NIO Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
June 6, 2024

There are 12 speakers on the call.

Operator

Hello, ladies and gentlemen. Thank you for standing by for Neo Incorporated's First Quarter 2024 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 Q1 2024 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website. On today's call, we have Mr. William Li, Founder, Chairman of the Board and Chief Executive Officer Mr.

Speaker 1

Stephen Feng, Chief Financial Officer and Mr. Danny Chu, Senior Vice President of Finance. Before we continue, please be kindly reminded that today's discussion will contain forward looking statements made under the Safe Harbor provisions of the U. S. Private Securities Litigation Reform Act of 1995.

Speaker 1

Forward looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain filings of the 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 discussions of unaudited non 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 2024 Q1 earnings call. In Q1, NIO delivered 30,050 3 Premium Smart EVs. In Q2, thanks to the launch of all the Model Year products, unleash of sales capabilities, together with a more flexible sales policy, NIO's deliveries started to pick up month by month. In April, NIO delivered 15,620 vehicles and in May, 20,544 vehicles.

Speaker 2

Our market share in the premium BEV segment continued to grow with year over year growth far above the segment average. The total deliveries in Q2 is expected to be between 54,056,000 units, up 129.6 percent to 138.1 percent year over year. In terms of NIO's financial performance, DUV model year product transitioned in Q1, the vehicle margin was 9.2%. In the meantime, with the improvements on the utilization of the charging and swapping facilities and on the profitability of the after sales services, gross loss on the other sales was greatly reduced quarter over quarter. Now I would like to share with you the recent highlights of our products, R and D and operations.

Speaker 2

On April 25, the 87 Executive Edition was launched at Beijing Auto Show. The delivery of this executive sedan has started in late April. With all round upgrades, the 2024 NIO 87 Bet Caters TO the Needs of Business Community. It's well placed to compete with the premium executive models, especially ICE models such as BMW 5 Series, Audi A6 and Mercedes E Class. In terms of NAD, on April 30, we started to push UrbanNOP plus to all end to users, making it the largest release of its kind, accessible by more than 260,000 users over 1,400,000 kilometers of highway and urban streets, and in 726 cities in China.

Speaker 2

NOP plus has been an industry leader in terms of its user base and the coverage. During the Labor Day holiday, 48.1% of the total mileage was driven with Onopi plus making user journeys safer and more relaxing. Since day 1, NIO has developed a clear brand roadmap, starting from the premium segment to build up skills and experience, and then introducing a mass market brand to reach and serve more users. With that, we will be able to make greater contributions to a more sustainable future. On May 15, at the International Day of Family, we introduced Envoy, a new brand for the mainstream family market.

Speaker 2

Envoy is from Envoyant and its Chinese name translates into path to happiness On a mission to make family life better, Envoy is committed to bringing products with the ultimate experience value and optimal ownership cost. The pre order of its first product L60 was started. L60 is a smart electric midsize SUV. The official product launch and delivery will begin in September. Launch of Envoy has shaped us into higher scale, expanding our reach to a wider user base.

Speaker 2

As more people are aware of our technologies and the products, we will edge close our vision of Blue Sky coming. As for the sales and service networks, so far, NIO has 154 NIO houses and 388 NIO Spaces as well as 344 Service Centers and 64 delivery centers. About the charging and swapping network, so far, NIO has 2,472 power swap stations worldwide and has provided over 45,000,000 watts. Besides, NIO has also installed over 22,000 power chargers and the destination chargers. In the meantime, more industry players have joined NIO's charging and swapping network.

Speaker 2

As of now, we have partnered with Chang'an, Jeely, JAC, Cherry, Lotus, JAC and FAW to jointly expand and standardize the battery swapping network. More investors have taken notice and recognized the value of NIO's charging and swapping business. On May 31, NIO Power signed a strategic investment agreement of RMB1.5 billion With the support of strategic investors, NIO will be able to further develop its core technologies and expand the network. On May 13, NIO was named in the 2024 Fortune China ESG Impact. We have continued to show the social responsibilities and lead by example in the ESG domain to further contribute to sustainable development worldwide.

Speaker 2

Despite the fierce competition, our continuous investment in technology, products, services and the community starts to pay off and set us apart from others. NIO's premium brand positioning, industry leading technologies and innovative chargeable, swappable and upgradable power experience have been recognized by most people and thus strengthened steady sales rebound. We will continue to speed up software integration, optimize products and expenses, improve system capabilities and operational efficiency to gain a larger market share. In the meantime, as the company unfolds its multi brand strategy and enters a broader market, we expect to bring out more potential for growth. As always, thank you for your support.

