NIO Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 5, 2024

There are 12 speakers on the call.

Operator

Hello, ladies and gentlemen. Thank you for standing by for NEEO Incorporated's 4th Quarter and Full Year 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.

Operator

Rui Chen, Head of Investor Relations of the company. Please go ahead, Rui.

Speaker 1

Good morning and good evening, everyone. Welcome to NIO's 4th quarter and full year 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 CEO Mr.

Speaker 1

Stephen Feng, CFO and Ms. Stanley 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 view expressed today. Further information regarding risks and uncertainties is included in certain filings of the company Company 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 discussion of the 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. William Li.

Speaker 1

William, please go ahead.

Speaker 2

Hello, everyone. Thank you for joining NIO's 20 2023 Q4 and the full year earnings call. In Q4 of 2023, NIO delivered a total of 50,000 and 45 Premium Smart EVs, up 25% year over year. In 2023, NIO's cumulative delivery reached 160,038 units, representing a growth of 30.7 percent from 2022. In January February of 2024, due to the seasonality of our industry and the Chinese New Year, NIO delivered 18,000 187 vehicles.

Speaker 2

On March 7, NIO will start to deliver the 2024 models featuring enhanced performance and the experience. With that, NIO sales will gradually bounce back and the total delivery in Q1 is expected to be between 31,000 to 33,000 units. In terms of NIO's financial performance, with continuous improvements on the bond cost, the vehicle gross margin increased to 11.9% in Q4. Now I would like to share with you the recent highlights of our products, R and D and operations. On December 23, NIO Day 2023 was held in Xi'an Shanxi Province, where the smart electric executive flagship NIO ET9 was unveiled.

Speaker 2

ET9 embodies NIO's full stack capabilities and the global leading technologies, featuring core technologies such as in house development AD chip NX9031, all domain 900 V architecture, SkyRite chassis system, and the flagship safety and security, ET9 defines the technology standard for the next generation premium smart EVs. The delivery will start in Q1 2025. In the meantime, NIO will soon start to deliver its 2024 models with the configuration and the performance upgrades, including the brand new center computing cluster, Adam, which brings the computing power to a new level. Enabled by the industry highest computing power, NIO software release has become faster, making our products more competitive. With respect to NIO Assisted and Intelligent Driving or NAD, NIO's collective intelligence capability has seen that growth with the total validated urban mileage increasing 100 fold in 5 months.

Speaker 2

As of the end of January, Navigate and Pilot Plus were validated and may available more than 1,000,000 kilometers of roads in China, including 650,000 kilometers of complicated urban driving scenarios in 606 cities. In Q2, the NOP plus for urban roads is expected to be released to all NT2 users, which will make this OTA update the largest public release of WizCant in China. Through computing sharing across different domains on the central computing cluster, Nomi GPT, a multimodelarged vision model, will be released soon, making the cockpit smarter and more secure. In addition, NIO's mass market brand will make its debut in Q2. The first product will be launched in Q3 with mass delivery to start in Q4.

Speaker 2

As for the sales and the software network, so far NIO has 148 NIO houses and 352 NIO spaces as well as 314 service center and 62 delivery centers. About the charging and swapping network, to date, NIO has 2,419 power swap stations worldwide, providing over 39,500,000 swaps cumulatively. It also has installed over 10,000 power chargers and 11,600 destination chargers. During the Chinese New Year, on the Business Day, NIO complete 19,199

Speaker 3

slots.

Speaker 2

1 of the stations on highway provide 1195 swaps. Battery swap has become the most reliable solution for NIO users. Following the battery swap cooperation with Chang'an and JD, another 2 strategic cooperation agreement was signed with JAC and Cherry in January. NIO will roll out comprehensive and in-depth cooperation on battery swap with these partners. Moreover, NIO has partnered with multiple energy companies such as Anhui Energy Group and China Southern Power Grid to jointly build swap stations.

Speaker 2

The value of battery swap has been appreciated by more people, making a holistic chargeable, swappable and upgradable solution a well recognized core advantage of NIO. In 2024, NIO plans to build 1,000 new battery swap stations and 20,000 chargers, bringing the total to over 3,310 swap stations and 41,000 chargers by the end of end 2024. Regarding the capital market, in December, NIO received US2.2 billion dollars strategic investment from Abu Dhabi Investor, Saifon Holdings. The investment has further strengthened NIO's balance sheet, laying a solid foundation for NIO's investment into the next generation core technologies and products. Showing the corporate social responsibility and supporting global sustainable development, NIO always stayed true to its foundation vision of Blue Sky coming.

