U S dollars represent.
Representing a decrease of.
Our 45, 7% year over year, and a decrease of 81, 8% cultural culture.
Net loss in the third quarter of 2021 was RMB 21.5 meeting.
<unk> three <unk> three <unk>.
In U S dollars.
Representing a decrease of 79, 9% year over year and a decrease of.
Hey.
<unk>, 9% quarter over quarter.
And.
Turning to our balance sheet and the cash flow, our cash and cash equivalents restricted cash time deposit.
Short term investments.
Total RMB.
48.83 billion, all $758 billion as of September <unk>.
It is 2021.
Cash flow in the third quarter of.
<unk> 21 loss RMB.
<unk>, one seven beating all 300 <unk>.
$36 7 million U S dollar.
Free cash flow was RMB one.
One six speeding or $188 million in the third quarter.
And now for our business outlook.
For the fourth quarter of 2021, the company expects deliveries to be between.
<unk> thousand and <unk>.
32000 vehicles.
Planting a increase of 100.
Seven 4% to 121, 2% from the fourth quarter of last.
2020.
The company also expects fourth quarter total revenues too.
Between RMB 882.
<unk> bidding and RMB seven partner for one beating our U S dollar one pardon.
Our three seven bidding.
S dollar one point.
For fixed speeding representing an increase of 100.
12 seven.
7% to 126, 9% from the fourth quarter of 2020.
This business outlook reflects the company's current and preliminary view on this basis situation on the market condition.
In particular, the ongoing industry wide semiconductor shortage, which are all subject to change I will now turn the call over to the operator to start our Q&A session. Thank you.
Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question you will need to press star one on your telephone.
Withdraw your question press, the pound or husky.
The benefit of all participants on today's call.
Im going to ask the question in Chinese please follow with English translation. Once again ask a question at star and the number one on your telephone keypad.
Your first question comes from the line of faithful of Goldman Sachs. Please ask your question.
Great Yeah. Thanks for the opportunity very impressive quarter. My first question is on your <unk> pipeline no other than the fourth foresee battery pack task that.
So I have shared on the call, which is obviously very impressive what else have you thought about in terms of the key features that differentiate your upcoming product from this competitive market and also can you refresh us the timeline for your next product launch and the second question is about production hurdles. The management mentioned that if I heard you correctly.
In October there was 14500 units of intake in terms of the backlog expansion.
If you look at next year when do you think the monthly production ramp up towards that level. Thank you.
Okay.
It sounds like can you also repeat your question in Chinese please.
Yes of course.
So once you go to your point fish home. They don't even have to go take a year to year, but when do you do you have in tissue Jacob E V. H P. C. P V to trigger the T O.
Dollar tree it goes to see that Timothy interests, you now that you have.
That's pretty good.
Going on July she thought it the cornerstone of our franchise, we shouldn't use the call to your furniture, Guangdong Bureau that Jonathan.
Downward dangerous fraud Jewish until now had $10 chico's sheer finish a whole woman ticketing done now to talk about your answer to entitle Chico.
J P on the Hawthorne Minyard from trophy pop without challenges.
Yeah.
Thank you Paul.
Yes. This is Kevin.
To your first question HBC. Besides the <unk> battery, we made good progress on the other hand, we also made progress on our high voltage.
Air conditioning system.
And also the progress made on the high power charging infrastructure.
So so in terms of timing, we still plan to we still on track to two lunch hour.
First.
<unk> product in the second half of 2023 and.
And in terms of.
Production.
<unk> pro.
That's our plan.
<unk>.
Actually.
Right now our factory already read perhaps can support roughly.
14000 per month right now we are our production is gated by the chip.
<unk> yeah.
So so basically next year, we expect our our production will ramp up to more than one question.
But.
15000.
Right after the Chinese new year, assuming the chip shortage will be up to certain extent that will be resolved.
Yeah, that's very helpful color.
Thank you.
Thank you.
Okay.
Your next question comes comes from the line of Tim <unk> from Morgan Stanley. Please ask your question.
Alright.
Congratulations on the great results and thanks for taking my questions.
A quick two questions. The first point about the margin.
Two question gross margin expansions any tricks.
[noise] ahead of our previous target.
High teens, so given the favorable weather at scale in the upcoming quarter.
Should we expect the upward trajectory of gross margin.
To persist into the fourth quarter with over the next year.
Meanwhile, well they go to consider leveraging more aggressive promotion.
To further boost to their scale.
On the back of a basket of gross margin.
Hmm.
T O a T shirt company century charges will send you to a multi person job clipper.
Hypersound, who will call utilities equipment Michelle.
Uh huh.
No way that you could eat with them all the choices that you hear someone say Nicole Miller.
It could change if the shipyards Kimball show no leeway.
Anyway in Ohio.
Oh, the concession probably call it sits with its <unk> with shell.
<unk> put a tweaking.
Shall shutdown due to equate more.
T D.
Hi Tech.
John I think the current gross margin.
As we guided before it was mainly due to the higher average.
The selling price of the new 2020, while U S and also.
The cost control effort of our.
Internal Keith.
Supply chain team.
Despite the semiconductor our shortage and on this year.
Cost Marty we still want to keep our previous guidance.
For the promotion.
Currently the customer.
About six to eight weeks waiting times goal.
No need to do more promotion to light.
Customer wait too long.
Yeah. So currently at.
At least.
The total.
Two to three months, we wont do that.
Got it okay. So my second question basically want to follow up on to wait till it.
Thanks, you mentioned the wait times for a new one.
Or as long as like six to eight weeks.
So if the company fails to de lever the vehicle before Chinese new year, how should.
Should we worried or concerned about.
<unk> order cancellation rates.
Or the next year or can you or give you can check with the floor substantially towards the end of this year and any precautions to coffee can or will it take to avoid such volatility.
Julie Thiago Wintershall can change, how you're gonna Tito, which can COVID-19 day and.
