Li Auto Inc. (LI) Q3 2020 Earnings Call Transcript - The Motley Fool

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Li Auto Inc. (NASDAQ:LI)
Q3 2020 Earnings Call
Nov 13, 2020, 8:00 a.m. ET

Prepared Remarks:

Operator

Hello, ladies and gentlemen. Thank you for standing by for Li Auto's third-quarter 2020 earnings conference call. [Operator instructions] Today's conference call is being recorded. I will now turn the call over to your host Janet Chung, director of investor relations of the company.

Please go ahead, Janet.

Unknown speaker

Thank you, Liberty. Good evening and good morning, everyone. Welcome to Li Auto's third-quarter 2020 earnings conference call. Our first earnings conference call since our IPO.

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, 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 non-audited 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 to our president, Kevin. Please go ahead, sir.

Kevin Shen -- President

Thank you, Janet. Hello, everyone, and thank you for joining our call today. We are very excited to announce the result of our opening quarters as a public company following our July 30 listing. In the third quarter, we achieved robust results.

We delivered 8,660 Li ONEs in the third quarter, which represented a quarter-over-quarter increase of 31.1% versus our deliveries in Q2. As of the end of October, cumulative deliveries in 2020 reach 21,852 vehicles. According to new car insurance registration data reported by China Automotive Technology and Research Center, in September and October Li ONE become the best-selling new energy SUV among all models in China, a very strong testament through its highly competitive product features. In addition, in October, our order showed strong growth, setting a new monthly record and giving us solid confidence in our fourth-quarter deliveries, which we expect to reach 11,000 to 12,000 units and achieve a new quarterly record.

At the same time, we have improved our gross margin and operating cash flow due to increased deliveries, improved BOM cost, and overall operating and manufacturing efficiency. In the third quarter, our gross margin expanded to 19.8%, compared to 13.3% in the second quarter. We also generated an operating cash flow of RMB 929.8 million, which is 105.8% higher than the prior quarter. In terms of R&D, we will further increase our investment in this regard and continue to leverage technology to create value for users and to optimize our user experience.

Through product and technology innovations, we are committed to providing our supplier users with safer, easier, and more cost-effective mobility solutions, ensuring we live up to their support and trust. In September, we added the important new role of CTO to our senior management roster with Mr. Kai Wang joining our team from Visteon. This new addition reflects our philosophy and the pursuit of combining expertise from the automotive smart device and internet industries and building an outstanding team across many disciplines to develop smart vehicles for our users.

With Mr. Wang's visionary judgment and thinking, profound expertise, and impressive track record, we believe Mr. Wang will make crucial contributes to our product and the company. To constantly provide a best-in-class experience to our users, we continually evolve and optimize our vehicle through full-time updates throughout the entire vehicle life cycle We also continuously collect performance and behavior data from our users to drive our product iterations.

By the end of October, we have released 10 major vehicle OTA upgrades to Li ONE users to provide them with a better driving experience. Moving to our digitalized direct sales and service network. It's an essential component of our closed-loop business system. This network feeds direct user usage data and feedback to both our R&D team and service team for us to analyze and optimize vehicle features and after-sales services, ultimately aiming to optimize the user experience.

As of the end of October, we had 41 retail stores covering 36 cities in China, maintaining a high level of operational efficiency to each retail store demonstrate that we have completed a closed-loop system setup. Next, we plan further grow the system to create an efficient virtuous cycle of user feedback vehicle development and service enhancement. We cannot achieve our results without the support and trust of our users. As a user-driven automotive and technology enterprise, Li Auto always puts our users at the highest priority and will spend more effort to provide our users with safer, more convenient, and more value-added products and services to further realize our idea of car and home.

This concludes my prepared to remark. Now our CTO, Mr. Kai Wang, will discuss more of the R&D aspect of our business. Please go ahead.

Kai Wang -- Chief Technology Officer

Thank you for the introduction, Kevin. Hello, everyone. It's my honor to join Li Auto recently led by entrepreneur Mr. Xiang Li.

I would like to share my thoughts on the R&D initiative as CTO of the company. I'm a believer in progressive innovation because Rome was not built in one day. It has always been a better approach to follow the natural law of evolution to implement technological concepts step by step, prioritizing user demand, This, I believe, echoes well with Li Auto's guiding principle. Leveraging technology to create value for users, to optimize user experience steadily and continuously.