Speaker 2

In general, NIO was selected by Corporate Knights into the 2024 Global 100 Most Sustainable Companies, making to the list for the 2nd time in a row. NIO has placed 15th among more than 6,000 companies worldwide, up 20 month spots from last year. As competition intensified in 2024, we see both challenges and opportunities with faster deployment of charging and swapping facilities and the change in consumer behavior, the premium BEV segment to which NIO brand belongs will soon arrive at an inflection point of growth. In the second half, a new brand for the mass market will also become our growth level. In 2024, we will continue to focus on the corporate top priorities, level up system capabilities, strengthen cost mindset and cost management, so as to bring our A game to the next phase of competition.

Speaker 2

As always, thank you for your support. With that, I will now turn the call over to Stephen Q4's financial details. 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 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. Let me start with revenue.

Speaker 3

For the Q4 of 2023, total revenues reached RMB17.1 billion, up 6.5 year over year and down 10.3% quarter over quarter. 90% of revenue comes from vehicle sales in Q4, which was RMB15.4 billion, representing an increase of 4.6% year over year and a decrease of 11.3% quarter over quarter. The improvement year over year was driven by growing delivery volume despite the impact of lower average selling price resulted from product mix changes. The decrease quarter over quarter was mainly attributed to a decrease of 9.3% in deliverable volume. Moving to other sales.

Speaker 3

Other sales reached RMB1.7 billion, growing 27.6 percent year over year and 0.4% quarter over quarter. The year over year increase was mainly due to increased sales in accessories and the provision of power solutions, which both grew with our user base. Then let's have a look at the gross margin. Overall gross margin was 7.5% compared with 3.9% in the same period of last year and 8.0% in the last quarter. The increase year over year was mainly attributed to the increased vehicle margin.

Speaker 3

The slight decrease quarter over quarter was due to the decrease in margin from provision of power solutions as a result of expanded power network, even though vehicle margin was growing. Take a closer look at vehicle margin, which was up to 11.9% in this quarter, compared with 6.8% in Q4 2022 and 11.0% in Q3, 2022. The year over year increase was mainly due to the decreased material cost per unit in Q4, 2023 and lower base in Q4, 2022, which resulted from inventory provisions, accelerated depreciation on production facilities and losses on purchase commitments for the previous generation of ES8, ES6 and ES6 recorded. Let me move on to the operating expenses. R and D expenses were RMB4.0 billion, remained stable year over year and increased 30.7% quarter over quarter.

Speaker 3

The increase was mainly driven by incremental design and development costs for new products and technologies and higher personnel costs in R and D functions. SG and A expenses were RMB4.0 billion increased 12.6% year over year and 10.1% quarter over quarter, which was mainly related to higher personnel costs in sales functions and increased sales and marketing activities. Let's move further to the bottom line. Loss from operations was RMB6.6 billion, representing a decrease of 1.6 percent year over year and an increase of 36.8% quarter over quarter. Interest and investment income was RMB1.4 billion increased 288.7 percent year over year at 3.75% quarter over quarter.

Speaker 3

The increase was primarily attributed to the recycling of unrealized gains from other comprehensive income to investment income of RMB977.3 million for available for sale debt related to an upstream industry investment. Net loss was RMB5.4 billion, representing a decrease of 7.2% year over year, an increase of 17.8% quarter over quarter. Last but not least, our balance sheet gets strengthened with RMB 57.3 billion in cash and cash equivalents, restricted cash, short term investment and long term tax deposits as of December 31, 2023. For more information details of our unaudited 2023 full year financial results, please refer to our earnings press release. Now, this concludes our prepared remarks.

Speaker 3

I will now turn the call over to the operator to first

Operator

Your first question comes from Tim Hisao from Morgan Stanley. Please go ahead.

Speaker 4

Hi, management team. Thanks for taking my questions. I have 2 questions. The first one is about our upcoming, the mass market brands, Alps. So is NIO still targeting to launch and deliver the first model on the Alps in late the quarter?

Speaker 4

And separately, as you're just left in 2 quarters away, could you share more information about the channel strategy, target numbers of stores, store types and scale of charging network, etcetera? So any additional quarters about apps you would be highly appreciated? So that's my first question.

