NIO Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
June 9, 2023

There are 9 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the NIO Incorporated First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. Today's conference call is being recorded. I would now like to hand the conference over to your host, to Ms. Eve Chang from Capital Markets.

Operator

Please go ahead.

Speaker 1

Good morning and good evening, everyone. Welcome to Niu's Q1 2023 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted at the company's IR website. On today's call, we have Mr. Weilien Li, Founder, Chairman of the Board and Chief Executive Officer, Mr.

Speaker 1

Steven Feng, Chief Financial Officer Mr. Stanley Chu, Senior VP of Finance and Ms. Jade Wei, VP of Capital Markets. 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.

Speaker 1

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 filings of the company with the U. S.

Speaker 1

Securities and Exchange Commission, the Stock Exchange of Hong Kong Limited and the Singapore Exchange Securities Trading Limited. 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 on audited non GAAP financial measures. Please refer to NIO's press release, which contains a reconciliation of the unaudited non GAAP measures to comparable GAAP measures. With that, I will now turn the call over to our CEO, Mr.

Speaker 1

William Li. Hello, everyone. Thank you for joining NIO's 2023 First Quarter Earnings Call. In the Q1 of 2023, NIO delivered a total of 31,041 smart electric vehicles, up 20.5% year over year. In April May, NIO delivered 6,658 respectively.

Speaker 1

We expect the total deliveries in the Q2 of this year to be between 23,025,000 units. As we ramp up the production of the all new ES6 and other new models, we're confident in continuously driving up our delivery volume. Next, I would like to share with you the recent highlights of our products, R and D and Operations. On May 24, we launched the all new ES6, an all around midsize smart electric SUV and started its delivery the next day. The product quality of the all new ES6 has been widely acclaimed by the first batch of users.

Speaker 1

In May, we also started the user delivery of the 2023 NIO ET7 and the flagship coupe SUV EC7, Coming with more than 15 new features and enhancements, the 2023 NIO ET7 continues to lead the change in the premium smart electric mid large sedan market. As a flagship coupe SUV, EC7 Inherent Niu's high performance D and A and the both ultimate riding and handling experience. NIO's product quality and safety are also recognized by authoritative for Institutions. On April 24, NIO ET5 was rated good, the highest safety level by China Insurance Automobile Safety Index or CIASI and JD Power's 2023 won 1st place in the premium BEV segment for the 4th consecutive year. Also in JD Power's 2023 NEV appeal study, which evaluates NIO Energy Vehicles' performance, execution and the layout.

Speaker 1

NIO ET7 ranked number 1 among premium We plan to launch the NIO ET5 Touring on June 15 and started the delivery in the same month. As the world's first smart electric tour, The ET5 Touring is designed to cover diversified scenarios for both individual and family users, significantly improving our competitiveness in the premium family vehicle market. Besides NIO's flagship SUV, the all new ES8 We'll also commence delivery in the NIO-ten. The new EC6 of our 2nd generation midsize smart coupe SUV will be launched and delivered in the Q3. As we proceed with product platform transition, NIO's complete NT2.0 lineup featuring 8 different products will form a combined force to better cater to the diverse needs in the premium smart EV market and provide users with more experiences beyond expectations.

Speaker 1

In June, NIO's smart system Banyan will be upgraded to version 2.0. This release It includes over 120 new features and enhancements. By connecting NIO's products, services and the community in a more seamless way, Banyan 2.0 will deliver a one of a kind digital experience. It's particularly worth mentioning that Banyan 2.0 provides a new feature That is automatic planning of charging and swapping routes enabled by NIO Power Cloud and the comprehensive power infrastructure. It can let users plan for charging and swapping along the navigation route for long distance trips with just one tap.

