Niu Technologies

Good day, ladies and gentlemen. Thank you for standing by and welcome to the New Technologies first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now, I will turn the call over to Mr. Jason Young, investor relations manager of new technologies. Mr. Yang, please go ahead.

Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss new technologies results for the first quarter 2021. The earnings press release, corporate presentation, and financial spreadsheets have been posted on the new investor relations website. This call is being webcast from companies on our website, and the replay of the call will be available soon. Please note today's discussion will contain forward-looking statements made under the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks, uncertainties, assumptions, and other factors. The company's actual results may be materially different from those expressed today. Further information regarding the risk factors is included in the company's public filing with the Securities and Exchange Commission. The company does not assume any obligation to update any forelooking statements, except as required by law. Our earnings press release and list call include discussions of certain non-GAAP financial measures. The press release contains a definition of non-GAAP financial measures and reconciliation of GAAP to non-GAAP financial results. On the call with me today are our CEO, Dr. Yan Li, and the CFO, Mr. Hardy Zhang. Now let me turn the call to Over Yan.

Thanks, Jason, and thanks everyone for joining us on the call today. So in Q1, we saw a 322% year-over-year jump in China sales. We shipped nearly 145,000 units in China, propelled by an aggressive expansion of our retail footprint and a multi-channel marketing campaign nicknamed the Year of New. Additionally, our overseas market saw a shipment of 5,000 units for the first quarter. The small decline of 15% in the overseas market was primarily due to the orders that could not be shipped out, resulting from the ongoing global shipping bottlenecks you are all aware of. The total Q1 sales for China and the international market were up 273% year over year. In Q1, not even the Chinese New Year holiday could slow down our retail expansion. We added 300 new branded stores across China reaching 1,916 stores by March 31st. During our global product launch event on April 6th, we announced the opening of our 2,000th store in China. We're well on track to hit our Q2 target of 300 new stores for the quarter. For the international market, even under the restraint of COVID-19, we managed to add an additional seven flagship and premium stores, which now total 123 across Europe, the Americas, and the Southeast Asia. This is in addition to the 1,000 plus authorized new dealers in our global markets. For those of you who didn't already know, our company name, Niu, actually means bull or ox in English. The year of 2021 happens to be the year of ox in the Chinese lunar calendar. So we kick off the Chinese New Year by launching the Year of New, Be a Newer nationwide campaign. We enlisted the help of popular musicians and social media influencers, which generated more than 200 million views across multiple social media platforms during the holiday season. We also kicked off an over-the-air advertisement campaign during the Chinese New Year, which allowed us targeting over 110 million viewers across markets in China that we have identified as key to helping us accelerate our growth. We also collaborated with one of the hottest online documentary series called Exacted Food on Bilibili, which helped us target another 41 million viewers in the key demographic segments. Our new branded Douyin and Kuaishou accounts also benefit from those activities, with quarterly views reaching nearly 55 million views in Q1, marking a 38% year-over-year increase. Now, in the overseas markets, our social media channels gained nearly 1 million interactions on Instagram and Facebook. We also announced our partnership with Formula E world champion Antonio Felix da Costa as the official new ambassador, and the kickoff of our partnership is Lime in the key U.S. and European markets, which will help accelerate adoption of electric two-wheelers. We have been making noise both in the China and overseas market in order to position ourselves as the go-to lifestyle brand for urban mobility and helping us grow sales by more than 300% in China alone. Now riding our strong sales and marketing performance in Q1, we hit a ground running on April 6 with our global product launch, simultaneously announcing both China and international product releases. Building upon the customer demand for our Gola series of electric mopeds, we launched the Gola F series with F0, F2, and F4, and the Gola C series with C0. These are two key product groups that will help us expanding into the wider range of urban markets and the customer segments around China. During that same event, we launched our first electric kick scooter for Europe and the United States, the KQI series. These five new products were also accompanied by full upgrades to our existing series of mopeds and electric bicycles. First, all of the upgrades to the existing electric bicycle mopeds are made under the hood. First, we were very excited to launch a seventh generation of our new energy system, which saw an upgrade of our proprietary battery management system, the introduction of VTEC electric motor, and optimization of our FOC algorithm for the motor controller. which can improve the driving range by up to 32% and improve acceleration by 10% to 15% under the same motor power in most of our existing vehicles. And lastly, as we finalized commercialized version of our urban motorcycle, the RQI, we have made great strides of our mid-mounted motor that can reach speeds of 160 kilometers per hour. As for our product upgrades, let's start with the brand new MQI 2S. An upgrade of the 2020 MQi2, which is