Speaker 2

With that, I will now turn the call over to Stephen for Q1's financial details. Over to you, Stephen.

Speaker 3

Thank you, William. I will now

Speaker 4

go over our key financial results for the Q1 of 2024. To keep this brief, I only refer to amounts in RMB today. I encourage listeners to refer to our earnings press release, which is posted online for additional details. Let's begin with revenue. For the Q1 of 2024, total revenues were RMB9.9 billion, down 7.2% year over year and 42.1% quarter over quarter.

Speaker 4

85 percent of revenue comes from vehicle sales in Q1, totaling RMB8.4 billion, down 9.1% year over year and 45.7% quarter over quarter. The decrease year over year was mainly attributed to lower average selling price as a result of user rights adjustments 5th June 2023 and the decrease in delivered volume. The decrease quarter over quarter was mainly attributed to a 40% decrease in delivered volume, which was affected by seasonal factors. Turning to other sales, other sales were RMB1.5 billion showing a 5.2% increase year over year and 8.2% decrease quarter over quarter. The year over year growth was mainly due to the increase in sales of parts, after sales vehicle services and the provision of power solutions, which grew with our user base and partially offset by a decrease in revenue from sales of used cars and auto financing services.

Speaker 4

The decrease quarter over quarter was mainly attributed to a decrease in revenue from sales of used cars. Then let's have a look at the gross margin. Overall gross margin was 4.9%, compared with 1.5% in the same period of last year and 7.5% in the last quarter. Changes in gross margin were primarily driven by vehicle margins. Vehicle margin was 9.2% in this quarter, compared with 5.1% in Q1 2023 and 11.9% in Q4 2023.

Speaker 4

The year over year increase was mainly due to the decrease in material cost per unit in Q1 twenty twenty four. The quarter over quarter decrease was mainly due to lower average selling price as a result of increased promotion during product transitioning, changes in product mix and the partially offset by the decreased material cost per unit. Next, moving on to the operating expenses. R and D expenses were RMB2.9 billion, declined 6.9% year over year and 27.9% quarter over quarter, which has been driven by decreased design and development costs and decreased personnel costs in research and development functions in the Q1 of 2024. SG and A expenses were RMB3 1,000,000,000, increased by 22.5% year over year and decreased by 24.6% quarter over quarter.

Speaker 4

The year over year increase was mainly due to: 1st, the increase in personnel costs related to sales functions second, the increase in expenses related to the company's sales and services network expansion and third, the increase in sales and marketing activities. The quarter over quarter decrease was mainly due to, 1st, the decrease in sales and marketing activities and professional services and second, the decrease in personnel costs related to sales and general corporate functions. Now we proceed to the bottom line. Plus, from operations was RMB5.4 billion, representing an increase of 5.5 percent year over year and a decrease of 18.6% quarter over quarter. Net loss was RMB5.2 billion, representing an increase of 9.4% year over year and a decrease of 3.4% quarter over quarter.

Speaker 4

And finally, our balance of cash and cash equivalents, restricted cash, short term investment and long term time deposits was RMB45.3 billion as of March 31, 2024. For more information and details of our R and D Q1 2024 financial results, please refer to our earnings press release. Now this concludes our prepared remarks. I will now turn the call over to the operator to proceed our Q and A session.

Operator

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

Speaker 5

Hello, everyone. Thanks for taking my questions and congratulations on the good feedback on both and also some strategic breakthrough for Neo Power. I have two questions. The first question is about the gross profit margin because as we remember the comp you previously guided, the co gross profit margin would be back to mid teens as the strategic focus of new brand is profitability and the cash generation, while Onboard would be the one going for volume. However, we saw increasing promotion for new brand in April May, which worked pretty well actually and successfully boost the volume.

Speaker 5

Will management consider to continue this kind of more aggressive promotion on new brand for better volume in upcoming months? And do we need to revise down our D. C. Margin expectation? That's my first question.

Speaker 2

Thank you, Tim. I will ask Stanley to answer your question. Thanks.

