Thank you for standing by. Welcome to the Li Auto Inc fourth quarter and full year 2022 earnings conference call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by one on your telephone keypad. I would now like to hand the conference over to Ms. Janet Chang, Li Auto IR Director. Please go ahead.
Thank you operator. Good evening and good morning, everyone. Welcome to Li Auto's fourth quarter and full year 2022 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 Founder, Chairman and CEO, Mr. Xiang Li, and our CFO, Mr. Johnny Tie Li, begin with prepared remarks. Our President, Mr. Donghui Ma, and our CTO, Mr. Yan Xie, 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 company filings with the U.S. Securities and Exchange Commission and the Hong Kong Stock Exchange. 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 matters. 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 CFO will start the remarks in Chinese for about five minutes. There will be English translation follows after he finish all his remarks. With that, I will now turn the call over to our CEO, Mr. Xiang Li. Please go ahead.
[Foreign language]
Hi, everyone, thank you for joining our call today. 2022 was another year of explosive growth for new energy vehicles in China as more consumers embrace NEVs. According to the China Passenger Car Association, the penetration rate of new energy passenger vehicles reached 31.7% in Q4 2022, compared to 14.8% in 2021, and 29.0% in Q3 2022. Our business continued to grow rapidly. In less than a year, we launched three new models: L9, L8, and L7, fully covering the family SUV market between RMB 300,000 and 500,000. These launches further solidified our market leadership. In the meantime, we continue to fortify our foundations across R&D, supply chain, and sales and service networks.
We've upgraded our overall business processes and org structure to prepare for ourselves in the one-to-ten stage. Next, moving on to deliveries and recent updates. In December 2022, we delivered more than 20,000 vehicles, setting another record not only for ourselves, but also all emerging automakers in China, putting us in a very good position for 2023. While Li L9 has been dominating the full-size SUV monthly sales chart in China ever since its release in December, sorry, in September, Li L8 continued Li ONE's sales success, becoming the top seller of all large SUVs in December 2022. We delivered 46,319 new vehicles in Q4 2022, and 2022 annual deliveries reached 133,246 units.
In December 2022, according to the insurance registration data from Chinese Automotive Technology Research Center, we ranked first in both the SUV and NEV markets in the price range of RMB 300,000-RMB 500,000, establishing ourselves as one of the go-to brands for all premium SUV shoppers. Furthermore, in the first quarter, a typical off-season for vehicle sales, we maintained strong order intake, showcasing the competitiveness of our products and services. I would like to hereby thank all of our users and their families for their trust and support along the way. Our revenues reached RMB 17.65 billion in Q4, and RMB 45.29 billion for the full year 2022, up 66.2% and 67.7% year-over-year respectively.
With our cost management capability and operation efficiency, we maintained a healthy growth margin of 20.2% and free cash flow of RMB 3.26 billion in Q4 2022. Moving on to our product lineup. On February 8th, we officially launched the L7, our five-seat flagship family SUV, with test drives starting the day after. The L7 features exceptional second-row space, a comfortable interior, and a long list of standard features. Equipped with our in-house developed all-wheel drive range extension system, the L7 has a CLTC range of 1,315 kilometers and 0 to 100 kilometers per hour acceleration in 5.3 seconds. L7 is developed with a G rating, the highest possible rating in the C-IASI 25% small overlap crash test for both the driver and passenger side.
It also features the constantly evolving Smart Space infotainment system and our driver assistance system. The L7 is available in three trim levels: Air, Pro, and Max, fully covering the RMB 300,000-400,000 price range. Alongside the L7 release, we also released an Air model to our L8 lineup, which succeeded Li ONE in the same segment, which covers the RMB 300,000-350,000 price range. We will commence deliveries of Li's L7 Pro and Max in early March, and delivery of Li L7 Air and L8 Air will start in early April this year. With the introductions of these new models, we have completed the deployment of L7, L8, and L9 for the entire RMB 300,000-500,000 SUV market.
The L7 also allowed us to reach a broader audience base. The L7 not only received raving reviews from customer test drives, but also brought in more diverse family users into our stores, which further led to new leads and orders for the L8. On December 16th, the L9 was awarded the Car of the Year in the 10th Xuanyuan Award. It is organized by the Auto Business Review and Austria-based EFS Consulting. The Xuanyuan Award is widely regarded as the Academy Award in the Chinese auto industry. With Li L8 and L9 continued strong performance and the addition of L7 to our family, we will set ourselves a stretch goal of 20% market share in the RMB 300,000-500,000 premium SUV segment this year. Against this backdrop, we expect first quarter deliveries to be in the range of 52,000-55,000 units.
