ZEEKR Intelligent Technology Holding Limited Price & Performance (ZK)

First, may I have Mr. Anson Hui, CEO of the company. To start the meeting. Thank you. Hello, everyone. I'm Andy. Thank you all for joining ZEK Group's fourth quarter and full year twenty twenty four earnings call. First and the foremost, I would like to express my gratitude to our users, suppliers employees for their unwavering support to everyone's efforts ZEEK Group has delivered its first stellar full year results to the capital markets just a few months our IPO in May 2024. So ZEEK Group has achieved total sales of over 500,000 vehicles in 2024. Of the total, the Lincoln Co brand delivered 280,000 units nearly 30% year over year increase, achieving the highest sales in its history, So the annual deliveries for the ZEKR brand surpassed the 222,000 vehicles for the full year, a remarkable 87% year over year increase. Making ZEKR 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 vehicle revenue of 50,000,000,000 and the whole revenue of RMB75.9 billion and also our gross margin considerably a growth 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. [indiscernible] [indiscernible] Under the strategic guidance JD Holdings' Taizhou declaration, ZEEKR and LingHangCo successfully complete our transaction in just three months. Officially performing ZEKR Group on 02/14/2025, building on a global user base of over 1,820,000 across both ZEKR and the Lincoln Co brands, We aim to deliver 710,000 vehicles in 2025 Within two years, we aspire to become the world's leading premium new energy vehicle group, with annual sales of 1,000,000 units. Meanwhile, we are leveraging synchronized product R and D improved manufacturing system enhanced user engagement and integrated domestic and international distribution to drive greater operational efficiency maximize economies of scale and strengthen ZEEK 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. Next, let me outline our three key strategies for driving sustained growth. First, we will continue to strengthen the ZEKR brand in the premium market to go more upmarket while broadening the Lincoln co brand customer base and further expand our product portfolio and enhance our product competitiveness. [indiscernible] The ZEKR brand with an average selling price of close to continues to solidify its market position in the [indiscernible] ZEKR009 emerged as the best selling NPV in China, priced above RMB400000. $20.24 and has gained significant popularity among business leaders.

In 2025, the ZEEKR brand will launch three new models to further expand its reach in the premium market, And we will release the ZEEK seven 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 premium SUV in Q4, Both premium SUVs will feature advanced super electric hybrid technology and notably, the ZEKR9 X Grand will make its debut with Level three Chenli Haohan autonomous driving system H9 and make its first appearance at the Shanghai Auto Show in April. Meanwhile, the Lincoln Co brand is broadening its customer reach In 2024, its new energy vehicle segment showed a growth with over 58% penetration rate and that the average selling price for the Lincoln Co brand reached over RMB200000. The Lincoln Co. EMP ranked among the top three in the high end plug in hybrid segment with an average selling price exceeding thousand as the Lincoln Co. Brand achieved both price and the sales volume growth, its range of powertrain and customer reach continue to expand. In 2025, the Lincoln Co. Brand will launch two new models, The first one is the Lincoln Co 900 its flagship large six seater SUV.

And we officially launch this product in late April or early May. And many of these show cards have already arrived, our showrooms, and it will be the world's first must produce the vehicle with very advanced ADAS system and with the feature of the Chenli Haohan H7. Additionally, the brand's first EMP mid to large size sedan will be released in the second half of this year. 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 systems, the battery and the e powertrains, autonomous driving, and intelligent cockpits, among with along with superior innovations through the seamless hardware and software integration and with this unique technological advantage, we are well positioned to quickly expand our technological motors through AI empowerment. A year. 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, we held a product launch event, technology launch event to showcase our end 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 MAPFRE NZP ensuring a seamless driving experience on every road across the country And in February, in February, we also launched a large scale banner for the door to door navigation And we recently unveiled the industry first full stack DOSUZON navigation system featuring GSN automatic invasive and maneuvering and the Level three autonomous driving technology architecture. And for the infotainment, we have based on our full stack, it is in house developed AI [indiscernible] We have launched our ZEEK AI OS, and we hope to deliver very good technology offering to our customers this year.

