NIO Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
December 5, 2023

There are 10 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by for Yale Incorporated Third Quarter 2023 Earnings Conference Call. At this time, all participants are in listen only mode. Today's conference call is being recorded. I will now turn the call over to your host, Mr. Ray Chen, Head of Investor Relations of the company.

Operator

Please go ahead, Ray.

Speaker 1

Good morning and good evening, everyone. Welcome to NIO's Q3 2023 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website. On today's call, we have Mr. William Li, Founder, Chairman and CEO Ms.

Speaker 1

Steven Feng, our CFO and Ms. Danny Chu, Senior VP of Finance. Before we continue, please be kindly 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.

Speaker 1

Forward looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain filings of the With the U. S. Securities and Exchange Commission, the Stock Exchange of Hong Kong Limited and the Singapore Exchange Securities Trading Limited.

Speaker 1

The company does not assume any obligation to update any forward looking statements, except as required under applicable law. Please also note that NIO's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non GAAP financial measures. Please refer to NIO's press release, which contains a reconciliation of With that, I will now turn the call over to our CEO, Mr. William Li. William,

Speaker 2

Hello, everyone. Thank you for joining NIO's 2023 Q3 earnings call. In the Q3 of 2023, by making the most of a complete product lineup on the NT2 The improvement of overall sales capacity and capability as well as the continuous expansion of sales, Service and Power Networks. NIO delivered a total of 55,432 premium smart electric vehicles, up 75.4 percent year over year. The retail stats from Cataract showed that in Q3, Niu ranked 1st in China's BB segment with an average transaction price of over RMB300000 with market share above 45% in the segment.

Speaker 2

In September, NIO launched and delivered the all new EC6, a midsized coupe SUV upgraded to the 2nd generation. It also marked the completion of NIO's product lineup on the NT2.0 platform. In Q4, as price war deepens and the competition gets tighter For smart EVs, NIO delivered a total of 32,033 vehicles in October November, up 32.2% from last year, while maintaining our prices stable. In Q4, the total deliveries are expected be between 47,000 to 49,000. Going forward, we will stay focused on executing sales strategies and improving operational efficiency.

Speaker 2

We believe the competitiveness of NIO's 2nd generation products will be further unleashed next year. In terms of NIO's financial performance Attributed to the increased sales mix for higher priced models, decreased parts costs and improved economies of scale enabled by more deliveries, Combined with the refined management of sales policies, the vehicle margin in the 3rd quarter reached 11%. Next, I would like to share with you the recent highlights of our products, R and D

Speaker 1

and Operations.

Speaker 2

On September 21, NIO held NIO in, NIO's Innovation and Technology Day. At the event, NIO's 12 full stack technology capabilities covering the holistic business scenarios for smart EVs from multiple brands and platforms were introduced to the public for the first time. In the meantime, NIO also unveiled China's first vehicle operating system SkyOS and the in house developed LiDAR SoC named Yangjian, demonstrating NIO's systematic R and D capabilities leading the industry. Regarding assisted and intelligent driving, NIO has been quickly iterating the system capabilities. On November 15, Power Swap pilot for Highway Beta was released in China.

Speaker 2

So far, 29 Power Swap stations on highways already support this feature. PSP seamlessly combines NOP plus and Power Swap, bringing new users a hassle free highway driving and battery swapping experience that is automated and intelligent from end to end. In the meantime, NIO has rolled out the NOP plus for urban traffic, providing users with uninterrupted driving experience from point A to point B, both on highways and on city streets. Enabled by NIO's generalization capability in house and taking into consideration the high demand roads On users' wish lists, we've started to roll out NOP plus for cities route by route from November and will gradually realize wider coverage. At present, the NLP Plus has been released to early bird users in several major cities and is quickly becoming available for more routes and in more cities, which has far surpassed the target announced at NIO in.

