Hello, ladies and gentlemen. Thank you for standing by for Li Auto's Q4 and Full Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Today's conference call is being recorded. I'll now turn the call over to your host, Janet Zhang, Investor Relations Director of Li Auto. Please go ahead, Janet.
Thank you, Amber. Good evening and good morning, everyone. Welcome to Li Auto's Q4 and full year 2021 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website. On today's call, we have our President, Mr. Kevin Yanan Shen, and our CFO, Mr. Johnny Tie Li, to begin with prepared remarks. Our founder and CEO, Mr. Xiang Li, will join for the Q&A discussion. Before I continue, please be reminded that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today.
Further information regarding risks and uncertainties is included in certain filings of the company with the U.S. Securities and Exchange Commission and announcements published on the website of the Hong Kong Stock Exchange and 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 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 press release, interim results announcement, and the Q4 and full year 2021 results announcement, which contain a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. With that, I will 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. 2021 was a pivotal year for new energy vehicle sales in China. During this year, China's auto industry witnessed the notable substitution of NEVs for ICE, internal combustion engine vehicles, evidenced by NEVs rapid growth in contrast to the sluggish sales trend of ICE vehicles. This led to growing penetration of NEVs in overall passenger vehicle sales. According to China Passenger Car Association, in 2021, the retail sales of new energy passenger vehicles increased by 169% year-over-year to nearly three million, while ICE vehicle retail sales decreased by 5.6%.
The penetration rate for retail sales of new energy passenger vehicles rose substantially to 20.8% in the Q4 of 2021 versus 12.6% and 5.8% for the first nine months of 2021 and the full year of 2020. With mobility transformation trend pointing to increased smart electric vehicle use, we are proud to forge ahead as a pioneer. As an industry leader, we are ready to serve more families with continuing product and technological innovations. We achieved deliveries of 35,220 units in the Q4 of 2021, up 143.5% year- over- year, driving total revenue to RMB 10.6 billion or $1.7 billion, growing 156.1% year- over- year.
The robust Q4 performance took our full year deliveries to 90,491, up 177.4% year-over-year, and the total revenues to RMB 27 billion or $4.1 billion, up 185.6% year-over-year. Li ONE was the first domestic branded premium model priced above RMB 300,000 in China to achieve the 10,000 monthly deliveries. In January 2022, we have delivered over 10,000 Li ONEs for the third consecutive month, achieving a new record. We believe this is another milestone for Li ONE to qualify as a blockbuster model and will be a benchmark for all our future models. We are excited to see Li ONE awaken the premium passenger vehicle market in China, targeting family users and emerge as one of the best choices.
We attribute our vehicle success to our outstanding product definition capabilities. The extended range six-seater SUV has gone from being questioned to mainstream, while our four-screen full vehicle interactive voice system has set a new industry benchmark. This further proved our users recognition of Li ONE pioneering energy replenishment solution of adopting battery power for urban commuting and recharge with range extender during long-distance traveling. Highlights our users' endorsement of the brand new in-vehicle driving and riding experience Li ONE offers in this autonomous era. Our product definition capability are built on the shared vision in our organization and a solid foundation of comprehensive capability, including technological strengths, profound consumer insights, and systematic execution. We are confident we can apply this to our future models and continue to provide our users with solutions beyond what they have demanded.
We aim to grow our model lineup significantly in the coming years, while advancing our R&D efforts as products provide the competitiveness, moat for business and the technology for the moat for product. While production and the delivery improved, as most of our chip supply chain partners resume normal operations, challenges to the overall NEV supply chain will likely become long-lasting, affecting chips, batteries and potential other auto parts, given the accelerating development of the smart electric vehicle industry. Going forward, together with our supply chain partners, we will continue to work on multiple measures such as advanced planning and diversify the supply chain to mitigate supply chain risk. In light of the ongoing industry-wide semiconductor shortage, we expect the total deliveries in the Q1 of 2022 to be between 30,000-32,000 vehicles.
