NIO Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 29, 2023

Key Takeaways

  • In Q2 NIO delivered 23,520 vehicles, and July deliveries hit a record 20,462 units (+104% YoY); Q3 guidance is 50,000–57,000 vehicles.
  • Q2 revenue fell to RMB8.8 billion (-14.8% YoY) with vehicle sales down 24.9% YoY, gross margin at just 1.0% and an operating loss of RMB6.1 billion.
  • NIO expanded its charging and swapping network to 1,747 power swap stations, 7,900 fast chargers and 9,700 destination chargers, and launched a paid battery swap service.
  • The company secured a US$1.1 billion strategic equity investment from Abu Dhabi’s Sibon Holdings and is partnering with another investor to bolster international growth.
  • R&D expenses rose 55.6% YoY and SG&A climbed 25.2% YoY, but NIO aims for double-digit gross margins in Q3 and 15% in Q4 as volumes ramp up.
AI Generated. May Contain Errors.
Earnings Conference Call
NIO Q2 2023
00:00 / 00:00

There are 12 speakers on the call.

Operator

Hello, ladies and gentlemen, and thank you for standing by for the Neo 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 will now turn the call over to your host, Ms. Eve Tang from Capital Markets.

Operator

Please go ahead.

Speaker 1

Good morning and good evening, everyone. Welcome to NIO's Q2 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. William Li, Founder, Chairman of the Board and Chief Executive Officer Mr.

Speaker 1

Steven Fong, 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 that 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 unaudited 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 Lin. William, please go ahead.

Speaker 2

Hello, everyone. Thank you for joining NIO's 2023 Q2 earnings call. In the Q2 of 2023, NIO delivered a total of 23,520 smart electric vehicles. In July 2023, as we started mass production and the ramp up of more NIO models, NIO's monthly delivery volume grew rapidly to 20,462 units, representing a year over year growth of 104% and a new monthly high. According to the retail statistics of CalTac, in July, NIO was the best selling brand in the premium electric vehicle segment with the transaction price of over RMB300000 claiming a 59% market share.

Speaker 2

As NIO completes its product lineup, further expands the sales and service network and the power network, enhances its all around sales capability and rolls out sales and marketing plans. The competitiveness of the NT2 products has been further unleashed. The delivery volume in the Q3 of 2023 is expected to be between 50,000 55,000 and 57,000 units. And now I would like to share with you the recent highlights of our products, R and D and operations. Following the delivery of the flagship coupe SUV EC7, the flagship sedan 2023 NIO ET7 and the all round SUV all new ES6 earlier this year, we started to deliver the smart electric tour ET5 Touring or ET5T for short and the flagship SUV all new ES8 in June.

Speaker 2

In the second quarter, NIO achieved high quality delivery of 5 new models with user satisfaction exceeding our expectations. This also proves NIO's capabilities of conducting fast product iteration and managing product complexity. In September, we plan to launch and deliver the new midsize coupe SUV EC6, which marks the completion of our product transition to the NT2 platform. With that, NIO's entire NT2 product lineup featuring 8 different models will have entered the premium BEV market to better cater to the diverse needs of the users in the premium segment and drive the steady growth of deliveries. NIO's product safety has been highly recognized by authoritative institutions worldwide.

Speaker 2

On July 12, 2023, NIO's smart electric mid flight sedan ET5 and the mid large SUV EL7, which is called ES7 in China, both obtained the 5 star safety rating from Euro NCAP, making NIO the 1st car brand receiving the 5 star rating since Euro NCAP adopted the new testing protocols for 2023. Enabled by the full stack technologies developed in house and the closed loop data management, NIO has made significant progress in the assisted and intelligent driving. User base and engagement continue to grow. At present, over 100,000 new users have activated Navigate on Pilot Plus or NOP plus and have driven on it for over 80,000,000 kilometers. The mileage penetration rate of NOP plus has reached 53%.

