ZEEKR Intelligent Technology Holding Limited (NYSE:ZK) Q3 2024 Earnings Call Transcript

ZEEKR Intelligent Technology Holding Limited (NYSE:ZK) Q3 2024 Earnings Call Transcript November 15, 2024

Operator: Speaker 1: Hello, ladies and gentlemen. Thank you for standing by for Zeekr’s Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. Today’s conference call is being recorded. I will now turn the call over to your host, Mr. Yuan Jing, the CFO of ZEEKR. Please go ahead.

Yuan Jing: Thank you, operator. Good evening and good morning, everyone. Welcome to ZEEKR’S Q3 2024 Earnings Conference Call. 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 applicable law.

Joining us today from ZEEKR Senior Management are Mr. An Conghui, Co-Founder and CEO and myself, CFO. Our CEO will make his remarks in Chinese, followed by the English translation. With that, I will now turn the call over to our CEO, Mr. An, please.

An Conghui: Hello, everyone. Thank you all for joining ZEEKR’s Q3 2024 Earnings Call. Recently, the domestic market penetration rate for new energy vehicles has surpassed the 50% for the three consecutive months. Meanwhile, ZEEKR achieved a new quarterly delivery record with a total delivery of 55,003 units, reflecting solid growth both year over year and quarter over quarter. In October, our deliveries surpassed the 25,000 units, setting a new monthly record for the ZEEKR brand and propelling our cumulative deliveries for 2024 to nearly 170,000 units. With current order trends and anticipated year end market demand, we are targeting a new monthly delivery of over 30,000 units in each of the next two months. As such, we are confident of achieving our annual goal of selling 230,000 units.

Now, I would like to share the progress we have made across products, operations and innovations. On the product front, the ZEEKR 7X has become ZEEKR’s second model due to monthly deliveries exceeding 10,000 units, marking a robust achievement in the highly competitive mainstream SUV market. The ZEEKR 7X delivery exceeded 20,000 units within 50 days since its launch, once again break the delivery record of luxury pure electric vehicles. Supported by our robust operational system, we rapidly ramp up production, supply chain and distribution for the ZEEKR 7X, enabling immediate deliveries upon launch and expanding market potential for the entire ZEEKR lineup. Meanwhile, models like the ZEEKR-001 and the ZEEKR-009 continued to lead in their respective premium segments.

In particular, the ZEEKR-009 grant delivered exceptional performance, achieving 1500 deliveries within just 159 days since its launch, surpassing the combined sales of the 2nd to 10th highest selling premium four seaters this year. The very good market result of ZEEKR-009 also contributes positively to our gross margin. In terms of operations, the surge in our delivery volumes has driven substantial growth in the company’s overall revenue. In the third quarter, our vehicle sales revenue exceeded RMB14.4 billion, setting a new record. Thanks to continuous optimization of our product mix, economies of scale and our innovative advantages, the company’s profitability has constantly improved with the vehicle margin reaching 15.7% in the third quarter.

At the same time, we accelerated our domestic one stop channel expansion. The 100 ZEEKR houses was launched in September, bringing the total number of ZEEKR house nationwide to over 110. Internationally, we have entered over 40 countries and regions covering markets in Europe, Asia, Oceania, Southeast Asia and Latin America, steadily advancing our global strategy for the coming year. Finally, we talk about the innovation, especially for the intelligent functions such as ADAS. Empowered and evolved by the end to end large model, ZEEKR as a self-developed SEA autonomous driving is iterating at a pace far exceeds expectations, setting new industry benchmarks in terms of product maturity and full scale deployment speed. It has become one of the top players in the industry in aspects like NZP, highways, intelligent parking and active safety.

Moreover, the newly launched ZEEKR mix has taken the lead in the whole industry to achieve four scenarios smart parking functionality. At the end of October, the market free urban NZP of SEA Autonomous Driving 2.0 started nationwide batch rollout two months ahead of schedule. By the end of this year, we will achieve the roll out of the map free urban NZP for all 2025 model years of ZEEKR-001, the ZEEKR-007 and the newly launched ZEEKR-7X and the ZEEKR mix, which equipped with the SAE Autonomous Driving 2.0. This comprehensive nationwide rollout will ensure that ZEEKR owners enjoy seamless driving experience on every road across the country. Tomorrow at Guangzhou Model Show, we will have launch events to showcase our latest technologies breakthrough on ADAS and we invite our investors to watch the show, live stream shows.