Speaker 5

Thank you for the question. As I've mentioned in the prepared remarks, in the Q2 of this year, we are going to unveil our second brand, the brand for the mass market. And in the Q3, we will launch the very first product of this new brand and the mass release and delivery will be starting from the 4th quarter of this year. Actually the verification build, baby build of this car already rolled off the line in Q4 last year and we were pretty satisfied with the conditions of that build. In terms of the sales and the service network of this new brand, for the point of sales, it will have its separated and independent sales network.

Speaker 5

But in terms of the after sales services and the touch points, we do can leverage the existing service resources of the new brand. In terms of the Power Swap network, we've previously mentioned that for the Power Swap network, we have a private network and a public network, similar to the cloud infrastructure and the cloud service. For the private network, basically, it's the powerswap stations and the facilities that's designated and exclusive to the NIO brand. But in addition to that, we have a public network where we will share the power swapping resources with not only Alps, our second brand, as well as other car companies. As you've also show know that we have already signed the agreements with several car companies and the more we're drawing the public service facility as well.

Speaker 5

Our 4th generation power swap station will have the compatibility for both NIO products as well as ALPS products. And we will start to build the 4th generation swap stations from April this year. Previously, we've mentioned that in 2024, we are going to install another 1,000 swap stations and most of the stations will be 4th generation stations for the public network.

Speaker 2

Thank you, Tim. Thank

Speaker 4

you. Thank you really appreciate all the details. So my second question is about the margin target. Because I recall that 2 3 quarter readouts, I think the management team mentioned that the equal gross margin for 2024, I. E.

Speaker 4

This year would be around 15% to 18%. And there could be additional, like a 0.5% margin uptick contributed by in house production. So based on current market environment and compact landscape, do you still maintain the same target this year or look for any potential changes to the margin target? That's my second question. Thank you.

Speaker 6

Hi, Tim. About the margin, yes, for the whole year, I think we keep this 15% to 18% target, but quarter by quarter, I think there will be some change. As you may know, we will upgrade our MT2 product to 2024 version in March and during the transition of old and new product, more promotions are offered for the old models, leading to the decrease of gross profit margin in Q1. But starting from Q2, along with the volume ramp up of our 2024 version and also the further cost optimization activities, as you mentioned, we believe our vehicle margin can come back to an upward trend. And so starting from Q2, we are confident that 15% to 18% weak margin can be achieved for NIO brand.

Speaker 6

And from a long run, our target our margin target for new brand will also be over 20%. Thank you, Tim.

Speaker 4

Great. Thank you very much.

Operator

Thank you. Your next question comes from Bin Wang from Deutsche Bank. Please go

Speaker 3

ahead. Thank you. My first question is about 2024 volume target. So midyear report, you target 200 1,000 units for the full year 2024, which means 25% growth. Can you confirm whether this is your target?

Speaker 3

That's number one question. Number 2 is about the 2nd product from the NIO brand, mass market brand. In a recent interview, we actually mentioned they may full size SUV bigger than the first one, we have the second product followed by MPV. Can I confirm this is your plan for the new plan in the second and third product? Thank you.

Speaker 5

Thank you for the question. Definitely for this year, the competition is going to be continue to be intense. But as we've also mentioned that we will be having our product for the 2024 models with enhanced performance, especially much better computing power. The computing power will continue to lead the global market. So this will help us to improve the overall competitiveness of our existing projects.

Speaker 5

This year, we will focus on accelerating the software release so that we can release more new on the chip and computing power. And also in the Q2, we are going to release our NOP plus for urban roads to all the NT2 users. By doing this public release, we can also enhance the competitiveness of the products. Plus, we also have other new features like large language models, large vision models and the Nomi GPT and etcetera. In terms of our sales channels and network, so far we have around 500 new houses and new spaces and we will continue to enlarge the rich of our sales and service network to the lower tier cities.

Speaker 5

And in the meantime from last year, we have enlarged our sales force as the team is getting more matured and skillful with the sales and getting more getting better understanding of our products. We also see this sales force start to kick in, especially in our delivery results for the February. Inside of the BEV segment or the new energy vehicle market, our delivery results in February was actually pretty good, especially in comparison to our results in January. This has also reflected the effectiveness and efficiency of our sales force and also sales channel enlargement. And thirdly, we will also continue to deploy our power swapping network.