From a technology roadmap point of view, the CTO office will focus on in-house development of anything that has a direct impact on our end-user experiences, such as intelligent cabin, ADAS/autonomous driving, and car-related cutting edge technologies, such as cloud, data mining, and so on. We will also leverage top tiers partner support to achieve our objective. In September, we announced a third wave of strategic collaboration with global semiconductor giant Nvidia and Chinese domestic leader Desay SV to be the first OEM in the world, implementing Nvidia flagship chipset Orin in vehicle in order to provide a premium user experience. To support these R&D activities, we will increase our investment in R&D and the size of our team continuously.

For example, we will expand our autonomous driving team size by three times by the first half of 2021. I'm confident in our capability to execute this roadmap and continue to build a leading position in the intelligent automotive industry. Now I will turn this call over to our CFO, Mr. Tie Li, for a closer look at our financial performance in the third quarter.

Tie Li -- Chief Financial Officer

Thank you, Kai. Hello, everyone. I will now go over some of our financial results for the third 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.

Total revenue in the third quarter of 2020 were RMB 2.51 billion, representing a increase of 28.9% from RMB 1.95 billion in the second quarter of 2020. This include vehicle sales in the third quarter of 2020, which were RMB 2.46 billion, representing an increase of 28.4% from the second quarter of 2020. The increase in vehicle sales was mainly due to 31.1% increase in vehicle deliveries to 8,660 vehicles in the third quarter of 2020 from 6,604 vehicles in the second quarter of 2020. Revenue for other sales and services was RMB 46.1 million in the third quarter of 2020, representing a increase of 64.1% from the second quarter.

The increase in other sales and services was in line with the increased vehicle sales and the increasing vehicle volume using our services. Cost of sales in the third quarter was RMB 2.01 billion, representing a increase of 19.3% from the second quarter. Vehicle margin in the third quarter was 19.8%, compared to 13.7% in the second quarter of 2020. The increase of vehicle margin was primarily attributable to the decrease in purchase price of certain materials, including a one-time rebate received from a supplier and lower unit manufacturing overhead costs due to increased production volume.

Gross margin in the third quarter was 19.8%, compared to 13.3% in the second quarter, which was mainly driven by the increase in vehicle margin. Total operating expenses in the third quarter were RMB 676.7 million, representing an increase of 55.2% from RMB 436 million in the second quarter of 2020. Research and development expenses in the third quarter of 2020 were RMB 334.5 million, representing a increase of 66.1% from RMB 201.4 million in the second quarter of 2020. Excluding stock-based compensation expenses, the adaptive research and development expenses were RMB 278.8 million, representing a quarter-over-quarter increase of 38.4%.

The increase was primarily attributable to starting research and development for our next model, as well as increased headcount. Selling, general and administrative expenses in the third quarter of 2020 were RMB 342.2 million excluding share-based compensation expenses, the adaptive selling, general and administrative expenses were RMB 264.2 million, representing a increase of 12.7%. The increase was primarily driven by increased headcount as well as increased marketing and promotional expenses. Loss from operations in the third quarter of 2020 was RMB 180 million, compared to a loss of RMB 176.3 million in the second quarter of 2020.

Excluding share-based compensation expenses, the non-GAAP adjusted loss operations was RMB 45 million, decreasing 74.5% from the second quarter of 2020. Net loss was RMB 106.9 million in the third quarter of 2020, compared to RMB 75.2 million loss in the second quarter of 2020. Excluding share-based compensation expenses and changes in fair value of warrants clothing, service, compensation, and expenses and changes in fair value of warrants and derivative liabilities, we achieved positive bottom line with adjusted net income of RMB 16 million in the third quarter, compared to RMB 159.2 million adjusted net loss in the second quarter of 2020. Turning to our balance sheet and cash flow.

The balance sheet of our cash and cash equivalent, restricted cash, cash deposits, and short-term investments was RMB 18.92 billion as of September 30, 2020, compared to RMB 3.71 billion as of December 31, 2019. The increase was primarily driven by issuance of Series D private financing, the completion of our IPO, and concurrent private placements. Operating cash flow in the third quarter of 2020 was RMB 929.8 million, more than doubled from RMB 451.7 million in the second quarter of 2020. Free cash flow was RMB 749.9 million in the third quarter of 2020, representing a increase of 149.3% from RMB 300.8 million in the second quarter of 2020.