On to supply chain. Despite continued supply chain challenges, our deliveries for both L9 and L8 exceeded 10,000 units in their first full month of delivery. This was only possible with the support of our suppliers, this was also a testament to our solid supply chain management capabilities. We remain confident of our parts supply in 2023 as we further improve our planning, risk management, and cost management capabilities to cope with potential challenges and risks. We take a modularized approach to supply chain management. We work closely with our supplier base, we have also strategically identified core areas for in-house development and vertical integration in order to strike a good balance between cost and risk. Over the past three years, we have been deploying a series of manufacturing facilities in the range extender and in electric drive unit.
Let's move on to the sales network. In Q4 2022, we continued to strengthen our direct sales and services network and to increase our user outreach and brand awareness in order to bolster our commercial capabilities and drive growth. As of January 31st, 2023, we operated 296 retail stores covering 123 cities, as well as 320 service centers, and Li Auto authorized body shops in 222 cities. In 2022, While expanding our sales network, we focused on upgrading our existing retail stores to house multiple models in order to reach more different types of families. In the coming quarters, as our brand continues to gain momentum, we have more multifunction stores. We will have more multifunction stores in our sales network.
After more than three years of operation, the direct sales model has proven to provide better user experience and at a lower cost, which will remain our long-term commitment as a premium car brand. In 2022, our SG&A expenses were already lower than our R&D expenses. We expect to further reduce our selling expenses as a percentage of revenue in 2023. In terms of R&D, it has always been a cornerstone of our value creation process for family users. Excellent user research and development capabilities have not only allowed us to stand out in the NEV market, but also will ultimately allow us to emerge as a world-class tech company. In 2022, we made great strides in research and development.
On electric drive unit, our L-series vehicles are powered by our in-house all-new range extension 2.0 system, with our 1.5-liter 4-cylinder turbocharged engine boasting a maximum thermal efficiency of 40.5%, and coupled with our proprietary five-in-one drive unit, has significantly enhanced the overall NVH performance. Supported by our proprietary hardware and software, the Li Magic Carpet air suspension provides top-notch ride and handling. In particular, our own XCU vehicle controller is capable of handling complex vehicle information at high speed, enabling millisecond-grade vehicle control. Our Li Smart Space continues to evolve. Li Xiang Tong Xue, for instance, has evolved with a new generation device cloud integrated architecture and has been rolled out to all of our L-series models.
Featuring our in-house inference engine for in-car scenario, Lisa RT, it provides solid foundation for the in-car deployment of more powerful and complex algorithms. Moreover, we have made a remarkable progress in the voice and vision-based interaction algorithms. On the speech side, with our innovative MIMO-NET algorithm that can accurately isolate different human voices in multiple zones. With our voice recognition algorithm, MSE-NET, Li Xiang Tong Xue's activation and recognition accuracy both reached 98% in real-world testing. These rates remain at over 90% in various demanding scenarios, including high noise, low voices, and children's voices. On the vision side, our MVS-NET algorithm can accurately recognize gestures of all occupants. Combined with innovative summoned by gesture technology, it makes interactions through gestures easier and more natural, allowing the whole family to enjoy the superpower of making contact and taking control over the air.
In terms of autonomous driving, we adopted the Fusion BEV algorithm framework jointly proposed by Tsinghua University, MIT, and us, which can be flexibly deployed with Li AD Max and AD Pro's different hardware configuration. Our in-house highway NOA prediction algorithm enables organic automated lane change and a smooth acceleration and deceleration experience. As of now, over 220,000 family users have used our highway NOA features, covering 100 million kilometers of distance. During the 2023 Chinese New Year holiday alone, our highway NOA mileage of all models reached almost 8 million kilometers. This year, we'll further expand our NOA features into urban driving scenarios, with beta testing for early bird users planned on Li AD Max in the first quarter of this year.
In addition, we created the industry's first AEB function with LiDAR applications on Li AD Max and expanded the LiDAR's algorithm safety scenario for major traffic participants such as vehicles, cyclists, and pedestrians to cover irregular scenarios, including special vehicles as well as night driving scene. We will continue to focus on developing our core EREV and BEV technologies in-house and further elevating our product's level intelligence. To that end, we will consistently direct our R&D resources across products, platforms, and systems to fuel our long-term growth. In summary, we view our long-term success as a function of our continued investment in R&D and our business capabilities, which will support the creation of more hit models, enhance our brand value, and serve as critical pillars of our business flywheel. 2023 will be another year of rapid development of the NEV industry and for Li Auto in particular.