Last but not least, I would like to share with you that in September this year, JD Holding Group released the Taizhou Manifesto announcing that the group has entered a brand new stage of strategic transformation. The group will adopt 5 major measures, namely strategic focus, strategic integration, strategic coordination, strategic stability and strategic talent. It will concentrate on the core business of automobiles, layout the technological ecosystem, enhance its competitiveness, make progress while maintaining stability and promote the sustainable development of the company. As a crucial measure for implementing this strategic framework of the Taizhou Manifesto, this afternoon, Geely Holding has officially declared the optimization of the shareholding structures of ZEEKR and Lynk & Co. This move aims to rationalize the shareholding relationships, cutting down the related party transactions and eliminate competition within the same industry, thereby facilitating the in-depth and efficient integration of internal resources.

The Geely Holding will transfer the 11.3% of its shares in ZEEKR to Geely Automobile. After the completion of this transaction, Geely Automobile’s shareholding in ZEEKR will increase to approximately 62.8%. Meanwhile, the shareholding structure of Lynk & Co will be optimized to promote comprehensive strategic synergy between ZEEKR and the Lynk & Co. ZEEKR will hold 51% of the shareholding in Lynk & Co. and the remaining 49% will continue to be held by the wholly owned subsidiaries under Geely Automobile. So with that, I think we can move on to the next agenda for our Q&A.

Yuan Jing: Yes, operator, this is Jing, CFO. So maybe we can move directly to the Q&A session and you can provide your instructions and host the Q&A please.

Q&A Session

Operator: [Operator Instructions]. The first question today comes from Tina Hou with Goldman Sachs.

Tina Hou: So thanks very much management for taking my questions. So my first question is with perspective to ZEEKR, the listed company, how do you think about the M&A with Lynk & Co and what kind of impact or benefits is it going to bring to the ZEEKR Company? Thank you.

An Conghui: So very good question. Why ZEEKR needs to integrate the Lynk & Co? So this deal is not just simply to combine the two companies, but to deeply integrate the two companies’ business and optimize their management and the leadership team, to bring the better synergies to the new ZEEKR and create better value for the shareholders. So the new ZEEKR after the integration would have much expanded markets and potentials. So previously, ZEEKR has segments focusing on the vehicles priced between RMB250,000 to RMB500,000 making up around 18.7% of the Chinese domestic passenger car market. After the integration of Lynk & Co brand, we can expand our segments in the segments priced between RMB150,000 to RMB300,000, meaning that the new ZEEKR can have a product offering in the around 60% of Chinese domestic passenger car markets.

So that would significantly boost the potential for our future growth. So not just about pure battery electric vehicles, we can have a great potential. And also, as we all understand that the PHEV products are the sales of PHEV products are growing quite quickly in the Chinese domestic market. So, after the integration, we can also have a great potential in that area as well. So after the integration, we can significantly reduce the risk of competing the two brands competing with each other. I think this is also a very important topic that’s interested by many investors. So this year, if we combine the sales volume of Lynk & Co and ZEEKR, that would already exceed 500,000 units. So based on that, the new ZEEKR after integration would try our best to quickly reach the 1 million units annual sales to become a premium new MG vehicle brand that can achieve 1 million annual sales volume.

So I would also like to emphasize that after the integration, I will directly oversee the business operations of the two brands, no change. And I sincerely hope that after today’s integration, we can achieve a very good synergy and to quickly bring very good new values for all of us. Now I will hand over the floor to our CFO for further information.

Yuan Jing: Thank you. Thank you, Mr. An. Yes, excuse me. So as Mr. An mentioned, from today, Lynk & Co and ZEEKR will become one integrated company, head by one management team. So, we have a very definitive trajectory for the overall integration strategy and we have specific execution teams in each of the business sector to look at a detailed planning of the future business development of this company. So, we will introduce a little bit about the overall source from the senior management level at very high strategic level in terms of integration and synergy. And so, just as we mentioned earlier, just as brands like Volkswagen and Toyota when those companies operating those multi-brand strategies, we will have the two brands relatively separate from each other when facing the customers such as the sales channel development.