Speaker 5

As I've mentioned, we will deploy both public network and private networks for NIO and for Alps. And for our power swap network this year, we will mainly serve the purpose of boosting sales volume, because we already have more than 2,000 swap stations. So we basically have established the initial network for the power swap services and now we will focus more on boosting sales via installing these stations. So overall speaking, we are confident with our sales and delivery results this year. As in our guidance, in the Q1 of this year, we are going to deliver around 31,000 to 33,000 units.

Speaker 5

In March, as weather gets better and the market gets more dynamic and vibrant, we are also confident that our sales volume will increase. For the midterm, we hope that our sales volume can still be back to around 20,000 units per month and we hope that this can happen sooner. And for your second question about our mass market brand, some media has already captured some of our publicly tested vehicles on the roads and also reported some sneak peeks of our very first product. For our second brand, as we've previously introduced, its overall positioning is to target at the family oriented users, basically families of different sizes. Or for family of different sizes, we are going to launch different sizes of vehicles, but all with strong product competitiveness.

Speaker 5

As we started relatively late in the family oriented segment, we do can leverage such opportunities to better look into the real demand of the target users and launch competitive products accordingly. The first product of our mass market brand will have head on competition with the most popular model of Tesla that is Model Y, but our car will support battery swap. So in terms of the cost and performance, we believe that this model will be highly competitive. In terms of the BOM cost, it will be roughly 10% lower than that of Model Y, which also gives us better flexibility for the product pricing. And the second model of our mass market brand will be a SUV model for the large family.

Speaker 5

The R and D is in good progress. We have already kicked off the tooling for the second model and this car will be launched in 2025. And the 3rd model is also on the way. We have already started product definition and R and D, but it's too early to share the information and we will disclose more information when it's appropriate.

Speaker 2

Thank you, Wang Bin.

Speaker 3

Thank you very much.

Operator

Thank you. Your next question comes from Yucian Ding from HSBC. Please go ahead.

Speaker 7

Thanks, Tim. Yu Chen here. I got 2 questions. The first is, we want to understand what's management's priority or strategy between pricing and volume. We noticed that the company acted quite refrained in pricing among universal price action from peers.

Speaker 7

Has that been we have been seeing the ticker price rather stable. So does that read as more profitability as a priority over volume for this year? Or it's a rope and dope tactic before our new mass market brand coming to the market? That's the first one.

Speaker 5

Thank you for the question. Starting the second half of this year, NIO Group will sell 2 brands simultaneously. So strategy wise, we have also differentiated for these 2 brands. For the NIO brand, for this for now, we will not sell any products that will be cheaper than the existing ET5. Even for the products in our pipeline, we will be targeting at the premium segment, which means that our products for the new brand will be more gross margin oriented.

Speaker 5

We will be carrying more on the gross profit of our product than the volume. So we will not cut the prices or enter the price war, we will not realize higher volume at the cost of our compromised margin or gross profit. And for the second brand, the brand for the mass market, it is targeted at the mass market and also for the family oriented users where the competition is also more intense. But luckily, it can leverage the existing electrification and smart technologies and infrastructures already developed by NIO. So it has certain advantages than starting a completely new brand from the ground up.

Speaker 5

For this second brand, we will be focusing more on the volume. So the volume is prioritized over the gross margin of the products. That's the overall strategy for these two brands. We believe that with this combined brand portfolio, it will also help us to realize a healthier long term sustainable development and operations. Thank you.

Speaker 7

Got it. And then my second question is, the recent two sessions you talked about supporting SOEs to move more aggressively on the EV without constraint on the profitability. So it looks like another pressure and making the industry harder and harder to consolidate. So thanks for the strong color on the new mass market brand and value proposition. I guess this is us changing the way of asking other than the strong product, are we aggressive enough on the pricing?

Speaker 7

You talked about the volume priority, but if the pressure is going to be overhang for longer, are we ready for being aggressive on the pricing for longer?

Speaker 5

It's true that doing business in China, it's inevitable that we will face competition is coming from all types of car companies, including companies like Tesla, many startups from China, private companies well established ones in China and also joint ventures and the state owned enterprises. Overall speaking, the China's automotive market is a highly open market and such competition can actually benefit or bring benefits to the end users. However, it can be more difficult and challenging for car companies. But we believe that by the end of the day, those companies with good overall capabilities and competence as well as those companies who care about the experience of the end users will survive from the fierce competition. And we are confident that we will withstand such competition from all the competitors.

