Niu Technologies

Good day and thank you for standing by. Welcome to New Technologies' third quarter 2022 earnings release conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ms. Wendy Chow, Senior IR Manager. Thank you. Please go ahead.

Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss new technologies results for the third quarter 2022. The earnings press release, corporate presentation, and financial spreadsheets have been posted on our investor relations website. This call is being webcast from company's IRF website as well, and a 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 U.S. Private Securities Dedication 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 findings with the Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required by law. Our earnings press release and this call include discussions of certain non-GAAP financial measures. The press release contains a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results. On the call with me today are our CEO, Dr. Yan Li, and CFO, Ms. Siang Zhou. Now let me turn the call over to Yan.

Thank you, Wendy, and thanks, everyone, for joining us on the call today. In Q3 2022, our business faced challenges from rising raw material prices, market demand fluctuations, and aftermath of the COVID resurgence in China. All those factors brought serious disruptions to our operations. During this quarter, we delivered a mixed result in China and international markets. Total sales volume was down by 19.2% year-over-year. Total sales volume in the international market reached nearly 58,000 units, attributed to the growth in the kick scooter category, bringing the biggest year-over-year leap in sales in the U.S. overseas market. In China market, we experienced a decrease in sales. Sales volume in China market was 263,000 units, down by 32.9% year-over-year. Now I will go over the challenges and opportunities in each market in detail. First, for the China market in Q3 2022, we continue to experience difficulties due to the impact of the high lithium battery cost, the sporadic COVID lockdowns, and the delay of new product rollout. The raw material price for the lithium-ion battery has a sharp increase since the beginning of the year. The increase has slowed down the penetration rate of lithium-ion battery electric scooters across the entire China market. We observed in money Tier 2 and Tier 3 cities that asset-based scooter percentage increased in the market as the price gap between the lithium and lead-acid batteries widened. This has impacted us significantly since the majority of our e-scooters are lithium-ion battery based, especially in our entry-level products, which accounted for over 90% of the volume lost year-over-year. We did also actively optimize the product portfolio to reduce the entry-level percentage, as under the new lithium-ion cost, those product lines produce subpar gross margins. The replacement hype of replacing old standard scooters with new national standard scooters has also declined in Q2 and Q3 for our target market of Tier 1 and top Tier 2 cities. For example, the overall market of Beijing declined by 60% of most of the replacements were completed last year. Given our sales are still more concentrated in the top tier cities, our sales volume was also impacted this year. Last but not least, our main product, Zero-Out, has been significantly delayed this year, partially due to the COVID resurgence lockdowns in Shanghai and the cities where our R&D center is based. Although the high-end product like SQI was released in August, it won't be able to ship until December. And our new U+, our high-end Gola series like G6T and V2 were shipped in late August or early September. Those core products this year we launched have missed the key sales seasons, hence provided not enough fuel for the 2022 sales. Now despite the sales volume drop and delay in the new product rollout, the newly rolled out product received overwhelming positive responses from the media and the consumers. This helped to restrain our brand as a high-end lifestyle brand in China, but also lay out a strong foundation for the 2023. First, we pre-released the revolutionary SQI eBicycle in August priced at RMB $8,999 to $9,599, which I had briefly talked about in my last quarter's earnings call. With its innovative look and a cutting-edge aerospace magnesium material, the evolutionary SQI was well-received by the market We received more than 15,000 pre-orders for the pre-release. Another high-end product we launched around the same time is our new U+. The new U has inherited a classic design for our all-time most popular U series, but designed with improved light design, smart controls, and writing ergonomics, and additional personalization functionality. The new U has nearly 50,000 shipments within the first 30 days of the throwout. During the W11 shopping festival, our new U Plus has ranked number one bestseller product in the electric scooter category by Taobao. Together with the SQI, those new products helped new to rank number one in the transportation category on Taobao. With the record-breaking sales of SQI and the new U Plus, we re-consolidate our position to lead in the premium electric two-wheeler market in China. Now, along with the launch of this new product, we initiated market events via PR, social media marketing, KOL collaborations, offline product launches, and user events. The marketing campaign around the new product launch has gained a total of 1.4 billion views across all platforms. 