Derichebourg SA

PAR:DBG

Hello, ladies and gentlemen. Thank you for standing by for Zeekr Group's Fourth Quarter and Full Year 2024 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded.

I would now like to turn the call over to your host, Mr. Yuan Jing, the CFO of Zeekr Group. Please go ahead, sir.

Thank you very much, and thank you all for joining Zeekr Intelligent Technology's Annual Results Conference Call. First, may I have Mr. Cong Hui An, CEO of the company to start the meeting. Thank you.

[Foreign Language]

[Interpreted] Hello, everyone. I'm Andy. Thank you all for joining Zeekr Group's Fourth Quarter and Full Year 2024 Earnings Call.

[Foreign Language]

[Interpreted] First and foremost, I would like to express my gratitude to our users, suppliers and employees for their unwavering support, thanks to everyone's efforts, Zeekr Group has delivered its first stellar full year results to the capital markets just a few months after our IPO in May 2024.

[Foreign Language]

[Interpreted] So Zeekr Group has achieved a total sales of 500,000 vehicles in 2024. Of the total, the Lynk & Co brand delivered 280,000 units, nearly 30% year-over-year increase, achieving the highest sales in its history. Total annual deliveries for the Zeekr brand surpassed the 222,000 vehicles for the full year, a remarkable 87% year-over-year increase, making Zeekr brand the best-selling premium battery electric vehicle brands in China. And thanks to the rapid growth of our sales volume. In the full year 2024, we achieved a vehicle revenue of RMB 55.5 billion and the whole revenue of RMB 75.9 billion and also our gross margin considerable growth. And in the fourth quarter, our vehicle gross margin achieved 17.3%, while the full year vehicle margin achieved 15.6%, so we saw our gross margin for the vehicles also grow quite good.

[Foreign Language]

[Interpreted] Under the strategic guidance of Geely Holdings title deceleration, Zeekr and Lynk & Co successfully complete our equity transaction in just 3 months. Officially, Zeekr Group on February 14, 2025, building on a global user base of over 1.82 million across both the Zeekr and the Lynk & Co brands we aim to deliver 710,000 vehicles in 2025. Within 2 years, we aspire to become the world's leading premium new energy vehicle group with annual sales of 1 million units.

Meanwhile, we are leveraging synchronized product R&D, improve the manufacturing system, enhance the user engagement and integrated domestic and international distribution to drive greater operational efficiency, maximize the economies of scale and strengthen Zeekr Group's resilience against market uncertainties.

With these efforts, we are confident in our ability to continuously improve our profitability and enhance our shareholder values.

[Foreign Language]

[Interpreted] Next, let me outline our 3 key strategies for driving sustained growth. First, we will continue to strengthen the Zeekr brand in the premium market to go more upmarket while broadening the Lynk & Co customer base and further expand our product portfolio and enhance the product competitiveness.

[Foreign Language]

[Interpreted] The Zeekr brand with an average selling price of close to RMB 300,000 continues to solidify its market position in the premium segment. The Zeekr 009 emerged as the best-selling NPV in China priced above RMB 400,000 in 2024 and has gained significant popularity among business leaders. In 2025, the Zeekr brand will launch 3 new models to further expand its reach in the premium market. and we will release the Zeekr 007GT, our second shooting-brake model in Q2, followed by the Zeekr 9X, our full-size flagship SUV in Q3. Furthermore, we are introducing a large size of premium SUV in Q4. Both premium SUVs were the feature advanced super electric hybrid technology, and notably, the Zeekr now experience will make it established with Level 3 autonomous driving system, H&I and make its first appearance at the Shanghai Auto Show in April.

[Foreign Language]

[Interpreted] Meanwhile, the Lynk & Co brand is broadening as customer reach in 2024, its new energy vehicle segment showed a rapid growth with over 58% penetration rate and the average selling price for the Lynk & Co brand reached over RMB 200,000. The Lynk & Co EM-P ranked among the top 3 in the high-end plugging hybrid segment with an average selling price exceeding RMB 220,000 as the Lynk & Co brand achieved both price and sales volume growth, its range of powertrain and customer reach continue to expand. In 2025, the Lynk & Co brand will launch 2 new models. The first one is the Lynk & Co 900, its flagship large 6-seater SUV, and we will officially launch this product in late April or early May, and many of these show cars have already arrived our showrooms and it will be the world's first mass-produced vehicle with a very advanced ADAS system and with the feature the [indiscernible] X7, Additionally, the brand's first E&P mid- to large-size sedan will be released in the second half of this year.