And in addition, we have recently established our IDD department for AI development and AI services as a powerful engine for ZEEKR Group, preparing progress across various business segments. In 2024, we deployed AI driven solutions across a wider range of scenarios. In including the R and D supply chain, quality control sales and operational [indiscernible] And so we will drive our sustained sales growth through the continued global expansion. In 2025, we aim around the 10% of our annual sales target. Sales target will come from the international market. And to maximize the synergies, will establish a unified sales company after we integrate the two brands in the global markets outside of Europe, and with a single team focusing on expanding the both brands' international presence. And we will also introduce a new product tailored for the mainstream global markets, including the Lincoln Co. Eight EMP and the ZEEK 7X. These two products are liked by the global customers. And the 2025 market Group's inaugural year 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 a greater organizational synergy while driving platform based technology sharing and the economics of scale for the cost of reduction ultimately maximize shareholder returns.

With that, I will hand over our call to our CFO, Yuan Jin, and hopefully we have a decent time for the Q and A. Thank you, everyone. Thank you, Andy. Before I start, our lawyer 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 risk 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 forward looking statements except as required under the 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 two and twenty two thousand vehicles in 2024, resulting in impressive year on year growth of 87%. Further reinforce our position as the best selling pure electric luxury brand in China. [indiscernible] Our record breaking vehicle deliveries that were remarkable. 46.9% year over year increase in total revenue [indiscernible] 70 in 2024. Notably, vehicle revenue grew substantially by 63% year over year targeting totaling RMB55. 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 improvement in vehicle margin to 17.3% in the fourth quarter and 15.6% for the full year. We believe this is better than all our listed pure play BVPS globally. Driving by our unwavering commitment to electrification and intelligentization, continue to increase our R and D investments while enhancing efficiency. In 2024, our R and D expense reached RMB9.6 billion, representing a sixteen point one year over year increase. The same time, our R and D expense ratio decreased from 16.2% in 2023 to 12.8% in 2024. Demonstrating improved operational efficiency. Our R and D expense for 4Q twenty twenty five for 4Q 2024 is around RMB3.2 billion roughly in line year over year with 4Q twenty twenty three, which stood at at around billion.

Quarter over quarter increase of R and D expense mostly due to year end employee bonus and booking schedule [indiscernible] finished projects. We also booked investment gain of RMB $7.27 million It is related to a partial disposal of investments in Guangzhou, Xinyuan by our subsidy in Bovari has received cash gain during the disposal. We did not book any non cash events again as the rest of the variety's shareholding are not deemed as available for sale. We also made notable progress in reducing our total net loss which decreased by RMB82.6 billion in 2023 to RMB57.9 billion in 2024. Marking a year over year decline of 30%. This improvement was attributable to stronger profitability and operation 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 RMB1.7 billion primarily allocated to PPE for Verizon for production tooling and leasehold improvements for our retail stores. Our free cash flow for 2024 reached RMB1.5 billion, setting another record high. In February of this year, we successfully completed the acquisition of Lincoln Co, and we have disclosed the pro form a condensed combined financial data for ZEKR Group for the year.

The year 2023 and 2024. As shown in the combined pro form a financial results, in 2024, the combined ZEKR Group achieved remarkable revenue milestone of RMB130.9 billion. Backed by vehicle deliveries of more than 507,000 cars. Looking ahead to 2025, working towards a significant growth trajectory of 40% delivery growth to 710,000 vehicles across two brands. The pro form a vehicle margin for ZEKR Group stood at 12.5% and with the realization of transaction related synergies we are working very hard to implement bond cost and manufacturing synergies and we expect ZEEK Group's vehicle margin to further improve to around 15% in fourth quarter of twenty twenty five if we can realize a few one off synergies. Having said that, will continue to aim for around 15% vehicle margin for full year 2025 in light of potential market conditions. Pro form a R and D expense stood at around RMB13 billion and we are seeking to realize 20% quarter over quarter R and D expense savings fourth quarter twenty twenty five. We then will work to reduce R and D expense ratio to around 6% in two years' time. Pro form a SG and A ratio stood at around 12.5% and we're aiming at reducing it to around 8% in the same timeframe.

Lincoln Co recorded a free cash outflow of around RMB400 million which means pro form a ZEKR Group free cash flow for the full year 2024 is around RMB1.1 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 Lincoln Co. Integration. We're targeting to fully integrate Lincoln Co and ZEEKR brands together and realize if not surpassing, aforementioned guidance, as soon as possible. In the first half of twenty twenty five, you can see we are focused on improving our ADAS experience. As evidenced by our March 18 event, we believe we are on the right track to be among the leading players in the Chinese e market in terms of ADAS software and globally. We the new models, our two brand new models to be launched in the first half of twenty twenty five, we have targeted improvement over where we receive most customers We are over where we received most customer feedbacks. Seven seventy seven GT will show improvements over ZEEK seven seventy seven and 900 over Link and Co nine. With the latest NVIDIA flagship set on Lincoln Code 900, we hope we will be able to further solidify our leadership in the ADAS area.