served as our flagship product under the new China national standard for electric bicycles. The new M2S is equipped with our latest smart IoT technologies, a color display with navigation that can mirror your mobile phone, the OK Go system with distance sensing and keyless ignition which enable user to start a bike as soon as they sit on the seat. It's those small user experience touches that our customers really appreciate. The M2S is expected to be priced at up to 8,000 RMB, and we also upgrade our classic UQI series with the all-new color display, a new handlebar design with more intuitive control functions, And most importantly, we have given customers the option to upgrade to a larger battery, which increases the driving range by 35%, or up to 75 kilometers on a single charge on a new UQi. The upgrade UQi series is expected to be priced at up to 6,000 RMB. For the new product, we launched two new Goa series, the Goa F and Goa C series. Those two new series employ an all-new design language for the electric bicycles in China, which will further expand our offerings for the mid-end product lines, which help us to reach a wider range of customers' taste. Inside the Goa F series, we announced three new models, the F0, F2, and F4. F0 and F2 are classified as electric bicycles in China, and were introduced into the market on April 6th and May 17th, respectively. The S4 is an electric motorcycle and will be introduced later this year in Q3. The entire Global S series has a masculine design style which features the eagle eye headlights. All of those models are lithium-ion battery-based. The S0 has two versions, primarily differentiated by the battery and drive range of 50 and 60 kilometers respectively, or affordably priced at RMB $2899 and $3299 respectively. We believe those will be well received by the market. Our beliefs were confirmed when we launched the Goa F0 through the JD.com pre-sales on April 6, where we sold 41,000 units and surpassed more than RMB 100 million in sales, setting the JD.com pre-sale record for urban mobility products. The F2 has two versions, 50-kilometer and 70-kilometer range options. priced at RMB $3699 and the $4,099 RMB. The S4 has three versions with drive range up to 100 kilometers and expected to be priced at up to 7,000 RMB. Now, under the Goa C-Series, we have first announced the C-Zero, an electric bicycle with a more feminine design style. The Goa C-Zero comes with multiple macarons in their flavored color. choices and a wide variety of accessories, including a child seat, enable mothers to ride safely to take their children to and from school every day. The Gola C-Zero also has two versions with a drive range from 50 to 60 kilometers and expected to be priced around 3,000 RMB. Since first announcing the C-Zero in April, we have received countless solicitations both online and in our stores around the country. We expect to release the C-Zero for sales starting in June. Now the Global S-Series and C-Series significantly expand our global product line portfolios. The successful pre-sale campaign for the F-Zero is a direct evidence that there is a large group of consumers who appreciate the design style and aesthetics. Together with the G-Series, the three global lines will offer our customers a thoroughly designed products that meet their tastes and desires while being competitively priced and backed by our best-in-class technologies. Last but not least, we launched a completely new category in the new ecosystem of products with our KQI Kick Scooter. The urban mobility trends are changing around the world as customers adopt new models of safe transport, and the cities began to reshape their urban centers. Our electric moped and motorcycles offer one type of mobility solution for customers in cities across Europe, the Americas, and South Asia. We also recognize a rapid growth in user demand for micro-mobility products that cater to shorter one to five kilometer trips. And this is primarily being fueled by electric kick scooters in both sharing and consumer-owned form factors. Now, in order to meet this demand and add to our product lines, we have rapidly developed a team of seasoned engineers who are specialized in the development and manufacturing of micro-mobility products. The all-new KQi3 kick scooter will be the first of several models we'll release in the coming months for the key overseas markets. Now equipped with the best-in-class 350-watt rear hub motor and powered by our 48-volt new energy system, and with the wider and safer platform decks and the handlebar architecture and wider tires, the KQi3 will outperform many of the similar-priced products in the market in both performance and the riding stability. And of course, like all our products, the KQi3 is app-connected. The KQi3 has a pro and sports version and will be priced from US$599 in the United States and €599 in Europe. An online pre-sale will begin in the coming weeks with deliveries directly to the customer homes later this summer in Europe and the United States. Now, in addition to our current 1,000-plus authorized new dealers, the introduction of a kick scooter will also allow us to open a new range of retail channels, that were previously not ideal for our electric moped, including big box retail and electronic chains like Best Buy, MediaMarkt, micro-mobility retailers, and online platforms like Amazon. Now I want to wrap up with a short comment about ramping up our manufacturing capacity. For those of you who have been following along for the past few quarters, you know we have planned to increase our manufacturing capacity by an additional one million units per year when we complete the phase two of our Changzhou factory. We expect the phase two to be completed by early Q3, which will bring our total annual design capacity to two million units, easily supporting the projected growth in the quarters ahead. Now with this, let me turn to Cardi to talk about financials.