Speaker 3

Yes. Regarding the margins for NIO,

Speaker 6

Yes, actually in

Speaker 3

Q1, we Yes, regarding the gross margin, actually, we upgraded our NT2 product to 2024 version in from March. During the transition period of the model year product change, more promotions were offered to the old models, leading to the decrease of our average selling price in Q1. And additionally, more lower margin models like 80 5 and 85T was sold in Q1. All those factors lead to the decrease of our gross margin. As you mentioned, we delivered over 20,000 vehicles to users in May.

Speaker 3

With the recovery of sales volume, we will further optimize our product mix and negotiate with our supply chain partners for more cost efficiency in the following months. So we expect the vehicle margin will return to double digit in Q2 and continue to improve in Q3 and Q4. Yes, but considering the intensifying marketing market competition, we will also be more flexible on sales policy to make sure our market position is secured. Thank you, Tim.

Speaker 5

Thank you. That's very clear. Thanks for sharing My second question is about Neo Power. As William just mentioned, I think Neo Power secures the 1st extent of strategic investment of $1,500,000,000 or around $200,000,000 So looking forward, well, NIO Power get and accept more funding support from other carmakers in the battery swap alliance. And separately, in addition to NIO Power, is there any other tick arms or business units within the group that could follow suit to seek external capital injection and be gradually carved out?

Speaker 5

Could management team give us some examples? That's my second question. Thank you.

Speaker 7

Thank you for the question. For the NIO Power recently, we have just completed the 1st round of fundraising. And after this round of financing, NIO still has around 90% of equity in NIO Power. And NIO Power is now open for the external investors, it investment from the investors or from the car companies, we are open for that. Of course, for the longer term, we do believe that New Power has a financial sustainability because we do have a promising and positive outlook for that.

Speaker 7

At the starting stage, as we needed to build up the network for the Power Swap facilities, the upfront investment is relatively heavy. However, we do see a clear roadmap for the profitability with Neo Power. Let me share with you a number. Right now, for the breakeven point of a single power swap station, it's around 60 swaps per day. And if you look at our current power swap service, every day on average, we offer around 100,000 power swaps.

Speaker 7

With around 2,000 stations, it means that for each station on average, they are already providing around 30 swaps per day. So for the longer term, we do see a viable roadmap for the sustainability and also the profitability of our Power Swap business, not to mention that we can also leverage the revenues contributed by the energy storage and also the flexible battery upgrade of the power

Speaker 6

swap.

Operator

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

Speaker 6

Hi, William, in the management team. This is Ming from Bank of America. So my first question is regarding AMOL brand. So right now, we are close to the end of Q2. So could you give us some guidance regarding on your sales channel expansion and also CapEx expense related to Onboard brand?

Speaker 6

And also could you give us rough product pipeline for the Anglo brand? Thank you. That's my first question.

Speaker 2

Thank you.

Speaker 7

Thank you for your question. Our current plan is that when we start to launch and deliver the first product of Anmol in September this year, we are going to open up around 100 stores in China. CapEx less as Envow's stores or point of sales does not come with NIO House, which does not require heavy investment. In that case, the overall CapEx will be pretty efficient around RMB 1,000,000 to RMB 2,000,000 per store. It won't be a very heavy burden from the CapEx perspective.

Speaker 6

Yes. So, can you keep that rough pipeline for Ambu brand? For example, like 1 model this year and then maybe 2 model next year, is it?

Speaker 7

Regarding the Envos product plan, actually the first product, L60, it will be directly competing with Model Y. It's a midsize SUV for family users. And next year, we are going to introduce the 2nd product from Anvuo. It will be a mid large SUV for bigger families. We also have other products in the pipeline.

Speaker 7

But overall speaking for Envuo, we will not have many products in its offering. We will be focusing enhancing the market share and also the sales volume of each product in their respective segment. Overall speaking, the total sales volume for Envos segment, which is a family car market with a starting price of around RMB200000, the total size is around RMB4 1,000,000, and we do believe that we have a good opportunity and the room for growth in that segment.

Speaker 2

Thank you, Ming.

Speaker 6

Yes. Thank you, William. And then my second question is related to your 3rd brand because we read in the news today that the 5 brand could be launched or show to the market probably by the end of this year. And could you also give us some latest update on the third brand? And last time during the earnings call, you mentioned that probably 5 brand product could be sold in new households, new space.

Speaker 6

So could you confirm on these network share? Thank you.