Speaker 1

In terms of intelligent driving, NIO has released Navigate on pilot plus beta or NOP plus beta to all NT2.0 users based on in house developed NIO Intelligent Driving Technologies and the closed loop data management, NLP plus beta has made significant improvements in making users' journeys more reassuring, comfortable and efficient. In Banyan 2.0, NLP Plus We'll be using NIO's proprietary BEV model and occupancy network for perception and the large language model trained with a large scale data set for planning and control. The experience of NLP plus will be further enhanced. In the meantime, we have started to test our power swap pallet for highway at scale and will make it available for 40 power swap stations on highways starting from the Q3 this year. This feature will be gradually rolled out to more power swap stations with users with which users can enjoy more seamlessly navigate on pallet experience from point A to point B on highways.

Speaker 1

With respect to the sales and service network, We now have 365 new houses and new spaces in 136 cities and 359 NIO Service Centers and NIO Delivery Centers in 196 Cities. In terms of the charging and swapping network, on April 13, the first batch of NIO Power Swap Station 3.0 started operation. The Power Swap Station 3.0 features the synchronization of 3 operating positions, making it faster than the previous generation with higher service capacity and more intelligent experiences. So far, NIO has installed 474 swap stations worldwide, including 119 third generation power swap stations and has completed over 23,000,000 swaps for users. NIO has also installed 7,000 power chargers and 8,800 destination chargers.

Speaker 1

Besides, our power map has also been connected to over 1,100,000 third On April 17, NIO's first 500 kilowatt power chargers went online, Completing the new generation of PowerUp Station, which is an integrated station featuring 500 kilowatt power chargers and the Power Swap Station 3.0. Through efficient coordination between chargers and the swap stations and flexible capacity distribution, The power chargers can operate more stably and efficiently. On April 22, the 4th NIO User Council was established. After the NIO User Council member election, which was actively participated by NIO users worldwide, This year, NIO Users Trust will continue their work centering on public welfare, user care and the common growth.

Speaker 2

On March

Speaker 1

26, further deepening of our partnership with World Wide Fund For Nature, WWF, NIO announced to join the science based targets initiative and plan to set a science based target within the next 2 years with the goal of contributing to global sustainable development and leading up to the Blue Sky commitment. In the face of the changing market situation, we will timely adjust our sales and marketing priorities to ensure the market competitiveness of our products and services. In the second half of twenty twenty three, with the entire NT2.0 product lineup Entering the premium battery electric vehicle market and 1,000 new power swap stations put into operation, NIO's product competitiveness, powered by our decisive efforts into developing full stack R and D capabilities and core technologies of smart EVs will be gradually unleashed, which in turn can better prepare us for the increasingly intensifying competition at the next stage. 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 Q1.

Speaker 1

Over to you, Stephen.

Speaker 3

Thank you, William. I will now go over our key financial results for the Q1 of 2023. And to remind full 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 Q1 were RMB10.7 billion, represent an increase of 7.7% year over year and a decrease of 33.5% quarter over quarter.

Speaker 3

Our total revenues are made of 2 parts, vehicle sales and other sales. Vehicle sales in the Q1 were RMB9.2 billion representing a decrease of 0.2% year over year and a decrease of 37.5 percent quarter over quarter. The decrease in vehicle sales year over year was mainly due to lower average selling price As a result of higher proportion of 85 kilowatt hour standard range battery pack delivers, Partially offset by increase in delivery volume, the decrease in vehicle sales quarter over quarter was mainly due to a decrease in delivered volume and lower average selling price as a result of higher proportion of 85 and 75,000,000 of our standard range backward packaging divorce. Other sales in the 1st quarter were of RMB1.5 billion, which is an increase of 117.8% year over year, an increase of 11.3% quarter over quarter. The increase in other sales year over year was mainly due to the increase in sales of accessories, Provision of repair and maintenance services, provision of auto financing services, sales of used cars and the provision of power solutions as a result of continued growth of our users.