And now for our business outlook. For the fourth quarter of 2020, the company expect deliveries to be between 11,000 and 12,000 vehicles, representing a increase of approximately 27% to 38.6% from the third quarter of 2020. The company also expect fourth-quarter total revenues to be between RMB 3.11 billion, USD 457.8 million, and RMB 3.39 billion, USD 499.4 million, representing a increase of 23.7% to 35.1% from the third quarter of 2020. Now I will turn the call over to the operator to start our Q&A session.

Thank you.

Questions & Answers:

Operator

[Operator instructions] We have our first question from the line of Fei Fang from Goldman Sachs. Please go ahead.

Fei Fang -- Goldman Sachs -- Analyst

Thanks. [Foreign language] Kevin, Kai, very impressive results. Congrats on the tremendous progress. Let me start with two questions.

First is about the supply chain, reflecting on Li ONEs scaling sales, how would you plan to drive better sourcing efficiency and prices from here? For example, for battery price, which is obviously a chunky part of your BOM was the opportunity to cut costs further from here. And also can management shed some light on the progress with Nvidia's partnership. When do you plan to deploy the components? Second is about the recall incidents in the past few weeks. Can you discuss the latest progress with hardware replacement and also what has been the impact on Li ONE's backlog, if any? For compacts, our own analysis is that this is a RMB 10 million cost issue, which is 0.1% of your annual revenues.

So want to see if you're having any response to that? [Foreign language]

Kevin Shen -- President

OK. This is Kevin. Thank you, Fang Fei. I will answer your question.

First, as we can see that since the launch of Li ONE, we have already seen some substantial improvements of our gross margin. This is due to the BOM cost reduction and also the manufacturing efficiency. So as our volume increase gradually we'll be able to procure auto parts at the lower price and continuously reduce the manufacturing. So this trend will not change.

Some of the numbers that you should already see that reflected in the financial numbers shared by DTA just now. For the Nvidia collaboration, I will turn over to Mr. Wang Kai. Yeah?

Kai Wang -- Chief Technology Officer

Yeah. This is Kai speaking. So regarding collaboration with Nvidia, I think everything is on track. In software part, we have already partied our software into Nvidia Cowen Xavier platform for vehicle-level road tests with already good result.

We will continue on software development and testing and to our Orin based hardware is available. In the hardware side, we are working closely with both Nvidia and Desay SV. I think everything is in control with good progress. And I think in future, we will provide more updates regarding the topic.

Thank you.

Kevin Shen -- President

OK. Thank you, Kai. Then for the second question about the reason to recall. Currently, the recall-related work is progressing steadily and expects it to take about three months for us to complete.

We handled this recall with transparency and efficiency. This is a reflection of our company's core value. We always put our customer at first priority. That's why we got quite positive feedback from our existing users and potential buyers.

So far after the announcement of the recall, the growth momentum of our new orders remain the same as before. No major impact observed. As for the costs related to this recall, we think your estimation is about right. Yes.

It's in line with our estimation. Thank you. Thank you, Fang Fei, for the question.

Fei Fang -- Goldman Sachs -- Analyst

That's great to hear. Thanks for the response, and congrats again.

Kevin Shen -- President

Thank you.

Operator

Thank you. We have our next question coming from the line of Tim Hsiao from Morgan Stanley. Please go ahead.

Tim Hsiao -- Morgan Stanley -- Analyst

[Foreign language] So my first question is about R&D spending. Based on the financial quarter result, we noticed that Li Auto's R&D spending in terms of the absolute amount or percentage to the revenues seems to be lower than other auto EVP years. So it's part of our duty to keep an eye on cannibalization of cost control, but in light of the growing investment in technology innovation and also autonomous driving next year, could management or Li Auto keep such a relatively lower R&D spending, or how should we think about the trajectory into 2021? And my second question is about the competitive landscape because we noticed that the competitive landscape this year is quite benign. And looking into the next year 2021, the market might be getting more crowded with Tesla Model Y, Volkswagen MEB base model.