Speaker 2

In the meantime, we have carried out multiple rounds of early bird programs in Beijing and Shanghai for NOP plus in all operational domains, including in urban environment. In terms of the sales and service network, So far, we have 4 20 new house, new space and pop up stores in 143 cities and 304 service centers as well as 58 delivery centers in 2 0 1 cities worldwide. Since July, we have started to take a more manner in expanding the user touch points and sales channels and enlarging the sales team in China. These actions will further increase our sales capabilities and the propelling sales growth. As for the charging and swapping network, To date, we have installed 1747 power swap stations worldwide and provided more than 27,000,000 battery swaps.

Speaker 2

Our expressway battery swap network in China consists of 4 76 swap stations along the 10 major expressways, connecting 68 major cities. We've also deployed over 7,900 power chargers and the 9,700 destination chargers. NIO has become the automotive brand with the most public chargers and the most chargers along expressways in China. In the meantime, NIO's charging map has connected with over 1,360,000 3rd party

Speaker 3

chargers worldwide.

Speaker 2

On July 20, NIO announced the flexible battery upgrade service by day, providing users with more options and fulfilling more use cases. In July, we organized the host election for NIO Day 2023 and the City of Xi'an was voted by NIO users as the host city this year. On August 20, we partnered with World Wide Fund For Nature and Jilien Mountain National Park in installing the world's first photovoltaic self consumption system with V2 gs capability. It features solar power stations, V2 gs chargers and battery electric vehicles. Moreover, we initiated the Clean Parks Citizen Scientist Program to engage more users and the public in conserving biodiversity and supporting the establishment of a volunteer system for national parks in hope of striving for a shared vision of blue skies.

Speaker 2

In July, NIO received strategic equity investment from Sibon Holdings, an investment vehicle majorly owned by the Abu Dhabi government. The investment package totaled US1.1 billion dollars In addition, we will also cooperate with a new strategic investor to jointly pursue opportunities in our international business. Although the smart EV market is full of challenges and the competition is increasingly fierce, With our continuous efforts in core technologies, product portfolio, sales capabilities, manufacturing and logistics, We are fully ready to rise to the challenge. We believe that with focused marketing and sales strategy as well as execution, NIO can drive the steady growth of sales and the deliveries, while further optimizing the cost structure and enhancing operating efficiency on all fronts. We look forward to NIO's strong market performance in the second half.

Speaker 2

As always, thank you for your support. With that, I will now turn the call over to Steven, who will provide the financial details for the Q2. Over to you, Stephen.

Speaker 3

Thank you, William. I will now go over our key financial results for the Q2 of 2023. And to remind for the length of the call, I will reference to RMB only in my discussion today. Encourage listeners to refer to our earnings press release, which is posted online for additional details. Our total revenues in the 2nd quarter were RMB8.8 billion representing a decrease of 14.8% year over year decrease of 17.8% quarter over quarter.

Speaker 3

Our total revenues are made up of 2 parts, vehicle sales and other sales. Vehicle sales in the 2nd quarter were RMB7.2 billion, represented a decrease of 24.9% year over year and 22.1% 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 the 575 kilowatt hour standard range battery pack deliveries and decrease in delivery volume. The decrease in vehicle sales quarter over quarter was mainly due to a decrease in delivered volume. Other sales in the Q2 were RMB 1 point RMB6 1,000,000,000 represent an increase of 119.9 percent year over year and 9.3% quarter over quarter.

Speaker 3

The increase in other sales year over year was mainly due to the increase in sales of used cars, accessories and Provisional Power Solutions as a result of continued growth of our users. The increase in other sales quarter over quarter was mainly due to the increase in sales of used cars and provision of power solutions as a result of continued growth of our users, partially offset by decrease in revenue from provision of auto financing services. Gross margin in the Q2 of 2023 was 1.0% compared with 7.0% in the Q2 of 20 20 2 and 1.5% in the Q1 of 2023. Vehicle margins in the 2nd quarter was 6.2% compared with 16.7% in the Q2 of 2022 and 5.1% in the Q1 of the industry. The decrease in vehicle margin year over year, while the many attributed to changes in product mix, partially offset by the increased battery cost per unit.