Turning to the financial side, we maintained strong performance with a robust and a steady growth margin of 22.4% in the Q4 , growing 4.9% year-over-year. This was driven by our strong vehicle sales performance and consistently effective cost management measurements. Even as we accelerated the pace of R&D spending to 11.6% of revenue and grew our sales network by adding 53 retail stores in the Q4 , we achieved profitability as well as a record-breaking RMB 3.8 billion operating cash flow, which is a significant reflection of our operating excellency. In 2021, we significantly expanded our direct sales and servicing network, almost quadrupling our number of retail stores to 206 in 102 cities, from 52 in 41 cities as of the end of 2020.
By the end of January, we had 220 retail stores in 105 cities, as well as 276 servicing centers and the Li Auto authorized body and paint shop, shops operating in 204 cities. We aim to provide our users with more convenient, efficient, and pleasant purchasing and user experience by strengthening our online operations as well as continually adding physical touchpoints close to our users. We plan to further enlarge our footprint and target reaching 400 retail stores by the end of this year to meet the growing market demand for NEV nationwide, supported by consumers' rising NEV adoption and our upcoming new model launches in 2022 and onward. Moving to our product optimization and R&D efforts.
In December 2021, we released the OTA 3.0 update to all our Li ONE users, further enhancing the in-car experience for both drivers and passengers. This upgrade include the navigation on ADAS and automatic emergency braking, AEB, features, making us the third automotive OEM globally to develop its own full-stack NOA capability. As of January 31, 2021, we have provided NOA to more than 70,000 family users. During the Spring Festival holiday, we accumulated over two million km of NOA mileage with an ADAS-equipped user base at the leading scale in China. We will continue to increase the R&D of ADAS-related technology, and we believe we are well-positioned to push the boundaries of assisted driving technologies.
The upgraded AEB with vision perception algorithm enables Li ONE to identify roadworks and highway traffic accident sites, and prompt users in advance to avoid major accidents. Li ONE was awarded 2021 Car of the Year by Dongchedi, [Foreign language], a renowned auto information platform in China, due to its outstanding AEB performance exhibited in the Dongchedi AEB test, known as the most strict vehicle test in China by automotive professionals. During the test, Li ONE was the only assessed model in the final round capable of accurately identifying crossing vehicles and two-wheelers. This further reflects our full-stack self-development capabilities. The OTA 3.0 update also includes an upgraded version of the Li ONE smart in-car voice assistant, Li Xiang Tongxue, which now recognizes and executes more voice instructions for in-car entertainment, navigation, and the vehicle setting.
We will continue to conduct R&D to develop safer car with smarter product features that can be helpful for all members of the family, young and old, as we remain steadfast in our commitment to creating homes on the move that bring happiness to the entire family. We are also happy to share that we have been added to the Hang Seng TECH Index under the index's newly added category of autonomous technology. The inclusion will take effect on March 7th this year. We have also been included in the Hang Seng Composite LargeCap Index since August 2021 as a technology leader in smart mobility. Our addition to the Hang Seng TECH Index endorses the strength of our full-stack self-developed ADAS and smart cabin technologies, as well as recognizes our capability to create value for our investors.
We look forward to bringing more families our Li ONE premium experience that offers safer, simpler driving with all the amenities and technology people want in a premium vehicle. In the Q2 of 2022, we will unveil our next mass-produced vehicle model, a full-size premium extended range electric SUV. Deliveries of this model will start in the Q3 of this year. In 2023, we plan to launch two BEV models that support ultra-fast charging. By then, our ultra-high voltage charging solution will be readily available to our users, effectively shortening the charging time and addressing mileage anxiety.
As we remain committed to developing new models, autonomous driving, smart cockpit, and others, our R&D expense for 2021 tripled year-over-year to RMB 3.3 billion or $515.7 million, accounting for 12.2% of revenue. We will continue to expedite our R&D, excuse me, R&D progress with the support of our expanding R&D team, which is comprised of more than 3,400 personnel as of the end of 2021, representing 139.8% year-over-year growth. We target to maintain our R&D investment at the level of 10% of revenue and above going forward. Turning to our production capacity, we are expanding our capacity at the Changzhou factory and constructing our Beijing manufacturing base.