Speaker 5

But in the meantime, we also see cooperations out of the competition. For example, we have announced Power Swap cooperation with many car companies. China Automobile is the 1st car company to partner with NIO in Power Swap. Later we also collaborated with Geely Holding, JAC Group and Cherry on the battery swap. We also have partnerships with energy companies like Phenopec and PetroChina for the construction of power swap stations as well as with China Southern Power Grid on the energy storage as well as power swap stations.

Speaker 5

So in general, NIO is pretty good at partnering up with the peers in the industry. Since the competition is inevitable, we would like to look at how we can navigate through the intense competition from the reasonability of the business perspective. Got it. Thank you.

Speaker 2

Thank you.

Operator

Thank you. Your next question comes from Ming Sun Lee from Bank of America. Please go ahead.

Speaker 8

Hi. Thank you, William and Adrian team. So I also have 2 questions. So first question is regarding the overseas market. Do you expect NIO to enter the new countries this year?

Speaker 8

Will you cooperate with more local distributors in other overseas market? Or you will maintain the direct sales business model? Also do you have any overseas sales target for this year? Thank you. That's my first question.

Speaker 5

Thank you for the question. Regarding the global market or international markets, at the moment, we will still primarily focus on the Chinese market as it is the largest and also the most competitive market for the automotive industry. But in the meantime, we will not stop our exploration into the international market. So far, we have already entered 5 European countries and we will keep refining our operations and management in these 5 European countries. And this year we are also planning to enter into several new countries.

Speaker 5

For example, UAE, as we are invested by the Abu Dhabi's strategic investors, so we are also preparing for the market entry and the sales and the service in that market. For the other countries, we are more awaiting and to see the development of the conditions. And strategic wise, we will also become more flexible because there are 2 major changes. The first change is that as we will soon have our mass market brand and the next year we are going to announce our 3rd brand. The price will be below RMB200000, which means that with all three brands combined, we will be able to cover larger market with more segments.

Speaker 5

Because NIO as a brand primarily focus on the premium segments. Basically China, U. S. And Europe, these three continents contribute 90% of the sales of the premium segment. But for our 2nd and third brands, as they are more affordable, they will be standing a bigger chance of tapping into a more diversified markets and in more regions.

Speaker 5

So our global market entry will also take these 3 brands into consideration. And the second change is regarding our strategy entering into each market. At the moment in China and in 5 European countries, we adopted the direct selling model. And in China, we will continue to have the direct sales with direct touch points with users. But for the other markets outside of China, we need to respect the local conditions and also the special characteristics of each market.

Speaker 5

In that case, we will keep our strategy very flexible and very open. We will look at which way will be bringing us quicker return on investment. We don't exclude any possibilities of cooperating with local partners for the market entry. So in general, we will have a very flexible and a very open strategy towards markets outside of China.

Speaker 8

Thank you, William. My second question is regarding the battery technology. So recently, some auto brands start to launch 5C 800 volt charging battery in the system. So do we when do we expect that the NIO brand and also probably your second brand will start to provide this spec? And if after you have a fast charging battery, we'll use switch to expand more charging station instead of battery substation in 2025.

Speaker 8

Thank you, Will

Speaker 5

Thank you for the question. In terms of the battery technologies, actually NIO has been having this long standing strategy of studying the ultrafast charging as well as ultra quick battery swapping. In terms of charging, actually NIO is the most active brand in terms of deploying public chargers for the users in China. And as of now 80% of our electrics were charged for the non NIO users than for the NIO users. For the NIO Power's charging business by itself, it is already breaking even and we will continue to deploy the chargers for the users.

Speaker 5

Very soon, we are going to install and launch our 6 40 kilowatt power chargers. So definitely, we will follow the latest technologies in the charging industry. In the meantime, we also need to emphasize on how fast the power swap can be because no matter how quick you are on the charging rate, it can never outrun the power swap. Some media has used the analogy where power swap is as fast as charging as 20C in comparison to 5C on a common charger, not to mention that battery swap also have the best experience for the users. And in NIO's holistic solution, in addition to chargeable and swappable, we also have upgradeable, which is also very important, especially to serve the interests of our users.

Speaker 5

Very soon, we are going to have our 150 kilowatt hour battery. We also have a 5 c charging rate that will become available on our 1st model from the 3rd generation product, ET9. But in addition to looking at the battery capacity and the charging rate, what really matters is the lifetime of the battery. For that, we think that it's very important because at the moment, the industry average warranty duration is around 8 years or 100,000 kilometers something or when the battery hit 70% state of health. But if you look at the vehicle, it has a life cycle of around 15 years.