[Foreign Language]

[Interpreted] Secondly, we will strategically leverage our full stack AI capabilities to further enhance our competitive edge. The Zeekr Group is the only company in the industry with full stack in-house development capability that span vehicle architecture, electronic and electrical architect systems, the battery and power -- powertrains, autonomous driving and the intelligent cockpits among -- along with superior innovation through the seamless hardware and software integration. And with this unique technological advantage, we are well positioned to quickly expand our technological motor through AI empowerment.

[Foreign Language]

[Interpreted] In the field of autonomous driving, we have firmly established ourselves as now the leading player in the industry, admitting that in the first, we were late compared to our peers. And last -- in March -- on March 18, with the product launch event, technology launch event to showcase our end-to-end and door-to-door technologies. Last year, our self-developed end-to-end AI powered large model became the first of its kind to be mass produced and deployed in vehicles. And by the end of this year, we have completed the nationwide rollout of [indiscernible] ensuring a seamless driving experience on every road across the country and in February -- in February, we also launched a large scale better for the door-to-door navigation. And we recently unveiled the industry first full stack door-to-door navigation system featuring an automatic invasive maneuvering and Level 3 autonomous driving technology architecture.

[Foreign Language]

[Interpreted] And for the infotainment, we have -- based on our full stack in-house developed AI -- occur AI large language model, we have launched our Zeekr iOS and we hope to deliver very good technology offering to our customers this year.

[Foreign Language]

[Interpreted] In addition, we have recently established our IDD department for AI development and AI services as a powerful engine for the Zeekr Group, propelling progress across various business segments. In 2024, we deployed AI-driven solutions across a wide range of scenarios, including the R&D supply chain, quality control sales and operational support.

[Foreign Language]

[Interpreted] We will drive our sustained sales growth through the continued growth -- global expansion. In 2025, we aim at around 10% of our annual sales target will come from the international market. And to maximize the synergies, we will establish a unified sales company after we integrated 2 brands in the global markets outside of Europe and with a single team focusing on expanding both brands international presence, and we will also introduce a new product tailored for the mainstream global markets, including the Lynk & Co 08 EM-P and the Zeekr 7X, these 2 products are liked by the global customers.

[Foreign Language]

[Interpreted] And the 2025 marks Zeekr Group's selling auger since its formation to establish a unified organizational structure, we have embarked on a new phase of internal management transformation and we aim to unlock greater organizational synergies while driving platform-based technology sharing and the economics of scale for the cost reduction, ultimately maximize shareholder returns.

[Foreign Language]

[Interpreted] With that, I will hand over our call to our CFO, Yuan Jing, and hopefully, we have a decent time for the Q&A. Thank you, everyone.

Thank you, Andy. Before I start, loyal remind me to read the disclaimer. So I will read. 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 company filings with the U.S. Securities and Exchange Commission. The company does not take any obligation to update any forward-looking statements except as required under the applicable law.

With that said, now I will go over our key financial results for the fourth quarter and full year of 2024. Due to time constraint, I will address our financial highlights here, and I encourage you to refer to our earnings press release and 20-F forms for further details.

As you can see, we ended the year on a strong note, delivering record high across several key financial metrics in the fourth quarter. Propelled by the ongoing expansion of our product lineup and the continuous enhancements of intelligent features, we delivered over 222,000 vehicles in 2024 resulting in impressive year-on-year growth of 87%, further reinforced our position as the best-selling pure electric luxury brands in China.

Our record-breaking vehicle deliveries led to a remarkable 46.9% year-over-year increase in total revenue, reaching RMB 75 billion. Notably, vehicle revenue grew substantially by 63% year-over-year, targeting -- totaling RMB 55 billion. Thanks to our strong product competitiveness, rigorous cost discipline in supply chain management and economic scale, we also continued to enhance profitability, achieving sequential improvements in vehicle margin to 17.3% in the fourth quarter and 15.3% for the full year. We believe this is better than all our listed pure-play [ BEVPs ] globally, driven by our online commitment to electrification and intelligentization, we continue to increase our R&D investments while enhancing efficiency.