But as we move towards the back office of this business such as R&D, manufacturing, supply chains, we will start to push integration and start demonstrating synergies as soon as possible. Say, for example, the two brands of ZEEKR and Lynk & Co will now start to move to slightly differentiated, but very specific positions. For ZEEKR, we will brand ourselves as a global luxury technology brand and covers mainstream luxury markets. For Lynk & Co, it will be branded it will position as a global new energy vehicle brand covers mid to high end markets. The two brands will cover different sectors of this market and maximize the overall coverage of this particular company. For sales channel in China, Lynk & Co has around 437 sales channels and ZEEKR has 442 sales channels.

The two brands will have separate sales channel developments in Tier 1 and 2 cities, but as we move to lower tier cities, ZEEKR can rely can work together with the Lynk & Co channel and start demonstrating synergies. For the aftermarket channel, we will start integration and synergy as well. At this moment, ZEEKR operates 128 authorized Lynk & Co service center. Their service standards are based on Lynk & Co service standard, but managed and monitored by ZEEKR’s aftermarket sales team for the customer experiences. As we started to integrate the two brands, the business operation for those kind of authorized service center will be more and more smooth. In the future, for places and cities that has ZEEKR house operation, ZEEKR house service network will replace those authorized service centers.

But for cities and regions without ZEEKR house planning, we will still work together with the Lynk & Co service network. Specifically, in lower tier cities where there is sufficient ZEEKR, existing ZEEKR clients, we will authorize related Lynk & Co service center to provide services. For example, then let’s move to products. We will start reviewing and reshuffling the product line up of these two brands, making sure the specific market for each of the brands and adjust the brands adjust the pipelines of each of these brands. We will reduce the number of products especially in perceived overlapped products in those different markets. In mid to long run, ZEEKR brands will move towards mid to large luxury vehicles, whereas Lynk & Co brands will move to mid to small size high end vehicles.

Specifically, ZEEKR will focus on vehicles that has a wheelbase of more than 4.8 meters that is Class B to Class D. Some of the Class C and Class D vehicles will be powered by a plug-in hybrid powertrain and the rest of ZEEKR’s vehicles will all be powered by BEV powertrain. For Lynk & Co, they will focus on Class A, B and C vehicles, whereas the Class A vehicles will have BEV powertrain and the rest will have a plug-in hybrid powertrain. So, in B class and C classes, the two brands will be differentiated by the powertrain and the product definition. In technologies, we see tremendous synergies in architecture, powertrain that is including BEV Powertrain and PA Powertrain, EEA, smart cockpit and ADAS systems. We will continue to fully integrate all those aspects in both Lynk & Co and ZEEKR vehicles.

For example, the architecture we will unify the architecture of those two brands to SEA and GE architecture. And we will unify the EEA into ZEA architecture. And we will unify the hardware and OS for the smart cockpit will have differentiated user interface or human machine interface at the vehicle level. In addition to that, we will continue to see tremendous synergies and cost savings in sales marketing that is from a less number of vehicles sold and more volume for each of the models and with synergies from manufacturing in terms of increased utilization and we see synergies in the supply chain in terms of more vehicle sold and less models. For Finance, HR and other back office support departments, we will continue to see tremendous synergies after the integration.

So, this is a brief introduction of what we see in terms of the synergies. At this moment, we have only announcements of this transaction and detailed financials will first be provided by shareholder circular and later we will also provide U.S. GAAP financials for Lynk & Co in our 2024 full year financials. So, Tina, I hope it satisfies your question.

Operator: The next question comes from Tim Zhao with Morgan Stanley. Please go ahead.

Tim Zhao: So my question is about the [indiscernible] market because apparently the [indiscernible] market has been quite challenging to ZEEKR this year given that your political headwinds, could the integration with the Lynk & Co overseas business help ZEEKR to find an alternative way to tackle the overseas challenges? So that’s my question. Thank you.