Speaker 7

Thank you for the question. Regarding our 3rd brand, Firefly, the R and D activities are in good progress. Several months ago, I've already tried one of the early builds of their first model and it's pretty good. Regarding the Firefly product, in the Chinese market, it will be target it will be a boutique compact vehicle. Although its price segment is around RMB100000 to RMB200000, but it will follow a very high standard for the safety and the quality.

Speaker 7

So it will be a well designed boutique car for the Chinese market. In terms of the sales channel, it will also share the point of sales with NIO, just like how MINI is sharing its dealership source with BMW. We will be using the similar approach. However, the selling price of Firefly will not be as expensive as MINI, but product wise, it is definitely a very good product. We will start the product delivery from the first half of next year.

Speaker 7

Brand launch and the product launch, we don't have the specific date for that, but the delivery date is already more or less defined. That is the first half of next

Speaker 6

year.

Operator

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

Speaker 6

Thank you. My question is about margin because you will migrate to the NT3.0 this year. So I think all the new brand products migrate from 22.0 to 3.0, how much margin improve we can achieve through a technology upgrade? At the same time, based on the NT3.0 technology, can you provide a volume assumption to reach the overall company's

Speaker 7

Thank you for the question. Regarding new brand, starting from next year, we will gradually upgrade our product to the 3rd generation and the first product on NT3 will be ET9. And for the 3rd generation product, we will also take different approaches to improve the vehicle margin. For example, we will start to put more in house technologies into our vehicles like chips for better vehicle margin performance. We also see some opportunities with battery cost reductions.

Speaker 7

So overall speaking, our target for the NT3 product margin will be around 20% on average and we do have a confidence of realizing that average margin of 20% from Q3. And regarding the breakeven target for the new brand, our target is still the same that is to realize the monthly sales volume of 30,000 units with a vehicle margin of around 20% and then we will be breaking even with the core business of the new brand in China. And regarding our 2nd brand Envoy, we have announced the pre sell price during the product launch during the brand launch, but we haven't released the final price yet. Even with the pre sell price, we can realize a pretty good vehicle margin. Of course, we also understand that the competition in all segments is more intense than new.

Speaker 7

In that case, we will also strike a balance between the volume and the margin. We will not boost the sales volume at a cost of our vehicle margin. And for the longer term, our target for Envos products our margin target for on those products will also be above or even around or even above 15%. Because looking at Tesla, their current product margin is around 16% to 17%. And for Envold, realizing a margin of above 15% is also a reasonable and achievable target for us in the longer term.

Speaker 7

For Amo brand to breakeven, its monthly sales volume should be at least 20000 to 30000 units per month.

Speaker 6

Thank you. My second question is about order backlog for OVO. You actually in your interview said that you are very certain about OVO's initial order backlog. The same market talk is that you already have 60,000 cancellable order right now. Can you comment on the number and how satisfaction you are about on the order so far?

Speaker 6

Thank you.

Speaker 7

As you know that for us, we never disclose any pre order intake or numbers as the pre orders are refundable and we don't see a very solid reference for us to look at the actual performance of the product. However, it is true that with the pre order intake, it has surpassed our expectation as also mentioned by the President of Envoy L and I in some interviews. So overall speaking, without opening up any stores or having products to the market, we have already received the pre order set beyond our expectation. That's the information we can share.

Speaker 6

Thank you very much. Thank you.

Speaker 2

Thank you. Thank you, Anthony.

Operator

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

Speaker 8

ahead. Thanks for taking my questions. Two questions. The first question is, you mentioned that right now you have 2,400 swap stations. To my best understanding, only the 3rd generation and latest battery swap stations could help Envore to swap the batteries.

Speaker 8

Could you please remind us how many units of the later generation battery swap stations could help for the Hangfo swap?

Speaker 7

Thank you for the question. For our 3rd generation power swap station to be compatible with Engho's products, we do need to make some necessary modification. It is not a very expensive one around RMB 200,000 to RMB 300,000 per station for the modification. So far, we have already installed more than 1,000 third generation power swap stations. So that will be a base.

Speaker 7

In the meantime, Xiaoping, actually next week, we will start to install our 4th generation power swap stations and these stations will be compatible with both Envoy and NIO products. And also later this year depending on the market and the demand, we will also see and decide how many 4th generation stations we need to deploy for new and onboard products, but all 4th generation stations can be accessed by onboard products. Probably with that by end of the year in the market there will be more than 1,000 stations that can be compatible with Envuo products.