We believe these targeted improvements and improved smart software experience will support Lincoln Co and ZEEKR sales growth. [indiscernible] the second half of twenty twenty five, we will introduce ZEKR 7X and Lincanco eight EMP to international markets to further boost our international sales. We'll also launch our stock start product for the year at ZEEK9X which will feature our latest and industry leading P HAVE drivetrain technology and smart ADAS capability, including a L3 capable variance of the model. Two additional models, a middle to large plug in sedan for link and co and a large plug in luxury SUV under ZEEK brand will also be launched and we expect these new models to further boost our sales delivery. Looking ahead, we will stay focused on the accelerating resource integration and unleashing greater synergies to enhance shareholder returns and create sustainable long term value. So this concludes our prepared remarks. Remarks, sorry. I will now turn the call over to the operator to begin the Q and A session.

Will now begin the question and answer session. And you would like to withdraw your question, please immediately repeat your question in English. And the first question will come from Tina Howe with Goldman Sachs. Please go ahead.

So my first question is regarding our breakeven timeline. 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 Lincoln Co consolidation, what kind of cost reduction can be seen in the specific quarter? So that's the first one. 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. There are things that we cannot control. So for the things that we can and we're currently controlling and implementing changes, Obviously, we are working very, very hard, as mentioned earlier. On the Link and Co integration. For example, most of the mid and back office functionalities, including HR, legal, compliance and finance and admin team, we are all now sitting together as one team. And at the same time, we are also working very hard to integrating the R and 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 and D expense ratio towards something around 6% and our targeted SG and A ratio is around 8% And those two numbers, if you look at our pro form a financial statements, so it stood at around 11% for R and D and 12.5% for SG and 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 new energy vehicle market and a more increased competition in the global market. As well. So it's very unfortunate at this moment, we won't be able to pinpoint exact state where we can turn around But as I mentioned earlier, we are very confident backing up by the consolidation of Lincoln Co and ZEEKR backing up on a positive 40% vehicle delivery increase and back up by improved manufacturing and manufacturing efficiencies and improved improved gross margin targets to achieve this kind of this kind of result.

On your second question with regarding to our guidance for 2026, you can probably see when we started this Link and Co integration project, our aim for full year 2026 is that we will curate a luxury brand [indiscernible] That sells close or more than 1,000,000 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 [indiscernible] but also plug in hybrids and potentially hybrid vehicles on the Lincoln Cove brand. So, we do think, if you look at 2024, ZEKR brands, had a CapEx of around 20 yes, something capital expenditure and for 2025 and 2026, we look at slightly increase on capital expenditure for the combined ZEKR and Link and 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 an increase in CapEx in a more constrained and restrained So I would like to add a few remarks.

First of all, up we integrate Lincoln co brand and ZEEKR brand, we have already mixed decisions to cut the models in the pipeline by in the R and D by 20% and to avoid the unnecessary internal competition between the two brands. And accordingly, the R and D expense would also lower because of this decision And secondly, I would like to say that the ZEKR brand products and the Lincoln co brand products are all developed based on the platform strategy. They share a lot in common. And thirdly, I would like to say that if we look at our performance in the last year, our gross margin showed a very 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 and D expense were the be lowered by over 20%. And for the further details of our performance in the Q1, we would release in May in our earnings results. But I can say here that with the organizational optimization and the 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.

And I would like to add one point that ZEEK brand were the go further upmarket. And this year, we plan to launch two large SUVs, and they would both use the super hybrid technology And as we know that the super electric hybrid technology powered products will have a higher gross margin than battery electric vehicles and will contribute to better performance of our gross margin. And as we can see in this industry, the products with an agent are always profitable So as we plan to as we launch the two vehicles 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.

Thank you.

Thank you.

The next question will come from Tim Siew with Morgan Stanley. Please go ahead. So my first question is about the sales target.

Because the competition has been incredibly strong this year. [indiscernible] ZEKR's full year sales target of 710,000 units? In 2025. That's my first question.