In the meantime, we also noticed other local peers like [Inaudible] and the [Inaudible] group also launched an extended range EV, EREV. So how could Li Auto stay competitive in terms of the product and strategy? So those are my two questions. Thank you.

Xiang Li -- Founder and Chief Executive Officer

[Foreign language]

Kevin Shen -- President

OK. Thank you, Li. This is Kevin. I will try to translate all these comments.

Yes, I have already noted down. So for the R&D investment, this was our strategy. We decided four, five years ago, yes, we want to invest all our resources into one car model, yes. This was our strategy.

And for our Li ONE as you may know that we only have this Li ONE and for Li ONE we only have one configuration. This has put a big challenge to us, but also gives us a lot of advantages. First advantage is the software upgrade because we only have one conflagration. Other OTA becomes much easier.

Second is for the supply chain efficiency perspective. As you can imagine our forecast is very accurate and our suppliers the efficiency of our suppliers also very high because we only have one configuration. The third is our internal efficiency, also very high because we only have one configuration. That's why our R&D resources do not need to -- we do not need to invest R&D money on a different configuration.

Yes. So this was our strategy and the reality right now we see prove that our strategy was right. Actually, as you already know that in the past 10 months, we have always been the number selling model in the large size new energy SUV, yes. So for the next step, we'll continue to maintain our efficiency.

Very high R&D efficiency, but at the same time, our investment in R&D will be multiple times for our second generation of products starting from 2022. Each year we'll have at least one car model but we'll stay with our strategy that for each car model we only have one conflagration. We want to focus our resources down to one configuration. And our strategy is for any car model we launch into the market, our target is to make it the number one selling model in its price segment.

OK? For your second question, it's about the competitive landscape. First, next year we're going to introduce more function into -- feature and function into our existing Li ONE to ensure that our competitiveness will not -- will continue to be improved. You mentioned the Model Y? Actually compared with Model Y, Li ONE is a much bigger car with more space and is designed for the Chinese family. And its performance and its size and feature is comparable with Model X.

So we are not worried about Model Y. And for the EREV, for the range extension solution, actually you're right. There are a group of OEMs are introducing new EREV models into the market next year. But from our viewpoint, range extension solution is not a technology choice.

It's just a solution for us to help our customer to replenish the energy. Right? So Tesla working on their supercharge, NIO working on battery swapping. We working on EREV. These are all energy replenishment solution, but for the customer really buy a car, a very convenient energy replenish method is only one consideration.

Ultimately the customer is buying an intelligent, I'll say, smart electric vehicle. So their focus primarily is first about the product. The product, the design, the product feature function need to be very competitive. That's why we are not worried about other people also build the EREV because the core of our competitive advantage is our product itself.

OK?

Tim Hsiao -- Morgan Stanley -- Analyst

OK. Thank you, Kevin. [Foreign language] Congratulations again on great results. Thank you.

Operator

Thank you. We have our next question from the line of Paul Gong from UBS. Please go ahead.

Paul Gong -- UBS -- Analyst

Hi. Thanks guys for taking my question. I have two questions. First one is regarding the network expansion.

So far you have a much smaller distribution network, but you have demonstrated much higher efficiency than your close peers. Going forward, how do you foresee your distribution channel expansion? Do you have enough market to expand how many stores by end of this year and end of next year? And more importantly, how do you foresee the per-store sales volume? Could be maintained at which level? My second question is regarding the autonomous driving roadmap. I heard Kai said, Rome was not built within one day, but I would be really curious to know what would be your roadmap on time line at which year you are going to achieve certain level and what would be the hardware solution where you include lighter, or were you including even more cameras and internet solution, and what do you aim to achieve at -- in this stage? And beside of that, you have some -- some of your competitors are choosing to sell the software for extra package or extra money, but given you kept already one at the same specs. Will you choose to sell the software as an optional package or will you choose to install the software on every vehicle you sell, just as you did in the Li ONE.

[Foreign language]

Kevin Shen -- President

This is Kevin. Thank you, Paul. I will take your first question and Mr. Wang Kai will take your second one.