Speaker 2

At our upcoming NID communication event, We will be sharing more information about that. In terms of the sales and service network, so far we have 4 68 new house, New space and pop up stores in 152 cities as well as 314 service centers and 62 delivery centers in 217 cities. As for the charging and the swapping network, to date, we have installed 2,226 power swap stations, Over 9,400 power chargers and over 11,000 destination chargers worldwide, more than 1,460,000 public chargers have been connected with NIO's charging map. NIO's long tested and well proven battery swapping system has offered over 32,000,000 convenient, efficient and safe battery swaps to NIO users, Making PowerSwap the most trusted recharging solution for them, NIO PowerCloud and NIO's PowerSwap network has been opened to the entire industry. In November, NIO partnered with Chang'an Automobile and Geely Holding respectively on battery swapping.

Speaker 2

In the future, NIO will join hands with more industry partners in such areas as formulation of swappable battery standards, battery swap network, R and D of battery swapping vehicles and the management of battery assets, so as to provide the holistic chargeable, swappable and upgradeable solution to more smart EV users and jointly contribute to the development and wider adoption of Battery Swap. NIO Day, NIO's grand annual gatherings with users will be held on December 23 in Xi'an, Shanxi Province. This year, we will unveil a brand new flagship model, A real epitome of NIO's innovative technologies, this project will become a technology benchmark for smart EVs and a trendsetter of the smart EV technologies worldwide. On September 26, with contributions to shaping a low carbon industry with innovative EV battery swapping, Niu received the Green Innovation Award of the 2023 Posen Prize for Sustainability. This award is a recognition of the novelty and expandabilities As well as the economic and environmental benefits of new battery swapping technology and the business model.

Speaker 2

The 2023 NIO Cup Formula Student China, a racing car design competition for college students, was held from November 8 to November 12 in Hefei. NIO has been sponsoring and supporting the competition since 2015. So far, Formula Student China has cultivated more than 40,000 young professionals for China's automotive industry, Becoming one of the most important credos of young automotive talent in China. The next 2 years will see the most intense competition during the transformation of the automotive industry. Faced with massive uncertainty in the external environment, Recently, we've sorted through and adjusted our key objectives, priorities and action plans to become more focused efficient execution and improvement of system capabilities, while ensuring long term investment in core technologies, Strong sales and service capabilities to navigate the intense market competition and on time release of the 9 core products from the 3 brands, We will continuously optimize internal working processes and the division of roles and responsibilities, stay focused on projects that can contribute to the company's financial performance and comprehensively improve organizational efficiency and resource utilization.

Speaker 2

We are very confident of NIO's long term competitiveness in the smart EV industry. As always, thank you for your support. With that, I will now turn the call over to Stephen to provide the financial details for the Q3. Over to you, Stephen.

Speaker 3

Thank you, William. I will now go over our key financial results for the Q3 of 2023. And to be mindful of the length of this call, I will reference to RMB only in my discussion today. I encourage listeners To refer to our earnings press release, which is posted online for additional details. Our total revenues in the 3rd quarter were RMB19.1 billion represented an increase of 46.6 percent year over year, an increase of 100 and 17.4% quarter over quarter.

Speaker 3

Our total revenues are made of 2 parts, vehicle sales and other sales. Vehicle sales in the 3rd quarter were RMB 70,400,000,000 representing an increase of 45.9 percent year over year 142.3 percent quarter over quarter. The increase in vehicle sales year over year and quarter over quarter was mainly attributable to higher vehicle deliveries.

Speaker 1

Other sales in

Speaker 3

the 3rd quarter were RMB1.7 billion, representing an increase of 55% year over year, an increase of 4.5% quarter over quarter. Gross margin in the Q3 of 2023 was 8% Compared with 13.3% in the Q3 of 2022 and 1% in the Q2 of 2023, The changes of gross margin year over year quarter over quarter was mainly attributable to the changes of vehicle margin. More specifically, weaker margin in the 3rd quarter was 11%, compared with 16.4% in the 3rd quarter of 2022 and 6.2% in the 2nd quarter of 2023. The decrease in vehicle margin year over year was mainly attributable to changes in product mix, Partially offset by the decreased battery cost per unit, the increase in vehicle margin quarter over quarter was mainly due to changes in product mix as well as decreased promotion. R and D expenses in the 3rd quarter were RMB3 1,000,000,000 represented an increase of 3.2 percent year over year and a decrease of 9.1% quarter over quarter.