Thank you, Yen, and hello everyone. Our price release contains all the figures and the comparisons you need. We have also uploaded Excel format figures to our IR website for easy reference. As I review our financial performance, we are referring to the first quarter figures, unless I say otherwise. And that's all monetary figures RMB unless otherwise noted. Our Q1 sales volume reached 150,000 units, representing a 273% year-over-year growth. China's sales volume increased by 322% as a result of retail sales network expansion and effective branding activities. International sales volume, however, declined by 15% due to COVID-19, especially the recent lockdowns in Europe and a more challenging environment for international shipping. In March, the Suez Canal was blocked for a week, and many ships were delayed or canceled. We were not able to deliver our products on time. The situation has improved gradually since April, and we are catching up on the delivery. With regards to product mix, N-series accounted for 9% of total sales volume, partially due to the lower international sales. M-series accounted for 13%. U-Series accounted for 21%, and Goa-Series accounted for 57%. Out of the 57% from Goa-Series, 38% was from the mid-end product G0 model, and 14% was from G2 model. In China, the COVID-19 rebounded in Q1, which helped to accelerate the adoption of electric bicycles because many people pay more attention to social distancing. and try to avoid public transportation. Goa series was a very popular choice for many new customers, considering its attractive retail price. This is the key reason for Goa series taking a larger proportion of sales in Q1. Total revenues increased by 135% to 547 million, above the guidance we provided earlier, mainly due to the higher China sales volume and the stronger sales in accessory and spare parts. The revenues from accessory spare parts and services reached $102 million, representing a 118% year-over-year growth. The strong sales came from both China and the international market. Sales from China market increased by 111% due to strong offline sales, and the international market increased by 123% due to strong sales of battery packs to sharing operators. The ASP declined by 37% year over year. Let's look at the detailed reasons. For China market, the scooter ASP decreased by 27%, mainly due to the sales of low-price G0 and G2 models, as well as sales discount offered. Out of this 27% decline, around 20% was caused by the sales of these two models. The remaining 7% was due to the change in other product mix. For international market, the scooter ASP decreased by 15%. The decrease was caused by depreciation of US dollar and also more significantly, the change in the way distributor place orders. In Q1, many distributors chose to place separate orders for scooter body and the battery pack so as to reduce their international shipping cost. As a result of such separate orders, battery-packed sales were booked as the accessory and spare parts revenue instead of scooter revenue. After we normalized this impact, the ASP for international sales only decreased by around 5%. Or in other words, out of the total 15% ASP decline for international sales, around 10% was caused by the way of separate orders, and around 5% was caused by depreciation of U.S. dollar. This way of separate ordering will likely continue into Q2 and Q3, considering the increasing cost for international shipping. For the ESP of accessory spare partner services, it was RMB 682 per scooter, a 42% decrease compared with Q1 last year. The decline was mainly due to the very low volume base in Q1 last year, which was only around 40,000 units. Because of the very low volume base, the ASP for accessories, spare parts, and services was abnormally high last year. If you compare the ASP with Q2, Q3, and Q4 last year, our Q1 ASP actually increased. Our revenues from accessories, spare parts, and services do not fluctuate as much as the sales volume because a portion of the sales came from existing customers. For example, the data service and some accessories. In summary, even though our ASP was down by 37%, after considering the factors mentioned above, the international scooter ASP, the accessories, spare parts, and service ASP were both stable compared with the early quarters. The decline of China ASP followed a similar trend as what we saw in Q3 and Q4 last year due to the launch of Goa series. In April, we launched F0 model, and the sales price for F0 model was RMB 200 higher than G0. We also expect the product mix in China to improve in the second quarter. Both will help to stabilize our China scooter ASP. Growth