So for the retail stores, we plan to expand the number of retail store to 50 to 60 across most of the cities in China by end of this year. As we extend our direct sales and service network, we are quite confident that we can leverage our growing brand recognition and to maintain the sales efficiency of each store. And if compared with some of our peers, we took a different approach. So some of our peers, their approaches to quickly expand the number of retail stores to cover more cities, then try to slowly improve their sales efficiency at a later stage.

We took a different approach. We implement gradually. We implement gradual expansion of our sales network, and we try to maintain a high of sales efficiency per store. OK? Kai?

Kai Wang -- Chief Technology Officer

Yeah. Yeah. This is Kai. I will take over the question regarding the roadmap of up and striving.

So regarding auto/driving roadmap, I think we will continuously improve our existing software and develop more features for users. So with our current hardware platform, new features such as fully automated parking assist, AKA, app APA on basis of fusion of user signing and vision inputs will be released via full time in 2021. And also more feature will follow as well. We will unveil more in future.

In 2022, we will launch brand new architecture of our new vehicles, which contains a scalable and hardware upgradable ECU, and sensor set along with more use case updates via full time, so that our products could achieve up to level four autonomous driving progressively. That's our goal. Based on current research and the technology baseline, we don't believe level five fully automated driving without any interfering by human come in near future, because it really requires technology breakthrough in areas such as quantum computing and other such kinds of algorithm along with it. So therefore our focus will be on what kind of real value we can bring to our customer toward, let's say, progressively and steadily to kind of a level four experience.

That's the most important topic for us. We believe with clear goal sighting and also excellent execution. We would become a leader of autonomous driving in the industry. To achieve these plan, I think I already described roughly the time line.

So our team size will be crumbled in 2021 has I already mentioned versus current situation. We already have very good progress recently on senior-level experts and management hiring. The new commerce either well-known from industry all with graduation, from top universities, such as Stanford or Berkeley and Salaam. On top of that, we also have established a strategic collaboration with our partners different than the normal collaboration, they are tightly integrated with our team.

With onsite co-development as part of a few of our R&D exploration. So regarding your last question about, if we're going to charge our user regarding the software part, we won't charge anything below level three, because we think that's essential features for them. So everything below level three will be for free. Thank you.

Paul Gong -- UBS -- Analyst

Thank you very much. Very clear. Thank you.

Operator

Thank you. We have our next question from the line of Lei Wang from CICC. Please go ahead.

Lei Wang -- CICC -- Analyst

Good evening. This is Lei Wang speaking from CICC. Congratulations on the great margin and also [Inaudible]. I believe, I just finished [Inaudible] non-GAAP targets that's starting a great move.

Congratulations. [Foreign language] So the first question goes to say for Mr. Li Tie. So how may Li Auto actually keep the roughly 20% of GPM? It's barely 8,600 quarter.

It was Tesla actually nearly achieved 19% of GPM in first half of last year was almost 10 times your rates. And then the second question goes to Mr. Wang Kai for the -- [Inaudible] if you don't mind. You were actually great sharer wisdom on drive core and proposed a weekly OEM statement growth.

Right? And can you provide more colors on the update [Inaudible] since you now joined in OEM yourself? [Foreign language]

Tie Li -- Chief Financial Officer

OK. This is Li Tie. I will take the first question. As I mentioned earlier, the increase of margin this quarter was primarily attributable to the decrease in purchase of certain materials including one-time rebate from -- received from supplier.

And also the lower unit manufacturing or higher cost as our volume production -- volume increase. And we are very confident the GP margin for the whole year will around 15% and improve steadily next year. And I think for Tesla, I think you guys should be, yes, more familiar than us. Starting from the very early stage of plants like Tesla models, Model X, and what Tesla has around from 15% to 20% margin and also modest rate.

And then if they got a better BOM cost, they will lower the price. So they have to keep their margin around 100%. I think it's their strategy. So it's now they use this volume to raise that GP margin because they have seen it in their first model.

First big volume model of Model X. Then I will pass to Mr. Kai Wang.

Kai Wang -- Chief Technology Officer

Yeah. Regarding your second question is a very good question. So actually my philosophy still stands, but probably maybe I -- please allow me to explain the spirit of the philosophy. So the tree structure represents, let's say, the automotive profit distribution structure and the collaboration amount, let's say the old partners here.

So you can imagine the traditional way. There are lots of trees in a forest. So every OEM trolled the tiers precisely, I mean the margin of them, because they control the key. Let's say the barrier, the core barrier.