To the point that she can answer it but I'm not sure who will take quite a bit you didn't sunshine going in Champaign and teach weighed upon obviously the Canadian dollar essentially the entire trading to be to hopefully some show because it just seems in Tanzania into either should we need it so far.
Constant Japan, Chipotle has become coupons horse too light.
Like yourselves and what kind of hit he tells you that think that portal.
Tim This is Kevin.
First of all we don't expect that we will see any other cancellations due to the.
Prolonged.
Delivery lead time.
Because.
Before we.
Takes the order from our customer normally we will reach agreement with them in terms of.
Roughly when do you expect that the jewelry.
So basically.
When they are when they are.
Give us order they already have the expected.
Have already the expectation set for the delivery.
Great. Thank you very much.
Okay.
So as a team.
Your next question comes from the line of bin Wang of Credit Suisse.
Yeah.
Thank you I've got two questions number one 'twenty to Q2 guidance.
Volume guidance.
Christian I found a battery hot rolled products year, because there are.
But we are constantly being increased.
Well, thank you Lindsay.
Jim.
Okay.
Let me just repeat your question please.
And who use humans, who continued central bank.
Sure.
Interestingly, there's not much beyond that.
Yeah.
I will take the first question.
Uh huh.
Yes.
Thank.
Due to the current supply.
Cheers shortage.
I think is now the right time to give guidance for next year.
You should believe busy hour.
Within the company, we have a very.
Yeah.
Robust plan for the next year.
Maybe kind of a second question.
Yeah.
Of course, we all know that right now we all see.
A big chunk in terms of our raw material cost for the batteries.
But so far.
Within this year, we have no plans to.
Increase the price with us APL.
Yeah, and also I think we are lesser impact as we do.
Yes.
We have a lessor battery pack.
Thank you great.
Thank you.
Your next question comes from the line of mentioned Lee.
Please ask your question.
Thank you.
I got two question the first question.
Okay.
All right.
Okay.
Great.
Lisa.
Hum.
And also could you elaborate more crazy sales quarter and of the potential contribution in the fourth quarter.
You too thank you.
Anything you want to be.
Oh yeah.
Yeah.
Converging towards them.
This is going to go as soon as it goes.
Okay.
I think it can become they come out.
But what do you see plenty of them.
Keeping yourself.
Okay.
Got it.
It's a good contributor.
Okay. It sounds good.
$62 million.
Since you bought it.
Okay I will take the second question.
This is John.
We have already.
Sold off all the credits.
Credits.
Begin.
From last year sales.
So basically it's wrong.
Good.
Meeting RMB.
All of that.
B credits or.
70 scar posture.
Paul.
And then I want more revenue for the fourth quarter.
For the first question.
Okay.
This is this is kind of speaking so regarding your first question.
So our future.
Future will be released in December and so far we have lots of testing.
Our median kilometers and.
So since our 2021 Lee one model has an OE feature by default.
Next hour.
December update.
Biggest.
Release in scale in China. So I think this is probably the biggest difference compare with our peers.
Thank you.
Thank you.
As a reminder, if you wish to ask a question you will need to press star one on your telephone and speak closer to the mouthpiece our speaker phone.
Thank you. Your next question comes from the line of Paul Gong of UBS. Please ask your question.
Yes. Thanks, Thanks for taking my questions basically two questions.
The first one is regarding your product pipeline, we have observed.
In this horizon competition environment.
Some peers have some already.
Right, it's a new product launch or adding new model, so more and more of those into the pipeline how does our total seat and so youre action on days, So technical win disappointing Vishal Shaw, who should have some tension.
<unk> done kind of modular system total question Joshua.
We're shifting from doing so.
Hi, Sergio John Karla you call telephone.
Our suite of hotels in China.
I also mentioned the Minto sure telephone total consumption.
Total <unk> so novel machines until you cannot source soda maker.
He also hungrier, though you got solution.
And so those module shopper wants just one suggestion that somehow your question. Matt also to your negotiations are you sure arbitration completion, Shanghai technical in nature.
Yeah.
Yes.
Yeah.
Paul This is Kevin yeah, so in terms of.
Our future prep to actually when will our view a zero out to the market in the second quarter next year, and then start with delivery in the third quarter.
For more details of zero along will be introduced at the show.
Launch event.
So, although we see a lot of new product launch into the market, but we want to still keep to our own.
Our schedule.
So we are.
Right now for example, we're already one delivered volume reached the level of high lenders is residential value is also getting close to the highlander level.
This is the benefit of reaching scale by a single model, yes, we would choose to.
To sell big volume with one model rather than very quickly launched.
A lot of models, but only when we sell a small volume.
Our philosophies.
The difference now in our peers.
Okay.
My second question is.
My second question is regarding the Athos out going forward.
Since that now.
The difference.
System by different come recourse on getting a little.
It's similar to each other everyone with our top flight everyone would use them visteon chips with high calculation power. So what is the key differentiation in this competition the adas function going forward.
With a longer time.
So what does your uncle Winchester going it's.
Josh.
Yes.
So it sounds like kind of trying to put on.
<unk> I'm, sorry, I'm, sorry that I just want to ask a follow on contract that you got you got you.
Sure.
On chicken Nathan.
Our songs.
Also under your thoughts.
With auto question. So one question on window Hydro flask, Glenn is from Toby on our country.
So long answer to a Burger king.
Some of the children to talk mutation testing with your phone.
Yes.
This is kai speaking regarding this.
Others related topic, we believe August technology eventually.
I think user experience is the most important thing.
But.
Let's say to achieve automated let's say user experience.
As in the previous quarter, we already explained so you need massive data to train your algorithm to make it more intelligent.
And as you know.
We also we have the biggest basically customer base with.
The OE feature by default because we believe safety is very.
Important to every single one of our customer and therefore.
By using the complete.
Let's say fleet.
We can.
Speed up our progress on for development to make the user experience reach much less a faster speed than our competitors.
Thank you.
Yes.
Okay. Thank you very much.
Yeah.