Speaker 9

Of course, it doesn't mean that

Speaker 7

we will modify or open all the 4th generation stations to Envuo users as not every station needs to be modified or open up to the second brand. Not to mention that to start with, Amu will not have a very big user base for the current year. In that case, the experience of those brands will be pretty good. In the meantime, we also see some correlations between the number of power swap stations or the density of the power swap stations in certain regions and the sales performance in that region. For example, in the Yangtze River Delta area, basically half of our users are based out in that area.

Speaker 7

And in this area, we have already installed nearly 900 power swap stations. So there is a correlation between the number of stations and the number of cells. In that case, we are also developing a ROI model to calculate the return on the Power Swap Station investment. In that case, our deployment of the Power Swap station and the decision on the deployment will be also relevant to their contributions to the sales volume beat sales of NIO or sales of the Envoy brand. As right now, we have already initially established a charging and swapping network for China to cover most of the basic needs.

Speaker 7

For the next step, we will look closely the return on the investment of all the power swap stations, especially the return on the sales volume. In that case, our deployment next step will also be more targeted.

Speaker 8

Thank you. So my second question is regarding the Nevo3 license permit. I think you are among the first batch to receive the NEVOS 3 autonomous driving testing license permit. How do you plan to utilize this opportunity? And how should you further develop on the autonomous driving technologies?

Speaker 8

Thank you.

Speaker 7

Thank you for the question. Yes, 2 days ago, we have received the L3 testing permit issued by 4 administrators including MIIT. And also among other startups, we are one of the earliest to receive the 1st batch of permits issued by the government. This also represents a reclamation of our technology. For the next step with the permit with the testing capability, we will be able to keep more frequent communications with the government regarding the application and also the testing of the higher levels of autonomous driving technologies, which will also be very important for the entire industry.

Speaker 2

Thank you, Paul.

Operator

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

Speaker 10

Thank you, Tim. My first question is probably still an extra mile on the margin and the pricing. So Q2 probably we're going to see higher economic scale almost doubled versus the Q1, yet the promotion and also lower mix likely to remain as a dilution. So you talked about the flexible pricing earlier. So could you put us in a bit more context about how we prioritize pricing mix and volume and each of them is waiting on the margin side?

Speaker 7

Thank you for the question. In the April and also May, we have witnessed the increase in our sales volume, but such increase is actually due to multiple factors. The first is we have just completed our model year facelifts in the Q1 of this year. With that, it has significantly improved the competitiveness of our products. And secondly, we have adjusted our VAS policy.

Speaker 7

This March, we have announced our long life battery strategy and also the adjustments to the bus monthly subscription fee. By optimizing our operations and also working with our battery suppliers for longer battery warranty, we can prolong the lifetime of the battery and lower the monthly fee for our users. This is actually a very important approach to boost the take rate of the bus service. After the announcements and adjustments, the take rate of the battery as a service has raised to more than 80%. Also, we are offering some time limited promotions on the BaaS service.

Speaker 7

Right now, our users can buy 4 months of the BaaS and enjoy 1 month for free. The third reason is regarding the improvement on our sales capabilities and capacity. In the second half of last year, we realized that we didn't have enough sales capacities and capabilities, which means we didn't have enough point of sales or the sales persons on team. In that case, we started to build our sales capacity and capabilities. And starting March, April this year, we are seeing more and more qualified fellows to contribute the sales and also orders to the company.

Speaker 7

So these are several major reasons that are boosting our sales volume in the past 2 months. In addition to that, there are several other reasons. For example, we are deploying and opening up 1 more Power Swap stations. 1 more people are also getting to know and starting to recognize the value of a chargeable, swappable and upgradeable solution. And also we have a pretty stable residual value on our used vehicles.

Speaker 7

Recently, there was an evaluation coming from the industry institution and the ES8 and several other NIO models actually have the best RV performance among all the BEV products. So it is not just about the adjustments on the prices, not to mention that we haven't announced any price reductions on our products. We are offering some promotions like battery as a service policy promotions where some trading incentives for the ICE card users, but no price reductions on the product. In the meantime, we also will continue to improve our vehicle margin. So starting June, we are taking several actions.