We have full confidence that we will be able to build an increasingly innovative and diverse model lineup and deliver outstanding products and services that will continue to exceed our users' needs. With that, we'll turn over the call to our CFO, Johnny, for a deep dive into our financial performance.
Thank you, Alicia. Hello, everyone. I will now review some of our 2022 fourth quarter financials. To leave more time for the Q&A session, I will address our financial highlights here and encourage you to refer to our earnings press release for more details. Our total revenues in the fourth quarter of 2022 were RMB 17.65 billion or $2.56 billion US dollar, representing an increase of 66.2% year-over-year, and an increase of 88.9% quarter-over-quarter. This included RMB 17.27 billion, or $2.5 billion US dollars from vehicle sales, which was up 66.4% year-over-year, and 90.9% quarter-over-quarter.
The increase was mainly attributable to the increase in vehicle deliveries, as well as a higher average selling price due to our delivery of Li L9 starting in late August and the Li L8 starting in November. Revenues from other sales and revenues were RMB 381.5 million, or $55.3 million in the fourth quarter, representing an increase of 55.9% year-over-year, and an increase of 28.7% quarter-over-quarter. The increase was mainly due to the increased sales of accessory and services in line with higher accumulated vehicle sales.
Our cost of sales in the fourth quarter was RMB 14.08 billion, or $2.04 billion, representing an increase of 70.9% year-over-year, and an increase of 72.6% quarter-over-quarter. Our gross profit in the fourth quarter of 2022 was RMB 3.57 billion, or $517.1 million, growing 49.8% compared with the fourth quarter of last year, and 201.7% compared with the third quarter of this year, of 2022.
Our vehicle margin in the fourth quarter of 2022 was 20%, compared with 22.3% in the fourth quarter of 2021, and 12% in the third quarter of 2022. The decrease in vehicle margin over the fourth quarter of 2021 was mainly due to the different product mix between the two quarters. The increase in vehicle margin over the third quarter was mainly attributable to the losses on purchase commitments related to Li ONE in the third quarter of 2022. Gross margin in the fourth quarter of 2022 was 20.2%, compared with 22.4% in the fourth quarter of 2021, and 12.7% in the third quarter of 2022.
Operating expenses in the fourth quarter of 2022 were RMB 3.7 billion, or $536.4 million, representing an increase of 47.1% year-over-year and an increase of 11.7% quarter-over-quarter. R&D expenses in the fourth quarter of 2022 were RMB 2.07 billion or $300.1 million, up 68.3% year-over-year and 14.7% quarter-over-quarter. The increase was primarily driven by increased expenses to support our expanding product portfolios as well as increased employee compensation as a result of our growing number of staff.
Our selling, general, and administrative expenses in the fourth quarter of 2022 were RMB 1.63 billion, or $236.3 million, representing an increase of 44.8% year-over-year, and an increase of 8.1% quarter-over-quarter. The increase was primarily driven by increased employee compensation as a result of our growing number of staff, as well as increased rental expenses associated with the expansion of our sales and servicing network. Loss from operations in the fourth quarter of 2022 was RMB 133.6 million or $19.4 million, compared with RMB 24.1 million income from operations in the fourth quarter of 2021, and representing a decrease of 97...
93.7% from RMB 3 billion loss from operations in the third quarter of 2022. Net income in the fourth quarter of 2022 was RMB 265.3 million, or $38.5 million, representing a decrease of 10.2% from RMB 295.5 million net income for the same period in 2021, and compared with RMB 1.65 billion net loss in the third quarter of 2022. Turning to our balance sheet, balance sheet and cash flow. Our balance of cash and cash equivalents, restricted cash, time deposits, and short-term investments was RMB 58.45 billion or $8.47 billion as of December 31, 2022.
Net cash provided by operating activities in the fourth quarter of 2022 was RMB 4.93 billion or $714.1 million. Free cash flow was RMB 3.26 billion or $472.3 million in the fourth quarter of 2022. As of December 31st, 2022, we had a total of 19,396 employees. For more of our 2022 full year financials, please refer to our earnings press release for more details. Now for our business outlook.