margin was 23.8%, 0.2 percentage point higher than this time last year. There are three key drivers. The sales of low-margin models like G0 and G2 reduced our margin by around 4%. Second, the lower proportion of revenue from high-margin international sales reduced our margin by around 3%. Third, the cost savings on components, raw materials, and the lower other costs, for example, manufacture and labor costs, benefits from economy of skill, increased our margin by around 7%. In summary, the impact from unfavorable change in product mix was offset by various cost savings. This is the key reason for a stable margin in Q1. In the past few months, we have seen the commodity price continue to rise, which affected our raw material procurement costs by five to 10%. To mitigate the impact on gross margin, we increased retail sales price by RMB 100 to 300 or 1.5% to 7.5% for selecting the models in China in May. We may have another price increase for additional models together with performance upgrade in the coming month. We believe the price increase are affordable and reasonable for our customers. This price adjustment will help us to stabilize the ASP and also to mitigate the negative impact on our gross margin. Our total operating expenses, excluding share-based compensation, were RMB 118 million, increased by 35 million, or 42% year-over-year. The increase was mainly caused by the higher sales and marketing expense of 20 million for branding activities during Chinese New Year, 4 million for retail sales network expansion, 8 million for higher staff costs, and around 6 million for foreign exchange laws. Our sales and marketing expenses were particularly high this quarter, mainly due to the branding expenditures associated with the Chinese New Year event mentioned earlier. As percentage of revenues, our operating expenses including share-based compensation was 22%, lower than the 36% in Q1 last year, but higher than other quarters in 2020. In the coming quarters, we expect the operating expense as percentage of revenue will fall back to the regular level similar to early quarters. Our government grant was $0.4 million in Q1, decreased by $7 million compared with last year due to the delayed payment from government. In May, we received a grant of RMB $41 million, and a part of that will be booked into the P&L in the second quarter. Our income tax expense was $9 million, much higher than the same period last year, mainly because some entities within the group become profitable and have used up accumulated loss. This quarter, even though our consolidated profit before tax was only around $4 million, we booked some $9 million tax expenses for a few reasons. First, some expenses are not tax deductible. For example, share-based compensation. You need to add that back before calculating income tax expense. Secondly, the profit and loss were not evenly distributed among different entities or companies within the group. because we need to pay tax based on each company instead of as a group. For example, in Q1, the company for China sales was very profitable, but a company for international sales make a big loss. We have intra-group transfer pricing arrangements to redistribute profit, but that will take time to adjust. If you take a longer term view, the profit will be more evenly distributed and the impact will be mitigated. So the tax rate applied is average tax rate calculated based on full year forecast instead of one specific quarter. For this year, we expect the average tax rate will be around 15% on full year basis. Our gap net loss was 5.4 million RMB. But after adjustment of share based compensation, we made a profit of 6.7 million, improved by more than 25 million compared with Q1 last year. We made a gap loss this quarter mainly due to the higher brand expenses. We believe the brand expenditures are more investment in nature, worthwhile spending. It increased our brand awareness and will support our continued growth. Turning to our balance sheet and cash flow, we ended the quarter with RMB 1 billion cash term deposit and short-term investment. Our operating cash flow was negative 16 million RMB. mainly due to prepayment for raw materials in order to secure supply for production. Our Q1 CapEx was around $64 million, mainly related to capacity expansion of $13 million, new store building of $48 million, and R&D spending of $3 million. Now, let's turn to guidance. We expect second quarter revenues to be in the range of $900 million to $1,030 million. an increase of 40% to 60% year over year. With that, let's now open the call for any questions that you may have for us. Operator, please go ahead.