Once the expansion and construction are completed, the design production capacity at these two manufacturing sites will reach 500,000 units annually in 2023 and around 750,000 with double shifts. Meanwhile, we are excited to share that in December 2021, we entered into a strategic cooperation framework with the Chongqing Municipal Government for establishing our new manufacturing base. We will make relevant disclosure of the Chongqing manufacturing base when appropriate. The enhanced production capacity, together with our enriched product lineup, will position us well to capture an increasing share of the booming EV market, laying a solid foundation for our strong growth in the years to come.
With the launch of our second major vehicle just around the corner and continued strength in orders for our Li ONE, we expect 2022 will be another pivotal year of growth for Li ONE, for Li Auto. Our pioneering spirit tell us to keep pushing the boundary of what is possible, and that's what we are doing. The market is ripe for advancement, and we are in the right place at the right time with the right strategy, the right skill set, the right business model, and the right vehicle to drive us to the next destination. In 2022, we expect the NEV market to see its greatest number of drivers yet, and we are all ready for it. Now, I will turn this call over to our CFO, Mr. Johnny Tie Li, to review our financial performance in the Q4.
Thank you, Kevin. Hello, everyone. I will now walk you through some of our financial results for the Q4 of 2021. Due to time constraints, I will address financial highlights here and encourage you to refer to our earnings press release for further details. Total revenues in the Q4 of 2021 were RMB 10.62 billion or $1.67 billion, representing an increase of 156.1% from RMB 4.15 billion in the Q4 of 2020. An increase of 36.6% from RMB 7.78 billion in the Q3 of 2021.
This included RMB 10.8 billion or $1.63 billion from vehicle sales, which increased 155.7% year-over-year and 40.5% quarter-over-quarter. The increase over the Q4 of 2020 and the Q3 of 2021 was mainly due to the increase of vehicle deliveries in the Q4 . Revenues from other sales and services were RMB 244.7 million or $38.4 million in the Q4 of 2021, representing an increase of 174.5% year-over-year and the decrease of 37.1% quarter-over-quarter.
The year-over-year increase in revenue from other sales and services was mainly attributable to increased sales of charging stores, accessories, and services in line with higher accumulated vehicle sales. The decrease in revenue from other sales and services over the Q3 of 2021 was due to the sales of automotive regulatory credits in the Q3 , which didn't recur in the Q4 . Cost of sales in the Q4 of 2021 was CNY 8.24 billion or $1.29 billion, representing an increase of 140.8% year-over-year and an increase of 38.2% quarter-over-quarter. Gross profit in the Q4 of 2021 was RMB 2.38 billion or $373.5 million, growing 228.5% compared with the Q4 of 2020 and 31.3% compared with the Q3 of 2021. Vehicle margin in the Q4 of 2021 was 22.3% compared with 17.1% in the Q4 of 2020 and 21.1% in the Q3 of 2021.
The increase in vehicle margin over the Q4 of 2020 was primarily driven by higher average selling price attributable to the increase of vehicle deliveries of our 2021 Li ONE since its release in May. Our gross margin in the Q4 of 2021 was 22.4% compared with 17.5% in the Q4 of 2020 and 23.3% in the Q3 of 2021. Operating expenses in the Q4 of 2021 were RMB 2.36 billion or $369.7 million, representing an increase of 193.2% year-over-year and an increase of 23.4% quarter-over-quarter.
Research and development expenses in the Q4 of 2021 were RMB 1.23 billion or $193 million, representing an increase of 228.7% year-over-year and an increase of 38.4% quarter-over-quarter. The increase in research and development expenses over the Q4 of 2022 and the Q3 of 2021 was primarily driven by increased employee compensation as a result of growing number of research and development staff, as well as increased costs associated with new product developments.
Selling, general, and administrative expenses in the Q4 of 2021 were RMB 1.13 billion or $176.7 million, representing an increase of 162.2% year-over-year and an increase of 10.2% quarter-over-quarter. The increase over the Q4 of 2020 was primarily driven by increased employee compensation as a result of growing number of staff, as well as increased marketing and promotion activities, and the rental expenses associated with the expansion of the company's distribution network.