For the first quarter of 2023, the company expects the deliveries to be between 52,000 and 55,000 vehicles, representing an increase of 64% to 73.4% from the first quarter of 2022. The company also expects first quarter total revenues to be between RMB 17.45 billion and RMB 18.45 billion or $2.53 billion and $2.68 billion, representing an increase of 82.5% to 93% from the first quarter of 2022. This business outlook assumes supportive macroeconomic conditions, no significant disruption in the supply chain and reflects company's current and preliminary view on its business situation and market conditions, which is subject to change.
I will now turn the call over to the operator to start our Q&A session. Thank you.
Thank you. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you are on a speakerphone, please pick up your handset to ask your question. When asking a question in Chinese, please translate your question in English for the convenience of everyone on the call. The first question today comes from Tim Hsiao with Morgan Stanley. Please go ahead.
Uh,
[Foreign language] My first question is about the volume outlook.
We noticed that previously the management shared the monthly deliveries could at least reach 25,000 after the delivery of L7 started, with a further climb to 30,000 after the Air versions of L7, 8 are available. Just want to double confirm that how we come up with such a strong target. Are they based on the pace of the new order intake, order backlog, or our assessment of total addressable market of five, six seaters SUV? How fast could Li Auto's monthly deliveries reach and stabilize at such level? More importantly, could the supply chain coherently ramp up their output at such a rapid pace? [Foreign language].
[Foreign language]
25,000-30,000 orders is our internal goal and we expect to reach this level in Q2, because April is the first full month where we deliver the L7 Pro and Max, and May will be the first month where we deliver the Air version of L7 and L8.
[Foreign language]
Second question about our ramp up. Admittedly, we experienced some issues in the second half of 2022 with our deliveries, and we attribute it really to two things.
One is because we had a set of very aggressive delivery goal because we were seeing really good order intake. That placed a lot of pressure on the supply chain. The second cause was we were switching from a single model to multiple models at which again, placed a lot of pressure on our sales and service networks. Across Q4 and Q1 of this year, we have been going through a long process of upgrading our sales and service and manufacturing systems so that now we have a very robust system all the way from planning to delivery to manufacturing and sales so that we can handle really the stress that comes in with our strong order intake. That really helps us to make three things a lot better. The first one is resource allocation. We could really allocate the best resource to where it's most needed. The second one is our employees will feel more fulfilled as they achieve these goals. Third is that it also applied suppliers to reach higher efficiency on their side.
[Foreign language]
[Foreign language] My second question is about battery procurement cost and the potential impact to the margin. Are we so strong likelihood that battery prices will continue the downtrend this year? Previously local media also reported like CATL and likely others are willing to offer some aggressive pricing in exchange for long-term contracts from Li Auto's and other top-notch EV makers. could the management team comment on potential collaboration with battery makers, and how should we think about how the contribution to Li Auto's vehicle margin improvement in the following quarters in terms of scale and timing versus current level?
[Foreign language]
In terms of battery pricing, there are many factors at play, including the Li mines and battery pricing mechanisms. In general, our belief is that as battery cost continues to approach a more reasonable level, I, we think it's good for the industry, not only for us as OEMs, but also for suppliers and battery manufacturers.
[Foreign language]
As we expand to more models and as our sales continue to ramp up, we believe battery is a very strategic asset, and we will continue to commit to a multi-supplier strategy for two reasons. One is for not only for the stability of our supply chain, but also to meet the time requirements for developing multiple models at the same time.
[Foreign language]
In the long term, we believe that battery prices will continue to move towards a more reasonable level. As you can see, in the past few days, the price of lithium carbonate has already reached about RMB 400,000 per ton. We believe the long term trend is still for the price to go down. We'll continue to work with suppliers to negotiate a good term. There's not much deal-details I can share at this point.
[Foreign language]
Thank you very much for the detail update. Thank you.
The next question comes from Paul Gong with UBS. Please go ahead.
[Foreign language] My first question is regarding the gross margin. I think for this quarter, the vehicle gross margin has been 20.0%, which is about one percentage point lower than second quarter and two percentage points lower than first quarter. I think just now, Mr. [Foreign language].
Li has mentioned it was due to the product mix change. My understanding is L9 contributed some about 60% of the volume for this quarter, which should be positive for the margin. Is that due to the initial ramping up stage or there, is there any other reasons you can share? This is my first question.
