Earnings Call: Q4 2020

Feb 25, 2021

Hello, ladies and gentlemen. Thank you for standing by for Li Auto's fourth quarter and full year of 2020 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, Janet Chan, Director of Investor Relations of the company. Please go ahead, Janet. Thank you, Annie. Good evening and good morning, everyone. Welcome to Li Auto's fourth quarter and full year 2020 earnings conference call. The company's financial and operating results were published in the press release earlier today and were posted on the company's IR website. On today's call, we have our President, Mr. Kevin Yanan Shen, our CFO, Mr. Johnny Tie Li, and our CTO, Mr. Kai Wang, to begin with prepared remarks. Our Founder and CEO, Mr. Xiang Li, will join for the Q&A discussion. Before we continue, please be reminded that today's discussion will contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain filings of the company with the U.S. Securities and Exchange Commission. 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, which contains 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. The fourth quarter capped off a year of significant growth and robust financial results for our company. Our team's strong execution yielded record fourth-quarter results that comfortably beat our outlook. We delivered 14,464 Li ONEs in the fourth quarter, up 67% quarter-over-quarter. Our robust deliveries drove revenue growth of 65.2% compared with the third quarter, reaching RMB 4.15 billion. With 32,624 vehicles delivered to our users in 2020, Li ONE was the best-selling new energy SUV of the year in China, a testament to its highly competitive product features. This outstanding performance was fueled by strong demand driven by our distinctive product offering and the superior user experience, and made possible by our focused product strategy and our ability to rapidly scale up a consistent and high-quality manufacturing process to meet demand. We believe that evolving consumer preferences for smart electric vehicles, together with advancing technologies, will continue to be tailwinds for our long-term sales growth. Taking into consideration of seasonality and the impact of COVID-19 in Northern China, we expect our first-quarter deliveries to be between 10,500-11,500 units. On the profitability side, our gross margin remained robust at 17.5% in the fourth quarter, reflecting our manufacturing efficiency and the disciplined cost management approach. Most notably, we achieved a record-high operating cash flow of RMB 1.82 billion, nearly doubled from the third quarter, and raised $1.53 billion in proceeds through our successful follow-on offering, setting a solid financial foundation as we increase investment for autonomous driving technology and a BEV platform to drive our future growth. We remain committed to proactively serving our users by anticipating their needs. As a response to the increased demand for our vehicles, we have steadily expanded our direct sales and servicing network. As of January 31st, 2021, we had 60 retail stores covering 47 cities and 121 servicing centers, and also authorized body and paint shops operating in 89 cities. We will continue to broaden and deepen city coverage to address increasing demand from prospective users across China and prepare ourselves for the new model launches in 2022 and beyond. At the same time, we strive to continue strengthening our digital systems to integrate and connect all the stages of the sales and servicing processes to maintain a high level of sales efficiency. As a user-driven automotive and technology company, we always prioritize our users' comfort and safety. We are very proud of the outstanding safety rating results of our Li ONE achieved. Li ONE was awarded the highest safety rating in three out of the four China Insurance Automotive Safety Index evaluation categories in January. 5-star ratings in China Automobile Health Index Assessment, and a 5-star China New Car Assessment Program safety ratings in February, make it the only large premium SUV model that has received top scores in all three index programs. We aim to make Li ONE best-in-class and believe that iteration is necessary for groundbreaking innovation. We constantly collect feedback and the suggestions from our users through our APP and also our customer service centers to provide updates through FOTA. By doing so, not only we delivered more value-added products and services, but also nurture a long-term relationship with our users, which will be very helpful to enhance the value in the long run. Since the start of the delivery in December 2019, we have released 13 major vehicle over-the-air upgrades. On December 26, 2020, our delivered software version 2.0 through OTA updates, bringing 12 new features such as front vehicle smart alert, adaptive cruise speed, dashboard camera playback, multiple user setting, and also updated co-pilot entertainment system. Plus, another 12 enhanced functions, including new interfaces for the dashboard, touch screen control panel, and also updated applications such as navigation map. As of February 18th, we have users in 328 cities across China, with cumulative mileage exceeding 330 million kilometers. 