Speaker 3

The slight increase in research and development expenses year over year was mainly attributable to increased personnel costs The research and development functions, partially offset by the degree design and development costs and deduction of expenses due to support for technology advancement provided by local government authorities During the Q3 of 2023, the decrease in research and development of R and D expenses quarter over quarter was mainly due to the support for technology advancement provided by local government authorities during the Q3 of 2023.

Speaker 4

SG and

Speaker 3

A expenses in the 3rd quarter were RMB3.6 billion, representing an increase of 33.1 percent year over year, an increase of 26.3% quarter over quarter. Loss For operations in the 3rd quarter was RMB4.8 billion, representing an increase of 25.2 percent year over year and a decrease of 20.3 percent quarter over quarter. Net loss in the 3rd quarter was RMB4.6 billion represent an increase of 10.8% year over year and a decrease of 24.8 percent quarter over quarter. Our balance of cash and cash equivalents, restricted cash, Short term investment and long term time deposits was RMB45.2 billion as of September 30, 2023. Now this concludes our prepared remarks.

Speaker 3

I will now turn the call over to the operator to proceed our Q and A session.

Operator

Thank Our first question comes from Tim Zhao with Morgan Stanley. Please go ahead.

Speaker 5

Thank you very much for taking my questions. I actually have 2 parts of the questions. The first one It's about the battery swapping, because Anil, as just mentioned, for the expanded strategic alliance in battery swapping from previous partner like Sinopec To Chang'an and Jili, could you share a little bit more about your plans of how to structure the new alliance of battery swapping And the potential financial impact like your CapEx and operating loss. So in the long term, will you consider to Off the battery swapping business and operate it independently or even go public as a standalone third party battery swapping

Speaker 2

Thank you, Tim, for your question. Yes, recently we have announced the cooperation agreements with both China and Geely On the battery swapping and in terms of the battery swap network, the way we look at it is a bit similar to the cloud service or the cloud infrastructure. Both Power Swap Stations and the cloud infrastructure require and rely on the network effect. Both can have a pretty long investment cycles And both are actually started with the internal services first and after sufficient validations and verifying the demands and the Fulfillments for our users' needs, we will then open up the service to the public. So after 5 years of validation and internal services, We believe that we are ready to provide such network and service to the industry and it's about time to open up the network to the industry.

Speaker 2

And as we all know that there are quite a lot of benefits with Power Swap. It is faster than charging And also it has better user experience. It also brings values and benefits to users and also the society. Especially in China, many users living in the urban environments or compound and apartments do not have a home charger. In fact, actually more than 50% of our users cannot install a chargers at home.

Speaker 2

In this case, battery swap This is also very important for the mass market Brand, because NIO is after all a premium brand and many of our users can still have chargers at home, but for the mass market brand, the Percentage of not being able to having the home charters will be higher. That's why when we started to share our battery design standards and also for the mass market brand to the industry peers, many of them are very interested in this alliance. We have already announced the 2 agreements And there are several more that are still in negotiation. As they also believe that with NIO's current battery swap technologies, Service standards and also service network, this is what they need for their products as well as for their users. And also in terms of the business model for the Power Swap, we believe that It is sustainable both from the business perspective as well as from the finance perspective.

Speaker 2

Especially after 5 years of operations and validation, we have confidence in the sustainability of Battery Swap. In terms of our Battery Swap network, as we will continue to expand our Power Swap network, There will be CapEx also relevant to such network development. But in the meantime, we are also looking for approaches where we may introduce partners into our powerswap Basically, they will buy the battery swap station as a product from us and then they will install the stations and hand it over to us for the operations. In this case, they will be holding this battery asset for us. There are a dozen of stations already running Based on this business model, so for the longer term, we will also be looking for partners holding the battery swap station assets.