Speaker 3

The increase in vehicle margin quarter over quarter was mainly due to decreased promotion discount for the previous generation of ES8, ES6 and EC6. Our expenses in the 2nd quarter were RMB3.3 billion, Which is an increase of 55.6 percent year over year, an increase of 8.7% quarter over quarter. The increase in research and development expenses year over year and quarter over quarter was mainly attributed to first, The increased personnel costs, the R and D functions and increased share based compensation expenses recognized in the Q2 of 2023. And second, the incremental design and development costs for NIO products and technologies. ExGen expenses in the 2nd quarter were RMB2.9 million, representing an increase of 25.2% year over year, an increase of 16.8% quarter over quarter.

Speaker 3

The increase in SG and A expenses year over year and quarter over quarter was primarily due to first, The increase in personal costs related to sales functions. 2nd, the increase in sales and marketing activities, increase the launch of new products. And 3rd, increase rental and related expenses related company's sales and service network expansion. Loss from operations in the second quarter was RMB6.1 billion, which is an increase of 100 and 17.5 percent year over year, an increase of 18.8 percent quarter over quarter. Loss in the second quarter was RMB6.1 billion revenue increase of 119.6 percent year over year, an increase of 27.8% quarter over quarter.

Speaker 3

Our balance of cash and cash equivalents, restricted cash, short term investment and long term deposits was RMB31.5 billion as of June 30, 2023. Now, this concludes our prepared remarks. I will now turn the call over to the operator to facilitate our Q and A session.

Operator

And the first question will come from Ben Wong of Credit Suisse. Please go ahead.

Speaker 3

Thank you. My question is about your sales network structure. Recently, I heard you hire a few of the salesperson from other luxury brands such as BMW, Mercedes and Audi. So what's the reason you have non NIO salesperson recently and how is the impact so far for your sales volume increase. We also found that in your Q3 guidance, You actually imply in the August September, September will be lower compared to July.

Speaker 3

So Kendall, what's the reason behind that is because any supply chain issue. Thank you so much.

Speaker 2

Well, thank you, Bin Wang. For your first question, Actually around June, we have realized that inside of the company in terms of the number of our sales persons as well as the capabilities of selling products, We are lagged behind by the competitors in the market. For example, for those luxury brands like BMW or Mercedes, The size of their sales team is 6 to 7 times of ours. Without sufficient personnel or touch point, we cannot realize a very good user satisfaction, realized very good test drives or high conversion rate from leads to orders. So starting from June July August, We have taken a more active manner in improving our sales capabilities.

Speaker 2

And with that, we hope that the company will be able to support the new orders of 30,000 units per month. That will be contributed by our sales network as well as the personnel increase. So that by the end of September we will be able to realize that target. Of course, it takes time for us to really train the personnel and also to find the locations. So we will have that initial capability ready by the end of September and then the real effect will kick in from October.

Speaker 2

That is our existing plan for the improvement. This is also why starting July August, we've been taking some active measures and actions in expanding our sales network and the touch points, especially in lower tier cities where we don't have a full fledged facilities or stores. We hope to really secure and hire experienced and see themselves persons who have their networks and user bases already to help us with the sales path. And regarding your second questions, in July, we have delivered more than 20,000 vehicles. And as shown by our guidance, Our delivery volume in August September are lower than that in July.

Speaker 2

This is mainly because by the end of July, we have announced the adjustments to our Power Swap user benefits before users to our powerswap user benefits before users enjoy or are entitled to 4 or 6 free swaps per month, but starting from August 1, all the new orders are not entitled to free swaps anymore. This also help us to put ahead some orders for users with strong demand for Power Swap in July and this has also affected the delivery volume in July. In terms of the August, we believe that it will take some time for the order momentum and intake to be back to the normal track. But in the meantime, in August, we've also witnessed the new high of the numbers of test drives and leads. Average speaking, during the weekends, we have more than 10,000 test drives.

Speaker 2

This represents a significant growth from the past month. And in the meantime, We also understand that it will take some time for the test drive to be truly converted into orders and we will wait for that. But overall speaking, we are very confident in stabilizing the order intake as well as the delivery volume. In the meantime, we also needed to understand the external challenges, especially the challenges and the pressure from the microeconomic environment. So our fare cost and guidance have also considered that those external sectors.