Thank you, Tim. This is Jin. And you are right, we have said a 710,000 vehicle sales targets among them sorry, RMB390000 will be RMB39000 will be RMB39000 RMB39000. Vehicles and three twenty will be ZEEK vehicles. And you can see, we are very confident about the profitability and the integration of Ling Tanggou brand that can lead us to a very, very strong financial position. Starting from fourth quarter twenty twenty five. And with regarding to our financial positions, with regarding to our new models, with regarding to, as Mr. Dan mentioned, some of the high profit for sorry, high margin plug in hybrid vehicles we are continuing to guide full year vehicle business gross margin that is on par with what we were able to achieve on the first quarter of this year. So I think that gives you an indication of I would call it, our animal 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, 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 tags 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 that. [indiscernible] So I would like to add one point that, of course, it's not easy to achieve the 710,000 annual sales units target. But we are still confident We understand that the first other the sales volume achieved in the first quarter was according to our management perspective, yes, 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 very [indiscernible] 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 Lingtang co brand and ZEKR brands, as well as the further improvement and enhancements of ADAS offerings, we have the confidence that we can achieve the full year sales volume targets. And then in the future, we will launch a new product as well as the launch of our facelift product version of our existing popular products. And our goal is to make everyone every new product very popular among our customers.

Next month in April, we will launch the new Lincoln Co 900 as well as the ZEEKR seven GT, we hope they can be the hit product hit in the market.

So our products will have a very competitive technologies and they would also be very competitive in pricing. As well.

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

So regarding the cadence of launch of the new products, because we this product has been happening in our product development pipeline for years. And so for the second quarter this year, we will launch the 900 as well as the ZEEK seven GT. For the Q3, we will have one Lincoln Co new product and one ZEEKR new product. And for the Q4, we will have ZEEKR new product, a SUV. We don't want to launch the product too frequently in a short period of time. I think the cadence, we in our plan is healthy. For the product competitiveness, we want our products to stand out in the market with very advanced technologies. So we already released the spike pictures of ZEEK9X which won the recognition by the customers. [indiscernible] zero also we have delivered showed them in the showrooms already and the customers gave a very positive feedback We hope we have a very advanced technologies So the ZEEK9X will be the first product to be equipped with ZEEK's SuperHybrid technologies and it will have 900 volt technology to support ultrafast charging and it will be equipped with a very advanced ADAS offering. And also, we would release some more details of about the ZEEK NOW X in our product launch event.

But nevertheless, our principle is that to equip the with the most advanced leading technologies in the industry to make it very luxurious and comfortable for the customers. At the same time, we have still have a competitive pricing. As far as I can see in the industry, 9X will be very unique and stand out in market. And I don't see a direct competitor to this model. 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 April or the May. Currently, we receive a very positive feedback on the product. And people love its products and its technologies. And we would still offer very competitive pricing for the product as well.

So I would like to emphasize highlight again, on one point that in the super electric hybrid technology as well as the EMP technology used by the Lincoln Co brand are very competitive. And the ZEEK HDD Holding Group, we have been making cars for around three 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 Sun Li with Bank of America. Please go ahead.

So my first question is regarding your autonomous driving product strategy for your ZEKR brand and also Lincoln Co brand. And also right now, what is the progress of your R and D team?

In the product design integration? Especially in the future, can we when can we expect the Lincoln co brand car can start to use ZEEKR's autonomous driving technology and also smart cabin technology.

Thank you.

This is a very good question. As we integrate the Lincoln Co and the ZEEKR brand, it is our plan that the Duvos brand will share the unified ADAS solution On March 18, we add ZEEKR's Chenyi Haohan ADAS technology launch event, we already explained that the brand in the future will use the H7 and H9 ADAS gs pilot solutions [indiscernible] with all the board equipped with the LiDAR as in our sensor suite. And for the Lincoln Co 900, it would also use the H7 system and EF2 will be the first product in the market to be equipped with NVIDIA's drive store a very powerful SoC. After we integrated the both brands they will share the same solution of ADAS and they will share the same solution of infotainment But of course, we understand that Lincoln Co and ZEKR are two different brands. When it comes to the human machine interaction, the HMI, would have a different design. But when it comes to the base wear, the middle wear, the hardware, would share the same solution. [indiscernible] [indiscernible] pipeline, it might take some time for us to have a very unified solution for the ADAS and infotainment but we aim to achieve the share platform ADAS and infotainment solution as soon as possible.