Speaker 2

In terms of the NIO Power's charging service, the sales is already almost breaking even. As you may know that 80% of our power was charged for the non NIO users. So for the longer term, NIO power charging will also be a profitable business, Actually in certain areas and with certain charging stations, the operations with certain swap stations, The operations is already profitable. This is also in terms of spinning of the powerswap stations, There are some investors showing their interest into having Power Swap or Power Swap Business as an independent business. We are also in conversation with them.

Speaker 2

Yes.

Speaker 1

Okay. Thanks, Tim. Your next question?

Speaker 5

Sure. Thank you, Alan, for sharing all the details. So My next question is about the car manufacturing because as you just mentioned, NIO announced you acquired the production facility from JC, so first, does that mean NIO has been granted the manufacturing license? In the meantime, that I think that means new officially shifted from the SLI business model to asset heavy. So in the near term, how should we think about the unit cost Vehicle Manufacturing from 4th quarter onwards.

Speaker 5

So I think previously you provided vehicle margin guidance for 15% For December quarter, and in the long term, do you still think that the full stack in house development, production And direct to vehicle sales without relying on dealers, would it be the most ideal model for both NIO and Albus, the mass market brand Or if there will be any major difference? That's my second question. Thank you.

Speaker 1

Stephen will answer this

Speaker 3

During this acquisition, the manufacturing agreements between NIO and JAC Still performed, stimulated. And the production activities of the models in the corporation are going on normally. Going forward, if there is any change to the Manufacturing Corporation with regards to the rest models Between NIO and JSA or other situation that constitute significant information after this acquisition or in the future. NIO will communicate with and disclose the capital market in a timely manner, comply with the written laws and regulations and the rules for listed companies.

Speaker 2

And also to add on to Stephen's comments, if we bring the entire manufacturing fully in house, Overall speaking, our manufacturing costs will be reduced by around 10%.

Speaker 5

Great. Thanks very much, John. Really thanks, Stephen, for forward details. Thank you. Thanks a lot.

Operator

Our next question comes from Nick Lei with JPMorgan. Please go ahead.

Speaker 3

My first single question is really about NIS going to increase or enhance operational efficiency and we allocate our resource

Speaker 1

Thank you, Nick. Thank you, Nick.

Speaker 2

In this round of organizational optimizations, we have identified several principles, Because over the years of development, we have some low efficiency positions and jobs and also some duplicated roles and responsibilities. In this case, we have identified these low efficiencies or redundancies in the organization. We've improved the processes of lower efficiencies And we've also eliminated jobs and positions that are duplicated or are off low efficiencies. And also in terms of the project Deferred or terminated, basically we look at the projects and their financial contribution. If they cannot bring any financial contribution in the Coming 3 years, we will be thinking about deferring them or terminating them.

Speaker 2

For example, if they cannot contribute to the gross margin or the P and L, They may need to be deferred or reconsidered. A quick example is regarding the in house manufacturing of our batteries. We've identified that in the coming 3 years bringing battery production in house will not help us with the gross margin improvement. In this case, we have decided to defer the plan. We will still continue to do the in house R and D of battery cells, battery materials and battery packs, But we will outsource the manufacturing of the battery packs for better overall efficiency and performance.

Speaker 2

So for this round of We've done a detailed and thorough review and adjustments and also made necessary adjustments based on the needs of the business and the resources of the entire company. But in the meantime, we will still make sure that we don't miss our focus or dilute our investment and resources For the high priority items for the coming 2 years, the first is the long term investment for the core technologies, so that we can still keep leading in terms of Products and the technologies. As I've mentioned earlier today, at the New Day 2023, we are going to unveil a brand new flagship model And this car will be equipped with a lot of state of the art technologies that are leading the entire automotive industry. And our second priority is the continuous development of our sales and service networks. Recently, we have enlarged The sales teams, we have also increased the number of the point of sales, so that we can get ready for the more intense competition in the coming 2 years, because if we don't make We will not be navigating the intense competition.