In 2024, our R&D expense reached RMB 9.7 billion, representing a 16.1% year-over-year increase. At the same time, our R&D expense ratio decreased from 16.2% in 2023 to 12.8% in 2024, demonstrating improved operational efficiency. Our R&D expense for 4Q 2025 -- for 4Q 2024 is around RMB 3.2 billion roughly in line year-over-year with 4Q 2023, which stood at around RMB 3.16 billion. The quarter-over-quarter increase of R&D expense mostly due to year-end employee bonus and booking schedule for finished projects. We also booked an investment gain of RMB 727 million, it is related to a partial disposal of investments in Guangzhou by our subsidiary in [indiscernible] has received cash gain during the disposal. We did not book any noncash investment gain as rest of the variety shareholdings are not deemed as available for SAP.

We also made notable progress in reducing our total net loss, which decreased RMB 82.6 billion in 2023 to RMB 57.9 billion in 2024, marking a year-over-year decline of 30%. This improvement was attributable to stronger profitability and operational efficiency despite substantial share-based compensation expense related to the company's initial public offering in May 2024.

Last year, our capital expenditure amount to RMB 1.7 billion, primarily allocated to PPE for variety, production tooling and leasehold improvements for our retail stores. Our free cash flow for 2024 reached RMB 1.5 billion, setting another record high.

In February of this year, we successfully completed the acquisition of Lynk & Co, and we have disclosed the pro forma condensed combined financial data for Zeekr Group the year 2023 and 2024. As shown in the combined pro forma financial results in 2024, the combined Zeekr Group achieved a remarkable revenue milestone of RMB 130.9 billion, backed by vehicle deliveries of more than 507,000 cars.

Looking ahead to 2025, we're working towards a significant growth trajectory of 40% delivery growth to 710,000 vehicles across 2 brands. The pro forma vehicle margin for Zeekr Group stood at 12.5%. And with the realization of transaction-related synergies, we're working very hard to implement boost and manufacturing synergies and we expect Zeekr Group's vehicle margin to further improve to around 15% in first quarter of 2025, if we can realize a few one-off synergies.

Having said that, we will continue to aim for around 15% vehicle margin for full year 2025 in light of potential market conditions. Pro forma R&D expense stood at around RMB 13 billion, and we are seeking to realize 20% quarter-over-quarter R&D expense savings in fourth quarter 2025. We then will work to reduce R&D expense ratio to around 6% in 2 years' time. Pro forma SG&A ratio stood at around 12.5%, and we're aiming at reducing it to around 8% in the same time frame. Lynk & Co recorded a free cash outflow of around RMB 400 million, which means pro forma Zeekr Group free cash flow for full year 2024 is around RMB 1.1 billion inflow. Again, we would like to reiterate our target of quarterly U.S. GAAP breakeven in 2025.

Our key work to achieve this milestone are quite clear. Most importantly, it is Lynk & Co integration. We're targeting to fully integrated Lynk & Co and Zeekr brands together and realize if not surpassing the aforementioned guidance as soon as possible.

In the first half of 2025, you can see we are focused on improving our ADAS experience. As evidenced by our March 18 events, we believe we are on the right track to be among the leading players in the Chinese EV market in terms of ADAS software and globally. For the new models, our 2 brand new models to be launched in the first half of 2025, we have targeted improvements over where we receive most customers -- where -- over where we received most customer feedback. 77GT will show improvements over Zeekr 07 and Lynk & Co 900 over Lynk & Co 09 with the latest NVIDIA structure side on Lynk & Co's 900, we hope we will be able to further solidify our leadership in the ADAS area. We believe this targeted improvements and improved smart software experience with Lynk & Co and Zeekr sales growth.

In the second half of 2025, we will introduce Zeekr 7X and Lynk & Co 08 EM-P to international markets to further boost our international sales. We also launched our star product for the year [indiscernible] which will feature our latest and industry-leading have drivetrain technology and smart ADAS capability, including a L3-capable variance of the model. To additional models and middle to large plugging sedan for Lynk & Co and the large luxury SUV on the Zeekr brand will also be launched and we expect this new model to further boost our sales delivery.

Looking ahead, we will be focused on accelerating resource integration and unleashing greater synergies to enhance shareholder returns and create sustainable long-term value.