Yuan Jing: Thank you, Tim. This is Jing. So, we do have a very detailed discussion between Lynk & Co and ZEEKR in terms of the overseas expansion. As you mentioned correctly, both markets, we are still at our initial stage when it comes to non-European international market. So, we do have a very careful planning session in this aspect. The conclusion we draw from those planning sessions is that we need to have a very detailed and very specific models and unified models for different markets. And we have to have a coordinated strategy when it comes to dealership negotiations in different areas in the international markets. Also, very importantly, we have leverage on each other’s existing infrastructure when we are expanding into international markets.

There are different types of international markets that we will adopt different strategies. For example, in countries or regions where both Lynk & Co and ZEEKR have existing infrastructures, we’re making sure that we have very close discussions among the two teams in terms of vehicle introduction and price. Say for example, in Israel and Saudi Arabia when both of the brands have the presence, some say for example in Saudi Arabia, some of the ZEEKR’s brands will be put into Lynk & Co’s sales channel and some of the branding team from ZEEKR will be integrated into Lynk & Co’s team. In countries and regions where we have ZEEKR’s parents, but without Lynk & Co’s parents, we will have differentiated strategy as well. Say for example, in Mexico, we will introduce BEV model from ZEEKR.

We have already introduced BEV model from ZEEKR. In that case, we will not introduce BEV model from Lynk & Co but the PHEV models Lynk & Co to that particular market. And in Mexico Lynk & Co will rely on the existing infrastructure that is set up and utilized by ZEEKR for their local expansion. In countries and regions that Lynk & Co has entered, but ZEEKR haven’t entered, say for example in Vietnam, we will have ZEEKR brand utilizing existing Lynk & Co sales infrastructure and sales channel and have a shared aftermarket networks. So, as you can see, we do believe there is a tremendous synergy to be realized after the two brands has been integrated under one umbrella.

An Conghui: So I would like to add one more point. Currently, in Europe, Lynk & Co is cooperating quite well with Volvo on the sales channel expansion. This year, Lynk & Co was already open over 30 new dealerships and then would further expand to over 100 dealerships in Europe. So, this positive there will be very good positive moves around the Lynk & Co regarding the sales in Europe. Of course, Lynk & Co in Europe with a focus on the PHEV vehicles because those models are not subject to the additional tariff by the EU REV authorities. For ZEEKR, we would fully well utilize and leverage all these good resources for our Europe ramp up. Another positive point is that this year ZEEKR entered into many countries globally and we have won very good recognition by the customers as a luxury pure battery electric vehicle brand.

And the price tag for these vehicles in those markets are higher than many of our competitors, showing that we are already enjoying a good brand premium in many markets. Thank you.

Tim Zhao: So just a very quick follow-up. ZEEKR now is positioned as the only or the most important style and brands within the group, where you could have for the opportunity to integrate other high quality assets in JD [ph] Group? Thank you.

An Conghui: So, in response to your question, I can say very clearly, see for sure here that apart from all the announced deals at Geely Holdings Group, we are not considering any other potential deal or M&A. With regards to some rumors, online rumors that I have become the Chairman of Post-Star China, I would like to say that Lynk & Co and ZEEKR deeply integrate with each other to achieve a very good synergy. And regarding the other brands and the JD Holding Group, we are also exploring different types of synergies. So, this is normal. And I can say for sure here that most of my time and energy will still be on the ZEEKR brand’s operations, the ZEEKR Company’s operations. I’m also the President at the Geely Holding Group. But at the Geely Holding Group, I’m more spending our time on the group level strategy and the synergies around the brands.

Operator: The next question comes from Ming Li with Bank of America Merrill Lynch. Please go ahead.

Ming Li: So after ZEEKR and Lynk merged, will you consolidate your technology path for your smart caving and your autonomous driving software?

An Conghui: Thank you. So after the integration of Lynk & Co and ZEEKR, we can achieve very positive synergies. So after the announcement, the publishment of the filings, we will do deeper planning and execution. But here, I would like to share some of my strategic thoughts on after what we would do after the integration here. So, first of all, regarding the branding, so we would have two independent brands under our new company and the ZEEKR is targeting at mainstream luxury vehicle market sectors and the Lynk & Co is targeting at mid to high end vehicle sectors. And the price tags, the pricing of the two brands are quite different from each other, clearly differentiated and we are targeting at the different market segments and sectors.