Speaker 2

Example is that in October in Shanghai, our sales volume has outnumbered that of BMW and Mercedes running on all power sources, including ICE cars as well as EVs. And in cities from Jiangsu or Zhejiang provinces, we are also establishing a pretty solid foothold with a pretty significant Market, sure. But when it comes to lower tier cities like 4th tier or 5th tier cities, we still have a long way to go. We're in cities where the EV infrastructure is not yet ready. We are also not outperforming those well established brands.

Speaker 2

In this case, we needed to continue to develop our sales and service networks. In terms of our sales performance in Zhejiang, Jiangsu and Shanghai, Actually 50% of our sales volume is contributed by the sales in these three areas. On the one hand, it shows that our products are well recognized in the highly competitive markets in these three places. On the other hand, it also means that we needed to further enhance our brand awareness in the lower tier cities. And the 3rd priority in the coming two years is to secure the on time release of our 9 core products from the 3rd brands.

Speaker 2

We have already made investments and the products of this 3 brands will be coming into the market very quickly in the coming 2 years.

Speaker 1

Thank you,

Speaker 6

Nick. My second question is really about the balance or the choice between Volume and margin and how should we consider these two factors when it comes to the market competition? And are we still maintaining 50% of vehicle GP margin in 4Q and a long term target of let's say 20% to 22%

Speaker 2

Our strategy for the Q3 is pretty clear. That is to keep our prices stable. Earlier this year in June, we have adjusted our user benefits. Actually, both our existing users and the new users were accepting this adjustment So we may be the only company able to satisfy both existing users and the new users with a benefit adjustment. And since then we have been keeping a pretty stable price strategy as we believe that it is beneficial to our brand image and also product competitiveness and also users' experience and benefits.

Speaker 2

As going into Q4, the press words deepens, the competition also gets more fierce. For many well established brands, like our competitors, BMW and Mercedes, they are also slashing prices pretty aggressively. Even on their EV models, the price reduction can be as high as 31%, but we still keep a pretty stable price Amid this fierce competition, this is also reflected this stable prices also are reflected in our improved vehicle margin. So our longer term strategy will be keeping our price stable, while continuously improving our vehicle margin. In the meantime, we will also improve our sales capacity, capability and efficiency, so that we can bolster our sales volume.

Speaker 2

But this can take time and we will be staying patient. We will not realize or boost our sales volume at the cost of our product margin As this is not healthy for the longer run, maybe Stanley can also add more information regarding the specific financial numbers.

Speaker 1

Hi, Nick. Our vehicle gross profit margin is 11% for Q3, and we are confident to achieve a higher margin in Q4, Considering more market production efficiency, lower price of lithium carbonate and also decreased part cost. Our target is also is still kept at 15% for Q4. And from long run As an important project internally, we have started to further improve our cost structure for NT2 Products by optimizing design, improving supply chain and production efficiency and also Business negotiation with our partners. As mentioned by William, our new brands keeps focus on premium market segment And we will keep product prices relatively stable.

Speaker 1

So combined all those factors together, we believe Our vehicle margin can be further increased to 15% to 18% in 2024. That's the general guidance for Vehicle Margin. Thank you.

Speaker 2

And also looking at our previous vehicle margin history before the crisis of the lithium carbonate spike,

Operator

Our next question comes from Yu Qian Ding with HSBC. Please go ahead.

Speaker 2

Thanks, Tim. This is Yu Chen here. I've got 2 questions. Maybe we roll it 1 by The first one is on the cash position. We noticed the cash balance increasing quarter on quarter.

Speaker 2

Other than the strategic And the convertible bond, there is also still a $1,000,000,000 increase. Does that coming from the improving operation? Can you shed a little bit more light on that?