So this concludes our prepared remarks. I will now turn the call over to the operator to begin the Q&A session.

[Operator Instructions] And the first question will come from Tina Hou with Goldman Sachs.

[Interpreted] So my first question is regarding our breakeven time line. So we mentioned that it's going to be sometime in 2025. So just wondering what will be the conditions in order for us to break even in terms of the sales volume, vehicle gross margin as well as operating expenses? And also in terms of the Zeekr and Lynk & Co consolidation, what kind of cost reduction can be seen in the specific quarter? So that's the first one.

[Interpreted] So my second question is regarding management's outlook for 2026, what kind of product pipeline volume as well as market competition expectation do you have? And then also your CapEx guidance for 2026 as well.

Thank you, Tina. Yes. So obviously, as you can see, there are things and there's conditions that we can control and there are things that we cannot control. So for the things that we can, we are currently controlling and implementing changes. Obviously, we are working very, very hard, as mentioned earlier, on the Lynk & Co integration. Say, for example, most of the mid and back office functionalities including HR, legal, compliance and finance and at the main team, we are all sitting together as well. And at the same time, we are also working very hard to integrating the R&D team not only in China but also globally.

So those are the things that we believe we can control. And as I mentioned earlier, we do have this midterm target of lowering the R&D expense ratio towards something up 6%. And our targeted SG&A ratio is around 8% and those 2 numbers, if you look at our pro forma financial statements, stood at around 11% for R&D and 12.5% for SG&A last year, full year 2024. So we do think we are implementing these changes and working very, very hard towards what we are able to control.

But on the other hand, obviously, you can see we have left some room for the market conditions that at this moment, we see an intense competition in the Chinese energy vehicle market and a more increased competition in the global markets as well. So it's very unfortunate at this moment, we won't be able to pinpoint an exact sales where we can. But as I mentioned earlier, we are very confident backing up by the consolidation of Lynk & Co and Zeekr backing up on a targeted 40% vehicle delivery increase and back up by an improved manufacturing and -- manufacturing efficiencies and improved gross margin target to achieve this kind of results.

On your second question with regarding to our guidance for 2026, you can probably see when we started this Lynk & Co integration project, for full year 2026 is that we will create a luxury brand group that sells close to more than 1 million cars globally in the luxury new energy vehicle sector. And we stood by this target, and we think we are on the right track to realize this target. That means we are not only expanding in China, but we are expanding into global markets. And we are not only selling BEVs on the Zeekr brand, but also plugging hybrids and potentially hybrid vehicles on the Lynk & Co brand. So we do think if you look at 2024, Zeekr brands, we had a CapEx of around the 20 something capital expenditure. And for 2025 and 2026, we looked at a slightly increase on capital expenditure for the combined Zeekr and Lynk & Co brands. But as you can see from my previous guidance, we're looking at improved synergy, we're looking at improved efficiency. So we do not see a proportional increase in CapEx, but increase in CapEx in more constraints and...

[Foreign Language]

[Interpreted] So I would like to add a few remarks. First of all, after we integrate Lynk & Co brand and Zeekr brand, we have already made decisions to cut the models in the pipeline by -- in the R&D pipeline by 20%, and to avoid the unnecessary internal competition between the 2 brands. And accordingly, the R&D expense was also lower because of disposition. And secondly, I would like to say that the Zeekr brand products and the Lynk & Co brand products are all developed based on the platform strategy. So they share a lot in common.

[Foreign Language]

[Interpreted] And thirdly, I would like to say that if we look at our performance in the last year, our gross margin showed a very healthy growth. And as far as we can see for this quarter, the margin in the Q1 is also quite good. And also, we can see our R&D expense would be lower by -- over 20%.

[Foreign Language]

[Interpreted] And for the further details of our performance in the Q1, we will release in May in our earnings results. But I can say here that with the organization of optimization and personnel optimization as well as the cost reduction on the manufacturing and the BOM cost we are confident that we can achieve a very good performance in the first quarter.

[Foreign Language]

[Interpreted] And I would like to add one point that Zeekr brand would go further up market. And this year, we plan to launch 2 large SUVs, and they would both use the super electric hybrid technology. And as we know that the super electric hybrid technology powered products will have a higher gross margin than the battery electric vehicles and were contributing to better performance of our gross margin.