Speaker 5

For most of the electric vehicles running on the street, they haven't really hit the end of life of their batteries yet. But as car companies, we really need to consider about the 15 year lifecycle of your products, including cars, including batteries. That's why the calendar lifetime of the batteries becomes more important for the car companies. Over the past several years, we have tackled the difficulties on the battery safety, efficiency of charging and also the accessibilities of the charging and swapping facilities. And from this year, we will focus on the long life batteries.

Speaker 5

We have already done some research and studies on the technologies and recently we are going to share more information with the industry. What we believe that with a longer battery life, especially longer calendar life, it will help not only the battery electric vehicles, but also PHEVs and the eREVs or the new energy vehicles in general. Because after 8 years when the battery hits its end of warranty life, you cannot ask the user to pay another RMB 100,000 to upgrade the battery or to buy a new battery. Even for a smaller battery pack of only 40 kilowatt hour capacity, you cannot ask them to pay RMB 80,000 or RMB 90,000 for a brand new battery. So as a car company, we need to look after both battery and cars across or throughout its life cycle.

Speaker 5

In that case, we need to provide the ultimate battery solution to the industry.

Operator

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

Speaker 9

Hi, thanks for taking my question. My first question is regarding your R and D budget for 2024. How much do you plan to spend into R and D for this year? And if you can, would you please give a rough breakdown? How much of this would goes to the NIO models and how much goes to the outputs?

Speaker 9

How much goes to the 3rd brand? And how much goes to the autonomous driving software and some key components, etcetera? Yes. So regarding the R and D spending plan for 2024?

Speaker 6

Hi, Paul. This is Danny. Regarding your question about the R and D expense expectation for 2024, Generally, the scale of R and D expense will be consistent with 2023. And on average, the quarterly spending for R and D will also be around RMB3 1,000,000,000. Yes, that's a general guidance for R and D.

Speaker 5

In terms of how to allocate the R and D expenses this year, we will mostly allocate our resources on the fundamental technologies as well as the technologies that can be shared across all three brands. We have mainly focused on the smart and electric technologies, which can already be shared across NIO, Alps and also Firefly, which is our 3rd brand. And last year in September, we have announced our 12 GoTech Technologies at the New In Tech Day. And basically, our R and D investments will be dedicated into these 12 main areas. And in terms of the personnel structure, around 70% of our R and D people are focusing on the smart technologies or relevant areas.

Speaker 9

Yes, sure. My second question is regarding the cost of ARPUs. Just now, I think you mentioned that the cost is going to be about 10% lower than Tesla. Can we give a little bit more color given this is actually a pretty impressive number when you consider Tesla is building almost 1,000,000,000 cars in China a year, of which 700,000 is already like Model Y. What volume scale are you based on to assume the ops costs?

Speaker 9

And what are the key advantages you have adopted for this cost advantage compared to Tesla?

Speaker 5

Thank you for the question. Actually for Tesla as they also public their gross margin details on the product, So it's easy for us to make a comparison. In terms of what advantages we can take for the Alps and its cost structure, Actually, China is the largest automotive market. It is also the biggest market for the smart electric vehicles with already well established supply chain. So we can already leverage the advantages of the domestic supply chains here in China.

Speaker 5

Not to mention that in the past several years, we have made investments and also achieved accumulations on the R and D activities. And R and D is one of the key drivers of improving the cost structure and reducing the BOM cost of the product. In that case, we already have a pretty good foundation. And with that, we doesn't need to really realize a very huge volume to realize that level of cost structure. In China, for the manufacturing facility, a reasonable volume will be around 10,000 units per month.

Speaker 5

We don't need to really go to the level of RMB1 1,000,000 to realize that level of bump cost.

Speaker 9

So the cost is compared to Tesla China or Tesla Global for the 10%? Just a quick follow-up. Okay. Thank you very much. That's quite helpful.

Speaker 5

Yes. To translate for that, we didn't really look at the Tesla China specifically. We are comparing with Tesla globally.

Speaker 9

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

Speaker 2

Thank you. Thank you, Paul.

Operator

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

Speaker 10

Okay. Thank you for taking my questions. I have 2 quick follow-up quick questions. The first is also about the charging and also Everswap network. We can see that our network is still our construction progress of the charging network is still the fastest in China.

Speaker 10

But at the same time, we see many other companies that still are also accelerating their construction of the especially the fast charging network. So how do we think that we can maintain our 1st mover newer advantage? And also how do we look at the relationship between fast charging and also battery swap?