Once again, if you wish to ask a question. Please press star and the number one on your telephone.
You bet.
Your next question comes from the line of sang Lee of TICC. Please ask your question.
<unk>.
Oh, yeah. Thank you for taking my question and congrats on the great results.
My first question is regarding all of our cost.
We see that the Cogs per vehicle rise too.
232000 RMB.
The quota, which is 5000 more than second quarter and I was always the highest quarter I think it's 2020.
Fiduciary reason with US maybe how much is caused by the rising cost of Dupont Dupont Dupont, one model and how much is caused by the.
Rising prices off of material or are you going to just require you to go to a normal expense out of the town center two vendors from our credentials are for some of our dwell.
Well to tell you that might be.
Yes.
Due to the Ukrainian and we want that kind of thing.
Gentlemen.
Okay.
I think.
Accelerate.
We're still targeting to achieve our desired cross marketing off on day, one as we mentioned before it will be finally to achieve.
35%.
Give them product.
Currently no.
Pressure off.
Okay.
The supply chain.
Cost pressure.
Yes.
Slower than.
Okay.
Last year and so.
Paul Farmer contracture.
And also.
Sure.
Ah.
Mega from the semiconductor part.
And also we have based our volume increase.
<unk> benefited from the manufacturing side.
Net net.
Impact.
Each quarter.
Well between you.
Hello, Hi.
Chunky, if we can show <unk> in Panama.
You may.
Some of the niches are doing well.
Hudson is that our digital goods here.
Donlin could each year.
<unk>.
The whole model.
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Okay, that's what I mean.
People that consume that keep us on particularly our patio.
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<unk> tongue Cheetah pushes again its online video highlighting.
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As you consider the harmony that you're looking at.
Immaterial Yoplait simple pneumonia panel chunky Genco Melinda seafood.
Yeah. This is Kevin our translate Mr. <unk> made some comments on the gross margin.
Our philosophy is healthy.
<unk> margin is very important for us, especially considering we are a technology company. If we look at the previous generation of some of the previous generation technology companies. They have a very thin gross margin. Therefore, we cannot invest in fast enough money on the R&D.
Most of their R&D money spend on the product development not enough in the in the technology development. So our thinking is that we want to keep a very healthy gross margin. So that not only we can invest in the product development, but also we will invest more and more on that.
Technology development.
Yeah.
10%.
Technology.
Yeah R&D.
Yes.
Yeah. Thank you.
Second question is regarding the expansion of our sales network.
As we.
We already have over 150 stores by the end of second quarter.
Most of our target, which is 200 stores by the end of this year.
So could you. Please update our plan of our sales mix will walk expansion for this year and also next year.
Well, Doug one is requiring women to cutting so Dan.
Kind of a woman.
Jim Boeheim quire sans into more Jordan chalkboard.
And then mark on their new journey on Yamana Italia.
Once it was Halloween sell women's Union bulk Dominion Gander.
Yes.
With me on this one.
Yeah.
This is Kevin Yeah, right now we are on track to achieve 200 retail stores by the year end to cover around the 100, <unk>, so within China and.
Next year, we are planning initial plans to at least double the number of retail stocks.
Yes. Thank you.
Your next question comes from the line of Jeff Hung of Citi. Please ask your question.
Hey.
I wasn't sure if I'm confused.
Uh huh.
Yeah.
You guys used to them.
And do you think.
Hum.
I'm showing you on the ebay part represent Tahoe.
So you Havent Schaeffer CEO of sellers in Chicago.
I was just in Orlando.
Just as CEO in Q.
The argument position to.
Joe that you could argue that she couldn't go mute.
Hi, Jacob.
Gotcha.
Because as you can see here.
Some dual mode.
The conditions are in USD.
What are you selling a whole suite of $1 two.
Do you mean.
Are you, saying you are COVID-19 mega yet that.
<unk> per cabinet she wants to shop.
Yeah sure.
U S agenda.
Yeah.
The wireless.
No.
So my first question.
Proxies in November or the backlog.
Would that be 100% higher than the <unk>.
Actual potential November shipments.
Similar to the momentum.
October.
Secondly is about the.
The monthly.
With us on run rate can be chip suppliers.
Our support around the 14.
14000 to 15000 units per month.
In the first quarter next year. Thank you.
Thank you Jeff This is Kevin.
First question.
October.
Delivery was.
Was impacted by both the <unk>.
Yes, P supply and also the millimetre redox supply that's why you see that our order intake is around.
<unk> doubled the number of the final delivery and.
This month's actually the millimeter radar supply shortage has been soft we are the only constraint. We have is from Bosch. So therefore.
The order intake will not be.
200%.
Delivery.
The second question actually the.
Right now the headlight.
We have.
In.
In the first quarter of next year, we will still continue to be constrained by this.
Bosch ESP components.
We are right now we are working with Bosch to try to sell as much as possible.
Thank you Patricia.
Thank you Jeff.
As a reminder, for those participants who wish to ask a question. Please ask your question clearly and come closer to your speaker phone, if you're on a speaker phone.
Your next question comes from the line of <unk> of <unk>.
See I research. Please ask your question.
Hello management. This is yellow southbound Nielsen research I have two questions.
No about SG&A.
SG&A ratio.
Actually we have seen that this year SG&A ratio.
Yeah January show increase compared with last year.
So just know Benjamin mentioned that you're talking to for IMT ratio attempt sense I want to know what about SG&A ratio.
Yeah.
Yes.
<unk>.
It's all about.
You know what kind of <unk>.
Yes.
Okay.
Sure.
It should be good.
Good job.
Jacques.
So with that John just from a Kangaroo Sylvain I wouldn't panic.
So what they're really good shape when it comes out you'll see that we're sure yes, I can do that I should that that mission.
My second question is about the capacity, we know that so we are building a new plant.
In Beijing.
So I want to know that.
What kind of a detailed pasty enamels that in 2023.
And we.
We know that we have with the changzhou.
E Bay, so any expansion plans for <unk>.