Speaker 1

Hi, Yuchan. This is Danny. And since the new product delivery ramp up In Q3, we achieved positive operating cash flow. Yes, going forward, Sorry, if our sales continue to grow, we are confident to realize healthy operating cash flow. So that's for your first question.

Speaker 1

Yes.

Speaker 2

Okay. Got it. Thank you. The second question is on the OpEx reduction. Thanks for William's sharing on optimizing the battery business.

Speaker 2

We also read there is also a headcount cut. Could you share more on whether there will be asset write offs during the process The cost optimization and when we would expect us to reach a lean yet sustainable shape.

Speaker 1

Yes. Hi, Yi Chen. About the cost optimization, yes, we reduced 10% working positions And complete the adjustment in November. But for Q4, there will be almost no financial impact since We need to pay additional compensation for the employees who left the company, offset with less payroll costs. But for next year together with the headcount reductions, we also delayed or canceled certain project as Mentioned by William, so the total impact to 2024 will be saving of total costs around RMB 2,000,000,000.

Speaker 1

Yes. Around RMB200 1,000,000.

Speaker 2

Yes. This one does optimization has help us to improve the financial performance slightly over our previous budget. However, we do need to have some one time expenses due to the severance package for the

Speaker 3

Yes.

Operator

Our next question comes from Ming Sun Li with Bank of America. Please go ahead.

Speaker 4

Hello, William and management. Thank you for taking my question. My first question is regarding your second brand, L. P. S, in 2024, in the future, will you consider to share the Charging station and the battery substation along with NIO brand?

Speaker 4

And also, will you also consider to share the sales channel with Neil Brett. Thank you.

Speaker 2

Yes. When it comes to our mass market brand, code named Alps, Actually, recently, we have just had the very first validation build of this brand, a roll off the production line. Actually, the condition of this verification build is So we are very confident in the competitiveness of this project. And before the official launch and the delivery, we still have time to continue to optimize and improve the project. In terms of our power swap and the charging network strategy, For NIO, our battery swap network will be coming in 2 parts.

Speaker 2

The first is the exclusive network for NIO and NIO users And the second will be a shared network, not only for NIO users, but also for ALPS users and other brands with swappable vehicles. In terms of the charging network, we've been sharing our chargers already to many non new brands. In terms of the sales network, this will be separated. So they will have their own sales stores, but we will be sharing the service capacities and the facilities. So service centers will be shared between NIO and ELF.

Speaker 1

Thank you,

Speaker 4

William. So my second question is regarding your 2024 Product, because this year you already update all of your new models and also launched some New model, so in 2024, well, you have some fast lease version of existing model and start to use 800 voltage Chargebee system on your car. So in this case, do you have any guidance about The battery stock station, you will expect? Thank you.

Speaker 2

Yes, it's a common standard and the practices for the automotive industry to have model years or face lifts. But for our NT2 products, we will not have any major modifications or upgrades as many of them were just newly launched or delivered to the market. To stabilize our quality and the supply chain, we will only make minor improvements and upgrades on our NT2 products. In terms of our plans for the power swap stations in 2024, as I've mentioned, we will be not only building our exclusive Battery swap network, but also a battery swap network for Xhermin. On the one hand, we will This Power Swap network for other brands or that can be shared with other brands.

Speaker 2

In the meantime, we will also continuously looking at the demand of our new users, So that if there are any requirements for high demand stations or locations, we will also install stations there. But we are still working on the specific plans and the numbers.

Operator

Our next question comes from Paul Gohm with UBS. Please go ahead.

Speaker 7

Hi, thanks. Thanks for taking my question. My first question is regarding your sales force, Sales team, I think in last quarter's earnings, you mentioned that you are going to significantly increase your sales people's headcount. May I double check how is this has been proceeding at this moment? Have you

Speaker 1

Thank you, Paul.