Speaker 2

But overall speaking, we are confident in the delivery volumes we provided. Also, we must understand that in July, Inside of the premium battery electric vehicle segment priced over RMB300000, we have already realized the 59% market share. This has proven a very solid foothold of NIO in this segment and we will continue to make efforts in transforming and converting ICE users into buying EVs in the premium segment. In this case, we will also make more efforts in expanding our channels as touch points. Thank you, Wang Bin.

Speaker 3

Thank you.

Operator

The next question comes from Tim Hisayo of Morgan Stanley. Please go ahead.

Speaker 4

Hi, thanks for taking my question. So my first question basically just want to follow-up regarding the sales volumes into second half Because as Kevin just mentioned, we successfully upgraded our sales team and sales network. So looking into Q4, I recall that we Our monthly sales can stay above 20,000. So if that's the case, look into 4th quarter, should we expect Neo to grow the sales further to above 20,000 or even like 25,000. And what could be the contribution from the 4 volume driving models covering like ET5, ES6.

Speaker 4

So could you just provide some update regarding volume? And my second question is about the gross profit margin, Because according to the management's previous guidance, I think the recall gross margin could get back to double digit in the second half. So after the $30,000 be cut in Leju, do you still stick to your previous view sequential margin expansion into second half. What would be the pace in the quarter and Q4 respectively? That's my second question.

Speaker 4

Thank you.

Speaker 2

Thank you, Tim, for your question. Regarding your first question, of course, we target to realize and stabilize our monthly delivery to be above 20,000 units starting Q4 this year. But in the meantime, we are also preparing our sales capability so that we can support the new orders of 30,000 units In this case, we are expanding our channels and also our personnel. As I've mentioned, we will be acquiring this initial capabilities by the end of September and we will take some time for the preparation and the ramp up. We believe that the effect of our sales capability improvement will be kicking in from October November with positive progress from that time point.

Speaker 2

In terms of the reference to the NT1 product we've experienced, normally we realize that it will take around 1 to 2 years for the new product to reach a sound and stable volume on a monthly basis. For example, for our 1st generation ES6, it was launched in 2019 and it was not until 2021 that it has a rather stable and sound monthly delivery. So we are very confident with our new product. In terms of the volume products, including ET5P, ES6 and ES6, This are 4 volume products. For the Easter 6, it will be delivered starting September and it will take some time for the production and the delivery ramp up.

Speaker 2

But within its own segment it will be dominating the major market share. So with these four models combined, we believe that its monthly volume will be stabilized at around 15,000 to 20,000 units. In terms of higher volume higher series products like EC7, EC7, ES7, SOS, ES8. We are expecting also increments on their sales volume.

Speaker 5

Yes, Stanley will answer this. Yes. Hi, Tim. Regarding the gross profit margin, as Shown in our Q2 financials, the vehicle margin is 6.2%, similar with Q1. The key reasons are sales and production volume at lower level, driving higher manufacturing costs and other cost allocation and also more promotions to the users and also marketing efforts during the product transition period.

Speaker 5

But along with our sales and volume wrap up of our all our NT2 products, Our target to achieve the double digit gross profit margin in Q3 and 15% in Q4, If we can control the battery cost and other cost

Speaker 6

well, so Yes.

Speaker 2

So we have already digested the impact of the price reduction.

Operator

The next question comes from Yikuan Ding of HSBC. Please go ahead.

Speaker 7

Thanks, Tim. Yuchang here. I got 2. First question is, we practically have all the models are now refreshed and then newly launched a bit on 2.0 platform. In the model is pretty comprehensive coverage.

Speaker 7

We will be expecting strong ramp up in the coming in a visible way. But how do we expect the key growth drivers if we're looking at 12 to 18 months, especially in terms of new product? How do we fill in the already comprehensive portfolio or the software going to be the next leg of growth? The second question is on the OpEx side. So this year, we have new model launches and we have the sales channel upgrade.

