Hello, everyone. Dear investors, I'm your host, auto analyst Yu Xiaofei from Goldman Sachs (Asia) L.L.C. Welcome to the 2023 Q3 earnings call for Leapmotor. The management representatives at this call include the founder, chairman, CEO of Leapmotor, Mr. Zhu Jiangming, Co-President, Mr. Wu Qiang, and Senior VP, Board Secretary, Ms. Jing Hua. Toward the end of the call, we're going to have a Q&A session. Please, operator, can you let us know how questions can be raised? Hello. If you have a question, if you're calling in, you can press star one. If you're dialing in through the webpage, you can enter your question by text, or you can click on the raise hand button on the screen to ask a question. If you have a question, for those of you calling in by phone, you can press star one, and if you are entering the call through the webpage, you can enter your question in the text box or click on the raise hand button. Thank you. We'll be reading disclaimer first. The content of the 2023 Q3 earnings call of Leapmotor may contain certain forward-looking statements, specifically, including, but not limited to, statements regarding the company's future financial conditions, strategies, objectives, indicators, and future market developments in which the company is, or will be involved. These forward-looking statements are based on the company's current and future business development strategies, as well as the company's assumptions about the future business environment, which inevitably involve a number of known or unknown risks and a number of uncertainties. These factors, which the company cannot predict and control, could cause the company's actual results and the company's industry performance to differ from the future trends expressed or implied in forward-looking statements. Please be reminded that undue reliance should not be placed on the forward-looking statements discussed on this call. These statements reflect only the opinions of the company's management as of this call, the company undertakes no obligation to update or revise any statements made in this call in light of new information, future events, or otherwise. The forward-looking events discussed in the conference call may not occur due to various uncertainties and assumptions. The above disclaimer applies to all forward-looking statements mentioned in this call. Shareholders and potential investors, please note that nothing contained in this earnings call shall constitute any investment advice, nor shall it form the basis for any. In Q4, we will continue to set new highs. I believe with the healthy profitability, we'll support the company to further deepen our self-development R&D to innovate further for better products and services to our consumers. Thank you. Thank you, Ms. Jing, for the sharing. May I invite Mr. Wu Qiang to give a briefing on the financial performance and the operation performance of Q3. Q3, our delivery has set a new high in Leapmotor, our earning in the quarter also set new records. For the quarter, the earning was CNY 5.65 billion, compared with the same period 2022, represents 31.9% growth year-on-year, also represents a 29.4% growth Q on Q, where the higher sales number was a result of optimization of product mix, resulting high ASP. Another highlight is that in Q3, we have got to a positive GP margin. We have a 1.2% quarter GP margin. Compared with the previous quarter, the GP margin has moved from a negative number and grown all the way to a positive one in Q3 this year, which is a significant highlight for our financial performance. Operating cash flow in Q3 was CNY 1.4 billion in a positive territory, with CNY 11.6 billion cash at hand. Also, in the third quarter, the sales cost was CNY 5.58 billion. The cost has benefited from technology improvement, helping to reduce the cost structure for the company. The main expenses, including R&D, was about CNY 474 million in Q3. Compared with last quarter and year-on-year, representing 15% to 7% increase. That was really because of the higher R&D investment with adding more R&D headcounts. The sales expenses in Q3 was CNY 441 million. Compared with last year, it was up by 13%, and it was up by 3.3% Q on Q, which also was a result of the higher sales and more marketing efforts. Based on the launch of C01 EREV, we have more marketing expenses. SG&A in the third quarter has been lower Q on Q and year-on-year from 3% to 1.9%, which speaks to the excellent operating efficiency. The administrative expenses was CNY 210 million in Q3. Our operating loss was about CNY 1.02 billion. That was lower year-on-year, and also lower on the Q on Q basis. Therefore, our financial indicators, if you look at different angle and dimensions, we are seeing an improvement across different dimensions. Free cash flow in Q3 was CNY 1.01 billion, which is also positive. That will be our financial highlights for the third quarter of this year. Thank you. Thank you, management, for that sharing. I'd like to open up for questions. Operator, please bring in the questions from the audience. Thank you. 6426. That will be the phone number of the first caller. Hello. Thank you for the opportunity. I'm from CICC Securities. My name is Kankai. Congratulations to a satisfying results in the third quarter. I have a few questions for you, if I may. The first question is, we look at Q3 with a great positive GP margin. What about Q4, considering some of the campaigns to higher sales, close to 