Joe.
<unk>, Canada.
Yes.
Michelle.
And I'll bet, you won't have to Los Angeles.
I guess it also no.
Yeah, I'm sorry about that.
Joe mentioned that that is awesome.
I'll take your question good question.
Yeah.
Thank you Lou this is Kevin.
First of all for the SG&A.
Highlight I can give it to you is that for the.
Immediate next step our plan is to control SG&A to a 10% level and for the longer term plan to especially with the volume growth. We plan to further decrease this presented.
So this year, you'll see a slight increase on the SG&A is because.
On one hand, and the promotion and also especially the.
Aggressive sales network expansion increased our SG&A.
Percentage in terms of our capacity.
By the end of 2023.
Our plans to reach a standard capacity off that annual capacity.
Median and with a double shift to actually all we can do the.
The total capacity.
700000 unique that's our plan for 2023.
Okay.
Thank you.
Okay.
As we are reaching the end of our conference call I'd like to turn the call back over to the company for closing remarks, Ms. Jenny Zhang. Please go ahead.
Okay.
Thank you everyone. That's all for today's call.
One.
This concludes today's conference call. Thank you for participating you may now disconnect.
Thank you.
[music].
Okay.
[music].
Yeah.
[music].
[music].
Hello, gentlemen, thank you for standing by for Lee Autos third quarter 2021 earnings conference call. At this time all participants are in a listen only mode. Today's conference call is being recorded I will now turn the call over to your host Janet Django Relations director of Lee Auto. Please go ahead.
On it.
Thank you Rachel good evening and good morning, everyone. Welcome to Liana <unk> third quarter 2021 earnings conference call. The Companys financial and operating results were published in the press release earlier today and were posted on the Companys IR website and the Hong Kong stock exchange on today's call.
We have our president Mr. Kevin Yeah nation, our CFO, Mr. Johnny Kelly to begin with prepared remarks, I'm, a founder and CEO, Mr. Shao Lee and our CTO, Mr. Taiwan 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 acts.
Our results may be materially different from the views expressed today.
Information regarding risks and uncertainties is included in certain filings of the company with the U S Securities and Exchange Commission and announcements publish on the website of the Hong Kong Stock Exchange ended the company. The company does not assume any obligation to update any forward looking statements.
Staffed as required under applicable law.
Please also note that <unk> 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 Lee Aldo press release, and interim rates and announcements with content with content.
Cancellation of an audited non-GAAP measures to comparable GAAP measures with that ill now turn the call over to our President. Please go ahead Kevin.
Thank you Hello, everyone and thank you for joining our call today.
We are excited to be part of this once in a century transformation from IC vehicle to smart electric vehicles. We are also pleased to see user acceptance.
E V is reaching an inflection point.
As reported by the China passenger car association the penetration rates of any lease.
In retail sales.
Excuse me rose significantly to 18, 5% in October from five 8% in 2020.
Looking out to 2022, we believe that extended rent system with a large battery capacity will usher in a year of explosive yagi sales against this backdrop and on the heels of the successful 2021 <unk> one launch in May we delivered a strong result.
In the third quarter, achieving revenue growth of.
200.
And the nine 7% year over year.
Underpinning by record breaking quarterly delivery of 25100 <unk> 16.
16 units, an increase of 190% year over year. This growth once again highlights the underlying strength of our 2021 day, one and these compelling appeal to family users.
Thanks to the dedicated efforts of our team and supply chain partners as well as continuous support from <unk> users our October deliveries what.
7649 units, increasing 110 to seven 2% year over year.
Our order intake remains robust hitting a new monthly record of over 14500 units in October.
The rapid development of the smart EV industry has magnified the effects of the industry wide chip shortage challenging each oem's production and delivery schedule.
While we are enjoying the strong user endorsement of our product our delivery growth left our order growth due to the chip supply shortage, which has constrained our production there.
Despite the lingering impact of COVID-19, and the extreme weather conditions in certain regions. We have resolved some of the cheapest to supply problems by working diligently with our supply partners and also internal teams we delivered the 100000.
We want to our family users in this month and expect our deliveries in November to exceed.
10000 vehicles in light of the ongoing industry wide semiconductor shortage, we expect the total delivery in the fourth quarter of 2021 to be between 30000 to 32000 vehicles.
As the development of the smart electric vehicle industry accelerate we think the challenge to the overall EV supply chain facing the industry will persist into the future going forward. We will continue to take actions and find multiple measures together with our supply chain partners too.
Mitigated the risk.
Turning to the profitability our gross margin stood at 23, 3% in the third quarter up three 5% year over year, and four 4% quarter over quarter.
Our operating cash flow was RMB, two point 17 billion or U S. Dollar $336 7 million during the third quarter, reflecting our consistent and the relentless focus on execution and cost management.
During the third quarter, we made notable progress in the expansion of our direct sales and service network.
Which not only services.
As our user touch point for efficient sales and marketing, but also an integral component of our close loop integrated online and offline. Therefore that help us manage user feedback to continuously enhance our products and services.
As of October 31, 2021, we had 162 retail stores covering 86 cities and $223 servicing center and also authorized the body.
Shops operating in 100, and the 65 cities, where we will continue to extend our coverage of lower tier cities, while deepening our penetration in first and second tier cities to reach our target of 200 retail stores by year end covering more of them.
100 cities in China. This will increase our brand awareness and prepare us for surging user demand.
As we launch new models.
In terms of the product optimization, we upgraded the in car in voice assistant Visteon culture, and launched the new application store via an OTA update in early September the new <unk> is smarter and able to carryout smoother and more.
Natural conversations with.
You can also take separate commence from four different zones in the car providing full coverage in car voice control and creating a more fun and entertaining experience for families. The new application store offers a streamlined into active designs supporting and application.
<unk> ecosystem similar to that of smartphones along.
Meanwhile, we plan to release our OE.
Upgrade to 2021 Lee while users in December we are confident that 2020, while he was with OE functions will provide family users with safe the enhanced convenience and the effective Adas functions.