Income from operations in the Q4 of 2021 was CNY 24.1 million or $3.8 million, compared with CNY 78.9 million loss from operations in the Q4 of 2020, and CNY 97.8 million loss from operations in the Q3 of 2021. Net income in the Q4 of 2021 was CNY 295.5 million, or $46.4 million, compared with CNY 107.5 million net income in the Q4 of 2020, and CNY 21.5 million net loss in the Q3 of 2021. Now turning to our balance sheet and cash flow.
Our cash and cash equivalents are restricted cash, term deposits, and short-term investments, total RMB 50.16 billion or $7.87 billion as of December 31, 2021. Operating cash flow in the Q4 of 2021 was RMB 3.84 billion or $602.1 million. Free cash flow was RMB 1.62 billion, or $253.5 million in the Q1 of 2021. As of December 31, 2021, we had a total of 11,901 employees. For more of our 2021 full year financial results, please refer to our earnings release for further detail. Now for our business outlook.
For the Q1 of 2022, the company expects the delivery to be between 30,000 and 32,000 vehicles, representing an increase of 138.5%-154.4% from the Q1 of 2021. The company also expects the Q1 total revenues to be between CNY 8.84 billion and CNY 9.43 billion, or $1.39 billion-$1.48 billion, representing an increase of 147.2%-163.7% from the Q1 of 2021. This business outlook reflects the company's current and the preliminary view on its business, situation and market condition, including 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.
Thank you. We will now begin the question- and- answer session. 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 withdraw your request, please press the pound or hash key. For 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 you're going to ask the questions in Chinese, please follow with English translation. Once again, it's star one for questions. Our first question comes from the line of Fei Fang from Goldman Sachs. Please ask your question.
Great, thanks. Let me ask my questions in Chinese first, and I'll translate into English. Now let me just quickly translate into English. [Foreign language]The Chinese new energy vehicle industry had various product launches in the past 12 months. Some were successful, some didn't really quite work out. What have you learned from the industry, and what do you think are the critical factors for products to succeed? The second question is on manufacturing capacity and store openings. The 750,000 units production capacity by the end of 2023, 400 stores by the end of this year. These are ambitious targets. These are large numbers from where you are right now. Does it mean that you are ready to scale up new products after unveiling those in the rest of the year? Thank you.
[Foreign language]
First of all, this is Li Xiang. I'm translating for Li Xiang. I would like to answer this question as a product manager myself. In fact, in the industry, there's a very established product logic. We start with the users. The users care about two things. The first of all is their own needs. There are three levels of needs, starting with the first level, which is their superficial needs. Then going down further, there's the hidden needs, and eventually their needs that the users don't even know themselves. First of all, we need to understand these needs very well. The second point is the price point that they're willing to buy our product at. With these things, we can basically draw a circle. As the product manager, our goal is to build products that will overlap as much as possible with this circle of user needs.
The product really focuses on five different things. The first one is product performance. We need to deliver a product that performs well on many different levels. Secondly is safety and security. Third is quality. Fourth is price. Fifth is supply. Especially in an industry that's been growing so rapidly, supply is especially important, as has been seen in the industry in the past few years. Overall, if we can build a product that can balance these five factors and match with the circle of user needs, then the bigger the overlap, the greater the sales. On the contrary, if the overlap is very small, no matter what the vision is, from the company's standpoint, sales will always suffer. We believe a good product performance is never a coincidence. It's based on very established and solid product capabilities of the company. Thank you.
Fei Fang, this is Kevin. Let me take the second question about our preparation for the coming years. Actually, we have a very strong confidence in our new product that we're going to launch in this year and next year. Therefore, we are very aggressive in terms of getting our capacity prepared. Right now, from the sales side, as mentioned, we have 400 stores planned by end of this year. We'll have more next year. Also not only stores, but also human resources of the sales force, we are also preparing. From the capacity perspective, actually, not only our own capacity, we are working with our supply chain partners to add capacity in their factories also. Also, as we should all know that IC supply is constrained. Therefore, we are already started to secure upstream IC resources by giving advanced planning to our supply chain partners. Thank you.
Thank you for your question. Our next question comes from Tim Hsiao from Morgan Stanley. Please ask your question.