Speaker 2

At present, for our frontline fellows, we have a team of around 5,700 persons, But many of them were just newly onboard. Around the 3,300 of them were newly onboard into the company And it still takes some time for them to really get to know the brands and also get familiar with the entire sales processes. Because for the newly hired fellows, we will spend around 1 month and a half on the trainings and afterwards we can start to sell vehicles to our users. According to our history data, a season silo on average will lead to spend around 6 months to be familiar with the brands and the processes and will be coming a real sales force for the company. So we need to be stay patient with this newly hired fellows as many of them Just joined the company in September October.

Speaker 2

But in the meantime, we were also completing and improving our assessment and evaluation systems, Our training systems, we will also bring these fellows more efficient tools so that they can really make full use of their sales capacity and capability.

Speaker 7

Thanks. My second question is regarding the R and D Wendin, I think this quarter, you had about $300,000,000 quarter over quarter decline on the R and D and the explanation is Some incentives from the local government. May I quantify that number? And more importantly, going forward, what would be your Projected quarterly R and D spending.

Speaker 1

Yes, Sandy will answer the question. Yes. Hi, Paul. There are some slight decrease considering the some support we received from the Local authorities, so but on the long run, as we mentioned during the past also earnings call, Our non GAAP R and D investments per quarter will also be kept at RMB3000000000 to RMB3.5 billion. We as also mentioned by William in previous statements, we will ensure investment in core And also the advantages of technology and product and guarantee the timely launch of The new product, so the investments on R and D will not decrease.

Speaker 1

There will be a slight like fluctuation across different quarters. Thank you, Paul.

Speaker 7

Thank you. That's very helpful. Thank you.

Operator

The next question comes from Qing Jing with CICC, please go ahead.

Speaker 8

So my first question is Regarding to autonomous driving, we have already opened the submission of a wish list in September. So Right on Group Intelligence, we tried to extend the function NOA function In MAP Cities, which is a little bit different from other OEMs, they open up city by city. So could you please introduce our ideas on the Implementation of N Way function is key area and also what's our again our target of The cumulative mileage of 66,000 kilometers by the end of the last year, so how is our current progress?

Speaker 2

In terms of NIO's NOP plus for cities, actually we leverage our generalization capabilities as well as AI capabilities so that we can roll out this NLP route by route for our users based on their demand. Of course, we have in the meantime, we have also formulated the data closed loop capabilities where we can really leverage all this data coming from the generalization and also Cloud AI. At the New Inn, we have announced that by end of this year, we are going to open up the routes covering around 1,000 kilometers of mileage and so far our progress is pretty good and we already have established the capabilities of releasing NLP plus for early bird users in more than 100 cities and we will be rolling out such service and invite our users into the program step by step and so that it can be covering more cities with more users gradually. Of course, In terms of city based or road based autonomous driving or NOP, we do see some of our peers, They have some marketing slogans regarding their services, but we believe that NOP plus especially NOP plus for cities It's a pretty serious service and we would like to make sure that our users have a safe and also good experience And then we will roll out the service and its coverage step by step.

Speaker 2

But overall speaking, our progress has far surpassed our expectations. And we after all, we already have more than 100,000 vehicles running on the road. This will also help us to further formulate and improve our data Especially for every new NT2 vehicle, it is standard with 4 ring chips and also 33 high performance sensors. This will further help us to formulate the data close loop and improve the data capabilities and in return we will also accelerate the capabilities for iteration. This is also a very unique advantage of NIO, which is quite different from any other competitors offering the similar service.

Speaker 8

So my second question is regarding to overseas markets. Will it still be one of our strategic focus? Could you please introduce the current operation Of corporation situation of our overseas market this year, regarding to the our sales volume, our layout Progress of our core regions and also about the dealerships and the infrastructures and also our next year's target and plan.

Speaker 2

At the moment in 5 European countries, we have opened 6 new houses, 8 new spaces, 2 multifunction service centers and also partnered with 54 authorized service centers. We We have also installed 30 Power Swap stations in 5 European countries. But in terms of our business development in Europe, we are still at the early stage of Business Development and Expansion, we want to continue to test the order, ensure we have good user experience Before we scale our operations and the business there, that's why volume is not a priority for us in terms of our European business and in the coming 1 year, we will continue to be staying at this stage. We will make sure that our capability and capacity are sufficient serve our users in Europe before we start to work on a higher scale.

