Ideal ONE was "eaten" by L9, L8 will sell early (Meeting Minutes)

Below is the summary of the Ideal Auto Q2 2022 earnings call. For Dolphin Analyst's interpretation of the earnings report, please refer to Shocking News That Echoes, L9 Can't Cover Ideal's Empty Fire.

There was no incremental information in the executive statement part of the conference call. The main information was in the analyst Q&A session, such as why the sales guidance is so conservative, L9's production capacity and sales expectations, L8's release time, and pure electric vehicle products and release information. Details are as follows:

Analyst Q&A:

Q: What is the proportion of Ideal 01 and Ideal L9 within the sales guidance range of 27,000-29,000 units for Q3? Will the gross margin improve as L9's production capacity climbs and the proportion increases?

A: We maintain our original expectations. By September, we will deliver more than 10,000 L9s and the gross margin will improve because L9 is a high-end product.

Q: Can you provide an update on the 30,000 L9 orders mentioned in early August?

A: Despite receiving 30,000 L9 orders last month, demand for L9 orders in the market remains strong in the past two weeks.

Q: With the fierce competition in the market and other competitors constantly launching SUVs and MPVs, such as Huawei and BYD, do you feel any threat? Do you need to adjust your strategy or increase consumer marketing?

A: Ideal L9 has a very unique product positioning, and we have not seen any similar products with such positioning. Therefore, our focus is on how many consumers with budgets between 40,000-50,000 can be converted into our L9 customers.

Q: The Q3 guidance is very conservative. Is it because of the impact of the Ideal One replacement? If so, how long will the impact last? Or is it due to other reasons such as L9's production capacity climbing?

A: Regarding the guidance, it is because we have seen a slowdown in Ideal One orders. I think the main problem right now is that when we have a new product in our stores, more attraction will be in the new product instead of the old product. We are working with the sales team to regain potential customers in Ideal One.

Q: How do you view the sales ratio of pure electric and extended-range vehicles next year? Can you share the number of new models for next year? Will the increase in the proportion of pure electric vehicles put pressure on short-term cash flow and gross profit?

A: Regarding new products, what we can reveal is that it will be launched soon and earlier than expected. For us, any new product we are about to release is aimed at increasing revenue and improving cash flow, so we expect good profitability and cost efficiency improvements for the BEV products we expect to sell next year.

Q: Is the waiting time for Ideal One only 2-3 weeks now? A: Currently, the waiting period is less than one month, because the current order volume has slowed down, so our delivery speed has increased.

Q: Has the Ideal One been given a 7,000 yuan insurance promotion?

A: Yes, your information is accurate. We originally planned to announce this on Saturday.

Q: Will the L8 be launched earlier in October?

A: My answer remains the same, it will be soon and earlier than expected.

Q: Is the conservative guidance for the third quarter and the recent slowdown in Ideal One orders due to competition with the L9 or due to a weakening of the entire industry demand?

A: Before we introduced the L9 to our stores, we did not see a slowdown in Ideal One orders. However, unexpectedly, some customers who originally intended to buy the Ideal One changed their minds after test driving the L9 in the store, especially those who had sufficient budget. Many Ideal One customers have since become L9 users. This is also why we recently launched more Ideal One promotional activities.

From another perspective, we still have confidence that the Ideal One is a highly competitive product. Compared to other existing products except the L9, in the 300,000 to 400,000 range, the Ideal One is still one of the most competitive products on the market.

Q: Management mentioned that pure electric vehicles and extended-range vehicles have different characteristics. What will be the characteristics of next year's pure electric vehicles?

A: The first aspect is charging. Our experimental cars can charge 400 kilometers in 10 minutes. The core appeal of our pure electric vehicles and extended-range vehicles is the same: to replace fuel vehicles on a large scale, allowing fuel vehicle users to choose electric vehicles without any worries.

From the perspective of L9 users, 80% of users can connect to a charging pile at home, and nearly 100% of users have charging conditions at home or at work. Therefore, our focus is not on solving the user's charging problem in the city or at home, but on ensuring that users can easily travel long distances in densely populated economic areas, such as the Yangtze River Delta, the Pearl River Delta, Sichuan-Chongqing, the Beijing-Tianjin-Hebei region, the Wuhan economic belt, and the Zhengzhou economic belt.

The second aspect is to take advantage of the benefits of electric vehicles. The pure electric model will have a brand new form, which will have more space than the extended-range SUV.

Q: If the L9's substitution for the Ideal One exceeds expectations, what is the upper limit of L9's monthly production capacity?

A: 15,000 units.

Q: Considering the trend of battery costs in the second half of the year and promotional activities, what impact will it have on gross profit trends?

A: We all know that in recent months, the cost of battery raw materials has decreased somewhat, but we believe that it will still fluctuate in the second half of the year. Our gross profit expectations are based on battery costs, so our comment is that battery costs will continue to fluctuate.

Q: Some products on the market, such as the Wanjie, are similar in positioning to our products. What impact will this have on the Ideal One? What comparative advantages can we expect from the L8 in this regard? A: The L8 launch is earlier than expected and the delivery rhythm will be faster than L9. Once the L8 is launched, we are confident that we will have the most leading cost rate compared to other new cars on the market.

Q: Recently, competitors have launched more range extender products, can you share your mid-term strategy for range extender products?

A: We believe that looking ahead 5 years, range extender is still the best solution for SUVs.

For example, the BYD Han, which has a sales price of 200,000 yuan, has better EV performance than DMI, but the BYD Tang's DMI sales are much better than EV. This is because when consumers spend 200,000 to 300,000 yuan to buy an SUV, they must be able to drive it for travel, especially after the epidemic, this demand will exist for a long time.

In the long run, the range extender structure will provide a very good experience and competitiveness for SUVs. We focus mainly on improving the efficiency of range extender. Some mainstream media tests show that the L9 can achieve the same performance as a gasoline car of the same level when it is fed back, that is, 60%.

Range extender cars will exist in the long term because they are electric cars with an added range extender, not gasoline cars with batteries. I think these are different concepts and need to be clarified.

We can see that traditional companies like Changan have also chosen range extender, even though they have PHEV technology. They still choose the range extender because it is an electric car, while PHEV is a gasoline car.

Q: Can you share your plans for the issuance of ATM (At The-Market Offering) or the reserve of funds?

A: We have a very healthy operating cash flow. But in the long run, in the next 10-15 years, we are clearly in the early stage of this industry and we still hope to obtain more funding from the equity market to support the company's development, especially in research and development.

Q: Will BEV still be a family SUV?

A: We need to keep this confidential. It has a very strong uniqueness.

Q: What is the guidance for operating costs in Q2?

A: We are very clear about next year's products and targets. We will continue to invest in R&D and expand our sales network to better serve our customers.