Speaker 3

The increase in other sales Quarter over quarter was mainly due to the increase in provision of auto financing services, sales of accessories, Provision of repair and maintenance services, provision of power solutions and sales of used cars as a result of continued growth of our users and the partial offset by a decrease in revenue from rendering of research and development services. Gross margin in the Q1 of 2023 was 1.5% compared with 14.6% in the Q1 of 2022 at 3.9% in the Q4 of 2022. The decrease in gross margin year over year and quarter over quarter was mainly attributed to decreased vehicle margin. More specifically, vehicle margin in the 1st quarter was 5.1% compared with 18.1% in the Q1 of 2022 and 6.8% in the Q4 of 2022. The decrease in vehicle margin year over year was mainly attributed to changes in product mix and increased beverage cost per unit.

Speaker 3

The decrease in vehicle margin quarter over quarter was mainly due to changes in product mix and increased promotion discount for the previous generation of ES8, ES6 and ES6, Which were partially offset by the inventory provisions, accelerated depreciation on production facilities and losses on purchase commitments for the previous generation of ES8, ES6 and ES6 in the Q4 of 2022. Power expenses in the Q1 were RMB3.1 billion, representing an increase of 74.6 percent year over year, a decrease of 22.7% quarter over quarter. The increase in research and development expenses year over year was mainly attributable to increased personnel costs in research and development functions and increased share based compensation expenses recognized in the Q1 of 2023. The decrease in research and development expenses quarter over quarter reflected fluctuations due to different design and development Stages of New Products and Technologies. SG and A expenses in the Q1 were RMB2.4 billion, representing an increase of 21.4% year over year and a decrease of 30.7% quarter over quarter.

Speaker 3

The increase in SG and A trends year over year was primarily due to the increase in personal The decrease in SG and A expenses quarter over quarter was mainly due to the decrease in Sales and Marketing Activities and Professional Services. Loss from operations in the Q1 was RMB5.1 billion, represents an increase of 133.6 percent year over year, a decrease of 24.1 percent quarter over quarter. Net loss in the Q1 was RMB 4,700,000,000 representing an increase of 165.9 percent year over year and a decrease of 18.1% quarter over quarter. Last attributable to NIO's ordinary shareholders in the Q1 was RMB 4,800,000,000 representing an increase of 163.2 percent year over year, a decrease of 17.8% quarter over quarter. Our balance cash and cash equivalents, restricted cash, short term investment and long term deposits was RMB37.8 billion as of March 31, 2023.

Speaker 3

Now, this concludes our prepared remarks. I will now turn the call over to the operator to facilitate our Q and A session.

Operator

Thank Your first question comes from Tim Shao from Morgan Stanley.

Speaker 4

So my first question is about more of your cost control. Because Amil has been investing more aggressively since 2021 on new models, sales And Energy Replenishment Network. So in light of the challenging industry and the macro outlook, would NIO consider streamlining the model portfolio and the cutting back on investment in some projects like smartphone, battery, chipset and to refocus our resource on a few flagship models. And separately, does NIO still stick to its original schedule to launch our mass market brand, Albus, next year. So that's my first question.

Speaker 4

Thank you.

Speaker 1

Thank you, Tim, for your question. As you have mentioned, the market competition is intensifying and we do face a lot of Changes in the market dynamics. For the new technology platform 2.0, we are about to Show the whole lineup of the 8 products based on the NT2.0 and these 8 products will enter the market In the near term gradually, the current focus for us is to make sure we have the new organization structure to have a more targeted sales strategy and the marketing strategy for all the 8 products to reach is on target user groups. Because when we design those products, we do have a specific positioning of different Products in their specific segment and the target group. So the current challenge for us is to make sure our marketing and the sales can be more dedicated on these 8 products in terms of offer Showroom layout and the product region, the marketing region, the distribution of the resources at The sales and marketing teams.

Speaker 1

We want to make sure for each product that we have a dedicated team to take responsibilities in terms of its sales and marketing efforts. Of course, for those key products, we will put more resources to make sure we can reach much better sales performance. But just like I mentioned, the focus for us now is to make sure we can have more dedicated resources for the 8 products separately and to make sure they can achieve good market share in terms of their specific segment. Yes. Of course, we need to be more agile in terms of Face the challenges of the changing market situation to ensure our competitiveness in terms of the products and the services.