97.1% of users expressed satisfaction with Li ONE in the survey we conducted in January 2021, and were willing to recommend Li ONE to their friends. As always, we are grateful for the consistent support and trust from our users. Looking forward, we will accelerate the development of second-generation extended range platform, and also the high voltage BEV technologies in order to enrich our model mix to cater to the needs of a wider range of users, while adhering to our brand positioning of premium smart electric vehicle. All of these efforts are aiming at maximizing the value proposition for our users. We are planning on the reconfiguration of our state-of-the-art Changzhou factory for our new model pipeline, especially the full-size premium SUV based on brand-new architecture to be launched in 2022. With the establishment of our Shanghai R&D center, we are also expediting our R&D effort across the board. Having successfully completed the first phase of our strategic cycle and entered the second stage this year, we will continue racing ahead towards our mission, creating homes on the move that bring happiness to the entire family. With that, I would like to turn it over to our CTO, Mr. Kai Wang, for a closer review of our R&D efforts. Please go ahead, Kai. Thank you, Kevin. Hello, everyone. Let me share with you the progress we have made on R&D since the last earnings call. We are on course with our brand-new architectures for the full-size premium electric SUV to be launched in 2022. It features a scalable and hardware upgradable ECU and sensor set, enabling more use cases via OTA. In particular, we are collaborating closely with NVIDIA and Desay to equip our next model with the powerful NVIDIA Orin SoC chipset. With scalable setup, we could expand our vehicle's overall computing power up to 2,000 TOPS. Along with our complete in-house algorithm and closed-loop data environment, we can progressively reach level 4 autonomous driving. The project goes well, and everything is on track. One of the priorities for me as CTO is to attract brilliant scientists, researchers, and engineers to join our team to develop cutting-edge smart electric vehicle. technologies as we aim to bring world-changing innovations to people's everyday lives. We are excited to kick off 2021 with announcement of our new R&D center in Shanghai, dedicated to the development of cutting-edge electric vehicle technologies, such as high voltage platforms and ultra-fast charging technologies. This R&D center will have end-to-end development capabilities for new models. We chose Shanghai as the location due to the abundance availability of top-notch talents with expertise in smart vehicles in and around the city, alongside a rich supply chain. Its establishment will not only accelerate our new model launches and the development of smart vehicle technologies, but also our recruiting efforts. Recruiting at R&D center has already started. We will ultimately build a team of over 2,000 staff. In the meanwhile, we are establishing collaborations with top universities and research institutes in China. More updates will be released in future. Now, I will turn this call over to our CFO, Mr. Tie Li, to review our financial performance in the fourth quarter. Thank you, Kai. Hello, everyone. I will now go over some of our financial results for the fourth quarter of 2020. To be mindful of the length of this call, I will address financial highlights here and encourage you to refer to our earnings press release, which is posted online for additional details. Please note that the currencies mentioned below are all RMB. Total revenue in the fourth quarter of 2020 were RMB 4.15 billion, representing an increase of 65.2% from RMB 2.51 billion in the third quarter of 2020. This included RMB 4.06 billion of vehicle sales in the fourth quarter of 2020, representing an increase of 64.6% from the third quarter. The increase in vehicle sales was mainly due to a 67 increase in vehicle deliveries to 14,464 vehicles in the fourth quarter of 2020, from 8,660 vehicles in the third quarter of 2020. Revenues from other sales and services were RMB 89.2 million in the fourth quarter of 2020, representing an increase of 93.5% from the third quarter. The