Certainly, sir. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. Once again, it is star followed by 1 to ask a question. We have the first question. This is coming from the line of Alex Potter from Piper Sandler. Please go ahead.

Hi, guys. Thanks very much. So I guess the first question I have is just on gross margin in the coming quarters. There's really a lot of moving parts right now. There's new products that are coming in at different price points. There's raw material inflation. There's this battery shipment issue, which all kinds of different things. Some are positives, some are negatives. Last quarter, I think you had said that you expected gross margin for this year to be roughly similar to what it was last year. Do you still feel that way, or are you reassessing after viewing some of these new changes?

Thanks, Alex, for the question. For us, we still want to maintain a similar margin as what we delivered last year. That's why in May we increased our retail sales price by 1.5 percent to 7.5 percent. And we may make another price adjustment in later months based on how the raw material inflation goes, also based on the pace of new product launch. For the second quarter, of course, our margin will be a little bit challenging because we began to see the price increase since April, but we increased the retail sales price only from early May. So there is one month lagging for the price increase. For the second quarter, currently, we estimate our gross margin will be anywhere between 20% to 22%. But in Q3, Q4, we still want to target around 22% to 23%. And the thing within our hand is price increase. And also, we will also renegotiate some of the costs with our suppliers to try to secure additional cost savings. So this is the answer to your first question, Alex.

Okay, great. That's super helpful. So then maybe a little bit more on the cost pressure, the inflation. I know obviously inflation is a topic that a lot of people are thinking about right now. What specifically is it within your supply chain? Is it primarily batteries or is it basically across the board price inflation of all kinds of components and raw materials?

It's across the board. It's because our components also involve steel, plastics, and also battery cells, most of the raw material we see the price increases. It's very much linked with overall commodity price increase.

So I think basically in the last few months or so, we actually seen this price increase starting in later March. And then it actually hit us March and April. And we started seeing that some of the raw material price actually hit the peak in early May. So we actually increased our product price to reflect sort of the latest update in terms of the bond price. So going forward, I mean, hopefully we'll see the raw material price will stabilize that actually potentially could start to decrease.

Okay, great. I'm interested also on this topic of splitting apart battery shipments versus the scooter shipments. Is this a tariff issue? How exactly do international importers save money by taking delivery of the battery pack separately from the scooter body?

The reason is because of the shortage of containers, the international shipping companies become more strict on the cargo can be shipped. For the battery pack, because we have lithium battery within that, it was treated as dangerous cargo. Therefore, the shipping companies charge much higher tariff for anything which has lithium battery within it. If we separate the order between the battery pack and the body, the body part can still be treated as a regular cargo, where the shipping tariff is much lower than the dangerous cargo. So the difference is more whether it's dangerous cargo or it's regular cargo. That's the key reason besides the different tariff. The different tariff is mainly in the US. In the US, there's different tariff on battery pack and the body part. But because of the shortage of the containers, shipping company becomes very, very strict what kind of things are within the container. Therefore, they check all the things. Therefore, many distributors try to put them separately to enjoy a lower tariff for the regular couple. So that's the background. Interesting.

Okay, very good. Thanks. I appreciate it. I'll pass it on.

We have the next question. This is coming from the line of Vincent Yu from Needham & Company. Please go ahead.

Thank you, management, for taking my question. I have three questions. First one is, so we had a very strong delivery number for first quarter, and the store opening pace all seems to be on track. My question is, how should we think about the previous state guidance to sell more than one million units for 2020? Is there a higher annual number that we are comfortable that we would be able to hit after the strong quarter. My second question is in ride-sharing platform for our international business. So we have seen continued investments made by ride-sharing platforms into the e-scooter riding share markets. And can management talk a little bit more about what should we think about challenges and the opportunities that such trends brings for New York? And my last question is that for the new vehicle, new energy vehicle industry have been seeing trip shortage. We know we are, we have less demand for some trips, but we also have, I know we have quite some trips associated with our app. What kind of effects we have? on all our products in terms of margin or production schedule, if there's any. Thank you.