Speaker 1

Regarding the topics of the R and D projects, overall speaking, we would like to insist on offer Big directions in terms of the R and D projects. In the short term, yes, we do have some pressures, but we think it's really important and necessary for us to focus on those R and D capability building to build over long term competitiveness. But at the same time, based on our resources Under the priorities of the company, we can adjust the pace of the investment for all those different R and D projects. For the question regarding Alpe's project, over timing for Alpe's brand is still the same that is the second half of 2024. We plan to launch the Alpaz products at that time and we will choose the specific timings for those different products.

Speaker 1

However, at the same time, we want to make sure for the Alpaz products that we can have a much faster pace in terms of the go to market, because this can help us to improve the efficiency and have a much better planning of the resources, especially at the marketing and the sales front.

Speaker 4

So my second question is about the new ES6. The Q2 guidance came in stronger than market expectation, which could be true to like a 3000 to 4000 units of additional sales of new ES6. So could you share a little bit more about the older impact of the new ES6 since its launch today? And is there any bottleneck to the delivery of new ES6? In the meantime, are you still expecting the sales aggregate of ET5, ES6 and the upcoming ET5 Touring to achieve 20,000 per month and when do we expect to So that's my second question.

Speaker 4

Thank you.

Speaker 1

Thank you, Qing. Yes, VI is very well received by the users and also received very good feedback in the media. We think the order performance has reached our expectations and the test drive conversion rate of the ES6 actually reached a record high in the history of NIO. So that's why we're very confident in terms of the sales performance of year 6. At this stage, especially in June, we need to focus on the ramp up of the ES6 first.

Speaker 1

But for the targets In July, we want to achieve 10,000 units in terms of the production and delivery. We're very confident to achieve this target in July. And the supply chain team, manufacturing team and other teams are I'm making all sorts of preparations to make sure we can achieve this objective. Regarding the ET5, ET5 Touring and the ES6 Overall, volume, we believe that there is opportunity for us to still achieve 20,000 units in 1 month. The big challenge for us right now is more about the ET5 because if we look at the ET5's Pricing, we can see that last year, we still have around RMB 12,000 subsidies for the users.

Speaker 1

And at the same time, users can get the home chargers free of charge last year, but now users will need to pay for the home chargers for the AG5. So net net speaking, probably for For the G5, if we make the apple to apple comparison, it's probably like RMB20000 more expensive This year, this is the fact and the challenge we need to face, but what we need to focus on is to make sure we can find a better way to expand the user needs and the demands. The challenge we are facing right now is about the 85, but Just like I mentioned, we're going to launch the 85 Touring on June 15. This So it's going to help us to improve our overall product competitiveness, because we believe ET5 Touring can cater to the diversified needs of Individuals and family users and this can help us to boost our competitive our product competitiveness in this specific market segment.

Speaker 5

Thank you, really.

Speaker 3

Thank you, Kim.

Operator

Thank you. Your next question comes from Bin Wang from Credit Suites, please go ahead.

Speaker 3

Thank you. I've got 2 questions. Number 1 is about margin outlook. When you reached the 10 ks per month for ES6 in the Q3, so what's the gross margin expectation we can hide for the Q3

Speaker 5

Hi, Bin. This is Danny. Yes. As William mentioned, with the delivery of our NT2 product with higher price from Q2 and Q3, The average selling price and gross profit margin per car will recover. So we are confident that the gross profit margin will start to recover to double digits in Q3 and over 15% in Q4.

Speaker 5

Yes. Thank you.

Speaker 3

Okay, great. My second question about any further fundraising demand, are you muted because right now people worry about your Net cash position, which declined quite fast. And so can you provide some update about your potential fundraising,

Speaker 1

Thank you, Bing, for your question. Yes, for this year, if we look at the Q1 and the second Because of the delivery performance, which is actually less than that of the Q4 last year. So this has affected our operating cash flow. But together with our delivery volume ramp up In the Q3, we believe that operating cash flow will also improve. Kindly, we believe our cash is sufficient to support the company's Business Development.