3x of the view had a similar campaign in 2021. Those marketing activities again strengthen our brand messages as a lifestyle brand in China, urban mobility industry. Now amid the leading price increase, we took a step to optimize our product portfolio towards the premium, the high-end product, to improve our gross margin, as well as to restrain our brand as a premium brand in China. For the first three quarters, our premium new series product percentage continued to increase from 31% to 39%, while our entry-level zero series product reduced from 28% to 15%. During the W11 shopping festival online, Eighty-three percent of our e-scooter orders came from products over 5,000 RMB. So despite the rise in raw material costs, we managed to improve our gross margin in China significantly by 300 base points. Now coming to the international market, we faced challenges in the electric two-wheeler market from the temporary shutdown of the sharing market demand as well as the macroeconomic high winds in the rising Euro and U.S. dollar exchange rate and the increased lithium prices. First, the market for the sharing electric motorcycles has temporarily shut down this year as the sharing operators has not raised additional capital for expansion, but merely focused on current CapEx deployment. The sharing sales accounted for one-third of our sales in the international market last year. So this year, we experienced a zero sales from that. Now the rise in the lithium prices coupled with the weak Euro forced us also to increase the prices in the European market, which impact our sales of electric motorcycles in the consumer segment. So at the end, the total sales of electric motorcycles in Q3 in the overseas market went down by 34% year-over-year. However, during this quarter, we had a significant 166.5% year-over-year growth in the sales of Southeast Asia markets. mainly from the growth of Indonesia and Thailand market. During the G20 summit in Bali, Niu proudly provided the electric scooter to be used by the Indonesian national police officials to support the local government's effort to green transportation. We have continued effort in expanding the Southeast Asia market as we hope to grow with the trend of transition from traditional gas fuel two-wheelers to electric two-wheelers as it happens. We have also started exploring battery swapping solutions to aid adoption of electric motorcycles with its first trial in Singapore. Contrary to the decline of the electric motorcycle market, we have experienced a tremendous growth in the micro mobility market. For the kick scooter category, we had a significant quarter in growth of sales from kick scooter category during the autumn-south season for the electric motorcycles. The sales of kick scooters rocketed to 55,000 units during Q3, a growth of 162% quarter over quarter. Since Q4 2021, we have strategically rolled out KickScooter products to cover a wide range of market needs. The first launched K3 and K2 are proven to be successful in the market. During the Amazon summer Prime Day sales in July, used two KickScooter models were ranked number one, number two on Amazon best sellers in the KickScooter category in French, Spanish, and Italian market. The KickScooter products gained not only popularity among customers, but also recognition from the industry. Our K3 Max received outstanding coverage from U.S. biggest tech media, including Tom's Guide and the TechGrader. It was ranked number one of the best oral electric scooter by Tom's Guide and awarded a perfect score by TechGrader. The K3 Pro model was also awarded a second place for the best sustainable mobility device by Exatica, a Spanish top medium in their annual awards. Now during Q3, we continue to expand our product offerings. We launched a K1 KickScooter and K-Use to add a KickScooter product portfolio. K1 is entry-level KickScooter product where K-Use is a KickScooter for six to 14 year old. With those two product added, we now have a complete product offerings with price range from $300 to $900, covering both children and adult KickScooter products. Also, along with the KickScooter product, we also pre-launched our first e-bike product, C3, recently. It's a dual-battery e-bike with two lightweight swappable batteries offering a long drive range of 62 miles. Now, besides the product launches, we have also built our sales channel for our new micro-mobility products. Through a focused effort, we have achieved a solid presence on online channels, building not only sales but also a brand image and brand awareness through our shops on arms on cross markets. Meanwhile, riding the momentum from the recognition we gained from our online shops, We started to expand our offline sales point by working with retail store like Best Buy and Media Mart. By the end of Q3, our Kickstarter was sold in more than 750 retail shops across Europe and North America. And we expect to grow this number to over 3,000 by next year. Along with expansion and growth of product portfolio and sales channel is our