So let me give the first cut of the answer for the three questions, and then we'll ask again to supplement. First of all, for the store opening, definitely we are on track to achieve our target. We have opened 300. In Q1, we are going to open at least another 300 in the second quarter. With the mall opening, definitely we do see the volume continue to grow. And definitely in Q1 we give, in March we give a guidance of 900,000 unit volume to 1.1 million unit. We do see potential upside for the volume growth, but I think we will wait until the end of Q2 before we make an adjustment for our full year forecast. So this is more on your first question. For the second question about the writing, rather sharing business, We are mainly supporting the ride-sharing business in the international market, and we do see the demand continue to go very, very strong. Because during COVID, we do see people paying more attention to social distancing, and mainly there is also fast adoption of electric two-wheelers in the overseas market. Some of our sharing operators already started to deploy our vehicles in many cities across the world, and that is very positive for our business growth in both the second quarter and also in the quarters ahead. And that's a, we believe that's not only a short-term momentum that's maybe changed people's behavior in the longer term and give our full upside in the even longer term. For the third question about the chip shortage, first of all, we do see the threat for chip shortage. However, compared with the EV manufacturer, the chips we use in our scooters are less complicated compared with the EV manufacturer. Therefore, we are able to secure majority of the things we want to get. Currently, we need to give a three to six months rolling forecast to our suppliers. Sometimes we also need to make a small prepayment to secure the supply. Therefore, we do see the challenges, but so far we have some action we can take to mitigate the impact. So I'll leave the other comments to Ian.

I think that captured it. I think the only thing to add is basically when we initially announced about, you know, one million plus units, I think that's the only talk about scooters and motets. So it hasn't really covered our new products like the kick scooters. Obviously, the kick scooters will be, we already announced it will be on pre-sales in the next month or so, and then will be shipped basically in early Q3. So that will actually start adding volumes in addition to the one-minute unit of the moped scooters.

Thank you very much.

Thank you. We have the next question. This is coming from the line of Jing Chang from CICC. Please go ahead.

So hi. Thanks for Ian, Hardy, and Jason for your interpretation of first quarter results. So I have two questions. The first is about the expense. So the selling expense in first quarter increased a lot, we can see. Hardy has just explained that we adopt more price discounts and also other marketing activities. So I want to know that is it caused by the more CS computation or just due to our subjective view or how to see the trends in the future? And also, my question is the second question that we can see the number of stores. increased by 300 in the first quarter, so maintaining rapid growth. What is the regional distribution of new stores? Can we see an obvious trend of more soft stores opening in lower tier cities? And with also our new products, SMC series targeting more on mass medium market, so what is the proper price range we can expect in the future? These two questions. Thank you.

Thanks, Dean, for the question. Let me answer the first one about the expenses. The sales and marketing expenses, the very high amount, it was mainly due to the branding activities we made during the Chinese New Year. This year, Chinese New Year is the year of ox. In China, we call it new year. Because of that, we spent quite some money for the branding purpose. We also engaged a very popular senior who take a video and help us to spread the news brand. So it's mainly for the branding purpose instead of for pure marketing purpose. Because Chinese New Year is kind of a one-off event during Q1, therefore we do not expect the sales marketing expense to continue to be a very high percentage of revenue. We do believe the percentage will fall back to the normal level that's what we see in other cultures. So this is the answer to your first question. For the second question on the thought distribution, I will ask Yen to comment on that.

Right. So I think just quickly to comment on the source, it tilts towards more, more tilts towards the lower tier cities, basically tier two, tier three, and some of the tier four cities as supposed to be initially the tier one cities. I think this is partially driven, the fast store expansion is really driven by our, what do you call, our suitable products for lower tier cities, basically the the three series, the Goa series, the Goa G series, and the Goa, actually Goa S series coming in April, and I think, and hopefully also the Goa C series coming in June and July. So we're actually seeing, actually starting seeing the, starting the Q4, we're starting that phenomenon where with the suitable products, and we have actually have a strong brand recognition and brand name in the lower tier cities, But in the past, we just don't have a suitable product for those cities to open more stores. We actually expect the store opening speed is basically hopefully to maintain a constant speed of at least 300 stores-ish per quarter.