And by utilizing the platform strategy, we can enjoy the economies of scale and lower the cost [indiscernible] speed up in the iterations of the software. Upgrades. Now so my next second question is regarding your powertrain strategy. So currently, Lincoln Co. Brand the technology is the E and P platform, but U. S. ZEEKR the super hybrid technology should be more advanced compared to EMV system. So in the future, can we expect that your link and code brand will also use the super hybrid technology. And currently, you still sell some ICEV in your LinkedIn co brand. So do you think you will retire those ICEV sales faster or gradually? So first of all, because ZEEKR brand and LingQue brand are two different brands, so they are different So currently, our planning the ZEEKR brand will use a super electric hybrid technology whilst the Lincoln Co brand currently has no plan to use this technology. However, I still would like to say that a lot of components between the Superlative Hybrid technology and the E and Ps are in common, especially on the engines and the gearbox So we can have still have a very good synergy. Regarding the ICE vehicles, currently, we do not spend much on the R and D of ICE pure ICE vehicles.

But still there is some customer demand. For example, in the domestic market, there is some customer demand for the ZERO3 product. And for the international market, still many appreciates ICE vehicles. So we would keep limited investment from the R and D for the IC vehicles to meet these customer demands in the global market. But more importantly, we will further accelerate our R and D investments in the new energy vehicles. Such as E and P, superior to hybrid and pure battery electric vehicles. Thank you. The next question will come from Ting Tsin with CICC. Please go ahead.

I have two questions. The first is, what is the current progress of our export business? The layout of Medical stores help make the business go smoothly. The second question is about how do we view the impact of the position of Galaxy Twin models as high end new energy sedan on Lincoln and Co.

So first of all, I would like to say again that for the ZEEKR Group, this year our target is that the global overseas sales volume make up over 10% of our full year global sales sales performance? And secondly, to answer your second question, so inside the Geely Holding Group, we have a very clear brand positioning and differentiation between the brands of Lincoln Co. ZEEKR and GD 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. The next question will come from Ben Wang with Deutsche Bank. Please go ahead. Thank you. 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 a vehicle margin or overall gross margin? So what's the comparable number four quarter last year gross margin. If it was just mentioned that there will be one off positive. Can you elaborate what's the one off positive mean margin looks quite decent? Thank you.

Thank you, Bin Long. This is Jin. Yes. So as we mentioned earlier, we are targeting or we are aiming to achieve 15% vehicle business gross margin on a consolidated level, which means both Lincoln Co and ZEKR combined together for the fourth quarter of twenty twenty five, if we were able to achieve a number of one off synergies we identified we're doing this Lincoln Co and ZEEK consolidation. Unfortunately, there is no public available quarterly data for [indiscernible] But if you look at the six pro form a six ks that we published our website, you can see that the overall pro form a ZEKR Group consolidated vehicle business gross margin for the full year twenty twenty four four is around 12%. So, we're looking at somewhere around 3% improvement on a consolidated level for the fourth quarter of twenty twenty. Twenty five. At this moment, it may take too long for me to elaborate on each of these one off synergies we identified. It is mostly due to supply chain, further examination of supply chain. And closer examination of if you remember, Ling and Hehe has their own manufacturing [indiscernible] We're able to stop find some leakages over there as well.

And with in addition to that, we were able to talk to our suppliers since we were ZEKR and LingHangCo we are together, the whole group and there's a further consolidations with regarding to the R and D So the future components and parts, that is something can lever down when we're talking to existing suppliers. So, yes, so I hope that satisfies you.

Because you mentioned around 3% bond cost reduction on the call in the afternoon, Do you consider this 3% reduction in the loan cost? In this guidance? I would argue that this is more than just BOM cost.

But I think the essence is that we were able to demonstrate within the first quarter of Lincoln Co and ZEEK consolidation, we were able to achieve this kind of gross margin growth.

Okay. And my second question is about your battery sales business. We see a sharp decline in the number four quarter last year. Can you explain why side? So was the key customer will change into decline in battery sales?

Thank you.

Yes. If you look at the battery and other component sales, is mostly the business on Ningbo V Ray and Ningbo V Ray, Ningbo If you recall Nimbo Viret price to a certain extent [indiscernible] EVs and then EVs regarding to battery packs and EV power chains. Note is that not all of ZEE Group's NEVs are supplied by Ningbov RISE. Some of ZEEK Group's products purchased from their respective respective suppliers directly. On the other hand, one of the key customers of Ningbo Rai, the Volvo, we continue to supply them battery packs for Volvo's EX. EX30 models. So that contributes to the margin increase in the fourth quarter of twenty four.