20,000 per month? How much more upside in terms of GP margin? Thank you. Good evening. Let me take your first question. We expect Q4 to be improving upon Q3 as we continue to drive down cost by technology, different measures taking effect, and also higher sales. We can have certain continual saving from manufacturing costs. These factors will come together, resulting a GP margin improving Q4 versus Q3. As you can see, we have added some giveaways to consumers. For example, we are offering a lower price, which might eat away some of the margin, but still, the margin in Q4 will still be trending better on a Q on Q basis. Understood. I have also seen that when you dive into the penetration, there's a lot of more potential in terms of channel. What's your plan for channel next year, or any target objective in terms of stores numbers next year? Okay, thank you. We've been optimizing our channel. We are driving one plus N model. Our competitor are copying our strategy. In the future, investment will be more focused. That's for one thing. In the future, every investment, every distributor will be one 4S store delivery service center, plus N supermarkets and also urban showrooms where they have a showroom and selling venue. It's kind of a one plus N cluster. In 2024, we'll be optimizing the channels in two ways, optimizing, choosing better, higher quality distributors, and secondly, optimization is about more balanced allocation into tier 3, tier 4 cities so that we have more coverage. Basically, unless it is other than the remote cities in the country, we want to have a good coverage of all these cities. In terms of numbers, based on the number this year, we're planning a 20% growth on numbers, so that we can really drive more growth on the sales numbers that we will be achieving this year. Got it. Thank you. If I may, I have a last question for you. We have seen that the C11 EREV have been performing very well. The C11 BEV, you are seeing quite a big gain in terms of contribution from BEV. With the launch of EREV or the BEV version C01 next year, if you look a bit longer in the future, what is your contribution? What's your split between EREV and BEV? Do you just want to sell more car regardless of the split? I think we just follow the consumers to produce and sell accordingly. Right now, 60% were BEV, 40% EREV. That is the current ratio, whether C01 or C11, that's 60/40. Because C11 BEV was launched in September 2021. It's been two years in the market. We have been building a good word of mouth among the users base. Therefore, there's kind of an inertia there. The sales was performing better and stronger than EREV. Now, EREV are gaining traction among users and getting buy-ins from the users. We could expect some further growth of EREV. The split could be more balanced between EREV and BEV. That's going to be what we are looking at. Now, what about in three or five years' time? I think BEV will still be more chosen by consumers. We can expect the fast charging technology or battery becoming more mature, the cost becoming lower. Also, BEV products will slightly outperform. Okay. Very clear. Thank you. Operator, can we take the second question, please? 0464, that would be the phone number of the next caller. Hello, good evening. Congratulations again to the GP margin improvement Q3. I have a few questions for you. Firstly, about GP margin. Now, you have outperformed in GP margin. Are you planning further giveaways to the consumers? How do you strike a balance between GP margin versus sales? Also, Mr. Wu had talked about R&D expenditure and R&D headcount growth. What are you investing in terms of R&D? And what about the future in terms of R&D expenses? What is the expectation in terms of R&D? That would be my two questions. Thank you. Okay. Yes, indeed. For a manufacturer, this is very important to balance the volume versus GP margin. As we are seeing high growth of NEV markets, obviously sales numbers are more important. Therefore, in the future, we'll be striking the balance between sales and GP margin. Whenever there's demand, we want to meet that demand. Of course, we are furthering to reduce the cost by technology, by gaining efficiency, putting in place some technology innovation in different models. To reduce the cost without compromising the configuration. That is something that we are very confident about. In the future, this will help us to provide value to consumer while maintaining a reasonable margin on our side. Now, when it comes to R&D expenditure for this year, we are seeing quite a bit of headcount growth, particularly the R&D engineer on the electric drive, smart cockpit, autonomous driving. We have invested quite heavily this year. We can look forward to Q4 or next year in terms of autonomous driving or smart driving. We're going to make some breakthroughs in the smart driving experience. In terms of algorithm, performance, and features, we do have some innovative ideas in terms of smart driving and how to implement those ideas into the model. We do have some innovative ideas and practices going on. R&D expenses-wise, we'll keep a rational head. Our growth, we're going to be a growth where the efficiency of R&D will absolutely be the best in class, in terms of R&D expenditure and the result coming from it. Yeah. Can I follow up with a question? You just mentioned balancing the GP and sales. What is a reasonable margin that you can expect or you're happy with? We think