Operator

Our next question comes from Jason Goetz with Mizuho Securities USA. Please go ahead.

Speaker 9

Hi, guys. Thanks for letting me ask the question. You talked a couple of months back about 20,000 vehicles a month in December, we're running a little bit below that now.

Speaker 1

What are the biggest headwinds there?

Speaker 9

Has there been some production challenges, maybe broader macro Yes. And then what did it take to get to that 20,000 units? And how should we think about the run rate moving through 2024 with the new sales force?

Speaker 2

Thank you for your questions. As we've mentioned earlier today, In the premium battery electric vehicle segment priced over RMB300000, NIO has realized a 45% market In the Q3 of this year, actually our market share in this segment has been pretty stable around 40%. So this has proven that we have a relatively solid foothold in the premium BEV segment. We have a pretty significant also stable Market share already established in the segment, but when it comes to convincing users of premium ICE cars of Buying a premium EV, it is actually more difficult than convincing a mass market users, because for the mass market users buying a car of RMB100000 or RMB200000, they pay attention to the ownership cost and also the usage cost of the product. But for the users of premium electric vehicles, they pay more attention to other factors.

Speaker 2

And the second reason that may be affecting the wider adoption of Premium BEV is reporting the coverage of infrastructure. As I've also shared in the Yangtze River Delta areas, We have a pretty significant market share. Our sales volume has outnumbered that of BMW, Audi and Mercedes with their ICE car sales, a very important reason behind is because we have 700 power swap stations Already established in this area. So infrastructure is also playing a very important role in boosting the sales volume and the adoption of electric vehicles. So far in China, we have already installed over 2,000 power swap stations, but roughly 700 of them are along the highways.

Speaker 2

Speed up and enhance our infrastructure coverage, so that we can further boost the wider adoption of electric vehicles. So basically Two main reasons. The first is regarding the consumption habits of the premium vehicle users and the second is mainly because of the coverage of the infrastructures for electric vehicles. And but we believe that this trend convincing I see users of buying EVs where this overall trend of transforming into battery electric vehicles will be picking up its speed, Because we also find that some of our peers and competitors before they only have hybrid vehicles or range extended vehicles, but now they're also launching their battery electric vehicles. Such strategy will also push the transformation of the entire industry.

Speaker 2

So we are actually happy to see such transformation. And also many core companies are now also installing and expanding their charging network And Niu is working on our battery swap network. With wider infrastructure, we will also Boost the adoption of the battery electric vehicles. So while speaking, we believe that 2024 will be better off than in 2023, Because in 2024, we will also be having a more stable product portfolio without frequent product launch and delivery, which has also slightly disturbed our overall execution.

Speaker 9

Got it. Thanks. And then, quick follow-up. On the battery swap partnership Side, is there any kind of design changes that your partners would have to do to their vehicles in order for them to use the swap stations? And if so, Have you guys talked about what percent of mix of vehicles they produce might need to be kind of Changed or edited in the production process in order to do battery swapping?

Speaker 2

Actually, we have shared the battery spikes and also the design details of our battery packs for the mass market brand to our Battery Swap Partners and they will need to design and engineer their vehicle products, mainly chassis interfaces following our battery standards. It will take some time for them to decide on the right models and complete the product R and D. But the overall investments and R and D expenses For developing such new models based on our battery standards, it won't be very high.

Speaker 9

Got it. Thank you.

Speaker 1

Thank you.

Operator

As there are no further questions, now I'd like to turn the call back over to the

Speaker 1

Thank you again for joining us today. If you have further questions, Please feel free to contact NIO's Investor Relations team through the contact information provided on our website. This concludes today's Conference Call. You may now disconnect your line. Thank you.

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Earnings Conference Call
NIO Q3 2023
00:00 / 00:00