Speaker 7

The first is to keep improving our product mix. We have started to deliver our EP7 in late April. EP7 ES8 and EC7, they are pretty competitive in their respective segments, and we will also encourage our frontline teams and our fellows to put more focus on this high margin product to help us optimize product mix. And secondly, we are also optimizing our variable marketing expenses. Starting June, we are also dialing back on our time limited offers and promotions on the products.

Speaker 7

For example, we are reducing the number of free Power Swap brochures we gave out to our users. So overall speaking, we will keep improving our sales volume steadily while optimizing the vehicle margin.

Speaker 10

Thank you. That's very comprehensive. The next question is on the overseas business. The Europe Union anti subsidy investigations with China EV might come out as a preliminary result next week. So could we have an update refresher on NIO's overseas footprint, including Europe and also Mideast?

Speaker 2

East?

Speaker 7

Thank you for the question. It's true that the entire industry is waiting for the preliminary announcement on the anti subsidy probe of Europe. From our perspective, we don't think such probe is in the right direction. Posting tariffs on the new energy vehicles is actually going against the initiative of the sustainable development of all humankind. Of course, we will also adjust our directions and the strategies according to the latest change on the tariffs of the product.

Speaker 7

Overall speaking, at the moment, European the sales in our European market is still quite moderate in comparison to our total vehicle sales. So the impact on our short term operations is limited. For the longer term, be it for NIO or for Envoy and the Firefly product, we will also develop and make necessary adjustments to our strategies according to the latest tariff policy. Regarding the Middle East market entry, later this year, we are going to start to offer our products and services in the UAE market. We are making market entry preparation right now.

Speaker 10

Thank you.

Operator

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

Speaker 11

Hi, thank you for taking my questions. My first question is a quick follow-up question about so can we share with us more information on the financial impact of the major, especially bus policy adjustment for the Q1, such as our bus rental fee adjustment and also our 441 battery rental and also our like battery swap coupons, these financial impact, especially for our income statement? And this is my first question.

Speaker 3

Yes. About the bus price adjustment, I think 2 parts. The first is about the price reduction from like $980,000,000 to $728,000,000 Currently no material impact to NIO's revenue and gross profit margin. I think as mentioned by William, we make this adjustment based on assumptions that the battery can use for a longer time and also some optimization of the battery type operations. So that's the first.

Speaker 3

Secondly, about the promotions used for months and 1 month for free. We granted this equity to the users for 5 years. So generally, the financial impact of this promotion is about below 6,000 per car. So that's the general impact of this policy. Yes.

Speaker 11

Yes. Thank you. My second question is also for our online also FiFly. So this year, we will have our 1st car and next year, we will have FiFly to be launched. And our 3 sub brands, including Niu, will form a quite complete product matrix in next year.

Speaker 11

So can you share more information on these different positions and also the different relationships between these three brands? And also in what aspects can we collaborate?

Speaker 7

Thank you for the question. Regarding the positioning of our 3 different brands, actually they are very clearly differentiated. For NIO, it is a premium brand, target business oriented users and business communities, also have a steal over to the family oriented users. For Envoy, it targets the premium family market mass market. So its target user is very clear family users.

Speaker 7

For Firefly, as I've mentioned, in China, it will be affordable boutique compact car. We target the family oriented users, especially those families who are buying Firefly as their second vehicle. That's about the positioning of this 3 brands. Price wise, it is also pretty clear. The starting price the starting prices of all 3 brands will be around RMB100000, RMB200000 and RMB300000.

Speaker 7

That is also clearly differentiated. However, these 3 brands do share a similarity that is Power Swap. All 3 brands can support Power Swap. In addition to Power Swap, 3 brands also share the fundamental capabilities for smart technologies, electrification and also vehicle engineering capabilities. For example, when it comes to smart technologies, software wise, hardware wise, 3 brands can share quite a lot of synergies.

Speaker 7

For the power swap stations, as you've already as we've already mentioned, NIO and Envault will be sharing the same power swap station and also structure. For the vehicle engineering, there are also quite a lot of capabilities that can be shared across all three brands. In terms of manufacturing and production, the first model of Envoh L60 will be manufactured in NIO's second factory, NIO F2. So from this perspective, you can tell how much synergies we can leverage and how much investment we can share across their brands.

Speaker 2

Thank you, Tianjin.

Operator

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

Speaker 9

Thank you for taking my question. So my first question is regarding actually just now William mentioned to keep the volume steadily increase and then to improve gross margin. So can we interpret this as for the upcoming months, we do expect the vehicle volume to be above 20,000 units per month? That's my first question. Thanks.