Following the <unk>.
Upgrade through Otas.
All 2021, <unk> will be created with this feature we are prepared to provide.
To over 60000 family users by year end gaming as dominant leadership in this regard in China.
Yes.
In terms of <unk>, we are making good progress developing our technologies to support high power charging we have completed the fourth C battery pack test on vehicles and demonstrated that it can support a driving range of more than 400 kilo.
<unk> with only 10 minutes charging.
With the proceeds raised through our due primary listing we will build upon our recent success and deploy R&D capital to drive parallel development in <unk>, and Bbs and advancements in smart cockpit and Adas technologies.
Aiming to introduce more products catering to firmly users' needs and competing with both ice's vehicles.
The electric vehicles, we also made headway in expanding our production capacity in October we officially commenced the construction of our manufacturing based in Beijing, the manufacturing base.
Is scheduled to be operational in 2023 and will serve as an important production base for our premium bvs.
Now I will turn this call over to our CFO Mr.
Kelly.
To review, our financial performance in the third quarter.
Thank you, Kevin and Hello, everyone.
Now I'll walk you through some of our financial results for the third quarter of 2021.
To the time constraints I will.
The financial highlights here and encourage you to refer to our earnings press release for further details.
Total revenue in the third quarter of 2021 were RMB 778.
<unk> bidding for.
121 billion U S dollar.
Representing an increase of 297%.
RMB.
Coupon five 1 billion in the third quarter of 2020 and an increase of.
54, 3% from RMB <unk> zero for bidding in the second quarter.
Of this year.
This included.
RMB seven <unk>, three 9 billion or 1.15 billion U S dollars from vehicle sales, which increased 199, 7% year over year and 56% quarter over quarter.
The increase in revenue from vehicle sales from the third quarter of 2000.
2020, and the second quarter of 2021 was mainly attributable to the increase of vehicle delivery in the third quarter of 2021.
Revenues from other sales and services were RMB 389 point fall meeting or 60.
$4 million in the third quarter.
Representing an increase of 745, 1%.
Over a year and the increase of 187% portable recorder.
The increase in revenue from auto sales and services.
Over the third quarter of 2020, and the second quarter of 2021 was mainly attributable to the sale of our.
Regulatory credits as well as increased sales of charging thoughts accessories on our services.
With a higher accumulated vehicle sales.
Cost of sales in third quarter of 2021, while the RMB <unk> nine.
<unk> 6 billion or.
900.
Plenty of firepower and $5 million, representing an increase of 100.
96, 1% year over year, and an increase of 45, 9% hardware.
<unk>.
Gross profit in the third quarter of 2021, while it's RMB one.
Eight 1 billion.
Our 281.2 bidding.
Meaning U S dollars.
Growing 200.
64.8%, comparing with the third quarter of 2020, and 19.2% compared with the second quarter of this year.
Vehicle margin in the third quarter.
Ross.
21, 1% compared with.
19, 8% in third quarter of 2020.
The 18, 7% in the second quarter of 2000.
Yes.
'twenty one.
The increase in vehicle margin while.
While it is primarily driven by higher average selling price attributable to.
Increasing deliveries.
Of 2020, while U S in the third quarter of 2021.
Our gross margin in the third quarter.
Sure.
It was 20.
<unk> 23, 3% compared with 19, 8%.
In the third quarter of 2020.
And 18, 9% in the second quarter of this year, mainly driven by the increased used vehicle margin.
Operating expenses in the third quarter.
Were RMB 191 billion.
296, 4 million U S dollars.
The increase of 182, 2% year over year and the increase of.
28, 3% quarter over quarter.
R&D expenses in the third quarter.
Of 2021 were RMB 888 5 million.
Our 137 $9 million, representing an increase of 165, 6% year over year and the increase of <unk>.
36% quarter over quarter.
The increase in R&D expenses over the third quarter of 2020 in the second quarter of this year was primarily attributable attributable.
Our attributable to increased employee compensation as a result of growing.
<unk>.
Research and development staff as well as increased cost associated with new product developments.
SG&A expenses in the third quarter.
Our RMB 1.0 to billing.
$158 5 million U S dollars.
Presenting an increase of 198 five year over year, an increase of.
22, 3% quarter over quarter.
Increase in SG&A expenses.
The third quarter of 2020 was primarily driven by increased marketing and promotion activities.
As well as increased employee compensation and rental expenses.
Associated with the expansion of the Companys distribution network.
The increase in SG&A expenses over the second quarter of this year was primarily driven by the increased employee compensation and rental expenses associated with the expansion of the Companys distribution network.
Loss from operations in the third quarter of 2021.
Was RMB.
And 97 8 million or 15.2, meaning U S dollars.
Representing a decrease of.
Our 45, 7% year over year, and a decrease of 81, 8% quarter over quarter.
Net loss in the third quarter of 2021 was RMB 21 five meeting.
All three partners III meeting U S dollars, representing a decrease of <unk>.
79, 9% year over year and a decrease of.
<unk>.
<unk>, 9% quarter over quarter.
And.
Turning to our balance sheet and cash flow, our best cash and cash equivalents restricted cash time deposit and short term investments.
Total RMB.
48.83 billion, all $758 billion as of September <unk>.
<unk> 2021.
Operating cash flow in the third quarter of.
2021 was RMB.
217, beating all 300.
36, 7 million U S dollar.
Free cash flow was RMB, 116, speeding or $188 million in the third quarter.
And now for our business outlook.
For the fourth quarter of 2021, the company expects deliveries to be between <unk>.
<unk> thousand and <unk>.
32000 vehicles, representing an increase of 100.
Seven 4% to 121, 2% from the fourth quarter of last.
2020.
The company also expects fourth quarter total revenues.
Between RMB eight.
Eight two bidding and RMB 741 billion or U S dollar one partner.
Yeah.
Our three seven bidding on U S dollar 1.4.