So regarding the products, we would differentiate the two brands in the areas of size of vehicles and the powertrain of the vehicle. We will reduce the number of the new models and to reduce the competition between the brands. So regarding technology, which is a very highly interested area among the investors, we believe that in the era of smart new energy vehicles, we need to have the platform strategy. So in the areas of mechanical architectures, electrical and electronic architectures, smart cabin, ADAS and the e-powertrain. So in 2 or 3 years’ time, we strive to reach and maximize the platform strategy among the products under the new company. So for example, when it comes to mechanical architecture, currently, the two brands of vehicles use different architectures, including CMA, SPA and SEA.

In the future, we will streamline the architectures that our products are developed based on. Secondly, when it comes to the EA architecture, in the future, we would unify and to use one EA architecture for other products under the new company. When it comes to the ADAS, in the future, we will also unify the solutions and to rely on our in house developer system. When it comes to the intelligent cockpit, of course, when it comes to the user interface and the human machine interactions, we can be different. But so the Lynk & Co will still use the FlyMe and the ZEEKR would use the ZEEKR OS, but when it comes to the back end, we will achieve a very good synergy. So when it comes to the supply chain management, we would aim to strive to have a better economy of scale and accordingly to lower this cost when it comes to the manufacturing.

We will further improve the utilization rate of our capacities when it comes to the supportive functions, corporate functions, including human resources, finance, the legal and IT, we would further streamline the organization to achieve a higher efficiency. So from my experiences, I think after we integrated the two companies, we can achieve 10% to 20% R&D expenses reduction. And when it comes to the procurement purchasing, we can achieve a 5% to 8% BOM cost reduction. When it comes to these corporate supportive functions, we can also save around 10% to 20%. In all areas, we can lower our costs and to boost our efficiencies and try to be strive to be profitable as soon as we can. And earlier this year, we said that we aim to achieve breakeven for Hong Kong Financial Report System and we still stick to these targets.

And I believe I see I think that we have good potential to achieve that.

Ming Li: For our next goal, of course, is to be profitable for the U. S. Accounting system. We would our management team would work hard to achieve that quickly. So recently we find many auto companies layer plug in hybrid product, the pure battery mode driving range will increase a lot in 2025. And especially after you merge with Lynk & Co, will you learn any advantages for Lynk & Co because Lynk & Co some of the models PHEV sell very well. So, yes, what is the plan after the merge?

An Conghui: It’s a very good question. And I believe that the PHEV vehicles can be a very good growth point for the future of a new ZEEKR company. Let’s start with the Lynk & Co. Lynk & Co currently are using the EMP powertrain developed by Geely, and it is well received by the customers quite positively. And in the Lynk & Co’s product lineup, in their next generation, they would also use the EMP platform, but equipped with a smaller engine, which will be 1.5 liters. When it comes to ZEEKR, ZEEKR currently’s engineers are working on a new super electric hybrid system, more suitable for the large size vehicles. For the future ZEEKR large size vehicles, including SUV model and MPV model, we would use that self-developed architecture.

I can say with pride that our architecture and our technologies are far technologically leading than our peers in the market. Of course, details of that technologies, I am not able to share here due to the compliance issue. We would soon in the future to hold a formal event to explain all the details and the advancement of that architecture and technology to the public. So, but I would like to share some highlights of the vehicles we are currently developing. When we look at the global Luxurious SUV segment, we can see that it’s mostly dominated by the legacy brands such as Mercedes Benz, BMW and Audi. Taking Mercedes Benz GLS as an example, these models are all equipped with conventional gasoline powertrain. In the future, therefore we can roll out good models that are highly fuel efficient with great fast like handling without any kind of range anxiety, can save oil, gasoline in the urban scenario can save electricity in the urban scenario and save a fuse on the highways, I think that model would enjoy and have a huge potential in the market.

So for ZEEKR, we would quickly to roll out such a good large size SUV for the global market. So, our plan here is to unveil the vehicle at the Shanghai Motor Show in April and we would start deliveries in the second half next year. Thank you.