Speaker 1

As a public listed company, we make very prudent management of our cash positions. And at the same time, we do have all the different channels to do the fundraising in different markets. But this year, we have made some adjustment in terms of our cash spending. For example, we have delayed our CapEx investment and we have also some R and D projects. At the same time, in terms of our global market expansion, we believe it's more important for us to focus The markets that we have already entered, for example, for those countries we have already entered in Europe.

Speaker 1

So if we have any kind of plans in the capital markets,

Operator

Thank you. Your next question comes from Mingxing Li from BOFA. Thank you. Please go ahead.

Speaker 6

Thank you, William and Stephen. So I also have two questions. My first question is what is the Battery price declined in Q1 and how much does the battery price to help gross margin in Q1? And also could you also comment the 2nd quarter and the 3rd quarter's battery price trend? That's my first question.

Speaker 6

Thank you.

Speaker 5

Hi, Ming. Generally, the price of leased companies decreased a little bit from Q1. So this leads to Certain increase of our gross profit margin. Regarding amount wise, I think the RMB 2,500 per car, but recently I think we can also see the List and covenants price also recovered a little bit to 300 at 10 1,000 per tonne. So the volatile change of LiSEM price will bring uncertainty to our gross profit margin.

Speaker 5

Generally, That's generally the impact of LiSEM.

Speaker 6

Thank you, Stanley. And my questions It's regarding your latest CapEx and operating expense guidance because I think William just mentioned that you are starting to control some investment, especially for some long term investment. But are you able to give some new guidance, if there's any? I remember last year, the CapEx is around RMB 10,000,000,000. Yes, so I want to know your guidance for this year for CapEx and OpEx?

Speaker 6

Thank you.

Speaker 5

Yes, Ming. Our CapEx will still concentrate on the We will control the cadence of those investments. But at this moment, I don't think we can give the clear guidance of CapEx investment for this year, yes, we will make adjustments dynamically in line with the Spending and also the status, yes.

Speaker 6

Yes. And Also any guidance on operating expense, sorry.

Speaker 5

Okay. Regarding operating expense, One is for the R and D expense. The upcoming years remains to be the crucial stage for our R and D and also Mass production of our core technology as new models. So our average in each quarter of 2023, The non GAAP R and D expense will be kept at RMB3000000000 to RMB3.5 billion per quarter. Yes, we will also manage spending curve and also keep improving our System Efficiency.

Speaker 5

As for SG and A expense, yes, we can see a decline in Q1. The main reason is because the reduced marketing activities and also seasonality Impact of Chinese New Year. Along with more marketing events like auto show, road show and also launch of new models, The SG and A total amount will increase from Q2, but the efficiency will be improved from Q3 since all NT2 products will be launched and more volume will be realized. Hi, Ming. That's the guidance for the OpEx of next quarters.

Speaker 6

Thank you, Stanley. Thank you.

Speaker 5

Thank you, Ming.

Speaker 1

Hi, operator. Next question please.

Operator

Thank you. Your next question comes from Yi Chiang Deng from HSBC. Please go ahead.

Speaker 1

I got 2 questions. The first is, do we have plan to introduce any budget version of our Model, especially the potential volume carrier, ET5, but lower price and lower content to access More volume. And the second question, we talked about the dial down a little bit on OpEx burn. Generally, does that also affect all postpone our breakeven point of the year. Thank you, Yi Chen, for your question.

Speaker 1

We understand that there are many different kind of pricing movements in the market. But for us regarding ET5, we don't think it's reasonable for us To have a budget version of the Yi T5, because our philosophy is that we believe The different configurations or the important configurations should come as a standard for our NT2 products. For example, the dual motors, AD suites and other important functions and features, we believe those standard package Philosophy can serve the long term interest to our users. But at the same time, we do have some flexibilities in many other approaches, for example, user rights, such as the free battery swapping. When we make those kind of considerations and adjustments, of The important thing is to make sure we can put the users' interest first.