Thank you, Paul. Yeah, this is Johnny from accounting. First, the gross margin is healthy and consistent with our guidance. Starting from the fourth quarter, our revenue and gross margin, gross profit is a mix of different product offering. The majority of the sales volume comes from the L9 and L8, and it's both product is under the ramping up period. As you know, our supply chain need to ramp up with that for some period, and to release the gross margin.
Cost down in coming quarter. Our L-series platform, the overall gross margin is 25% with material delivery in the future. Monthly delivery. Thank you.
[Foreign language] My second question is regarding to your upcoming pure electric perhaps around MPV.
I understand the selling point might be fast charging. We also see some competitors, some peers, fast charging BEV models recently launched didn't really match the expectation. How should we define our products by maintaining the competitiveness while trying to achieve certain margins that is hopefully are comparable to our existing EREV products?
[Foreign language]
I answer this question on three levels. I start off with why we decided to build EREVs in the first day. It was really two things, right? One is because battery costs were very high, and second was charging was difficult at the time for electric vehicles. It was not only difficult to find charging stations, but also very slow to charge. Moving over to EVs, we also intend to solve the three issues. The first one is about charging. With EREVs, our strategy has been to use gas on highways and use electricity in the local environment. EV, we solve the same issue by charging rapidly, charging 400 kilometers of range in 10 minutes, which is very comparable to gas cars. That's not the complete picture.
It's like when we have 4G mobile phones, if we only have 2G networks, it still wouldn't work. Another piece of the puzzle is infrastructure. With car-bound charging capabilities and infrastructure, we are able to provide a level of charging experience comparable to REVs or gas vehicles. Second one is cost. As you can see, we've invested a lot on our 800V high-voltage architecture, as well as our own in-house silicon carbide factory. Many of these innovations combined allow us to significantly increase the efficiency of our EV architecture. Compared to 400V IGBT systems, we observe almost 15% of energy efficiency compared to similar models on the 400V architecture. That saves a significant amount of battery and therefore cost of the vehicle.
The third level I want to talk about is product. I can assure you that on our EV product lineup, we will be able to provide a similar level of product and experience differentiation that significantly exceed our user expectations, even more so than our REV models.
[Foreign language] Thank you so much.
The next question comes from Bin Wang with Credit Suisse. Please go ahead.
[Foreign language] got two question, number one is about the L7 order.
By your guidance, you said that, before L7 Air version you get 25,000 units sales, but after that you got 30,000 units, which means, will be 5,000 from the L7 Air. Can I think the overall L7 will be bigger than the total order flow from L8 and L9? That's the first question about the order flow for L7. The second question about the margin. I actually try to quantify the margin impact in the number four quarter because we see a few factors. Number one is that the lithium price is actually increasing quite a bit in the number four quarter compared to number three, increasing from 400,000 units, maybe per ton to more than 500,000 maybe per ton. Is that going to be the number one reason?
Number two is about the promotion for the Li ONE. We saw that in the last quarter, last year, each month we sell around 1,000 units on Li ONE. Is that going to clear the inventory in the second reason why the margin did not increase? Third one is about component supply. Normally for car maker in the first certain amount, say 50K, you actually have a higher cost. After 50K, you have lower cost. That's the reason I'm trying to understand what's the margin trend in the first quarter next year, 2023. Thank you.
Okay. This is I will your question. First, I think for the new L7, as usual, we still need some time to ramp up. For the Q1 guidance, we include several thousand, yeah, L7, most of the delivery will still be L9, L8. As we mentioned, April or May. May will be the whole month we deliver our L-series, including Air. We have some Air order. As you know, the Air version test drive hasn't start. A lot of the customer need to do test drive. The mix just like those of a you might see from the Weibo. For second question, I think all the factors you mentioned is what was the factor that makes our 20% across margin in the fourth quarter. All this as a whole cost the impact about 2% of the margin. I think I don't want to break it too into too much detail. For this year, considering the market condition, we still want to keep our guidance to be above 20%. Thank you.
Thank you so much.
The next question comes from Ming Hsun Lee with Bank of America. Please go ahead.
[Foreign language] My first question is regarding the license plate policy change in Shanghai.
What is the sales contribution from Shanghai City in 2022 and 2023? Among that, how many % of the consumers this year they use their current license plate to buy our product?
[Foreign language] So uh my second question is regarding your product pipeline.