Yeah, yeah, got it. So what is maybe proper press range of every set of price we can expect in the future? maybe 3,500 RMB to 4,000 RMB this week.

Yeah, you mean the blended ESP for the coming quarter? I think it will be similar to what we achieved in Q3 last year. It's around 3,500, and it may have a potential upside up to 4,000, depending on a few things. First, about the price increase, how much we get that, and whether we continue to increase the retail sales price Secondly, it depends on the recovery of international sales. The more quicker the international market begins to recover, the more quicker we can solve the shipping problems, then of course we are going to have more. Thirdly, it also depends on the sharing business because one of the key contributions for our high ASP coming from the battery pack sales to sharing operators, if the adoption rate of sharing in the overseas market become higher and higher, then the sharing operator will continue to purchase the battery pack. I think this is the three key drivers for the potential from 3,500 to moving towards 4,000 RMB in the future quarter.

Okay, got it. Thank you.

We have our next question. This is coming from Bin Wong from Credit Suisse. Please go ahead.

Thank you. My first one is about the sales momentum in April and the first two weeks of May because you actually give some color about the F-series in April. So that's why I just want you to be able to share about the sales momentum in the past one and a half months. That's number one. And number two is about the margin. I usually give the guidance for second quarter. I just want to confirm it's about 20% to 23% in the second quarter. And the second half will be 22% to 23%. assume this is the gross margin guidance, what will be the net margin likely? Because in the first quarter, we got a similar or even higher gross margin by zero in the bottom nine. So what should we expect in the bottom nine? Net margin should be around 5% to 6%. Thank you.

Sure. I think for the first question about the sales momentum, I think our sales continue to be very strong in April. I think our sales growth was more than 60% close to 7% growth in April. And that was due with the backlog of quite a lot of F0 models where we were not able to deliver in April. And then we continued to deliver some of the pre-sales orders in May. So in short, we do see quite a good momentum into the second quarter. That's why when we gave the revenue guidance, we gave a 40% to 60%. It's relatively wide, mainly because there's so many uncertainty about the delivery shortage, et cetera, et cetera. So in general, we do see continued strong sales momentum. In terms of gross margin, I think you are right. I mean, in the second quarter, we are looking to achieve anywhere between 20% to 22%. And in the remaining two quarters, we target anywhere between 20% to 23%. So on annual basis, it's likely we end up somewhere around 22%. So that's how we see the growth margin potential. Of course, there are so many moving parts. As I mentioned earlier, there is commodity price increase. There's so much value. It makes things complicated. Also, there are so many things coming from our international market. The international market has a significant impact on our cross-margin, but our target is to maintain that, and we have price increase tools in our hands. We can manage that. There's also quite a few other things, like launching new KQI e-bikes to help with that. So that's the answer for your second question.

Actually, you all talk about the cross-margin, because in the first quarter, you have a pretty decent cross-margin, but you actually have a zero in the bottom nine. So my question is about the bottom nine. So maybe, OK.

Yeah, I think in terms of bottom line, after gross margin, what will be next is the operating expense and percentage of revenue. So you need to deduct the operating expense. The operating expense and percentage of revenue in Q2, Q3, Q4 will be similar to what we achieved last year. So Q1 is kind of a special case because we spent a lot in the sales marketing. But if you look at R&D, the G&A, they are very reasonable amounts. The GNA is slightly higher in Q1 because we have around 5 million coming from foreign exchange laws. But throughout the remaining of the year, they won't see that much. Only the sales marketing was a little bit higher in Q1 because of this Chinese New Year event. In the remaining quarter, last year, the average of our opening expenses per cent of revenue was around 15 per cent. So 14 to 15 per cent is something we can think about. So after you deduct that... 14 percent, 15 percent, from the 22 percent you got like 7 percent before tax, 7 to 8 percent before tax.

I think being basically the Q1 is our quarter because traditionally Q1 has always been a low sales quarter. If you look at our, you know, the sales as a seasonality. But this year in Q1, we did spend quite a bit in marketing because to kick off the Chinese New Year, really try to make sure this year start with a high note. that's why we you know, we kick up the you know, the year of ox to be newer thing and Coupled with the lower sales season in q1 you buy lower I mean with respect to the four quarters within the entire year. That's why in q1 you see a huge market expense but in If we spread over the entire year, you know, the average marketing expense actually will be falling line with what happened last year

Great. Thank you.