Speaker 7

But next year, when we roll into next year, could we see the absolute OpEx value dial down a little bit?

Operator

Thank you.

Speaker 2

Thank you for your question. Regarding your first question, As you may know that starting from September, we will launch our EC6 into the market. And with that, all its models on the NT2 platforms will be launched to the market. And over the past several months, we have launched 5 brand new models plus a facelift. In such a short timeframe, we are able to realize the high quality deliveries of this model.

Speaker 2

This has also demonstrated our R and D efficiency as well as the strong execution. But in the meantime, we also need to realize that it's a challenge brought by the smart electric vehicles to the entire industry as in the very short timeframe we need to catch up to the changes of all the smart technologies. But in the meantime for all the NT2 projects We're looking at more software features to be updated and released. For example, our NIO assisted and intelligent driving. For the coming month, we will be rolling out some new features and also services.

Speaker 2

This will help us to improve the competitiveness of the product. And also as we've mentioned, we are developing the sales capabilities inside of the company so that we can reach out to broader channels with more sales persons and support the new orders of 30,000 units per month. This will also be a very concrete foundation for the continuous growth of the sales and the deliveries in the coming months. If you look at our 8 models on the NT platform. They are already covering 80% of the needs in the premium market.

Speaker 2

And also We have also adjusted our organizational structure starting from the Q3. So that's from the headquarters To the regional companies, we will be having dedicated teams managing and responsible for each of the model across the lifecycle. This is also the efforts we've made from the sales and marketing perspective.

Speaker 5

Regarding the OpEx of next year, The next year, the budget for us has not been ready. So at this moment, I may not Be able to give you the precise number, but I can give you some feeling. Regarding the R and D expense As introduced in last quarters, on average each quarter this year, the non GAAP R and D investments will be RMB3.5 billion for this year. I think for next year, We will keep similar like investment R and D activities. And regarding the SG and A expense, As explained by William, we have a relatively more aggressive target for the second half of this year, I think should be for next year.

Speaker 5

So the absolutely value for SG and A will grew accordingly since we need more market activities and events. But the percentage of total sales revenue, I think, will decline compared with The first half of this year and also the whole I think the whole year of 2023 because of the improvements in both ticket delivery volume and also operating efficiency. Thank you, Yixin.

Operator

The next question comes from Jeff Chang of Citi. Please go ahead.

Speaker 8

I have two questions. First question is our refinancing plan going forward. And the second question is our cash flows projection into the Q3 and Q4. So why I am asking this

Speaker 3

It's because

Speaker 8

we saw the Q1, the net cash outflow was RMB10.6 billion, but improved to a cash outflow of RMB5.9 billion in the second quarter. And within the 2nd quarter, we also saw the inventory Q on Q delta of around RMB 5,000,000,000 While the account payable, account receivable remains stable. So that said, if the 3rd quarter inventory came down Plus the operating leverage with a volume hike, whether we should see the cash outflow should be significantly narrowing further. This is my first question. And my second question is about the 3rd quarter and 4th quarter GP Margin Guidance.

Speaker 8

When can we return to a 10% or double digit level as well as the 3rd quarter, 4th quarter SG and A as a percentage of the revenue guidance. That's all from me. Thank you.

Speaker 5

Okay. Thank you, Jeff. Danny, please answer the first question. Regarding the cash flow and also the refinancing plans, I think Several points about this. One is regarding operating cash flow.

Speaker 5

I think as the delivery volume ramp up from Q3 this year. Our operating cash flow will be significantly improved compared with Q1 and Q2 Q2 of this year. And we also carried out a series of measures to control the CapEx investment and also manage our investment cadence prudently like delay or cancel certain CapEx investments. This will also help us to manage healthy cash flow. And additionally, as explained In William's comments, we received US740 $1,000,000 strategic investment from CYVN.

Speaker 5

And we also completed the offering of for our first off balance sheet EPS in Q3. I think both our U. S. Dollar and also RMB financing channels remain on track date. And all those will enable us to keep healthy cash position and support of the ongoing business development of the company.