effort in PR and marketing. In 2022, we published over 700 articles covering our product across all media platforms. The PR articles have gained more than 100 million views. On KOL marketing to support coming Black Friday sales, we collaborate with influencers with big fan bases to create content featuring our product. Those content generate a total over 2 million views on YouTube and TikTok. I believe the expansion of product portfolios, developing sales and channels, and exposures from PR marketing activities, our micro mobility category has a much larger potential in bringing exponential growth in 2023. Now for Q4, we remain a cautious outlook. In China market, the fourth quarter has always been a low quarter in terms of market demand. On top of low demand, the impact of the price increases will be continuous. In addition, the sporadic COVID resurgence also add additional uncertainty to our key markets. Now in the overseas market, we haven't seen a bounce back in the electric two-wheeler sales for the sharing business, and the increased price will continue to exist and have an impact on our sales on electric motorcycles. We saw a positive trend in the national kick school market, but since Q4 is traditionally a low quarter, we expected moderate growth from that category. So overall, 2022 has been a tough year for our business in operation, as we've faced headwinds from raw material price increase and the macroeconomic uncertainties bringing negative impact to our financials. In the face of mounting challenges, however, we made quite a few crucial operation adjustments and laid out a strong foundation for a promising 2023. Since the formation of the company, Niu has the ambition to become a global mobility solution provider and a well-recognized lifestyle brand in urban mobility. Leveraged our design strengths and technology innovation capability, we created a smart leading iron scooter category in China was able to quickly establish our brand name in the electric motorcycles globally. Now facing the recent market shift, we focused on increasing R&D effort on our premium new series and high-quality Goa series as opposed to low-end entry-level products this year. The two premium products, SQO and U+, have received overwhelming positive feedback and proven to lift our brand in just three months of debut. The SQI was recognized as a revolutionary first of its kind by the media with the innovation in material technology and design. The new U Plus has generated a widespread trend on social media. Also, the high quality Gola series like V2 and G6T are also well received in the market, accounting for nearly 80% of our mid-end products in the first 30 days of their debut. Those are the proven testimonials of our brand leadership, as well as our capability in product creation. Those new products, the first teasers of our new product series, and there are a series of premium new products and high-quality global products in R&D rolling out in time next year to regain the growth in the China market. Now, on the global mobility solution provider front, we have made significant progress in 2022 through expansion of product categories and different solutions according to the different regional needs. We observed that micro mobility market continued to rebound and show a great resilience since the pandemic. The urban transports like kick scooters and e-bikes gained popularity after COVID when people prefer to commute with personal transportation methods. We have established ourselves successfully as a recognized brand and player in the kick scooter market within just one year entry, joining our four products, always positive response from the market, gaining leadership in online channels first. Now, as 80% to 90% of sales in this market are from offline channels, we see a huge growth potential for our kick scooter market as our offline channels is still in its early stage. We plan to take a similar approach in the eBike categories to repeat the success of the kick scooters. As we plan to officially launch the first eBike product in Q1 next year, we are also actively marketing the eBike product, building online shops, attracting customers and also bring up the brand awareness. Meanwhile, after the online presence, we plan to expand into the specialized e-bike stores and other offline channels in order to bring a wider traction. Now for the electric motorcycle market, although it took a setback this year in the sharing market, I believe the replacement demand is still there as our nearly 30,000 sharing vehicles are still in operation. We expect some of them will be replaced in 2023 after four or five years in operation. In addition, in the Southeast Asia market, after several years of planting the seeds, we're able to achieve meaningful growth this year. We're also investing in R&D and have product ready for the battery swapping solutions to lower the upfront cost for consumers, which could be a game changer in the years to come. Now, with those focused strategy and our determined mindset in execution, we're very optimistic that we'll recover from the temporary downturn in 2022 and then re-strengthen our brand and regain growth and profitability in 2023. Now, I'll turn the call over to CFO Fionn to discuss our financial results.