Thank you. We have our next question. This is coming from . Please go ahead.

Hi, management team. Thanks for taking my question. I have two questions here. The first one is, could you please remind us of the ODA function? like how many times did you have you done OTA for the previous intellectual scooters and I saw that you have improved some of the intellectual properties of characteristics of your new products in the new products launched in April and could you like how do you view that the consumers are viewing such intellectual And my second question is about the batteries you use for different segmentation of your products. Like for the lower tier products, do you still use like the NCM or LFP battery, or what kind of battery will you use in the future? Could you please give us some guidance? Thank you.

So I think a great question. First of all, on the OTA, typically we do an OTA update every quarter or so, every two or three months or so. I think it's really just the OTA to upgrade the ECU, the software in the ECU, as well as some of the softwares in the motor controllers. As I mentioned in the call, some additional smart functionality, like a color display with the navigation mirror of your phone, that actually requires not just the OTA software upgrade, it actually also requires hardware upgrade. So that's why we actually built the hardware upgrade into the new model as well as the existing models. And along with the upgrade, we managed also to increase the product price that allow us to actually to increase ASP to offset the downward pressure on the price due to the product mix. And so far, I mean, based on the some of the upgrade products like the M2S hasn't really come to the market yet or be in the market in May. The UQI upgrade will also be in the market in May. So we haven't really seen the actual user feedback from those to operate yet. But based on the user comments from our product launch, as well as the user comments from our social media, basically users are actually asking for those upgrades. Even we have users with existing MQI2 product asking whether their current product can be upgraded by paying, they're willing to pay more than 1,000 RMB just to get upgrades on the color display and all the smart functionalities. So I think, you know, we expect those upgrades to be welcomed by the users. Now, the second one, the battery solutions, I think you're absolutely right. So basically, for the higher-end products, like the N-series and M-series, we tend to use more the NCA and NCM batteries, the ZTM iron battery, NCA, NCM. due to the higher battery densities, such that we actually put more battery capacities in the scooter to give the scooter a longer drive range. But we also recognize the cost of NCA and NCM is higher than the RFP batteries. So for majority of Golbat series, the Golbat F, the Golbat G, and the potential of the Golbat C series, we use the RFP batteries where actually will help to reduce the cost such that we can price at a relatively lower price to our users while maintaining a similar margin as our higher end price product. Now, actually what sacrifice of the compromise we took is With the LFP batteries, we are not able to put a lot of battery capacity into those batteries because the weight constraint of 55 kilos of the entire scooter. So what the user will compromise is actually on the drive range. So on those ones, we try to compensate that with basically upgraded the V technology motors, and also they improve the tires such that, for example, the low-resistance tires will give, you know, slightly bump up on the dry range. But I think that's practically how we line up the battery solutions in order to basically to offer a wide range of pricing products to our users at the same time maintain a healthy margin.

Okay, thank you. A little catch up on the previous question. So you will for sure not using the SAV battery in the future, right? Since I also heard some comments from the end users that normally the scooters from NIO are having a more accurate like the battery management system comparing with the other products in the market. You could have a better accurate, like how much the, of the battery, so when you use the LFP battery, can you also reach such accuracy in the future?

Yeah, I think that's a great technical question. So when we first adopt using the LFP batteries, we actually realized that the, without using a better SOC solution, then the reading of the battery capacity is not as accurate as the NCM batteries. So we started exploring with the LFP batteries last year. So we quickly actually improved the SOC within the LFP battery pack. as well as basically the battery management system, as well as the SOCs in the controllers, so that actually to improve the battery rating capacity accuracies. So our accuracy is 20% higher than what used to be in the market, and that actually will get us almost on par with the NCA batteries.

Okay, very clear. Thank you.

Once again, ladies and gentlemen, I just want to ask a question. Seeing no further questions, I would like to hand the conference back to our host. Please take over, sir.

Thank you, operator, and thank you all for participating in today's call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress.

Thank you. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation. You may disconnect now.