Speaker 5

And regarding the financing refinancing plan, we will disclose Our plan accordingly if there is any capital market related update. But at this moment, I think we Don't have the precise information to communicate with you. Yes, that's the first question regarding the cash flow and also refinancing The second is for this year's margin. Yes. For this year's margin, I think we have explained in the previous questions.

Speaker 5

And for Q3, our target is to achieve the double digit gross profit margin and Q4 is 15%. And for SG and A guidance, I think the absolute value will grow along with our delivery volume and sales growth, But the percentage of total revenue will decrease. But according to the market situation. The adjustment and change of our marketing strategy will be quite dynamic. So at this moment, I cannot give you a precise guidance about the percentage of SG and A over sales revenue.

Speaker 5

Thank you, Jeff.

Speaker 8

Thank you. Just a correction here. I mentioned the inventory Q on Q delta was RMB 5,000,000,000, Which was wrong. I just checked it, but the Q on Q delta was only RMB 2,000,000,000. That's it from my side.

Speaker 8

Thank you. Thank you very much.

Speaker 5

Yes, welcome. Thank you.

Operator

The next question comes from Ming Hung Lee of Bank of America. Please go ahead.

Speaker 9

So I have two questions. The first question is, Currently, you have 8 products to cover the majority of luxury car segment. So could you give more guidance on any of the new product planned next year Under the NIO brand as well as the Alpus brand. And the second question is, what is your latest business progress for the mobile business.

Speaker 5

Thank you.

Speaker 2

Thank you for your question. For NIO brand, actually, we don't plan to launch any new products in the year of Of course, we will still roll out some routine sales lifts or product upgrades, but we haven't planned any new products for next year, because we think that it's more important for us to stay focused on our existing 8 products on the NT2 platform to continuously improve its qualities and also market performance. Just like in 2021, we didn't launch any new models, but still we have realized a very good gross margin, sales volume as well as quality performance. So that's the plan for the brand of NIO. In terms of our mass market brand, Alps, We plan to launch the very first model from Alps in the second half of next year.

Speaker 2

Right now the R and D activities are proceeding according to the plan. Actually, we have just rolled out the verification build of the first model from e. L. F. And this model will be highly competitive in Price at ACE product segment.

Speaker 2

And also for the brand of ALPS, its R and D philosophy is different from that of NIO. ALPS is targeting at the mass market And we will not have many products in the lineup for Alps, but for NIO it's different. It is targeting at the premium segment where we care more about the personalization and also the differentiations of the product. Just like Mercedes and BMW in China, they are selling 40, 50 models. That is a unique character of the premium segment.

Speaker 2

But for Alps, for the mass market, it will be more family oriented and we will also care more on the sales volume of each model launched by us. In terms of our phone business, our mobile phone will developed mainly for our new users, especially the users of our NT2 products. And the phone itself is developed centering on the vehicles, but with better mobility and connectivity experience. We are actually believing that With the phone business, it can help us to improve the competitiveness of our vehicle products because our phone business is not to compete with those phone makers. Instead, We would like to use the phone as a carrier to provide the best experience for our vehicle users.

Speaker 2

Moreover, The underlying software and the underlying logic between the phone and the cars share quite a lot of similarities. In terms of the launch plan for the phone. We plan to introduce our first phone project in the second half or in the late September.

Operator

The next question comes from Paul Gung of UBS. Please go ahead.

Speaker 10

Thanks for taking my questions. So two questions here. The first question is regarding the sales channel. You mentioned that you are going to expand it. You feel it's behind of the BMW message spend in terms of The channel as well as a salesperson, but how does it compare to other UV startups?

Speaker 10

Are we ahead or are we behind? And how much do we think about the expansion of the store network and the sales personnel versus the sales efficiency improvement. And you also mentioned you are going to reach 30,000 monthly sales capability. How does that compare to today? Is that fair to assume currently we have the capability to sell 20,000 monthly sales given we already achieved that in July and expanding would be about 50% compared to today 230,000.