<unk> six bidding representing an increase of 100.
12 seven.
7% to 126, 9% from the fourth quarter of 2020.
This business outlook reflects the company's current and preliminary view on this business situation on the market condition.
In particular, the ongoing industry wide semiconductor shortage, which are all subject to change I will now turn the call over to the operator to start our Q&A session. Thank you.
Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question you will need to press star one on your telephone.
Withdraw your question press, the pound or husky.
The benefit of all participants on today's call.
Please limit yourself to two questions and if you have additional questions you can re enter the queue if youre going to ask the question in Chinese please.
These follow with English translation once again ask a question at Star and the number one on your telephone keypad.
Your first question comes from the line of Fei Fang of Goldman Sachs. Please ask your question.
Sure.
Great.
For the opportunity very impressive quarter. My first question is on your <unk> pipeline no other than the fourth for C battery pack has that.
So I have shared on the call, which is obviously very impressive what else have you thought about in terms of the key features that differentiate your upcoming product from this competitive market and also can you refresh us the timeline for the next product launch and the second question is about production hurdles the management mentioned that.
I heard you correctly October there was 14500 units of intake in terms of the backlog expansion. So if you look at next year. When do you think the monthly production ramp up towards that level. Thank you.
Of course, okay.
And you are going to want to go to your official they all need it to go up.
When did they go and T shirt, Jacob <unk> trigger the T O now quite some time dollar chico's to see there too with the insurers that are Ya Qin Zhang.
Chico's going on July how did the cornerstone of our franchise the copier financial Guangdong Bureau that should change on something else you unpack downright dangerous.
Sure sure Jewish into $10 Chico's sheer finish a whole women that are getting done now to talk about your emphasis entitled Chico.
Changan JV on a hard dollar <unk> Papa John's Eco ships.
Thank you Bob.
Yes. This is Kevin.
To your first question <unk>. Besides the foresee battery we made good progress on the other hand, we also made progress on our high voltage air conditioning system.
Sure.
Also the progress made on the high power charging infrastructure.
So in terms of timing, we still plan to we still on track to launch our <unk>.
<unk>.
<unk> product in the second half of 2023 and the in terms of.
Production.
Production.
Production plant.
Actually.
Right now our factory already wrap ups can support roughly <unk>.
<unk> thousand a month right now we are our production is gated by the.
The chip shortage.
So basically next year, we expect our our production will ramp up to more than one question.
15000.
Right after the Chinese new year, assuming the chip shortage will be to certain extent that will be resolved yeah.
Okay, that's very helpful color.
Thank you.
Thank you.
Okay.
Your next question comes from the line of Tim <unk> from Morgan Stanley. Please ask your question.
Hi management team congratulations on the great results and thanks for taking my questions.
Quick two questions. The first point about the margin.
Because typically gross margin expansions any tricks.
Much ahead of our previous target.
High teens, so given the favorable weather and scale in the upcoming quarter shall.
Should we expect the upward trajectory of gross margin.
To persist into the fourth quarter or early next year.
Well well they go to consider elaborating more aggressive promotion too.
<unk> created a boost to their scale.
On the back of our backlog gross margin.
<unk> century charges from <unk> 72, a body to Xinjiang Peugeot clip.
Hypersound he'll call utilities agreement with shell.
Turning to her.
The key to the mortgage fees dissipate in <unk> Sunshine the cold yet.
Any chance you could change if the Citic telecom Basel.
We bought a piece of it.
So shall we call it sits with its <unk> Michelle <unk>.
<unk> put a tweaking.
So shut down there to acquire more.
T D.
Hi Tech.
John I think the.
The current gross margin.
As we guided before.
Mainly due to the higher.
Average selling price of the new 2020, while U S and also.
The cost control effort.
Our.
The internal team.
<unk>.
As part of the semiconductor shortage and on this year.
Gross margin is still one of the key power our previous guidance and.
For the promotion.
Currently the customer has a.
About six to eight weeks waiting times so.
No need to do more promotion to lead the <unk>.
Customer wait too long.
So currently at.
At least yes.
Two to three months, we wont do that.
Got it okay. So my second question basically want to follow up on to wait till it because as you mentioned the wait times were a newly won.
Or as long as like six to eight weeks.
So if the company fails to de lever the vehicle before Chinese new year shall.
Should we worry or concerned about.
<unk> order cancellation rates.
Or the next year or the new orders you can check with the floor substantially towards the end of this year and any precautions to coffee can or will it take to avoid such order volatility.
Jude Tioga wintershall can change, how you're kind of T cell <unk>.
And that in that.
To the point that she can answer it but I'm not sure if it will take quite a heterogeneous sunshine billion children and teach weighed upon obviously the Canadian dollar stays within that <unk> to be tool hopefully some sharing with their existing center in Tanzania. Indeed are showing you the Chaco com.
<unk> as you go because you found sources.
Like yourself have been kind of a key.
How much do you think that the portal.
Tim This is Kevin.
First of all we don't expect that we will see any other cancellation due to the <unk>.
Hello.
Delivery lead time.
Because.
Before we.
It takes the order from our customer normally we will reach agreement with them in terms of.
Roughly when do you expect that the jewelry so so basically.
When they when they.
Give us order they already have the expected.
Have already the expectation set for the delivery.
Great. Thank you very much.
Okay.
Tim.
Your next question comes from the line of bin Wang of Credit Suisse. Please ask your question.
Thank you I've got two question and then my wife about 2022 guidance.
Current guidance second question is about.
<unk> hundred for next year, because then alumina.
It may be an increase.
Well, thank you Josh Siegel.
So you're going into somebody's got a honeymoon.
Jim.
So the argument nutrition.
We've seen continued.
Continued central bank.
Two.
On an interesting point.
Okay.
Okay.
I will take the first question.
Okay.
I think.
Due to the current supply.
Changed shortage.
I think is now the right time to give guidance for next year.
You should believe busy hour.
Within the company, we have a very.
Yes.
Robust plan for the next year.