[Foreign language]
Just two quick questions. The first question is about our ecosystem strategy. We noticed several startup peers start or plan to expand the operation scope into non-vehicle business, for example, like smartphone manufacturing, or flying vehicles, in order to broaden and enhance the user ecosystem of the smart EV. From Li Auto's perspective, how should we think about the company's next step of ecosystem development? My second question is about the cost management. Because we expect the general inflation or price hikes of the batteries and other key materials to continue this year. How should we gauge the potential impact? Any quantitative information we can take as a reference when we assess the potential impact. Thank you.
[Foreign language]
As the founder of the company, we have been focused from day one on the smart electric vehicle market, and we believe that we've just finished our zero to one stage, and there's still way too many things for us to focus on than to expand into other sectors. There are many things that we can do on the product, application, technology, and system levels that I believe will take the next five to 10 years for us to complete. We will be very focused on this market going forward for at least the next 10 years. We believe that in 10 years, we can reach the level of where Apple is in smartphones and smart devices. That's our overall strategy. Then speaking about space, the in-car space, there are so many things to do.
We're not talking about expanding into other types of space because we believe that even for the space in-car, there are still many things to do. One of the opportunities is the experience for activities where the experience is still not as perfect in other space. We believe there's an opportunity to move them into cars. Because of our integration capabilities and because we can fully control many of the hardware and software, we can provide much better experience than they are the way it is elsewhere, including content and hardware. These are all big opportunities to tackle that we will continue to focus on in the foreseeable future.
Tim, this is Kevin. Let me take the second question about the cost challenge. In fact, when we plan for this year's financial budget, actually we already took into consideration of the potential cost increase, especially as we should all know that the battery cost will increase. Yeah. On the other hand, actually with the volume substantially increased this year, also we will achieve more economy of scale. Therefore overall we are, although we have many challenges, we are still target to achieve a higher gross margin than last year.
Thank you. Our next question comes from Bin Wang from Credit Suisse. Please ask your question.
[Foreign language]
Actually, I got several small questions. Number one is about you just mentioned on March 7th, you actually got eligible for the Hang Seng TECH Index. That means you could be eligible for the Shenzhen-Hong Kong Stock Connect to get southbound money. That's number one. Number two is about the Li ONE. Are you actually booking around CNY 200 million revenue for the Li ONE in 2021? Can you guess what is the roughly amount in the 2022? Because you got almost more than 100% growth in the 2021. That was helped for the margin and the profit. Last one is, today you got an announcement that the CTO is leaving. Can you explain what is the reason behind the CTO leaving? Thank you.
This is Johnny. Thank you, Bin Wang. First, for the Connect, according to the latest press release by Hang Seng Index, we have been included in the large cap index. Also, to be included in the Connect, we need to meet relevant requirements on market cap and transaction volume. We expect to be included in the Connect in middle March after we are listed for six months plus 20 transaction days. It will be around that time.
For the NEV credits, for 2021, we have over about two to three times of our NEV scores, comparing with 2022. And that we got from the sales volume. But as everyone may be aware, the per score price will be lower than last year. So we are still negotiating with the potential buyer of those NEV scores. Hopefully, that will come out around the Q3 , just like last year. And for the CTO's question, I think we can just refer to the press release. Thank you.
Thank you.
Thank you. Our next question comes from the line of Ming-Hsun Lee from Bank of America. Please ask your question.
[Foreign language] Yeah. I have two questions. The first question is, h ow do you see the supply chain management and also the chip supply situation in 2022? The second question is, you just OTA the NOA last year. What do you think is the most important function for next step for you to offer to your customers to enhance the user experience?
Hi, Li. This is Kevin. Let me take the first question. In fact, we are also impacted by the Bosch supply this month and also last month. Not only the IC shortage from ST, but also the COVID-19 hit Suzhou. So going forward, in the coming months, actually, we see the situation will get improved, but still, supply will be very tight. So we'll continue to do what we have been doing. First, qualify more suppliers. Second, give advanced planning to our supply chain partners. Third, basically, to increase our own production flexibility so that whenever the supply is available, we can very quickly turn it into final product to deliver to our customer. Yeah. Second question.