Speaker 1

So when we decided to make those kind of adjustment, we also need to consider The interest of our in store base. For the second question regarding the breakeven point, according to the current situation, We do think probably we need to delay our breakeven point to within 1 year And we think this is probably a reasonable assumption.

Operator

Thank you. Your next question comes from Nick Lai from JPMorgan. Please go ahead.

Speaker 7

My first question is really following up the previous question regarding cash burn and CapEx cycle and so on. You just mentioned that you will push back R and D expense and so on, but I'm not curious about 2024, 2025, 2020. How should we expect the CapEx or cash burn into 2024 and 2025? Would that be flat or up or down compared with 2023? Thank you.

Speaker 1

Thank you for your question, Nick. Regarding the dynamic and the fluid market situation, we understand it's important for us to control the risk and to keep the stable and sound business operations. For the Alpez brand, basically the project is moving forward according to our plan. For the production side, we believe the current production capacity is sufficient to The needs of NIO brand and Alpek's brand. So it means that in terms of production facilities and capacities, There's no need for big CapEx investment.

Speaker 1

In the market front, we believe Starting from this year, we should have sufficient powerswap stations to support both brands to share the powerswap stations. Previously, we mentioned that probably for the go to market of Alpus brand, we do need to make some investment in terms of CapEx and OpEx, But we would like to control the pace of the go to market cadence to make sure we can have Much faster movement and cadence and have a much agile mode to operate the go to market of the Alpeza brand. So this can help us to save the resources and the capital. In terms of the cash management, of course, as a publicly listed This company will need to be very prudent in terms of the cash management. For the financing channels, we do have Different channels in terms of the RMB and the U.

Speaker 1

S. Dollar capital markets. So for us, we think Cash is not going to be a big issue for the company, but at the same time, we still need to make a refined management of our cash and also the working capital of the company.

Speaker 7

You guys have achieved forecasted with the good paying for the GP margin. My second question is really about the product mix. The new product hypothesis is going to account for a meaningful portion of the volume and how should we think about the competition from this Four major modules and how should we think about the product mix going forward? Thanks.

Speaker 5

Hi, Nick. Regarding the volume percentage of 85, 85 Turing, ESEK and ECCI, I think from a long run, the percentage We'll be 80% around. Yes, but from and from the long run, as I mentioned earlier, This year, I think with all the NT2 product launched, our gross profit margin can recover to 15% and long term considering the cost advantage brought by the in house Technology and capability and also the innovative supply chain development, We the NT2 product gross profit margin target will be still be 20% from a long run. Yes. Thank

Speaker 3

you.

Operator

Thank you. Your next question comes from Paul Gong from UBS. Please go ahead.

Speaker 7

So my first question is regarding the new model sales It seems that a few recent new models all shared a little similarity with Shuang Stars, But after a few months, it subsequently declines. Does our ES6 also face such kind of challenges? Or how should we avoid this

Speaker 1

Thank you, Paul, for your question. Last year, we launched 3 products ET7, ES7 and ET5. To be honest, in terms of the recent performance of these three products, including the Q2, we understand that the market Performance of these three products is lagging behind of our expectations. If we look at the So that's affecting the performance of these three products. Just like I mentioned before, last year for the users who purchase Those three products, they have more user rights and benefits and they can enjoy the national subsidies.

Speaker 1

But this year for the users purchasing these three products, apple to apple comparison, the cost The increase is around RMB10 1,000 to RMB20000. So at the same time, if we look at the micro environment, we can see the Market competition is also getting intensified. So some users are choosing Probably some other new brands or some traditional brands over products. This is one factor. And another factor It's internal cannibalization or competition.