Speaker 5

Thank you for the questions. As we are very happy to see that many other car companies including peers as well as other third party companies are also dedicating their resources into installing chargers in China as the more chargers we have publicly, the better the charging experience and the charging efficiency will be. So we are also dedicating or actually we are also installing a lot of chargers. But in addition to that, we also have many power swapping facilities. We are the core company with the most power swap stations.

Speaker 5

Some companies in the industry are also installing power swap stations, but so far we are still the single largest swap station operators. With already establishing with that we have already established a very good network effect where we can further leverage on that. So overall speaking, many other car companies who are serious about the battery swap or who are interested in battery swap now choose to join our battery swapping network and alliance because they can also rely on our network effect. But another thing you said is the charging and swapping these 2 are never in conflict with each other. Of course, for the charging, there are some special benefits.

Speaker 5

For example, if you have chargers at home, you can always enjoy the best charging experience. Or if you're on the go and you only need to charge for 20% or 30% SoC, you can also choose faster charger. But if you need to have a full charge in a very short timeframe, Power Swap is still the best option for you. Like during the spring festival, over 90% of our users traveling on highways choose to do the power swap than doing their charging. So that's the special benefit of our Power Swap, not to mention that the Battery Swap Station itself is a natural energy storage system.

Speaker 5

When users are doing power swap, they don't need to get off the car. The entire process is fully automated. Not to mention that we also have battery upgrade that is enabled by the swap abilities of the battery. For example, 8% of them chose 100 kilowatt hour battery pack. That is our long range battery pack.

Speaker 5

But before we had this many power swap stations in China, 50% of our users actually chose 100 kilowatt hour battery pack. By having more users choosing standard range battery pack, the benefit is that if you're only driving the car in Shanghai for the daily commute, you can be having a sufficient range with 75 kilowatt hour. But when you need to have a weekend getaway where you need to travel for long distance during the holidays like during the spring festival, you can use the flexible battery upgrade to upgrade to 100 kilowatt hour battery. For example, during the spring festival, many of our users have chosen to upgrade their batteries flexibly. And very soon we will launch 150 kilowatt hour battery pack, which will fulfill a very rare need, maybe only 1% to 2% of the use cases where users needed to travel much longer.

Speaker 5

And another benefit of a power swap is regarding how it can benefit the management of the battery life, because I can use the analogy if you eat too fast, it can damage your stomach than eating in a very slow manner. It's the similar thing to the power swap because if you always use supercharging such quick charge may damage the battery life of your battery. But with battery swap, we can balance out the battery life. Not to mention that we can also use other operating approaches and the mechanism to further enhance the battery life. So overall speaking, we don't think battery swap and the charging are conflicting with each other and these 2 actually come hands in hand.

Speaker 10

Okay. Thank you. My second question is regarding to the lower tier cities market. And obviously that in 2023, our sales proportion in 1st tier cities has been increased a little bit percent. So well also our sales proportion in especially 30 tier and below cities is still less than 20%.

Speaker 10

So compared to like BMW, which that will be exceeding 40%. So in terms of marketing and other aspects, so do we have some assets to break through further to the lower tier cities?

Speaker 5

Thank you for the question. It's true that in 2024, we need to solve the problem regarding enlarging our reach in the lower tier cities and also boost the sales in those cities. We have realized the significance of this and we have already started to take actions in the second half of 2023 by enlarging our reach into the lower tier cities. Right now, if you look at our sales volume distribution, basically more than 50 percent of our sales volume is contributed by the sales in the Yangtze River Delta areas. And if we look at all the Tier 1 cities, more than 70% of the sales actually happened in the 1st tier cities.

Speaker 5

So it's very important for us to find the right approach to penetrate into the lower tier cities and enlarge our channel reach in these cities. On the other hand, we have also realized that the infrastructure like swapping facilities are also playing a very important role in boosting the sales in this lower tier cities. So this year, we will also focus on installing more chargers and swap stations in this third in the 3rd or 4th tier cities, so that we can enhance the overall user experience and competitiveness in those areas. This is an opportunity as well as a challenge for us in 2024. We need to find the efficient approach to tap into the lower tier cities and to improve the sales volume in those areas.

Speaker 2

Thank you.

Speaker 10

Yes. Thank you. That's all my questions.

Operator

Thank you. Your next question comes from Tina Hao from Goldman Sachs. Please go ahead.