Yuan Jing: So, in addition to what Mr. An just mentioned, as I discussed earlier, in the segments B segments and C segments where we have the largest addressable market, Lynk & Co and ZEEKR will tap this market utilizing different power chains. In addition to that, you can see in the future we will continue to further streamlining the platforms and drive trends of both battery electronics vehicles and the plug-in hybrid vehicles. At this moment, as Mr. An mentioned, some of Lynk and Co’s vehicles still runs on the legacy CMA platform or SPA platform. But in the future, we will unify the PHEV platforms into sorry, unify Lynk & Co’s PHEV platform into that of ZEEKR. And that will ensure us to enhance the profitability of each of the models and also improve cost savings and enhance our bargaining power along the supply chain. I hope that answers your question Ming.

Operator: The next question comes from [indiscernible] with CICC. Please go ahead.

Unidentified Analyst: Okay. I have two questions about the intelligent driving. We all know that ZEEKR has made significant investments in intelligent driving and has achieved excellent progress. How can ZEEKR maximize the results of its intelligent driving efforts, will it empower other brands in the future, creating new opportunities for revenue growth? That’s the first question. Thank you.

Yuan Jing: Thank you. So apologies. So for ZEEKR, I think it’s very, very clear that our ADAS solution, especially our high performance ADAS solutions will be adopted by Lynk & Co as well. So, in the future both ZEEKR and Lynk & Co’s high-end ADAS solutions will be based on the current NVIDIA chipsets and in house software algorithm solutions that’s currently the ecosystem is working on. On the other hand, obviously, within the big JD Group there are two different ADAS branches and the more cost efficient ADAS branches will provide ADAS solutions for Lynk & Co vehicles that target at a more cost conscious population.

Unidentified Analyst: Okay. Thank you. The second question is about is there any update on our cooperation with Waymo? And will there be any deeper cooperation after that? Thank you.

Yuan Jing: Yes. So with regarding to the Waymo Corporations, we are still working with them according to the agreements that we have with them back in 2019. So all the testings and other test drives and trial runs are working smoothly in U. S. at this moment.

An Conghui: So, we will start deliveries of batteries of vehicles from the first half of the next year to them.

Operator: The next question comes from Bin Wang with Deutsche Bank. Please go ahead.

Bin Wang: Thank you. I got one quick question. What’s your guidance for the number four quarter this year gross margin? Because we found out you actually introduced a zero low interest rate promotion for volume in the number four quarter, BYU actually have a better volume in the mix. So combining two factors, how are you guiding for number four quarter margin? Thank you.

Yuan Jing: Thank you, Bin Wang. So for the fourth quarter gross margins, given the fact that we have already seen a tremendous customer demand in terms of orders and also if you look at the product mix, we continue to see very strong demand from our customers for our high end, high margin ZEEKR-009 models, we do believe the Q4 margins, especially the vehicle based margins are going to continue to improve.

An Conghui: So, as investors can see that in the past quarters, our ZK vehicle margins kept growing. And I think after integration with Lynk & Co, the gross margin level will see further positive improvement. And the next year, we will roll out large size luxurious PHEV vehicles that can further contribute to the growth of healthy improvement of our gross margin. So I would like to highlight again, this is a very good business, the integration of a good operations, not just simply to combine the two companies.

Operator: The next question comes from Jia Lou with BOCI. Please go ahead.

Jia Lou: Yes, thank you. Yes, thank you for taking my question. I have two questions. One is about our sales distribution integration. As we know now, Lynk & Co. stores relies on dealers, why Vicar most adopt their own direct sales. So following the consolidation, will vehicle use the Lynk & Co. Sales dealer to achieve faster expansion? I mean, will Lynk & Co. share the same store to sell their individual cars? Yes. This is my first question.

An Conghui: So I said that after the integration, we will keep two independent brands and they will remain their respective business approach. Lynk & Co would remain to use the dealers and ZEEKR would remain to sell directly to the customers. But I’m not sure if our investor colleagues are aware of ZEEKR house model that we are currently applying in the domestic chinese market. So there are investors that invest in the stores and ZEEKR’s colleagues handling the sales at the facilities. So after the integration, ZEEKR will continue to use the D2C model, but we would invite more Lynk & Co investors if they are interested to help us to expand our sales reach in the Tier 3 to Tier 5 cities, lower tier cities in China and to further expand our sales outreach in those markets.