Speaker 10

How does this mathematics work? This is my first question. The second question is regarding The battery swap versus fast charging given the batteries, the semiconductors as well as even the charging piles, DC charging stations, all this seems to be rolling out with industrial efforts. How I understand it's good to have both the battery swap as well as the fast charging. But would you consider The rolling out of the fast charging kind of weak and the battery swap convenience and competitive edge of NIO's cars.

Speaker 10

Thank you.

Speaker 2

Thank you for your questions. If you look at the size of the sales teams in comparison to other EV startups in China actually by the end of June, the size of our sales team is only half of those of other companies. Of course, in terms of the service network, we have specialists and the teams working for the power swap stations, roadside services as well as So for the service and the community part, we have a bigger team than other EV startups. But when it comes to the actual salesperson, in our company we call them fellows. In terms of the number of fellows, we actually have a much smaller team than all the other companies in the industry.

Speaker 2

In April May this year, our delivery volume was not very high. By then, we didn't really realize the importance of the sales We're taking any actions, but starting from June as we ramped up our delivery volumes, we gradually realized that the insufficient sales teams has affected the satisfaction and also the execution of many things, including test drive and also order conversions. That's why starting from July, we have started to develop our sales channels as well as the sales teams. For comparison to ramp up to the comparable side, we believe that we need around 5,000 people working on the sales team. But of course, it takes time for us to have that many people on the team and also to train them with the corresponding capabilities.

Speaker 2

In terms of the delivery volume in July, we have delivered more than 20,000 cars, but that demonstrated our capability in terms of the deliveries, which is relatively easier than realizing sales capabilities. And another thing is about the channels. If you look at our sales distribution, Jiangsu, Zhejiang and Shanghai, these three places basically contribute half of our sales volume. But for other provinces like in Anhui, the capital city itself is contributing around 80% to 90% of the sales volume. If we take Anhui as an example for other brands like DMWare, BIO and Mercedes, half of their sales volume in Anhui province This contributed by cities outside of Anhui sorry, outside of the Jose and they basically have dealership stores in all the cities in Anhui province.

Speaker 2

And for us, we've just opened our NIO house in the 2nd largest city in Anhui province that is in Wugu. In this case, we really needed to take efforts in increasing our penetrations into the lower tier cities. In addition to the sales channels, we are also developing and expanding our power swap networks into more cities. For the past several months, we've in developing our Power Swap stations in a much faster manner. And in August, we expect that we will deploy and install more than 100 Power Swap stations.

Speaker 2

Of course, it will take time for all these measures to take in, but this investment will be very important for our long term Regarding your second question, so about power swapping versus faster charging, As we've always mentioned that chargeable, swappable and upgradable has been the philosophy of our power solutions And we've been choosing the optimal solutions and also the best experience for our users based on the actual scenarios and the use cases. And as we are developing our power swapping network, we are also the automotive brand with the most public chargers in China, as I've mentioned in my opening remark. Of course, we believe that with the development of the faster charging technology, it will also help us with power swap operations as it can improve the service capacity of the swap stations. Not to mention that many of the stations we've installed As of today, our integrated stations featuring both chargers as well as power swap. So In terms of the power swapping and the faster charging, we've also had many discussions between these two technologies, but we believe that so far power swapping is still having a much better experience than faster charging and it will continue to be a very unique advantage and the competitiveness of NIO.

Speaker 10

Thank you very much. That's very helpful. Yes, thank you. Thanks for waiting.

Speaker 5

Thank you, Oppa.

Operator

The next question comes from Jing Chen of CICC. Please go ahead.

Speaker 11

Okay. Thank you for your sharing. I have 2 following up questions. The first is about our other sales revenue and profit margin. As we can see that after our policy adjustment.

Speaker 11

What is our expectation for the future revenue and also profit margin for other sales after our battery swap started to gain money gain profit. And in particular, do we have any internal calculation of the profitability of the battery swapping business? So what is the upward trend of our gross profit margin for other sales in the following few quarters? And when will it turn positive? This is my first question.