[Foreign Language]

[Interpreted] And as we can see in this industry that the product with an agent are always profitable. So as we plan to -- as we launch the 2 vehicle models with a super electric hybrid technology, we would enjoy -- we will see our vehicle margin grow as well as we will further strengthen our brand and further strengthen our sales volume performance.

The next question will come from Tim Hsiao with Morgan Stanley.

[Interpreted] So my first question is about the sales target because the competition has been incredibly strong this year. So if such competition persists with it risk, Zeekr's full year sales target of 710,000 units in 2025. That's my first question.

Thank you, Tim. This is Jing. And you are right, we have set a 710,000 vehicle sales targets. Among them -- sorry, 390 will be -- 390,000 will be Lynk & Co vehicles and 320,000 will be Zeekr vehicles. And you can see we are very confident about the profitability and the integration of Lynk & Co brand that can lead us to a very, very strong financial position, starting from fourth quarter of 2025.

And with regarding to our financial positions -- with regarding to our new models with regarding to -- as mentioned, some of the high profitable -- sorry, high-margin plug-in hybrid vehicles, we are continuing to guide a full year vehicle business gross margin that is on par with what we were able to achieve in the first quarter of this year. So I think that would give you an indication of, I would call it our annual spirit.

Our ability and our willingness to remain competitive in this very highly competitive market, and with the strong support of our earning ability and our profitability and our financial strength, we think we are in a much better position than most, if not all of our competitors to remain competitive and to remain relevant when our customers are looking at their choices and looking at the price tag of the vehicles they are looking to buy. So again, we're reiterating our sales targets and we are fully confident we are able to achieve.

[Foreign Language]

[Interpreted] So I would like to add one point to that, of course, it's not easy to achieve the 710,000 annual sales unit target, but we are still confident. We understand that the first -- the sales volume achieved in the first quarter according to our management perspective, it's not that satisfactory, but it is also still in line with our expectation because if we look at our sales performance in the last year quarter-by-quarter, we saw our sales growth -- growth very healthily quarter-by-quarter. And this year, we see that with our new product offering in the second quarter, in the third quarter as well in the fourth quarter by Lynk & Co brand and Zeekr brands as well as the further improvement and the enhancement of ADAS offerings we have the confidence that we can achieve the full year sales to volume target.

[Foreign Language]

[Interpreted] And in the future, we will launch new products as well as launched our facelift product version of our existing popular products. And our goal is to make everyone -- every new product is very popular among our customers. Next month in April, we will launch the new Lynk & Co 900 as well as the Zeekr 007GT. We hope they can be the hit product hit in the market.

[Foreign Language]

[Interpreted] So our products will have a very competitive technologies, and they would also be very competitive in pricing as well.

[Interpreted] My second question is about the new models because the management just updated the model pipeline. Are you going to fine tune the schedule in response to the intense competition? And secondly, what kind of strategy Zeekr would take to make sure that all these new models can stand out in such a crowded market? That's my second question.

[Foreign Language]

[Interpreted] So regarding the cadence of launch of the new product because we -- this product has been having in our product development pipeline for years. And so for the second quarter this year, we will launch the Lynk & Co 900 as well as the Zeekr 007GT. For the Q3, we will have 1 Lynk & Co product and 1 Zeekr new products. And for the Q4, we will have a Zeekr new product, an SUV. We don't want to launch the product too frequently in a short period of time. So I think the cadence we have -- in our plan is healthy.

[Foreign Language]

[Interpreted] So for the product competitiveness, we want our products to stand out in the market with very advanced technologies. So we already released the spy pictures of Zeekr 9X, which won the recognition by the customers and the Lynk & Co 900 also we have delivered -- show them in the showrooms already and the customers gave a very positive feedback. We hope we have a very advanced technologies. So the Zeekr 9X will be the first product to be equipped with Zeekr's super electric hybrid technologies, and it will have a 900-volt technology to support ultra faster charging, and it will be equipped with a very advanced ADAS offering.

[Foreign Language]

[Interpreted] And also, we would release some details about the Zeekr 9X in our product event. But nonetheless, our principle is that to equip this with the most advanced leading technologies in the industry make it very luxury and comfortable for the customers. At the same time, we still have a competitive pricing. As far as I can see in the industry, 9X will be very unique and stand out in the market, and I don't see a direct competitor to this model.