First question. Will you launch the BEV this year for the MPV and also for your new product pipeline? Will Li L6 be launched next year? And also for the besides Li L6, next year for the BEV product, will you start to launch more other product, for example, such like SUV or sedan? [Foreign language].
[Foreign language]
In terms of orders in Shanghai, the January order flow was not very good. That was understandable because most of the demand was released in the November and December last year. We have seen a very significant recovery since February. Over the long term, we look at this issue from a market share standpoint, and we believe that steady state market share in Shanghai will be comparable to that in Beijing, because going forward, in neither of these markets, EV purchase will be incentivized by free license plates. We think Shanghai will eventually move towards a market share similar to that in Beijing.
[Foreign language]
First of all, in terms of our flagship EV product, the timing of the product release is highly tied to the cycle of technology innovation. In particular, in this case, at the end of this year, there will be a big milestone where Qualcomm will be releasing their 8295 chips. The delay in our EV product is highly tied to this because we want to meet the development cycle so that we can release our flagship vehicle with the new chip as early as possible. We cannot have our flagship model and only carry the last generation chip when it comes to market.
The second one, in terms of the EV lineup, the EV lineup will basically mirror something similar to what we have with the L-series, which fully covers the RMB 200,000-RMB 500,000 price range.
[Foreign language] Thank you.
The next question comes from Yingbu Xu with CITIC. Please go ahead.
[Foreign language] Uh my first question comes from...
It is just now we mentioned that we aim to get a 20% market share on the SUV market with the price from between RMB 300,000-RMB 500,000. My question is that how we have confidence in this market share. Could you please talk a little bit more on how we consider about the market of SUV between the price RMB 200,000-RMB 300,000. This is my first question. Thank you.
[Foreign language]
First one about the RMB 300,000-500,000 price range. We were at a market share of 9.5% last year, as you mentioned. This year we expect the whole market size to be between 1.4 million-1.5 million units. Our goal is to double the share because we believe at 20% share is where we could reasonably steadily stay as the brand champion. That's kind of how our goal came about. The RMB 200,000-300,000 market is a lot more competitive. Our plan is to achieve the market approach the market at a second stage where we have much greater economy of scale and stronger core competencies.
[Foreign language] My second question is that considering the pre-trained transformer AI technology has influenced in different sectors, in different industries.
My question is, how will that impact auto industry we are working now? In future, how can that influence and for the consumers, for the users, what kind of change we can experience in short? Thank you.
Hello, Yingbu , this is Yan. Let me take your question. We have invested in the development of AI-based cognitive technologies for quite a long time, especially the Compositional AI and the gesture recognition. We think they are very important in smart space and this give our customers very good user experience. Recently we are paying close attention to ChatGPT and we think its technology, the technology behind like large language models and pre-trained models are very similar to what we are doing right now in smart space. We also believe that these technologies have good potentials in visual tasks like self-driving and related study and development is still in progress.
[Foreign language]
The next question comes from Yuqian Ding with HSBC. Please go ahead.
[Foreign language] I only got one question: is that within our current three SUV model portfolio, how do we evaluate the potential cannibalization given by different version of different models, the pricing points overlap?
Should these three models combined sales between amount 20K to 30K, what's the roughly margin range we will expect given these three SUV models have the shared cost base?
[Foreign language]
In fact, in practice, we've seen very clear user base differentiation between L7 and L8. There hasn't been as much overlap as we had been expecting. As we've seen in showrooms, the L7 is really attracting families with two to three members, one kid. L8 is attracting either families with two kids or those that are three generations under the same roof. Another good thing is that the interest in L7 has also helped us fuel orders for L8. With L8, L7, and L9, what we really formed is not just a product line, but in fact, a product network. We want any family who's willing to buy an SUV will come to our network and find.
Think about whether it's L7 or L8 or L9 that they should buy rather than comparing us to other brands and pick which brand to buy. That has been our core product philosophy with the product line of L7, L8, and L9.
Okay. For the gross margin, as we just mentioned, for the L-series platform with all this product offering and with some scalability, the design gross profit margin is 35%. Considering this year's battery price and also the macroeconomic, we still want to keep our guidance just about 20%. Thank you.
There are no further questions at this time. I'll now hand it back to Ms. Chang for any closing remarks.
Thank you once again for joining us today. If you have further questions, please feel free to contact the Auto Investor Relations team. You may. That's all for today. You may disconnect your line. Thank you.
That does conclude our conference for today. Thank you for participating. You may now dis-