Speaker 1

For example, some ES7 users may decide to Choose the ES6 instead of the ES7 and for some ES5 users probably they decided to wait a little bit for the ES5 Touring. This is the situation that we are facing right now. That is why we decided probably we are going to make some adjustments in the near In terms of our sales channel and network as well as our organization structure and our sales and marketing strategy and policies. But for the 5 new products based on the new technology platform 2.0 that we launched this year, We do not have this concern. The first product we launched this year is EC7.

Speaker 1

After the delivery of EC7, we can see the demand is actually quite stable. As for the 6, just now I have mentioned that we are very confident about the sales performance of ES6 after the product ramp up. And then for this year, we are very confident of speaking for all the new products that we launched this year, including the ES8. We are about to start the delivery of the ES8 in the near term. And currently, we can see that the reservation order performance is actually higher than our expectations.

Speaker 1

We believe Right now, the current pace of our product quality and the product go to market is actually much better than before. So we believe for these 5 new products based on the NT2 technology platform should be able to reach Reasonable performance in terms of its delivery ramp up. And recently, we have also launched the 202387. After the delivery of 887, we believe it can also meet our expectations and the order performance is also quite stable.

Speaker 5

Yes, no, sorry,

Speaker 7

I forgot to translate. So my second question is regarding The margin outlook of the high end NIO brands versus low end outpaced brands. NIO brands remains to be Relatively expensive, thanks to the branding and the excellent service the company has been offering, but yet to achieve Satisfactory or kind of like excellent margins. So when you are moving towards the Alpase to the relatively lower end, How do you foresee the margin would be like especially compared to the high end ones? Thank you.

Speaker 1

Thank you for your question. Regarding the brand positioning, I believe right now is a very chaotic For the users, for most of the users, in the majority of the times, they choose the product based on the price. So right now in terms of our product, our service as well as our Technology and experience, we believe we are much better than others in those different areas, but The values of our products and services and the technologies are not reflected in the perceived value and the price of the products. This is the reality that we're facing right now, but we believe for the long run, the value of our products and services will be recognized by the users and by the market. At the same time, we do face some challenges in the micro environment.

Speaker 1

For example, the lithium Carbonite cost has significantly impacted our vehicle gross margin. Back in 2021, we have reached around 20% Vehicle gross margin, at that time, we believe if the lithium carbon net cost goes back to a reasonable level, we should still have a chance to reach 20% of vehicle gross margin. In the long term, we believe in terms of the economies of scale and the efficiency improvement as well as the There is a strong base for us to achieve 20% vehicle gross margin. That's for NIO. But for output, the Strategy is very different, because we believe that in terms of the vehicle's gross margin, it's actually more about how you define The product and how we design the product.

Speaker 1

So for Alpus, it's more about finding the best solution in the Specific segment that the Alpis brand targets at. For us, if we look at the market, we see some companies that they So the product at a price of around RMB200000, but they can still achieve over 20% Vehicle gross margin, so it shows that this is achievable. For NIO, because we have many high specs Configurations in our products, for example, the over 1,000 top computing powers and all those smart features, It will be very difficult for us to lower the cost on those components and this will affect us in terms of lowering the price of our products. But for Alpus, it's different. When we define Alpus as products, of course, the target for us is to achieve reasonable vehicle gross margin.

Speaker 1

And we believe it is reasonable and it's possible for us to

Operator

Thank you. Your next question comes from Jing Jiang from CICC. Please go ahead.

Speaker 8

My first question is about Our OOP plus data version has been open for several months. So can you share the some users' data such as usage time or accumulated mail age The average takeover mileage during this period and how is their feedback. And we can see the official version will be charged for subscription. So can you share more of your understanding of subscription charge? And also in the second half of this year, you can see that HiMei navigation function to So what do we think of the improvement of customers' experience with this new function?

Speaker 8

And last one is, is there any time plan for our CTO and A function in the second half of the year?