[Foreign Language]

[Interpreted] We have already released a lot of details about the product, and it is well received by the customers, and we aim to launch it either at the end of April or the beginning of May. Currently, we received a very positive feedback on the product, and people love its product and its technologies, and we would still offer very competitive pricing for the product as well.

[Foreign Language]

[Interpreted] So I would like to highlight again on one point that the super electric hybrid technology as well as the EM-P technology of Lynk & Co brand are very competitive. And for the Zeekr Holding Group, we have been making cars for around 2 decades. So we have our very unique edge on the powertrain system, including the engines and the gearbox compared to many of our competitors.

The next question will come from Ming-Hsun Lee with Bank of America.

[Interpreted] So my first question is regarding your autonomous driving product strategy for your Zeekr brand and also Lynk & Co brand. And also, right now, what is the progress of your R&D team and the product design integration? Especially in the future, can we -- when can we expect the Lynk & Co brand car can start to use Zeekr's autonomous driving technology and also smart cabin technology?

[Foreign Language]

[Interpreted] This is a very good question. Also after -- as we integrate the Lynk & Co and the Zeekr brand, it is in our plan that the both brands would share the unified ADAS solution. On March 18, we add the Zeekr [indiscernible] ADAS technology launch event. We already explained that the Zeekr brand in the future will use the H7 and H9 ADAS G-Pilot solutions with all the board equipped with the LiDAR in our sensor suite. And for the Lynk & Co 900, it would also use the H7 system and it will be the first product in the market to be equipped with NVIDIA drive a very powerful SoC. After we integrated both brands, they will share the same solution of ADAS and that they will share the same solution of infotainment. But of course, we understand the Lynk & Co and the Zeekr are 2 different brands, so when it comes to the human machine interaction, HMI, we would have a different design. But when it comes to the base wear, the middle ware and the hardware, they will share the same solution.

[Foreign Language]

[Interpreted] So of course, for those Lynk & Co products in the brand products development pipeline, it might take some time for us to have a very unified solution for the ADAS in infotainment, but we aim to achieve the share platform, ADAS infotainment solution as soon as possible.

[Foreign Language]

[Interpreted] And by utilizing the platform strategy, we can enjoy the economies of scale and lower the cost, and we will speed up in the iterations of the software upgrade.

[Interpreted] Now -- so my next second question is regarding your powertrain strategy. So currently, Lynk & Co brand, the technology is the EM-P platform, but your Zeekr the super hybrid technology should be more advanced compared to EM-P system. So in the future, can we expect that your Lynk & Co brand will also use a Super Hybrid technology? And currently, you still sell some ICEV in your Lynk & Co brand. So do you think that you will retire those ICEV sales faster or gradually?

[Foreign Language]

[Interpreted] So first of all, because the Zeekr brand and Lynk & Co brands are 2 different brands. So they are differently positioned. So currently, in our planning, the Zeekr brand will use a super electric hybrid technology, whilst the Lynk & Co brand currently has no plan to use this technology. However, I still would like to say that a lot of components between the super electric hybrid technology and EM-P are in common, especially on the engines and the gearbox, so we can have -- still have a very good synergy.

[Foreign Language]

[Interpreted] Regarding the ICE vehicles, currently, we do not spend much on the R&D of pure ICE vehicles, but still, there are some customer demand. For example, in the domestic market, there is customer demand for the 03 products. And for the international pockets still many customers appreciate ICE vehicles. So we would keep limited investment from R&D for the ICE vehicles to meet these customer demands in the global market, but more importantly, we will further accelerate our R&D investments in the new energy vehicles, such as EM-P, super electric hybrid and pure electric engine vehicles.

Your next question will come from [ Ting Wingen ] with CICC.

[Interpreted] I have 2 questions. The first is what is the current progress of our export business, the layout of Lynk & Co stores help make the business go smoothly. The second question is about, how do we view the impact of the position of Galaxy Twinstar models as high-end new energy sedan on Lynk & Co.

[Foreign Language]

[Interpreted] So first of all, I would like to say again that for the Lynk & Co -- for the Zeekr Group, this year, our target is that the overseas sales volume makes up over 10% of our full year global sales performance. And secondly, to answer your second question, so inside the Geely Holding Group, we have a very clear brand positioning and the differentiation between the brands of Lynk & Co, the Zeekr and the Geely Galaxy. So they respectively have their -- each very clear brand positioning and they would not conflict with each other. And we have already established a very good mechanism to avoid those unnecessary internal competition.