increase in revenues from other sales and services was in line with the increased vehicle sales and the increased number of vehicles using our services. Cost of sales in the fourth quarter was RMB 3.42 billion, representing an increase of 70.1% from the third quarter. Vehicle margin in the fourth quarter was 17.1%, comparing to 19.8% in the third quarter of 2020. The decrease was primarily due to the decreased one-time rebate from suppliers compared with the third quarter of 2020. Gross margin in the fourth quarter was 17.5% compared to 19.8% in the third quarter, which was mainly driven by the change in vehicle margin. Total operating expenses in the fourth quarter were RMB 803.5 million, representing an increase of 18.7% from RMB 676.7 million in the third quarter of 2020. Research and development expenses in the fourth quarter of 2020 were RMB 374.2 million, representing an increase of 11.9% from RMB 334.5 million in the third quarter of 2020. Excluding share-based compensation expenses, non-GAAP research and development expenses were RMB 369.1 million, representing a quarter-over-quarter increase of 32.4%. The increase in research and development expenses was primarily attributable to increased research and development activities for the company's next vehicle model and increased headcount. Offset by the significant decrease in share-based compensation expenses over the third quarter. In this period, higher cumulative share-based compensation expenses were recognized related to the stock option granted to employees with service conditions and the performance condition related to the IPO. Selling, general, and administrative expenses in the fourth quarter of 2020 were RMB 429.3 million. Excluding share-based compensation expenses, non-GAAP selling general and administrative expenses were $426.8 million, representing an increase of 61.5%. The increase in selling general and administrative expenses was primarily driven by the increased marketing and promotional activities, and increased headcount, offset by the significant decrease in share-based compensation expenses over the third quarter of 2020. In this period, higher cumulative share-based compensation expenses were recognized related to the stock options granted to employees with service conditions and the performance condition related to the IPO. Losses from operations in the fourth quarter of 2020 was $78.9 million, decreasing by 56.2% compared to a loss of $118 million in the third quarter. Excluding share-based compensation expenses, the non-GAAP loss from operations was $71.1 million, increasing by 58% from the third quarter of 2020. Net income was $107.5 million in the fourth quarter of 2020 compared to $106.9 million net loss in the third quarter of 2020. Non-GAAP net income was $115.4 million in the fourth quarter, representing an increase of 621.3% from $16 million in the third quarter of 2020. Turning to our balance sheet and cash flow. Our cash and cash equivalents, restricted cash, time deposits, and short-term investments totaled $29.87 billion as of December 31st, 2020. Operating cash flow in the fourth quarter of 2020 was $1.82 billion, nearly doubled from $929.8 million in the third quarter of 2020. Free cash flow was $1.6 billion in the fourth quarter of 2020, representing an increase of 113.2% from $749.9 million in the third quarter of 2020. As of December 31st, 2020, we had a total of 400 181 employees. For more of our 2020 full year financial results, please refer to our earnings press release for further detail. Now for our business outlook. For the first quarter of 2021, the company expects deliveries to be between 10,500 and 11,500 vehicles, representing an increase of 262.6% to 277.1% from the first quarter of 2020. The company also expects the first quarter's total revenues to be between $2.94 billion to $3.22 billion, representing an increase of 245.9% to 278.8% from the first quarter of 2020. I will now turn the call over to the operator to facilitate our Q&A session. Thank you. Thank you. Ladies and gentlemen, we will now begin the question and answer session. For your questions, please press star and the number one and wait for your name to be announced. To cancel the request, please press the pound or hash key. For the benefit of all participants on today's call, please limit yourselves to two questions. If you have additional questions, you can re-enter the queue. If you are going to ask a question in Chinese, please follow it up with English translation. Once again, for your questions, please press star and the number one, and wait for your name to be announced. First question comes from the line of Fei Fang of Goldman Sachs. Please go ahead. Line is open. 好，谢谢。管理层，大家晚上好。