by next year, GP margin could be above 5%. That will be the goal, next year, 5%-10%. That will be something we are aiming for next year. Got it. Thank you so much. Next question from 5006. You're on the call. Thank you, Mr. Wu. I'm Ming from Bank of America Securities. My first question has to do with Q2, Q3. You have seen a six percentage point improvement in GP margin, Q3 versus Q2. What about the battery price? How has battery contributed to your margin? Now we're entering Q4, what's your view on the price trend? Is it stabilizing Q4, or are you still seeing oversupply of batteries? That it could help your margin further in Q4. That would be my first question on batteries. Indeed. The battery has been quite volatile in terms of prices. Because of the volatility of battery applied to all the OEMs. It's kind of a futures contract, just like steel, a base material. Everybody can supply the same. Because we have all the in-house R&D, full suit R&D. The battery cells is excluded, and then everything else is being looked at internally. We're looking at a six months basis. We have a target of cost reduction by way of innovation, technology, supplier negotiation. Overall speaking, in September, we have got to 5% margin in that month. We have a good margin that month. The previous investor was discussing the future. In the future, we want to strike a balance of the product competitiveness between price and margin, right? I think in this year, we are going to get to CNY 9 million this year, which is in line with expectation of sales. 9 million, that's actually already 40%. Next year, there's going to be 10 million vehicles next year for sure. It's going to be more than half of the NEV. I think definitely we can get a 50% penetration NEV. It's not all about driving higher margin. We should also look at what is your market share in terms of sales. The market share of sales is really the target that we are more interested to get at. Understood. Thank you. My second question has to do with the new models. Can you help us to talk about Q4 or next year in terms of product? What will be the products in the pipeline to be launched? September, we have just launched C01 EREV, and then in Munich car show, we have displayed the first global model, C10. In Q4, what will be contributing to sales will be C01, C11, including BEV, EREV. These are the few products in Q4. We can expect a higher growth from Q3, like 18,000 a month or even higher. That's the expected in Q4. C10 will also be launched in China by the end of the year, where we start the pre-sales. C10, I think it's a very competitive model. It is equipped with lidar, Orin from NVIDIA, highly intelligent model, and also sophistication. Because the C10, we are among the few OEMs who are using 8295 from Qualcomm. Because the 8295 from Qualcomm has excellent speed, which is three times of 8155, three times the speed. You have 3X performance. The speed, performance, feature of the application will be greatly enhanced with that chip. And also, we're using the LEAP 3.0 architecture with the latest generation, most sophisticated electronic and electric drive architecture, and also the Clover architecture. All these are going to benefit the sales of C10, and we can expect quite favorably in terms of smart cockpit, smart driving of the C10. The user experience is really central to C10, and the maneuverability, the comfort, the performance is really benchmarked against the best in class. C10 is going to be a brand new platform. On top of C11, C01, the new generation of platform, we are seeing the first model. The first model of the new platform is putting Leapmotor to a step change of high quality. C10, and also in June, we're going to have a C16. We have high hopes to these two new models. Next year, we are aiming for 30,000 units a month in terms of sales. Thank you. Let me confirm with you. The BEV, EREV will be launched at the same time. Is it going to be in tandem? C10, this is launching at the same time. For C16, we're also going to be launching BEV and EREV at the same time. For C16, this will be the first model where we have applied 800 V high-speed charging, 4C charging, high voltage 800 V, which will be the first in C16. Okay. If I may, I have another question. You talked about next year, where we have the ADAS feature. Do you have any expected target, like when the ADAS will be pushed to the model? And how many city can we expect that feature to be on live? For C10, with the lidar, the advanced autonomous driving version will be made available in Q1. On the highway and urban expressway, that will be where we have the high-definition map navigation. When it comes to the NOA for the urban streets, it will take another quarter before it goes live. Thank you. That would be all my questions. Thank you. Thank you. Next question's from A173. You're on the call. Hello, I'm John Zhu from China Securities. Thank you, and congratulations. My first question is about GP margin, which is positive in Q3. What are contributors and improvement resulting the positive GP margin in Q3? Thank you. Same time last year, in September last year, we have a cost reduction campaign. Like in C01, C11, in terms of the components, the design, we have been making some innovative redesigns. Obviously, it's in collaboration with the supplier. Last September to now. We are benefiting from lower battery price. For every car, we are seeing CNY 3,000 cost reduction per car. Those