Next question will come from Bin Wang with Deutsche Bank.

My question is more about the financial. You actually elaborate that next year first quarter gross margin will be 15%. Can I confirm this is the vehicle margin or overall gross margin? So what's the comparable number 4 quarter last year gross margin. If just mentioned that they will be one-off positive. Can you elaborate what's the one-off positive in margin looks quite decent.

Thank you, Bin. This is Jing. Yes. So as we mentioned earlier, we are targeting or we are aiming to achieve a 15% vehicle business gross margin on a consolidated level, which means both Lynk & Co and Zeekr combined together, for the fourth quarter of 2025, if we were able to achieve a number of one-off synergies should we identified when we're doing this Lynk & Co and Zeekr consolidation.

Unfortunately, there is no public available quarterly data for Lynk & Co available. But if you look at the 6-K, pro forma 6-K that we published on our website, you can see that the overall pro forma Zeekr Group consolidated vehicle business gross margin for the full year 2024 is around 12%. So we're looking at somewhere around 3% improvement on a consolidated level for the fourth quarter of 2025.

At this moment, it may take too long for me to elaborate on each of these one-off synergies that we identified, it is mostly due to supply chain, further examination of supply chain and closer examination of, if you remember, Lynk & Co their own manufacturing facility, so we're able to stop or find some leakages over there as well. And in addition to that, we were able to talk to our suppliers things we were -- the Zeekr and Lynk & Co, we are coming together, the whole group, and there's further consolidations regarding to the R&D. So the future components and parts, that is something we can lever down when we're talking to the existing suppliers. So yes, so I hope that's satisfactory.

Because you mentioned around 3% BOM cost reduction on the call in the afternoon, do you consider a 3% reduction in the BOM cost in this guidance?

I would argue that this is more than just a BOM cost. But I think the essence is that we were able to demonstrate within the first quarter of Lynk & Co and Zeekr consolidation, we are able to achieve this kind of gross margin growth.

Okay. And my second question is about your battery source business. We see a sharp decline in the number 4 quarter last year. Can you explain why is that? So what's the key customer will change to a big decline in the battery sales?

Yes. If you look at the battery and the component sales, it is mostly the business on [indiscernible] If you recall, immobile to certain extent, Geely Group's EVs and NEVs regarding to battery packs and EV powertrains. I noticed that not all of Geely Group's NEVs are supplied by nimble, some of Geely Group's products purchased from their respective suppliers directly.

On the other hand, one of the key customers of Nimble Volvo, we continue to size the battery packs for Volvo's EX-30 model. So that contributes to the margin increase in the fourth quarter of 2024.

The next question will come from Eugene Hsiao with Macquarie Capital.

[Interpreted] So my first question is on if there's any update on the vehicles to be sold to Waymo and in January, the U.S. government had a ban on Chinese software will that have any impact?

So the way that we work with Waymo is a very delicate process. So we actually manufacture the [indiscernible] car the hardware in China. And then we ship it to Waymo in California. Over there, they will put out the ADAS hardware. And at the same time, and they will install all the related software. So when the vehicle clears the U.S. custom, it does not contain any so-called vehicle communication modules. So we make this kind of regimen to making sure that we are in full compliance with relevant laws and regulations and to minimize any potential risk with regarding to our cooperation.

[Interpreted] So follow-up -- so the vehicle sales this year will be on track, as you expecting before. Is that correct?

Yes. So far, it's still on track.

Okay. Great. My second question is on the self-developed upon demand controllers on the showcase at CES. Are there only going to be on bigger brands? And will they only be using NVIDIA trips?

You mean the Starship?

The main controller that was the CES.

The main controller we chose that -- yes, that's the main controller will be equipped, not only on Lynk & Co vehicles, but also on Zeekr vehicles. So it's basically all of our in models in the future can use that ADC.

Only Zeekr brand -- both Lynk & Co as well?

Both Lynk and Zeekr brand.

Okay. And maybe just a similar question of. Were we still plan to use mobile chips going forward? I think all the new models are using the blue chips?

So mobile continues to be a very important partner with us. And as we mentioned earlier, so for most, if not all, international market targeted vehicles we will continue work very closely with mobile.