Speaker 11

Thanks for taking my questions. So the first question is regarding your sales network and sales team expansion plan this year. So just wondering for both the NIO brand and for the ALKS brand, how many new stores do you

Speaker 2

Tina?

Speaker 11

Yes.

Speaker 1

Tina, can you repeat your question, please?

Speaker 11

Sorry. So my first question is regarding your sales network and sales team expansion. So could you share for 2024, how many stores do you plan to open for both NIO and the Alps brand? And also how many salespeople do you expect to hire for these brands?

Speaker 5

Thank you for your questions. For NIO as the brand, actually we have already opened 500 new houses and new space in China. So for this year, our priority is not on opening up more stores or spaces for the new brand. Instead, we will focus on improving the efficiency of each point of sale, including phasing out some low efficiency locations and replace them with stores and locations of higher efficiencies. And in terms of the sales force for the new brand, so far we have already have more than 5,000 people on the team.

Speaker 5

And enlarging the team will not be the focus either. Instead, we will focus on the efficiency of the overall operations of the team. So, enlarging sales team or increasing the number of sales stores for NIO will not be the priority for the current year. But when it comes to our NIO brand, the second brand, the approach will be different. We have already secured some locations and resources for the NIO brand.

Speaker 5

So we will not have a very long lead time to prepare for the store opening. Basically, when we launch the brand, we also hope that we can open no less than 200 points of sales for the 2nd brand. In terms of people, it's the same logic as we can leverage the existing training system of NIO to train the team, to make the entire sales team to be prepared for the launch of the very first model. So we will focus on the efficiency of such sales team. Not to mention that for Alps, they will start with only one product.

Speaker 5

So the efficiency of the sales should be relatively easy to manage and improve. This is also another advantage of starting a brand based on existing resources and the network of NIO than starting everything from

Speaker 11

Thank you very much, William. Can I just have a follow-up? So would the ALPS store location resemble that of NIO's location?

Speaker 5

As Alps, our second brand is targeting at different types of user groups with different price segments and the range, which means that this brand will also have its own principle and logic for the store locations and network development. So for Alps, they will select their own stores and locations and also deploy the network according to their own demand. And of course, the sales network of the Alps will also be more efficient as Alps does not need to have the full fledged sales stores like NIO House. So its point of sales will be more efficiency oriented similar to the sales stores of Tesla.

Speaker 11

Thank you. And my second question is, could you give us some CapEx guidance for 2024? And then the breakdown between vehicle CapEx and also your charging swapping infrastructure CapEx?

Speaker 6

Hi, Linda. Yes, sure. We will control our CapEx investment in 2024. Like we already canceled and delayed project with the payback period longer than 2 to 3 years. And generally, the CapEx in this year will be significantly lower than 2023.

Speaker 6

Regarding the deployment of our Power Swap Station network, we will fully leverage the resources of our business partner for the further expansion, as I mentioned with them in previous statements. That means we will utilize our own resource to build the network. Thank you.

Speaker 11

So we'll not utilize your own resource?

Speaker 6

Yes, for the powers of network station network, we minimize to

Speaker 11

use our own. That's very clear and helpful. Thank you.

Speaker 6

Okay. Thank you.

Operator

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

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 on our website. This concludes the conference call. You may now disconnect the line. Thank you.

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Key Takeaways

  • In Q4 2023, NIO delivered 50,045 Premium Smart EVs, a 25% year-over-year increase, bringing the 2023 cumulative deliveries to 160,038 units (+30.7% YOY), and expects Q1 2024 deliveries of 31,000–33,000 units.
  • The vehicle gross margin rose to 11.9% in Q4 2023, up from 6.8% a year ago, and NIO maintains a full-year 2024 gross margin target of 15%–18%.
  • At NIO Day 2023 the flagship ET9 was unveiled (deliveries begin Q1 2025), while the 2024 models with enhanced performance, new central computing cluster Adam and faster software updates start shipping from March 2024.
  • NIO’s intelligent driving stack saw a 100-fold increase in validated urban mileage within five months, with NOP Plus validated on over one million km of roads; the OTA release to all NT2 users is planned for Q2 2024.
  • NIO’s mass-market brand will debut in Q2 2024, launch its first model in Q3 and start deliveries in Q4, leveraging an expanded public battery-swap network with 4th-gen stations alongside an independent sales network.
AI Generated. May Contain Errors.
Earnings Conference Call
NIO Q4 2023
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