[Foreign language]
Since we started delivering NOA feature on our 2021 model year Li ONE, we completed the full feature delivery release on the model by the end of last year. Our goal has always been to deliver good experience for the customers. There's actually large amounts of work for us to deliver this good experience, including adapting HD map and continue to fine tune. We'll continue this work to continue to improve, make improvements in safety. Our goal is to increase safety standards across the entire driving experience, not just when the car is in NOA mode. Which is the reason why we started to develop many of the technologies in house.
Our ultimate goal is to increase safety by decreasing accidents by 80% across the entire life cycle of our vehicles, which is why we make the feature standard and continue to iterate the feature over time. The above is about the current solution on our Li ONE, which runs on two Horizon Journey 3 chips. Speaking of X01, which will be launched this year, there will be significant improvements not only in sensors, but also in computing power and safety redundancies. It will bring the safety of the entire vehicle over the life cycle to a whole new level, and it will make the drivers and their families safe, not only when the car is in NOA mode, but also when the driver is driving themselves.
Great, thank you. Our next question comes from Paul Gong from UBS. Please ask your question.
[Foreign language]
The first one is regarding the future differentiation. Right now the several EV startups all have their uniqueness. How do you think going forward when everyone is working on the autonomous driving, everyone is going to use LiDAR, everyone is going to produce a BEV as well. What would be the key competitiveness by then? Is it for the innovation or is it revolution of the technology, or is it more focused on the efficiency of the operation? The second question is regarding the globalization. We have observed that some peers has already expanded to European markets. How is Li Auto think of the globalization, both in the near-term plan as well as in the long run?
[Foreign language]
By the end of 2021, we've pretty much validated ourselves and completed the zero to one stage as a company. We've been validating ourselves in the family SUV buyers market and pretty much established the industry ceiling as the number one seller in the medium to large size SUV market. Our key recipe for this success is our focus on the family market, our efficiency, our R&D capabilities, and our software R&D capabilities. This is validated through sales while having a very low SG&A expense level. In the next couple of years, we'll be completing our one to 10 stage, as many of you are well aware of 25 goals in volume and margins.
To reach this goal, we will continue to play to our strengths, which is two things. One is we understand the family market very well, and we will expand our product line across the CNY 200,000-CNY 500,000 price range, by providing our product to more families, in more segmented markets. The second one is our efficiency and R&D capabilities. As you can see, our R&D and new store opening pace has been on par with many of our competitors, but in meantime we're still delivering very healthy and profitable financial results. In the meantime, which we admit we have many weaknesses, which is what we will be working on over the next few years. First of all is R&D. We will. We actually have already made many improvements.
We've brought in our autonomous driving and voice recognition in-house by building a very strong, talented team. In the meantime, we've established our new capabilities in zonal controllers, E/E architecture. All of these are brought in-house today. We believe that we will continue to build these R&D capabilities in the technical area. In the meantime, the other weakness has been supply or area we wanna work on is supply.
Given the growth in the market, we'll be working on supply and as well as manufacturing capabilities. Finally on the topic of intelligent technologies, we believe that there is no shortcut in the market. One thing we've observed with intelligent technology is that it has three characteristics. First of all, users have no particular feeling of the technology when they buy the product. Secondly, if the experience is bad after they buy the product, they will very easily give up the product and lose all their confidence. Thirdly, if the product is actually good, they will very quickly find out that they cannot live without the product. To make sure that we can deliver competitive products in the intelligent technology area, we will focus on three capabilities which we believe the company is very well established.
First of all is the product capability. It's very important to understand the user needs and continue to deliver products that will exceed their needs. Second one is software and AI capabilities, which ultimately is the competition on talents, the bench of talents. We believe the most successful companies are the ones that can attract the best talents, are the ones where the best talents will most prefer to work in. The third one is safe system capability, and more specifically, it's the ability to develop operating systems. We believe with these three capabilities, we will be able to maintain our core competency in both autonomous driving and intelligent cockpit. Thank you.
Paul, let me take the second question about the globalization. Basically, you know, for our long-term strategy, we believe we will ultimately compete in the global market, that's for sure. For the very near future, very near-term, we want to focus in China market for now. As I mentioned several times, we already have a dedicated team for the globalization strategy. They are doing three things. First, to identify the potential market for our product. Second, to analyze what will be the right product mix for this product. Third, how to develop a business model so that we can achieve the meaningful market share when we enter this market. Right now, this dedicated team is still developing the overall strategy. Yeah.