The next question will come from Paul Gong with UBS.

[Interpreted] So my first question is regarding the number of models. I think with the 2 brands, right now, you have about 15 models. And after this year's new launch, you'll have about 20 models in total. Do you think there is any room to delineate some time less popular models? And what do you think is the optimal number of the models?

[Foreign Language]

[Interpreted] So first of all, we can make it very clear that we hold a hit product strategy and meaning that all the new products we launched to the market, our goal is to make them the respective benchmark and the leaders in their respective segments. So this is our strategy. And as -- after we integrate the Zeekr brand and the Lynk & Co brand, as I explained earlier, that we already cut the products in our pipeline by 20%. So this is already explained.

[Interpreted] My second question is regarding your R&D budget for this year and they put down roughly between the model developments versus the intelligence and AI, et cetera.

Yes. Thank you, Paul. So if you look at the R&D pro forma combined financial statements, you can see Zeekr and Lynk & Co combined together, last year, we spent around RMB 1.2 billion, RMB 1.3 billion on a U.S. GAAP accounting standard for R&D. And we are looking at similar or slightly like single-digit percentage increase regarding to the guidance we put out for R&D this year. Given that we're introducing quite a few new models as well as refreshment of our whole existing models as well as improvements in ADAS, smart cabin, et cetera, et cetera. We do believe that is an indication of our overall R&D improvement of our R&D efficiencies.

For 2024, in each of the smart cockpits as well as ADAS sector, we spent around RMB 1 billion. And as I mentioned, in 2025 and beyond, we are looking to platformize our smart cockpits and ADAS technology among -- between Lynk & Co and Zeekr brands. So we are looking at a similar level of expenditure for both smart cockpits and ADAS in 2025.

[Foreign Language]

[Interpreted] So I would like to add one point that since the year 2022 to this year, we invested mostly for the platform technology, for example, the mechanical architecture, the EE, electrical and electronic architecture infotainment and ADAS. And these investments in these platform technologies will bring us benefits this year -- and I think in the future and the investment in many areas will be platformized and would not be as high as before.

[Foreign Language]

[Interpreted] For example, take super electric hybrid as an example, we have already completed the -- almost completed the development of these technologies, and we will enjoy the benefits of the completion of this product -- technology development in the coming years.

Yes. Sorry, to add that, if you remember, we continue to reiterate our guidance of around 6% R&D expense ratio after the full integration of Zeekr and Lynk & Co.

Operator, can we have one last question, please.

The last question will come from Jun Tao Dong with Citrix Securities.

[Interpreted] So my question is about the self-driving. What would be the relation with our self-driving team and the Chinese technology.

[Foreign Language]

[Interpreted] So as we integrate the Geely technology and Zeekr ZID, we can very well combined advantage of both sides. So for China technologies, they have a very good computing power -- computing centers with very high power computing capabilities, and they cultivated in the areas in AI and the large language model -- for the Zeekr ZID, we have a very good reserve in the ADAS algorithm and we also have our engineering capabilities, and we understand how to further improve the customers' experience. So after we integrate the 2 brands, we can enjoy very good synergy to benefit our ADAS offering to the customers and lower the cost. So for the Zeekr's ADAS, it was still -- the development work would be led by 20 or Baymax, but this has been no change, and we would further enhance the platform strategy among the Zeekr brands and then Lynk & Co brand's ADAS or solution offerings.

And in addition to that, I think one key important factor I would like to mention is that for Zeekr, we will continue to make sure that the engineered team i.e., the team who actually put the technology on board of both Zeekr and Lynk & Co vehicle to continue to work very closely with the vehicles R&D team. With regarding to 2030, as Andy mentioned earlier, you probably watched the events on the 3rd of March, they are providing with lots of computing power, they're providing with lots of infrastructure, and they are providing the backbones for the VLM and MLM models, but the actual implementation of putting those models, those general infrastructure things we use into an actual ADAS system that our customers can reliably and safely use one car that is 100% in the hands of Zeekr's team.

So thank you all for joining today's call. And hopefully, we addressed most, if not all of your questions. Mr. Cong as will continue to be able to talk to you in the next few days to come. Meanwhile, if any -- if you have any further questions, please feel free to reach out to the Zeekr's IR team. That's all for today. Thank you very much for your time, and have a nice day. Bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]