Maybe Kevin.
Yeah.
Of course, though we all know that right now we are seeing.
Big jump in terms of our raw material cost for the batteries.
But so far.
Within this year, we have no plans to.
Increase the price with us APL.
Yeah, and also I think we are lesser impact as we do.
Yes.
Yeah.
Lessor Petrofac.
Thank you great.
Thank you.
Your next question comes from the line of Nathan Lee of <unk>.
Please ask your question.
Okay.
Thank you management.
Two question. The first question is for you.
Regarding the new policy.
No worries.
Great.
Could you elaborate more function.
Neil.
And the second study.
Could you elaborate more crazy sales third quarter into the potential contribution in the fourth quarter.
Thank you.
What are you sending out with William Blair.
Michelle.
Yeah Otas.
They are converging.
Once again, the two of them.
This is going to go.
Has it gone down okay.
I think it can become income.
But what do you see.
Okay. Thank you okay.
Okay.
Okay.
Okay. Good.
How did you do it that goes on.
Uh huh.
So if you do that.
Thanks, everybody.
Okay I will take the second question.
This is John.
We have already.
<unk> sold off.
EV credits.
We can fall from last year sales so basically.
Around 200.
Meeting RMB.
The UV.
B credits or.
Seven days last year.
Paul.
No.
The mall revenue forecast.
The first question I have a hospital.
Okay.
Yes.
This is kind of speaking so regarding your first question.
So our OE feature will be released in December and so far we have lots of testing or million kilometers.
So since our 2021 Lee one model has an OE feature by default.
Next our <unk>.
December OTT update the biggest.
<unk> release in scale in China. So I think this is probably the biggest difference compare with our peers.
Thank you.
Thank you.
Okay.
As a reminder, if you wish to ask a question you will need to press star one on your telephone and speak closer to the math our speaker phone.
Thank you. Your next question comes from the line of Paul Gong of UBS. Please ask your question.
Yes. Thanks, Thanks for taking my questions basically two questions.
First one is regarding your product pipeline.
We have observed.
In this horizon competition environment.
Some peers have already accelerated several new products announced or adding new model more and more of those into the pipeline. How does our total seat and so youre actually Andres strategical winter, So corny Vishal Shaw who should.
<unk>.
<unk> you want to.
Function of modular system.
Hi, Joshua.
It seems I'm doing so since youre junk part of your core telephone comes into our suite of hotels in China.
The mental telephones.
Telephone total assumption.
So clients so no one mentioned.
So you cannot soda.
BRL 100 that you've got solution.
So the module shopper wants just one suggestion that somehow your question Matt.
Tony on realizations are you sure arbitration completion, Shanghai technical indeed.
Yeah.
Yes.
Yes.
Paul This is Kevin yeah, so in terms of our.
Future perhaps.
Actually we will our view a zero one to the market in the second quarter next year and the start with delivering the third quarter.
So more details of accidental alone will be introduced at the launch event.
So, although we see a lot of new product launch into the market, but we want to still keep to our own.
Our schedule so.
We are so.
Right now for example, we're already one delivered volume reached the level of Highlanders.
<unk> residential value is also getting close to the Highlander level. This is the benefit of reaching scale by a single model, Yes, we will the chooser.
To sell big volume with one model rather than very quickly launched.
Lots of models, but only when we sell a small volume.
Our philosophy is slightly different than our peers.
Okay.
Okay.
My second question is.
My second question is regarding the ASR going forward.
Since that know the difference.
Our system by different economy.
It's similar to each other everyone with our top flight everyone would use Nvidia chips with high calculation power. So what is the key differentiation in this competition the Adas function going forward for the rest of it with a longer time.
So what does your uncle Winchester going at.
Josh.
Yes.
So it shows a time charter hall per tonne.
It comes with just a little shy of that original Joseph online.
Got you got you Shankar sounds Yokohama Nathan.
Our songs.
Also under your thoughts.
With that I'll take questions. So one question I wanted to hydro flask and Glenn can talk on our country.
Josh It took about a year ago.
The children towards top mutation testing with your phone.
Okay.
This is kai speaking regarding this.
<unk>.
<unk> related topic.
We believe August technology eventually.
I think user experience is the most important thing.
But let's say to achieve automated let's say user experience.
As in the previous quarter, we already explained so you need massive data to train your algorithm to make it more intelligent.
And as you know.
The auto we have the biggest basically customer base with.
And OE feature by default because we believe safety is very.
Important to every single one of our customer.
Therefore.
So by using the complete.
Let's say fleet.
We can.
Speed up our progress on for the elements to make the user experience reach much less a faster speed than our competitors.
Thank you.
Okay. Thank you very much.
Okay.
Once again, if you wish to ask a question. Please press star and the number one on your telephone.
You bet.
Your next question comes from the line of Chengdu CIC. Please ask your question.
<unk>.
Oh, yes. Thank you for taking my question and congrats on the results.
Our first question is regarding all of our cost because we see that the Cogs per vehicle right too.
232000, RMB third quarter, which was 5000 more than second quarter and also it's the highest quarter I think it's 2020.
Fiduciary reason with us maybe how much is caused by the <unk>.
Rising cost of plenty plenty, one model and how much is caused by the rising price off of material.
One just require you to return to a terminal in St. Johns Town Center with Andrew from our credentials that obviously some are obviously to our tool with Canada.
Yes.
Due to the Ukrainian and we want that type of thing Jonathan.
Okay.
Thank you John.
Yeah.
Accelerate.
We still target to achieve our desired cross marketing authority, one as we mentioned before it will be finally to achieve.
Perfect.
Could you give them the product.
Currently under.
On the pressure off.
Okay.
The supply chain.
Cost pressure.
Laura.
We expected last year.
So make small farmer.
Sure.
And also does.
Uh huh.
Measure from the semiconductor part.
And also we have reduced our volume increase we have some benefit.
Benefits from the manufacturing side.
Net net.
Impact.
Volume each quarter.