Thank you, Paul.
Great. Thank you. Our next question comes from Yingbo Xu from CITIC Securities. Please ask your question.
[Foreign language]
I have two questions about the product. One is about the penetration rate of BEV goes higher than twenty percent. And that means more consumers understand more about electronic vehicles or smart vehicles. So what kind of change would that take for the users? Could you please give us more color about X01? Second question is about the BEV product that will be launched next year. We think that from EREV to BEV is a huge change. Could you please give us some description on execution of this new product? Thank you.
[Foreign language]
First of all, on the first question, as we reach higher penetration in the new energy vehicle market, this is actually good news for the company. The same product methodology will continue to apply. As I said earlier, as we observed our users, there are three levels of needs, demands. The first level are the explicit demands. The second level are the implicit demands, many of which are their pain points. The third level are demands that they don't even know exist. The way we observe these demands is that we analyze and observe the users on rational and emotional levels and understand what they want, and build products that will exceed their needs. Talking about the X01, our core theme has been to two things. One thing is to iterate things that users really wanted on Li ONE, and wanted to add to their Li ONE product.
Secondly, we're delivering on new demands that are not yet met in the market today. These are things that users do not even realize that they want, but the moment that they see their products, they'll realize this is what I actually wanted. The methodology will continue to remain the way it is, although the user needs are changing, and we will continue to follow that very closely. These are some comments on our next new vehicle on our range-extended vehicle platform. Next, I'll make a few comments on the electric vehicle market, on electric vehicle product. We will focus on three different things. First of all is 4C charging capability, and the most important component will be the battery.
We've actually spent a lot of efforts to co-develop the battery with our key supplier, because the entire architecture and cells and charging capability, heat management system will all be different. We've done intensive, extensive work in this area, to ensure that the mass production of this battery will be successful. The second component of our high voltage platform is the 850V EV platform, which includes many different things, ranging from electric motors, integrating DC-DC for raising voltage, lowering voltage, heat management, battery management system. All these things have never been provided before by us as a company. The third thing is the 400 kW charging station and charging poles. We've done a lot of work to develop these charging poles to ensure that we can provide seamless experience for our user, which connects the battery, the vehicle platform, and the charging station.
With these products, we'll be able to charge the cars in 10 minutes and deliver 400 km of range.
Great. Thank you. Our next question comes from Jiong Shao from Barclays. Please ask your question.
[Foreign language]
Thank you, management, for taking my questions. My question is really about strategic positioning and product positioning. The management talked about the focus on having the best product for the family use. Is the family sort of use case still the focus, remain the focus for the new products, including the BEV products? If it is, would that be enough for the sort of longer term sustainable growth and strategic positioning for the company? Thank you.
[Foreign language]
The answer is yes, we will continue to focus on this market because we pretty much only validate ourselves at one particular price point in this market. If you look at the entire market, when we defined the Li ONE product in 2016, the market size was only about two million units annually. Last year the market has grown to six million units, and we expect that by 2025 the market size will reach 10 million units per year. This is a very healthy market, like for three reasons. One is it has very big growth as we talked about earlier. Second one is that there's enough BOM in or bill of materials in the market for us to deliver good experience for the users.
Thirdly it can still deliver very healthy gross margin for us as a company. We believe this is a very attractive market that we'll continue to focus on. So far we've only really taken a very small scoop from the market, accounting for about 2% of market share in the market. Here we're talking about all passenger vehicle markets, not just NEV, because we believe Li ONE not only competes with new energy vehicles, but we have the potential to replace existing all existing passenger vehicles above RMB 200,000 price point. There's still much work to do. Our goal is to eventually reach at least 20% of the market, which is the time by which we will have finished our one to ten state as a company.
Great, thank you. As we reach the end of our conference call, I'd like to turn the call back to the company for closing remarks. Ms. Janet Zhang, please go ahead.
Thank you once again for joining with us today. If you have any further questions, please feel free to contact Li Auto's investor relations team. That's all for today. Hope you have a great weekend.
Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.