Li Auto Q2 2026 Earnings Call Transcript

Quartr
Provided by Quartr
August 26, 2026

Key Takeaways

  • Negative Sentiment: Second-quarter revenue fell 15.1% year over year to RMB25.7 billion, while vehicle margin dropped to 9.4% from 19.4% a year earlier. Li Auto reported a RMB1.7 billion net loss, reflecting lower deliveries, product-mix pressure and elevated costs.
  • Neutral Sentiment: Management guided for third-quarter deliveries of 95,000–100,000 vehicles and revenue of RMB26.6 billion–RMB28.0 billion. Full-year operating and free cash flow are expected to depend heavily on fourth-quarter deliveries, although the company expects overall cash-flow performance to improve from last year.
  • Positive Sentiment: The company has completed its L-Series refresh and expects the new L6 to stabilize at roughly 10,000 monthly units, while upcoming launches include the refreshed MEGA and flagship L9 in September. Li Auto aims to rank among the top three brands in China’s market for vehicles priced above RMB200,000.
  • Positive Sentiment: Li Auto is expanding its vertically integrated technology platform, with proprietary batteries expected across all models within the next few months and more than 50,000 Mach M100 chips already delivered. Planned OTA updates are intended to improve autonomous-driving reaction speed, perception range and complex-scene reasoning.
  • Neutral Sentiment: Management said rising battery, memory-chip and semiconductor costs will pressure margins but will not be passed directly to customers. The company is targeting a long-term gross margin of 15%–20%, supported by in-house components, procurement agreements and operating-efficiency initiatives.
AI Generated. May Contain Errors.
Earnings Conference Call
Li Auto Q2 2026
00:00 / 00:00

Transcript Sections

Skip to Participants
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.

Janet Zhang
Janet Zhang
Director of Investor Relations at 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.

Janet Zhang
Janet Zhang
Director of Investor Relations at Li Auto

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.

Xiang Li
Xiang Li
Chairman and CEO at Li Auto

[Non-English content]

Translator

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.

Translator

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.

Translator

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.

Translator

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.

Translator

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.

Translator

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.

Translator

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 Tie Li
Johnny Tie Li
CFO at 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.

Johnny Tie Li
Johnny Tie Li
CFO at Li Auto

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.

Johnny Tie Li
Johnny Tie Li
CFO at Li Auto

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.

Johnny Tie Li
Johnny Tie Li
CFO at Li Auto

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.

Johnny Tie Li
Johnny Tie Li
CFO at Li Auto

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
Tim Hsiao
Analyst at Morgan Stanley

[Non-English content] 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.

Donghui Ma
Donghui Ma
President at Li Auto

Tim，[Non-English content]

Translator

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.

Translator

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.

Translator

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.

Translator

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
Tim Hsiao
Analyst at Morgan Stanley

[Non-English content] 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.

Donghui Ma
Donghui Ma
President at Li Auto

[Non-English content]

Translator

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.

Translator

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.

Translator

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

Tim Hsiao
Tim Hsiao
Analyst at Morgan Stanley

[Non-English content]

Operator

Your next question comes from Paul Gong with UBS.

Paul Gong
Paul Gong
Analyst at UBS

[Non-English content] 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.

Donghui Ma
Donghui Ma
President at Li Auto

[Non-English content]

Translator

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, 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.

Translator

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.

Translator

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.

Translator

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
Paul Gong
Analyst at UBS

[Non-English content] 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.

Xiang Li
Xiang Li
Chairman and CEO at Li Auto

[Non-English content]

Translator

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.

Translator

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
Paul Gong
Analyst at UBS

Thank you very much.

Operator

Your next question comes from Wen Gao with CITIC Securities.

Wenxuan Gao
Wenxuan Gao
Analyst at CITIC Securities

[Non-English content] So my first question is about the Li L9. What information could you please share about the upcoming Li Auto L9？

Donghui Ma
Donghui Ma
President at Li Auto

[Non-English content]

Translator

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.

Translator

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.

Translator

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.

Wenxuan Gao
Wenxuan Gao
Analyst at CITIC Securities

[Non-English content] 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
Yan Xie
CTO at 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.

Yan Xie
Yan Xie
CTO at Li Auto

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.

Yan Xie
Yan Xie
CTO at Li Auto

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
Jing Chang
Analyst at 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 Tie Li
Johnny Tie Li
CFO at 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
Jing Chang
Analyst at 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
Yan Xie
CTO at 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.

Yan Xie
Yan Xie
CTO at Li Auto

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.

Yan Xie
Yan Xie
CTO at Li Auto

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 Hsun Lee
Ming Hsun Lee
Analyst at BofA

[Non-English content] 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.

Donghui Ma
Donghui Ma
President at Li Auto

[Non-English content]

Translator

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. 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.

Translator

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.

Translator

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.

Translator

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.

Translator

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.

Janet Zhang
Janet Zhang
Director of Investor Relations at 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.

Executives
    • Janet Zhang
      Janet Zhang
      Director of Investor Relations
    • Xiang Li
      Xiang Li
      Chairman and CEO
    • Johnny Tie Li
      Johnny Tie Li
      CFO
    • Donghui Ma
      Donghui Ma
      President
    • Yan Xie
      Yan Xie
      CTO
Analysts
Powered by Quartr