恭喜公司亮丽的四季度的业绩。我这边有两个问题。首先我们看到一季度的指引，预计的交付量环比也是下降的，包括刚刚过去的1月份，销量也有所下滑，请公司介绍一下这里边的原因。第二个，我们看到上海市最近出台了2023年对混动的新能源汽车，包括PHEV和EREV，不再继续提供免费的绿牌的政策支持。请管理层谈一下，如何看待对理想汽车的影响。Let me just translate for myself very quickly. My first question is about the sequential decline of the first quarter volume guidance. Can management elaborate on the decline? What drives it on the demand or supply side? Second question is about the recent car plate policy from the Shanghai government. The city obviously announced it will no longer provide green plate to plug-in vehicles effective in 2023. Can you talk about your view on this and your projected impact on forward performance? Thank you. Thank you, Fang Fei. This is Kevin. I will answer your questions. Your first question. We think a modest month-over-month decline does not mean that our sales are encountering a bottleneck. Single model sales of over 5,000 per month still demonstrate that our Li ONE is very competitive. Deliveries in January 2021 were 5,379, and in December was 6,126. On average for these two months, were 5,753. These numbers are in line with our prior growth expectations. We think that during the Chinese Spring Festival in February and also the upcoming Chinese Lantern Festival, our sales will be affected by the seasonality for sure. In addition, considering the impact of COVID-19 in Northern China, we are putting out a relatively conservative delivery guidance for the first quarter of 2021. We are confident that with the expansion of our retail store and the effective control of the pandemic, our sales will gradually increase. About your second question about Shanghai. The policy change in Shanghai was within our expectation, with an implementation time that is even later than we expected. We believe the details of this policy and its implementation may change in the coming two years. We keep a constant communication with Shanghai local authorities. The implementation of this policy in 2023 will actually encourage users to purchase EV and PHEV and also EREVs in advance. We expect the demand for EREV and PHEV will in fact reach a peak in 2022. On the other side, Shanghai only accounts for 9% of our total deliveries in 2020, and this policy change will have a relatively small impact on our company as a whole. Cities without license restriction account for more than 55% of our accumulated deliveries by the end of 2022. The distribution is very healthy. We are also accelerating the R&D of our BEV platform and the launch of the BEV model, which is expected in 2023. Thank you. That is all my answers. Kevin, that's very helpful. Thank you very much for that. Thank you. Thank you. Our next question is from the line of Joey Chu of Morgan Stanley. Your line is open. Please go ahead. 管理层，晚上好。我是Tim，Morgan Stanley这边。首先谢谢你们的时间，也恭喜公司取得这个亮眼的四季度的业绩。那我这边两个很快的问题。第一个问题就是想请教下，今年渠道开设是不是公司有任何的指引？另外就是公司针对单店的销量，是否仍旧可以维持家店，比如说接近百余量的一个经营效率。第二个问题是关于管理层怎么看待近来包含Baidu、Apple、Xiaomi这些科技公司进军造车，这是否会对目前国内电动车或者是自动驾驶市场造成一个结构性的颠覆？ My first question, can management team share the official guidance regarding the numbers of stores we plan to open in 2021? With the broader sales network, we still keep the great operating efficiency and keep average monthly sales per store at around 100 units. My second question is about the competitive landscape. We saw a lot of tech companies get into EV market, like Baidu, Apple, Xiaomi. What kind of impact or disruption do you think these new entrants could bring to the EV and the autonomous driving market? What would be the implication to Li Auto? Thank you. Thanks, Tim. This is Kevin. I will try to answer your first question about the sales efficiency. I think our company has already entered the second strategic cycle, in which we will launch more models in the coming years. Therefore, we will not take the sales efficiency of 100 vehicles per store as the single target. Considering to keep the store sales efficiency in a relatively healthy level, we will more aggressively increase our retail stores this year, starting from this year and beyond, to prepare for the launch of our multiple models starting from 2022. Li Xiang, do you want to comment on the second question? Okay. Li Xiang. For the benefit of those who do not speak Mandarin, this is Kevin. Let me try to translate what Li Xiang just described. First of all, Li Xiang believes that it will take about three years for any company to develop a car from scratch, from setting up the team, project initiation, R&D testing, and product launch. It also will take another actual one year to test the car in the market. Right now, Li Auto has already completed all these three and entered the third phase of strategic cycle. In the coming three, four years, which we are ahead of those new