This is the gasoline engine, but nowadays the situation is totally changed because now we entered to from industry era to intelligent era. It's a complete new business model, and it will be applied if you want to win from the market. And then I introduced the so-called not ring structure, but round table structure. That means now there are lots of alliance among OEM, among tier one, tier two, whatever you can call it, even the new let's say business model providers such as Uber or like DD.

And then the key thing about the whole thing is time to market in this new game. And then you need to base on your position choose a table, sit down together with strong partner, and then really win the game as early as possible. Just like you're going to a dinner with your friends and then you finish the main course. Now you can get these are majority than others that's the key spirit of it.

And we believe because when I was in tier one, I need to choose my table wisely, yes. But now as a bidding OEM, actually our profile is more like we already take lots of, let's say, the work of tier one, traditional tier one, because we didn't do sort of in-housing. We need to have the best experience for user and do the full time, then we need to be fast. So that's a different game.

So back to the main point, so the philosophy is two stances, but now I mean another table.

Lei Wang -- CICC -- Analyst

OK. All right. Thanks for answering and sharing the round table. Appreciate it, and congrats, guys.

Thanks.

Kai Wang -- Chief Technology Officer

Thank you.

Kevin Shen -- President

Thank you.

Operator

Thank you. We have our next question from the line of Mei Ho from US Tiger Securities. Please go ahead.

Unknown speaker

Hi. Good quarter. Thank you for taking my question. I have a few ones about EREV.

There has been market chatters in your policies regarding EREV last [Inaudible] can we change in tier one cities like Beijing or Shanghai. So how could you prepare for such changes if EREV is no longer entitled to only be licensed in one particular important city. How could that impact your overall sales target? And secondly, at a higher level, what do you think of government support on EREV? Lastly, if we -- for longer horizon, what's your plan for BEV transition such as this? [Foreign language]

Kevin Shen -- President

Yes. This is Kevin. I will try to answer the first half of your question, then leave the second half to Mr. Li Xiang to comment on our BEV strategy.

So for the government policy, actually, we have being very proactively communicate with all kinds of government bodies. However, we cannot predict our comment about the policy, which will be introduced by the local government. But to answer your question, actually, I give you an example either in Beijing, Beijing is a city where the license policy is the most restrictive to us. Our sales are still very, very strong.

Yeah. So our sales in cities were to not have license plates restriction accounted for more than 60% of our total sales in both September and October. That's to say our vehicle sales are not dependent on the policy incentives are not very sensitive to the cap rate policy. Yeah.

So -- and also for the overall national policy, in general, China's national policy and regulation encourage the coexistence of multiple forms of new energy vehicles, including BEV, also plugging hybrid EIV and even the hydrogen new energy. So for us, we already see that the direction this coexistence direction has already first being further confirmed by the recent release, the national new energy automotive industry development class. Yeah. So overall, the National Policy is in favor of EREV.

And for the BEV plan, I will turn over to Mr. Li Xiang to comment.

Xiang Li -- Founder and Chief Executive Officer

[Foreign language]

Kevin Shen -- President

Thank you, Li Xiang. I will try to -- this is Kevin again. I will try to translate what the -- Xiang just explained. First of all, our goal is to build a high-level premium smart electric vehicle.

So this is our goal. When we look at this market, the key issue we need to solve is the charging issue. Right? How our customer replenish their energy is the key for the user experience. And we are keep a very close eye on the second-generation charging solution which is very clear to us, is 400-kilowatt charging infrastructure, with which can charge a car four to five times faster than today's infrastructure.

For this second-generation charging infrastructure, it will benefit both the customer and the business. From the customer's perspective, they don't need to -- their car can be charged today 10, 15 minutes. They don't need to leave their car when the car is being charged. So they can stay in the car.

And, therefore, from the business perspective when the charging speeds have become that fast the business model becomes viable. Yeah. Because today for the slow charging actually the charging station cannot make money. The business model doesn't work, but when the charging speeds become faster.

The business model becomes viable. Yes. So to achieve this 400-kilowatt charging solution there are three technology dependencies. First is that the 800-volt high voltage vehicle platform.