Speaker 7

It's true that we do see a pretty stable demand on our products. Recently, we do have several small headaches. For example, in May, actually, the order demand has exceeded our production capacity. So the actual deliveries we achieved in May basically means the maximum number of vehicles we can produce for that month. So we do see a steady and sustainable growth momentum on our order intake and we have a confidence of continuing that.

Operator

And thank you. Can I just have

Speaker 9

a quick follow-up for so for the I think starting from September, you will start to deliver on both? So does the 20,000 units sort of forecast or target include Envoh or exclude Envoh?

Speaker 7

After the launch of Onvo brand, we actually see positive impact on the sales of the new products. It hasn't affected the demand on the new product. In the meantime, we are also training the operators and also the frontline teams so that we can get ready for the production of Envos product. We may also arrange dual shifts in certain production lines or sections to fulfill the demand of both brands and products. Regarding whether this number you've just mentioned, well, if it is if it has included the volume assumptions for Anwoo, actually it does not.

Speaker 7

That is only the assumption for the new brand.

Speaker 9

Thank you. That's very clear. Thanks, William. And then my second question is regarding the operating expenses. So first on SG and A.

Speaker 9

In the Q1, we see SG and A actually increased by 22% year over year. So should we expect similar type of increase in the following three quarters? And also actually starting from September, since there will be 100 new stores for Envo added. So in that like the last quarter, should we expect SG and A expense to grow even higher? And then in terms of R and D, on the other hand, I see it down 7% year over year.

Speaker 9

So for like overall R and D expense, what kind of annual spending level do you think will be like a sustainable or steady state kind of expense for us to keep competitive in terms of our hardware and software technology? Thank you.

Speaker 3

Yes. Regarding operating expense, the first is about selling expense. Actually, in Q1, our marketing activities decreased considering the impact of the Chinese New Year Festival and also the seasonal change. Starting from Q2, we are expecting that the percentage of selling expense against the vehicle revenue will be improved if our sales growth quarter over quarter can be achieved as planned. So that's about setting price.

Speaker 3

Along with the launch of Envoy, we don't think the efficiency

Speaker 6

will be

Speaker 3

like damaged since with the volume increase of Onboard, we will have a larger like sales revenue. So this is about the efficiency of selling expense. For the R and D expense, the fluctuation in Q1 is in line with the cadence of our R and D activities, especially the development of new vehicle models and the core tech. Generally, the forecast for R and D expense in 2024 will be consistent with 2023. That is to say the non GAAP quarterly spending will be around RMB3 1,000,000,000.

Speaker 3

I think this outlook is consistent with our prior quarters like statements. Thank you, Tina.

Speaker 9

Thank you. Yes, I understand that in terms of SG and A as a percentage of revenue, it's going to decline. But just in terms of the year over year growth for SG and A, shall we expect it to grow more than 22% this year?

Speaker 2

Yes.

Speaker 3

I think based on our current forecast that we don't think it will exceed 20% in 2020

Speaker 6

4, yes.

Speaker 9

Okay. That's very clear. Thank you.

Speaker 3

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 for joining us today. If you have further questions, please feel free to contact NIO's IR team through the contact information provided on our website. This concludes the conference call. You may now disconnect your lines. Thank you.

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Key Takeaways

  • In Q1 2024, NIO delivered 30,050 premium smart EVs and now expects Q2 deliveries of 54,000–56,000 units, reflecting a 130–138% year-over-year increase.
  • Q1 gross margin improved to 4.9% with a vehicle margin of 9.2%, and management targets re-entering double-digit vehicle margins in Q2 and further gains into Q3–Q4.
  • NIO unveiled its new mass-market family brand Envoy on May 15, opened pre-orders for the L60 midsize SUV, and plans to roll out about 100 Envoy sales outlets by the September delivery.
  • Its charging and swapping footprint now includes 2,472 power swap stations, over 22,000 chargers and partnerships with multiple OEMs, backed by a RMB 1.5 billion strategic investment in NIO Power.
  • The Urban NOP Plus autonomous driving system has been released to 260,000 users across 726 Chinese cities, covering 1.4 million km of roads, with 48% of Labor Day mileage driven under NOP Plus.
AI Generated. May Contain Errors.
Earnings Conference Call
NIO Q1 2024
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