are on the material side, CNY 30,000 per car. On the manufacturing side, we are optimizing the processes, improving efficiency, also bringing CNY 1,000 costs down per car. Two coming together, we have been reducing the selling price, but also getting a positive GP margin. That's without the national subsidies. That's without the subsidy. That's really results of the whole team to get to where we are now. Thank you. That's very clear. Another question is, I've seen that the Q3, the T03 also have a good contribution, but ASP was flat over Q2. Yeah. Thank you. Obviously, components, we do have some benefit on components. Q03 and Q3 account for 90%, 90% from Q03. C01, C11 still contribute most of the improvement, which is why we have a high ASP coming from the C series. Okay, thank you. I have no further questions. Thank you for the question. Now, because of time, can we take the final two questions? Operator, can we bring in the next two questions? Next question from 0877. You're on the call. Mr. Zhu, Mr. Wu, Mr. Jing. I'm Shen Dai. I have two questions. My first question has to do with Mr. Zhu mentioning the GP margin September was at 5% already. You're targeting above 5% GP margin next year. Is it going to be too conservative? I mean, by manufacturing cost, technology cost down, continue to improve. It seems all quite positive. What do you think of the battery cost next year? Do you think the battery price is going to be volatile next year? How do you plan, how do you get to your target for GP margin next year? The second question is about your NEV market in China next year. What is your market share expectation? How do you plan to get to your target, like 30,000 sales per month? How do you plan to get there? Okay, thank you. As I said, next year, we want to get to GP margin 5%-10%. That depends on competition. Sales is most important to Leapmotor. The sales number matters more. We want to strike a balance between sales versus margin. Therefore, we might be providing more giveaways to the consumers. That depends on the competition next year. We are continuing to reduce costs. We believe we are very confident to get to excellent results of costing down. We have been evaluating every 6 months. We are setting targets for every 6 months that have good results. When it comes to batteries, lithium carbonate, at the moment, compared with the price now, not just lithium, but all the other material are in oversupply, like electrolytes and also some of the other materials. Whether it's from the upstream materials or the battery cells, assembly lines or the capacity of these cells, we have seen significant oversupply. Therefore, we expect the battery price overall would- Remain on the downward trajectory for two reasons. Firstly, because of the battery cell capacity getting larger and larger. With higher capacity, all the components will follow the same rule. You're going to have a lower cost given higher capacity. There will always be a lower price. Right now, LFP is CNY 0.4. It could go down by another 10%-15%. It is a possibility. I'm talking about battery cell, I'm not talking about pack. I'm only talking about cell. It's possible for cell to go to CNY 0.35. For NEV market, we say this year, we can expect 9 million NEV. We have three months left, and we have 900,000 cells in September. In the remainder of the year, given no further growth, 2.7 million in the final quarter without any growth, we could get to 9 million. We are pretty much on the expectation. We have always had high growth of NEV. Next year, when other people are going out to buy cars, if you buy ICE, you will be laughed at by your colleagues and friends. We are seeing an acceleration of NEV penetration. Next year, the NEV growth should also be quite significant next year. Thank you. Thank you for that. At this opportunity, I have a small question. Right now, what is your cash reserve and what is your free cash flow, and what's your plan for CapEx in the future? Thank you. In terms of cash reserve, as we said, we have CNY 11.6 billion cash at hand, quite a bit. As we are seeing high growth of sales, when we sell every 10,000 more units, we can generate about CNY 5 billion of cash flow. If we grow from 15,000 to 25,000 a month, this will bring in, just because a net increment of 10,000. For five months, if you talk about CNY 80,000 per car in terms of material cost, multiply by five months, this will give us CNY 4 billion of cash or positive cash flow. With higher sales, the cash flow will definitely improve quite significantly. Overall speaking, the reason in Q3 we are loss-making as a whole, but we have a positive CNY 1 billion cash flow. A positive cash flow of CNY 1 billion. That's really coming from growth in sales. We are pretty upbeat about cash flow, which could continue to improve. If I may add on the CapEx, Q3 CapEx was CNY 380 million, and this year, the overall CapEx will be flat year-on-year. The main investment will be on the production line, the second factory in Qiantang. We have some R&D equipment. These CapEx, like factory, is funded by the project loans. Okay. Thank you. Got it. Thank you for that answer. We are approaching the end of this call. Thank you for your attendance. I will thank all the investors and analysts. I hope to talk to you more in the future. If you have any questions, feel free to reach out to the IR team of Leapmotor and also Guosen Securities. With that, thank you and goodbye.