entry companies, we will accelerate the speed of our development to build out our competitive advantage. We think by 2024, we will have the three major competitive advantages compared to those newcomers. First is the market share and the user base we already gained by then. It will be nearly half a million to one million. Second advantage we'll have is our sales and service channel. By then, our target is to have more than 1,000 retail stores. Also, our factory capacity, our supply chain capacity, and also our charging infrastructure will all become a competitive advantage for us. Last thing is also very important, is that by then, our product portfolio will be much bigger, and we will have both EREV portfolio and high-voltage BEV portfolio, which will give us a big advantage over the new entry companies. We respect those who want to enter this industry very much. We think the timing is on our side. We already passed the 0 to 1 phase, and we are already in the 1 to 10 phase, and we are accelerating our new product R&D and launch. All right. Thank you. Thank you, Mr. Li. Thanks for the great call-in. Thanks. Thank you. Our next question is from the line of Paul Gong of UBS. Please go ahead. Yeah. Thanks for taking my questions. Basically, I have two questions. First one is related to the pure energy vehicle, the BEV technology. You have already changed your strategy. You have accelerated your BEV development during the past several months, I can see. You have announced the Whale and Shark platform for it, and you are focused on the high voltage and the fast charging. Can you share with us more details, especially on the technology and the roadmap and the timeline of this BEV? What does Whale and Shark mean? Does Whale mean bigger space, bigger room, and Shark means faster acceleration and higher speed? How shall we understand these two platforms? My second question is regarding to the margin guidance for 2021. Obviously, at this moment, you have been achieving pretty decent high teens of the gross margin and highly close to breakeven on the operating margin. Given you already have enough financial resources and you probably need higher market share or higher volumes to build up the branding as well as a cumulative user base. Will you strategically choose to focus on lower margin for 2021 in exchange of a higher market share? [Foreign language] Paul，你好，我是李想，我来回答这个第一个问题。我觉得之所以要使用高压纯电平台，我觉得最核心的目的还是让整个的充电体验和充电的速度、充电的效率能够大幅度提升。因为要想规模性地替代燃油车，其实最重要的是要整个的补能的体验、补能的效率能够接近燃油车。所以其实我们从公司建立之初就一直在研究关于超快充的，我们认为其实无论是国家现在来的整个法规的发布，还是技术，其实已经达到了相对成熟的一个阶段，所以我们会加速自己的纯电动的研发的速度。在整个的高压纯电平台上，其实最核心的是四个层面的技术，我觉得第一个是电池的充电倍率要达到4C级、4C以上，同时要保证电池的寿命和电池的稳定性和安全性，要做得非常好。在这方面，其实我们虽然会使用供应商的产品，但是我们自己也会投入大量的研发，和供应商一起来研发，因为这个和以往的这种1C、2C的电池的需求和安全性要求是不一样的。第二点是整个电驱动系统，那必须得上碳化硅了，同时这些电气设备和电机效率也都会变得不一样。第三个是热管理系统，因为这种400千瓦的快充不能只是存在一个瞬间，而要尽可能地让整个充电速度保持在较高的功率上。这时候，对于一辆车散热成为了最大的挑战，所以热管理非常的关键。那也包含在面对这种零下20度、零下25度这种超低温的天气情况下，包含这200瓦特的加热空调系统，也都是我们技术研发的根本。所以这是第三个热管理的部分。最后是非常非常重要的，是高功率的充电网络。要达到500安，以及400千瓦这样的充电网络，我觉得包含整个的充电的设备等等，都是我们自己来研发的。最终希望给用户能实现10到15分钟充满80%的这样一个补能的体验。同时由于商业效率非常高，所以除了国家会有官方公共的这种充电设施以外，我们自己也会投资去建立大量的充电设施。所以这是技术的部分。那从发布时间上而言，从2022年开始，理想汽车每年至少会发布两款新的产品交付到市场上去，并且能够在2023年向用户交付纯电系列的产品，这是一个明确的时间点。同时产品的覆盖也会更加广泛。今天我们只覆盖了30到35万的价格区间，接下来我们会非常有效地把15万到50万的价格区间进行一个完整的覆盖，每年推出更多的产品。同时，咱们面向未来，我们还是坚信我们最核心的一个动力和任务就是能够有效地替代燃油车。所以第二代增程电动，包含我们的高压纯电的技术，这两个平台的产品都会丰富起来，通过这两种最有效的、最好的用户体验，去加速更多的用户由燃油车转化成智能电动车。所以这是大概我们的一个规划。 Okay. Thank you. 鲸和鲨。鲸鱼，鲨鱼。我觉得以后的车，我们在做BEV的时候，形态不会走传统汽车的这种形态了。我觉得其实鲸鱼的理念就是我们希望用户选择它，希望获得一个更大的空间。然后鲨鱼的话，其实它希望获得更好的性能。 Okay。 This is Kevin. I will translate. I will try to translate a lot of content. First of all, we have been developing our high voltage BEV platform for some time, and our focus is to be able to enable our customer to replenish the energy with very high speed. This is the mission we give to us starting from the beginning of this company. Now we believe with the technology and also with the standard that the Chinese government and authorities plan, right now is in the right timing to start to develop this product and try to introduce it into the market very soon. To achieve this high voltage, ultra-faster speed charging platform, there are four fundamental technologies we have to develop. The first, of course, is the high C-rate battery. We are working with our partners on the 4 times C-rate battery. This is not a product we directly buy from our supplier. We develop it together with our partners. Second is, of course, the very high-efficiency E-power train system. I think at the core of this solution is the SiC technology. The third thing is about the thermal system. As you can imagine, we are facing two issues. One, we charge this car with very high speed, the heat we need to manage. That