Thank you very much. Thank you. Thank you.

Next question will come from Eugene Sighol with Macquarie Capital. Please go ahead.

So my first question is on if there's an update on the vehicles to be sold to Ramo and on [indiscernible] January, the U. S. Government had a ban on Chinese software without having an impact?

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

So, to follow-up, the vehicle sales this year will be on track. As expected before. Is that correct?

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

Okay, great. My second question is on the self developed [indiscernible] Are those only going to be used on super brand and will they only be using NVIDIA chips?

You mean the star chips?

The main controller that was [indiscernible] will be encrypted. Not only on linked handhold vehicles but also on digital vehicles. So it's basically all of our so in about models in the future going to use that ADC.

But only ZEEKR or Link user as well?

Both Link and ZEEKR brands. So long as they use short chipset.

Okay. And maybe this is similar question. Follow-up is, will we still plan to use mobile chips going forward Because I think all the new models are using video chips.

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

Okay. All right. Thank you, Thank you.

The next question will come from Paul Gong with UBS.

Please go ahead.

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

So first of all, we can make very clear that we have we hold a hit product strategy [indiscernible] 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 ZEKR brand and the Lincoln Co brand, as I earlier, that we already cut the products in our pipeline by 20%. So this is already explained.

Thank you. [indiscernible] So my second question is regarding the R D budget for this year and they put down roughly between the models development versus the intelligence [indiscernible] Yes. Thank you, Paul. So if you look at the unaudited pro form a combined financials, statements, you can see ZEEK and Lincoln Co combined together Last year, we spent around RMB1.2 billion, billion, billion on a U. S. GAAP accounting standard for R and D. And we are looking at similar or slightly like single digit percentage increase with regarding to the guidance we do pull out for R and D this year. Given that we're introducing quite a few new models as well as refreshments of our of our all existing models as well as improvements in data smart copy etcetera, etcetera. We do believe that is an indication of our overall R and D improvement of our R and D efficiencies. For 2024, in each of the smart cockpits, as well as ADAS etcetera. We spend around billion. And as mentioned, in 2025 and beyond, so we are looking to platform like our smart cockpits and ADAS technology among between Lincoln Co. And ZEEKR brands. So we are looking at a similar level of expenditure for both smart cockpit and ADAS.

In 2025.

Okay. Thank you very much. That's quite helpful.

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 electrical and electronic [indiscernible] infotainment and ADAS. And this investments in these platforms and technologies would bring us benefits this year. And I think in the future, the investment in many areas will be platformized and would not be as high as before. For example, take a Super Edition 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. Also, sorry, to add, that if you remember, we continue to reiterate our guidance of around 6% R and D expense ratio after the full integration of ZEEKR and Link and Co.

Okay. Thank you very much. That's quite helpful. Thank you.

Operator, can we have one last question, please?

Thank you. The last question will come from Joon Tao Dong with Citrix Securities. Please go ahead.

So my question is about the self driving. What would be the relation with ourselves self driving team and the Qianyi technology?

This is John Duncan. [indiscernible] So as we integrate the chain lead technology and ZEKR's ZID, we can very well combine the advantage of both sides for Chenli Technologies, they have a very good computing power computing centers with very high power computing capabilities. And they cultivated in the areas in AI, the large language model For the ZEKR ZID, we have a very good reserve and ADAS algorithm and we also have our engineering capabilities and we understand how to further improve the customers' experience. So after we integrate the two brands, we can enjoy very good synergy. To benefit our ADAS offering to the customers and lower the cost So for the Z class ADAS, it was still the development work were be led by Chen Qi or Baymax, but this has been no change. And we would further enhance the platform strategy among the ZEEK brand and the Lincoln Co brand's ADAS 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 ingenuity I. E, the team who actually put the technology on board of both ZEKR and Lincoln Cove vehicle to continue to work very closely with the vehicle's R and D team.

Regarding to Cheniheji, as Anzong mentioned earlier, as you probably watched the events on the March 3 they are providing with lots of computing power. They are providing with lots of infrastructure.

They are providing the backbone for the VLM and MLM models. But the actual implementations of putting those models, those general infrastructures into use. Into an actual ADAS system that our customers can reliably and safely use on car that is 100% in the hands of ZEKR's team. So thank you all for joining today's call and hope [indiscernible] most, if not all, of your questions. Mr. Dan and us 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 ZEKR's IR team. All for today. Thank you very much for your time and have a nice day. Bye bye. Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.