Speaker 1

Thank you for your question. I will answer the NOP plus related question and Stephen is going to address the question about the powerswap stations. For the MOP plus right now, we have over 50,000 users using the MOP plus services. And for us, the accumulated mileage of the NLP Plus is over 41,000,000 kilometers. Every week, the mileage is around 2,000,000 kilometers.

Speaker 1

We have already started the test of the NLP Plus in the city scenarios and use cases. This year, we're going to accelerate the test of the NLP Plus in the city use cases or the urban use cases, we will also when you get ready, we will also release this feature to the users. Based on our internal evaluation right now, we are very confident regarding the performance of the NLP Plus in the urban scenarios. At the same time, regarding the NAD, we're also doing some tests. And if in the future, the regulations and the are in the right place for the NLP plus release, then we will release the sorry, We will release the NID for our users when the regulation is in the right place and We believe that this is probably right now all the R and D of our NOP plus and NAD is

Speaker 8

My second question is about the battery swapping station. We can see that you have gotten nearly 1500 stations at present. Now and nearly, we can see 200 stations have been added since this year. So have you seen that the sensor of our battery storage stations network has been built and is quite good for ourselves of our new models, especially for our penetration of lower tier cities.

Speaker 3

Taneli, this is Steven. I think the short answer is a very clear yes. We see we have seen a very clear flywheel effect between the power swap station network and our sales growth. As Min just mentioned, we have already deployed 1500 parcel stations across China and at the end of this year, the number of power stations will rise to around 2,400. And every day, we offer around 60,000 to 70,000 times of password sourced to our users.

Speaker 3

So in average, every day, 1 pass association offers 40 to 50 times of power swaps to our users. So that means on one hand, our users rely on power station as their favorite The charging method. On the other hand, the power stations are very efficiently utilized. So that's why we see a clear flywheel effect and that's why we're very determined to accelerate our parcel station deployment And also we're very confident that more parcel stations will lead to more sales growth. And actually in the Yangskeater River and some Tier 1 cities, we have seen that After the charging expense improves, our sales volume also grow.

Speaker 3

So that's why we are very confident that with more and more parcel trains penetrate into the low tier cities, Naturally, NIO sales will lead to a very strong momentum or a solid growth in the low tier cities. Last but not least, I think looking forward, as more and more OEMs So let's look at parcel stations as more or less stands away, The parcel stations will become a more and more convenient way for 1 or more EV users.

Operator

Thank you. Your next question comes from Vijay Rakesh from Mizuho Securities. Please go ahead.

Speaker 2

Yes. Hi. Just a quick question. Given some of the new ramps of the 5 year models and Looks like you're getting good response on it. Would you expect second half or even third quarter production run rates to Get to the 20,000 per month on average.

Speaker 2

I'm just wondering what the expectation is on second half to first half deliveries?

Speaker 1

Thank you, Vijay, for your question. Of course, for us, the target for the Q2 of this year is to deliver over 20,000 units every month, and we're very confident to achieve this target.

Speaker 2

Got it. And just One other question. As you look

Speaker 5

at some

Speaker 2

of the subsidies moving to Tier 2 series, Is that a near term could that be a challenge for NIO Q1, you don't have enough swap stations, etcetera, on the Tier 2

Speaker 1

This year, our target is to deploy 1,000 Additional power swap stations and for majority of those power swap stations will be deployed on highways and some of them will be installed in the Tier 3 and the Tier 4 cities. We believe this is going to directly boost the sales performance of our products. Actually in April, we started the deployment of the Power Swap Station 3.0 and we accelerated the deployment in May. In June, we believe we're going to deploy around 100 Power Swap Station 3.0 and we believe Gradually, from now on, we're going to speed up the deployment of the powerswap stations.

Speaker 2

Thank you.

Speaker 1

Thank you, Vijay.

Operator

As there are no further questions at this time, I would now like to turn the call Back to the company for closing remarks.

Speaker 1

Thank you once 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

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Earnings Conference Call
NIO Q1 2023
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