require a very sophisticated thermal system. On the other hand, to make sure the user experience is very good, even very low temperature, we also need to have our thermal system can cater the need when they are using low temperature. One example is, for example, our R&D team is working on the CO2 as the cold medium solution for the thermal system. The last technology, of course, is the high-power charging network. Our target is to enable 300-500 kilometers range within 10-15 minutes. That's what we call also the 400 kW high-power charging network. Because of the ultra-fast charging speed, the business model start to become viable for real commercial charging station, which means the charging business become profitable. Therefore, we also have a plan to start to build our own HPC high-power charging networks. From the product launch plan, starting from 2022, we'll launch at least two new product each year onward, and the first BEV product will be launched in 2023. On the other hand, we'll cover a wider price range with our portfolio. Now our plan is to cover a price range from RMB 150,000 to RMB 500,000. Overall, our target is to accelerate the replacement of ICE cars, and we have two solutions. Both are very good, EREV solution and the BEV solution. Lastly, to answer Paul's question about the Whale and Shark. The Whale platform is car form with more space in the car. For Shark, as you can imagine from its name, the performance of this platform will be higher. All right? Hi, Paul, this is Johnny. I will answer the GPM question. You can see 2020, the full year gross margin is around 16%. For this year, 2021, we expect gross margin between 19%-20% due to the increased volume with lower bond and also the manufacturing overhead improvement. For the net profit side, because we are still increase the investment in R&D, and also the expansion of our network will be, as Kevin mentioned, we will accelerate that. We don't want to give any guidance on that. Also, you should realize that the net profit in the fourth quarter is due to the short-term investment income, which is the Licaijia in China. It's. Thank you. Okay. Thank you very much, very helpful. Thank you. Thank you. Next question is from Bin Wang of Credit Suisse. Please go ahead. My question is about the smart car issues, because this year, any milestone or event will happen for the smart car technology for Li Auto. Meanwhile, how can you prove you can catch up or even better compare your key competitors such as Tesla, NIO, and Xpeng? That's the first one. The second one is about the dealer network. You just mentioned you were expansion the dealer network. Previously, can maybe go to 120 shops this year compared to, at least this year, should be double. Can I assume when the dealer network double, the volume of sales volume could also double as well? Thank you. I would like to take over the first question. This is Kai speaking. Regarding the plan in 2021, so we will spend more money on R&D. It is the year for preparation of our in-house, brand-new, scalable, and upgradeable system architecture, covering next-generation intelligent cockpit, autonomous driving, car computing platform, and our own car operating system, which will be released in 2022. Of course, in meanwhile, similar features offered by our competitors, plus some brand-new features, will be provided to our customers for sure. From engineering resource point of view, we will double size of our total R&D staff, as we mentioned. Building a Shanghai R&D center is part of this expansion. Regarding competition, we have confidence to prove ourselves on efficiency again, as we did financially last year. We believe with fast expansion of our R&D, exciting news regarding our in-house technology, like autonomous driving, can be unveiled soon. Thank you. This is Kevin. Thank you, Wang Bin. For the sales network, our company has already entered the 2 phase as just now I mentioned, that with the Li Auto brand increasingly accepted by users. In fact, we are changing gear. We are adjusting our store expansion strategy accordingly. This year, our goal is to reach 200 retail stores in this year, covering 100 cities. This is our plan. As you can see, this is a relatively aggressive plan. The expansion of our sales network will lead to increased sales for sure, and also the brand enhancement. I think behind this plan is that we are preparing us for the new model launches in 2022 and beyond. Thank you. Thank you. We have Lei Wang of CICC for the next question. Please go ahead. Very quickly to translate my questions. I want to raise the first question regarding the overseas strategies, and another one to CTO Wang Kai regarding the battery roadmap, if that's okay. It was reported