ZEEKR is a young brand, So most of our stores are in the Tier 1 and the Tier 2 big cities. We have not yet we have yet have a very good outreach in those Tier 3 to Tier 5 cities. So after the integration, I see very good opportunities for us to attack those markets. And also, when it comes to the after sales services system, we can achieve a very good synergy, so as the logistics systems. So I think in the future, when it comes to the marketing, sales and services, we can achieve good synergies.

Jia Lou: My second question is about our combined sales target for new ZEEKR. That is 1 million units by the end of 2026, which is quite positive as it is double from this year. So I just want to know that any detailed breakdown for individual brands of ZEEKR and Lynk & Co or if we have some preliminary breakdown by region? Thank you.

An Conghui: So we didn’t say that for sure that we it is our very committed target to achieve 1 million annual sales target in the year 2026. But we want to, as soon as we can, to make our company at 1 million annual unit sales level. When it comes to the detailed business case, I apologize that I cannot give you detailed breakdown here. For further information on the sales guidance, we would publish in January alongside the [indiscernible] and new sales report.

Operator: The next question comes from Paul Gong with UBS. Please go ahead.

Paul Gong: So quickly, the first question is, just now you mentioned that you’re going to eliminate the number of models to consolidate on the large volume models. Do you have an optimal number of the number of the models?

An Conghui: So, I apologize that I cannot give you a detailed figure for in response to your question. But I have already conducted some good study about the current product planning with the two brands. And after today’s announcement, the teams at both brands are working very closely with each other to roll out a more detailed further planning update for the future years. So today here, I cannot I would not give you a detailed answer, but we would try to answer that as soon as we can. We have already laid out the principles for registering future products as the two brands depending on the brand positioning and the size of the vehicles and the powertrain setups. And we also have a make out a very solid goal that all the future production needs to be the benchmark in their respective segments.

For the next year, ZEEKR will roll out two new models, while Lynk & Co will roll out another two new models. So, new ZEEKR next year will roll out four new models positioned at different sectors. Thank you.

Operator: The next question comes from Eugene Zhao with Macquarie. Please go ahead.

Eugene Zhao : So my question is about the old ZEEKR, which is asset light. But with the Lynk acquisition, I think that also means you acquire the Lynk manufacturing facilities. So does that mean that the new ZEEKR business model is shifting away from asset light and being more of a traditional OEM? And if that’s the case, does that mean you would consider acquiring the main production facilities of ZEEKR from Geely Holdings like the new [indiscernible] plant? Thank you.

Yuan Jing: Yes. This is Jing. And thank you for your question, Eugene. So as we when we set this company up, set this figure up, we’re starting from a blank sheet of paper and we are a startup. Hence, we’re adopting this asset light business model. And when we were considering this Lynk & Co transactions, obviously Lynk & Co is a fully integrated business and it incorporates at this moment three manufacturing facilities. So when we conduct this transaction we bring in the three manufacturing facilities. As Mr. An mentioned earlier, we will continue to see how to fully utilize those manufacturing facilities by optimizing and restructuring the models that will be manufactured at each of these sites. At this moment, apart from this Lynk & Co transaction, we do not have any further plan or discussion with any third parties or JD Group with regarding to additional manufacturing facilities or other businesses.

An Conghui: So when it comes to the product planning, in the future when we register new products, we need to analysis based on their brand and the brand that the model would belong to and whether they do fit to the brand positioning as well as the size of the vehicles and also considering the powertrain of the vehicles and also considering whether this vehicle could be the benchmark in their segments. So these are all the factors that we will seriously consider when we register new product.

Operator: This concludes our question and answer session. I would like to turn the conference back over to the company for any closing remarks.

An Conghui: Thank you all once again for joining us today and thank you all for your support to our companies. And our management team will work hard to deliver a good result to our investors community in the future. Thank you again. Have a great day. If you have any further questions please feel free to contact Mr. Yuan Jing, our CFO. We will try our best to give you good answers. Thank you all.

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.