Speaker 11

And my second is about the technology improvement. We have always been focused more on R and D investment and also technology accumulation. So looking forward, Regarding to our next generation platform, NT3, so what improvement can we expect? What are the major areas of our effort to put in? So can you just share A few insights of information about that.

Speaker 11

This is my two questions. Thank you.

Speaker 5

Hi, Jing. This is Danny. Regarding your first question about the other sales revenue and margin, As I mentioned, we canceled the free battery swap policies in Q3. So therefore, there will be more users to pay for battery swap services. And as the sales keep growing, we think More battery self-service revenue can be realized.

Speaker 5

But since it's only 1 month from the policy adjustments. So we still need some time to observe and assess the impact of this policy change. 2nd is with the power swap station, the 3rd generation put into operation starting from This April, we will accelerate the deployment of Power Software Station in the following quarters. And for this year, our plan is to build 1,000 stations. But at current stage, the capacity won't be fully utilized.

Speaker 5

So the losses from the accelerated construction of power source station will increase. So I think that's Basically the guidance for the other sales revenue.

Speaker 2

Actually, the inherent efficiency of the Power Swap business is pretty high. Before, we have negative margin on this part. It's mainly because when we were offering free Power swaps, the electricity costs were also included in that offering. But now we are charging that separately. In addition, we are also charging our users RMB30 per swap as a service fee.

Speaker 2

Actually we are seeing growing demand for such charged power swap services, especially many used car users. They are actually using this service, so the percentage for the users to use the paid swap service is also growing. It's mainly a business for the existing users and existing population. For the 3rd generation power swap stations, we've also done a rough calculation. When it completes 60 swaps per day basically can be breaking even and its service revenues will be covering its operating costs.

Speaker 2

Right now around 20% of our 3rd generation stations are able to realize such performance and capability. So for the long run, we believe that Power Swap is also a sustainable business as in addition to offering power swap services we also have other diversified business models like we can leverage the energy storage. Regarding your second question about our next generation technologies, of course, we will be leveraging our full stack capabilities developed in house. With that, we will continue to improve the experience and also the performance of our products and we believe that This will give us a strong product competitiveness worldwide and also the continuous investment into the research and the development of the core technologies will also help us to optimize and improve the vehicle margin as well as improving the efficiencies of our operations and R and D.

Speaker 11

Okay. Thank you. That's all for my question. Thank you.

Operator

The next question comes from Edison Yu of Deutsche Bank. Please go ahead.

Speaker 6

Hi, thank you. I have one question. I'm wondering what is the management team's openness to Embarking on some more strategic action. We've obviously seen a lot of activity from the European OEMs in China trying to revive or restructure their efforts. And I also think in the context of, I think Neo has made some Some mistakes, we talked a lot about sales, the sales force today.

Speaker 6

We had a lot of supply issues last year, many of which are related actually to more traditional auto side. Can we perhaps benefit actually from having some more closer strategic relationships

Speaker 3

with some of

Speaker 2

Thank you, Alison for your question. Overall speaking, we are very open to all kinds of cooperation with the peers in the industry. But so far, we don't have much information to update or share with you. But if you look at our smart technologies as well as our charging and swapping networks, actually we aim to use these technologies to catalyze transformation of the entire industry. As we've also announced at the Power Day 2023, we are willing to open up our next generation battery technologies as well as our charging and swapping networks to the entire industry.

Speaker 2

Right now, we are in some initial communications with certain OEMs. They are also thinking about using our battery technology for swapping networks. But to use that technology, they need to adapt their products to our standards, which can take some time for them to make the final decisions. But overall speaking, we are very open to all kinds of operations. And in terms of our existing charging network, So far 80% of our electricity are actually charged for the non NIO users.

Speaker 2

Maybe you've also read this news, we are in Xinjiang's Saram Lake, Because it's such a popular tourist spot, we have to limit access to our public chargers for the non NIO users at certain time frames and that caused some complaints by the non NIO users. But overall speaking, it's also a very good example showing our existing charging and swapping facilities are helping many EV users, not just the users on the NIO.

Speaker 6

Thank you.

Speaker 5

Thank you, Edson.

Operator

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

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