We are between you.
Hello.
If we can show you go Vod in Panama.
Hey.
<unk> <unk> Hudson.
Any better digital good year.
Yes.
Yes.
So as you can hear you <unk>.
The whole model either each year our novel since you the total Algeria had on her behalf.
Not only this year just curious with the volatility.
Okay.
Even though that consume that politically.
<unk>.
Hum.
Do you view the hub, Google Yahoo executed under the.
<unk> tongue feeder pool, because again, it's only an IPO very hot.
Now turning you at <unk>.
Total than when you can't ship the whole World leader could you help me out here.
Hum.
Sure.
Okay. So it's just a moment diluting yoga area.
As you consider the heart of your question again.
Will you open up other general pneumonia panel chunky Genco Mahinda excuse me another route.
Yes. This is Kevin our translate Mr. Li's Jon just made some comments on the gross margin.
Our philosophy is healthy gross margin is very important for us, especially consider.
A technology company, if we look at the previous generation of some of the previous generation technology companies. We have a very thin gross margin. Therefore, we cannot invest in fast enough money on the R&D most of their R&D money spend on the product to develop.
And that's not enough in the in the technology development, yes. So our thinking is that we want to keep a very healthy gross margin. So that not only we can invest in the product development, but also we will invest more and more on the technology development.
Okay.
Okay.
10%.
Technology.
R&D.
Yes. Thank you.
My second question is regarding the expansion of sales network.
As we already.
We already have over 150 stores by the end of quarter, which is close to our target, which is 200 stores by the end of this year.
So could you please update.
Our plan of our sales network expansion for this year and also next year.
Well, Doug one is requiring a woman integrating so dan.
Randall a womens due to cut in.
General Hammond quiet.
Good morning, George named hardware, you buy where should that continue.
Got you.
<unk> bulk dominion.
Yes.
Yep.
Yeah.
This is Kevin Yeah, right now we are on track to achieve 200 retail stores by the year end to cover around the 100, <unk>, so within China and.
Next year, we our planned initial plans to at least double the number of retail stores.
Yes. Thank you.
Your next question comes from the line of Jeff Hung of Citi. Please ask your question.
Hey.
Oh go ahead some of ours, it's Jeff <unk>.
Oh yeah.
Yeah.
You guys used to them.
Terrific.
<unk> seen anything does.
You bet.
5%.
I'm, sorry, if you Havent <unk> CEO of <unk>.
I was just in Orlando.
Our efficiency goals.
With the addition of each.
<unk>.
Jacob.
That's down about $2 million.
As you can see they're going in.
The single mode.
Conditions are you asked about whether you saw a whole suite of around 2 million a year.
Thank you.
Okay.
That is a challenge.
Sure.
<unk> agenda, which I guess you Gotta go ahead.
Joe on the wireless.
At home.
<unk>. So my first question.
Proxies in November or the backlog.
Would that be a 100% higher than the <unk>.
Actual potential November shipments.
Similar to the momentum.
Silver.
Secondly is about the.
Sure.
The monthly production run rate can be cheap suppliers.
Our support around 14.
<unk> 14000 to 15000 units per month.
In the first quarter next year. Thank you.
Thank you Jeff This is Kevin.
First question.
October.
Delivery was.
Was impacted by both the <unk>.
Yes, P supply and also the millimeter radar supply that's why you see that our order intake is around.
<unk> doubled the number of the final delivery and.
This month actually the millimeter radar supply shortage has been soft we the only constraint we have is from Bosch. So therefore.
The order intake will not be.
200%.
Delivery.
The second question actually the.
Right now the highlight.
We have.
In.
In the first quarter of next year, we will still continue to be constrained by this.
Bosch ESP components.
We are right now we are working with Bosch to try to solve as much as possible.
Thank you Patricia.
Thank you Jeff.
As a reminder, for those participants who wish to ask a question. Please ask your question clearly and conclusive your speakerphone, if you're on a speaker phone.
Your next question comes from the line of GLA of the OCI Research. Please ask your question.
Hello Management. This is Jack Robinson research I have two questions.
No about SG&A.
SG&A ratio.
Actually we have seen that this year SG&A ratio.
Yes, SG&A ratio increase compared with last year.
So just know Benjamin mentioned batches.
For IMT eventually the Thompson I wanted to know.
What about SG&A ratio.
Yeah.
Yes.
Thank you Glenn.
Hey, Scott.
Kendall.
Yeah.
Okay.
J S.
Sure.
Good Jim.
John.
So it was not without its challenges from Congress.
Good shape when it comes out.
Well, yes, I can do that it's just that that mission.
Why.
My second question is about the capacity we need.
So we are building a new plant in Beijing.
So I want to know that so whats how detailed capacity levels in 2023.
And we.
We know that we have with the Changzhou Oh, yes.
So any expansion plans for.
Total.
The LNG supply tech.
Yes.
Okay.
And I'll bet, you won't talk about tangible and some of the China market.
<unk> yeah.
Yes.
At that time Joel this is that that is awesome I.
Tell me what you got to take your question good question.
Okay.
Thank you Lou this is Kevin.
First of all for the SG&A.
The highlight I can give it to you is that for the.
Immediate next step our plan is to control SG&A to 10% level and for the longer term plan to especially with the volume growth. We plan to further decrease this presented.
So this year Youll see a slightly increased on the SG&A is because on one hand, and the promotion and also especially the.
Aggressive sales network expansion increased our SG&A.
Percentage.
In terms of our capacity.
By the end of 'twenty.
Three.
Our plan is to reach a standard capacity off that.
Capacity.
Half million and with a double shift actually all we can do the.
The total capacity near 701000 unit, that's our plan for 2023.
Yes.
Thank you.
As we are reaching the end of our conference call I'd like to turn the call back over to the company for closing remarks, Ms. Jenny Zhang. Please go ahead.
Okay.
Everyone. That's all for today's call have a good one.
This concludes today's conference call. Thank you for participating you may now disconnect.