that several competitors either have started deliveries in Norway or have the plan toward for European market as well. I believe the overseas expansion was not part of our plan, but I was not sure whether you have changed your mind, especially considering the high penetration rates of the new energy vehicles in Europe. The second battery questions wants to go to Mr. Wang Kai, the CTO. We have noticed that Tesla Model 3, and also BYD Han, has been already using the LFP lithium-ion batteries for proceeding. Have you also considered using LFP instead of the NCM batteries? If we got some time for the rest of the meeting, whether you can share what's the expectation or target for the deliveries for this year? Thanks. Thank you, Wang Lei. This is Kevin. Let me take your questions. First of all, of course, we are committed to become a global leader of smart electric vehicle ultimately. Definitely, we'll consider overseas market. In the past several years, our strategy is to focus on China market only. At the same time, we are continuously monitoring the progress of the global market. This year, particularly, we will continue to increase our focus on research on the overseas market and initiate planning for the products and the sales channels for the overseas market, including establishing overseas offices. Definitely, we'll go to overseas. For your second question about LFP. In fact, for our EREV platform, we have no plan to launch with lithium iron phosphate batteries for two reasons. First of all, right now, all the LFP on the market cannot meet our performance requirement, because the EREV has a different performance requirement compared to the BEV. Secondly, it's because the EREV use less kilowatt-hour of battery, therefore, even if we use the LFP, the cost benefits will be not significant for us. For the next step, for our BEVs, definitely, we are in the process researching and developing both kind of batteries. For sure, we'll consider LFP for our future BEV car models. The last question for the expectations for the deliveries of this year. Oh, yeah. I think it's too early to give that full year guidance. We will expand our network, as- Okay. -Kevin mentioned, yeah, to reach 10,000-12,000 as soon as possible per month. Yeah. Thank you. Thank you. The next question is from Yu Xingbo of Phoenix. Please go ahead. Thank you, Guangyicheng. I have two questions. The first one is, you mentioned earlier that the Shanghai research center will have 2,000 employees. Could you provide a timeline for this plan? Could you also share the distribution of these 2,000 engineers or employees, including their directions and proportions? The second question is actually about the R&D expense. We see that last year, the absolute scale of R&D expense continued to grow, because the growth rate of sales was faster, we see that the R&D expense ratio is being ignored or neglected. How do we view the total scale of R&D expense and the R&D expense ratio in the next 1-2 years or five years as a mid-cycle? Thank you for giving me the chance. The first question comes from Shanghai Research Center. It is mentioned that there will be 2,000 staff there. Could you give us more detail about that? The second question is about recent R&D expense. We noticed the R&D expenses keep increasing. What will be next one year or two, or maybe five years, this two time range expectation for R&D expense? Thank you. This is Zikai speaking. Regarding the question about R&D activity. The definition of Shanghai R&D Center, it will be a mirrored configuration as Beijing R&D Center for more car models and also advanced R&D activities. Regarding the team of our, let's say, ADAS. Altogether, right now we have more than 300 engineers working for that, and we would like to reach up to 600 in total end of this year. This is John. For R&D, for 2020 is the early stage of our 2022's new model. This year, the R&D investment will increase to at least RMB 3 billion. With increasing investment in autonomous driving and the new models, we expect the R&D expense will reach RMB 1 billion in three years. Among that, we believe over half of the investments will be for the autonomous driving expenses. Thank you. Thanks a lot. That's all, thank you. Thank you. As we are reaching the end of our conference call, I'd like to turn the call over to the company for closing remarks. Ms. Janet Chang, please go ahead. Sure. Thank you once again for joining with us today. If you have further questions, please feel free to contact Li Auto's investor relations team. That's all for today. Thank you and have a good one. Thank you, ladies and gentlemen. That concludes the conference for today, and thank you for participating. You may now all disconnect.