Second is the government regulation on the 500 amp current regulation. And the third is very important is that the battery cell, which can sustain for C targeting. So we are -- again, we are keeping a very close eye on these three technology evolvement. And we cannot disclose yet when we are going to be with BEV, but when these three technology become a mature and available to us.

Well, definitely a work on the BEV solution. But the overall again, to emphasize that rent extension solution from our viewpoint is a long-term solution. It's not that interim solution because the EREV solution is the best defeat for the larger size SUV to -- so even when the second generation of charging for company become available. EREV still one of our viewpoints, one of the mainstream of technology choices.

OK. Thank you.

Unknown speaker

Great. Great. Thank you so much.

Operator

Thank you. We have our next question from the line of Yang [Inaudible] from [Inaudible]. Please go ahead.

Unknown speaker

Thank you for the opportunity. And I have a quick question about when -- it appears that Tesla has launched their own autonomous chip, and also NIO has announced that we're trying to launch their own autonomous chip. So my question is that, [Inaudible] rates or autonomous vehicle, and what's our plan on that? Do we plan to launch our self-drive chips too? Thank you. [Foreign language]

Kai Wang -- Chief Technology Officer

OK. Thank you. This is Kai speaking. Maybe I'd take over these questions.

The decision either in-house or outsourced chipset is determined by efficiency. When I talk about efficiency is two-part, commercially, and technically. So commercially, let's say from OEM side. Let's say, I think this is -- and truly have really messy volume.

It will be a risk because chipset industry is very asset-heavy investment and also a long return cycle. Because myself I have direct plus indirect experience in China and also in making chipset, SOC chipset myself close to maybe -- close to 10 years. So usually it takes chipset design to up to three years just for the element. And then you have three years of usually the life cycle, and then you need to think about change.

So think about six year altogether. These are really commercially risky. Maybe without efficiency if OEM development by itself. So from technical side, I think there's one condition you can really think about to make a chipset for ourselves, because so far, maturity or very deep understanding of the system is really the essential condition.

You'll build your chipset yourself. Like Tesla, they have a good understanding already. At least at that time, they cannot find a very good feed in the market. Then they choose design by themselves.

But the problem is from semiconductor point of view, they were also involved here in the whole process. So to make a chipset decision is really cautious decision. OEM need to really think about from both ways. In a short time, we don't think we will enter to that business.

Technically, I think we do need some time to really understand how to, let's say, make our software really mature and really good enough into the business. Thank you.

Unknown speaker

Thank you.

Operator

Thank you. We have our next question from the line of Robert Cowell from 86Research. Please go ahead.

Robert Cowell -- 86Research -- Analyst

Hi, management. Thank you for taking my question. So congratulations on the results for the recent one. It seems like its first model has really proven itself and your guidance is showing this moment can continue.

My question is how we framed it. Is it framed of thinking about when is the right time to develop a second model? And then strategically, what types of vehicles are we looking at for the second model? In particular, I want to ask about a concept that [Inaudible] released back in the early years of the company for a compact sedan. I think it was on the SUV. I'm wondering if that has a design that is still on its operation.

So I'll quickly translate it into Chinese. [Foreign language]

Xiang Li -- Founder and Chief Executive Officer

[Foreign language]

Kevin Shen -- President

OK. Thank you, Li Xiang. This is Kevin. I will translate what Li Xiang just described.

So first of all, we are still in our initial phase of our company. We focus on one car model and one product. Our goal is to achieve the -- with the Li ONE, we want to achieve become the top-selling model in its price segment which is 300K to 350K RMB price segment. With this first product, we want to leverage this first product to build, and also to prove that our sales, our sales and service, our supply chain, and our R&D, all closed-loop OK system.

Secondly, of course, we are working on -- our ADR already are working on our second product. So as we already discussed in 2022, we are going to launch our next product, which is the full-size EREV SUV. As for the SEV, actually, we already stopped this project in the end of 2017. Yeah.

And we have no further investment in this project. We think we are in a very good position in this SUV segment for family. So we will stay in this segment. We'll stay very focused on our existing segment.

Yeah. Robert, thank you.

Operator

Thank you. I would now like to turn the call back over to the company for any closing remarks. Ms. Janet Chung, please go ahead.

Unknown speaker

OK. 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. And that's all for today.

Thank you, and have a good one.

Duration: 74 minutes