Niu Technologies

Good day and thank you for standing by. Welcome to the new technologies fourth quarter 2022 earnings release conference call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one, one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Wendy Zhao, Senior Investor Relations Manager of New Technologies. Please go ahead.

Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss new technologies results for the fourth 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 IR 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 statement except as required by law. Our earnings price release and this call include discussions of certain non-GAAP financial measures. The price 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. Fiyang Zhou. Now let me turn the call over to Yan.

Thank you, everyone, for joining us on the call today. In the fourth quarter of 2022, our total sales volume was 138,279 units, representing a year-over-year decrease of 41.9%. Specifically, sales in the China market dropped by 42.5% year-over-year to about 118,000 units, and the sales in the overseas market decreased by 38.7% to 20,000 units. Total revenue in Q4 was RMB 612 million, a decrease of 38% year-over-year. This results wrap up the entire financial year for 2022, which has been a year with significant challenges for us. The total sales volume was 831,000 units represent a year-to-year decrease of 19.8%. Total revenue for the entire year was RMB 3.17 billion, a decrease of 14.5%. Now, particularly, our operations in the China market face headwinds from uncertainty stemming from the COVID resurgence and the increase in lithium-ion battery prices starting in Q2 2022. The total sales in the China market dropped by 28% year-over-year to about 710,000 units. A total revenue in the China market dropped about 19% to RMB about 2.36 billion in 2022. The COVID resurgence not only disrupted market demand, but also delayed the launch of several key products. Due to the month-long lockdown in Shanghai, where our R&D center is located, we were unable to release several key products until September 2022, causing us to miss the peak sales period. Apart from the COVID disruptions, we have also faced headwinds from lithium battery price hikes. The raw material price for the lithium-ion battery experienced a sharp increase for nearly 50% since March 2022, significantly slowed down the penetration rate of lithium-ion battery electric two-wheelers throughout the China market. The price hike had a more significant impact on us since the majority of our e-scooters use lithium-ion batteries. To maintain a healthy growth margin, we had to increase our price by an average of 7% to 10%. and to optimize our product portfolio towards the premium product started in Q2 of 2022. As a result, except the Q1 of 2022 where we achieved a year-on-year growth, the sales volume for Q2, Q3, and Q4 in 2022 have decreased by 25% to 40% year-on-year due to the lithium price impact. Now coming to our international market has experienced a significant growth in 2022 with a remarkable 142% year-on-year increase in unit sales to about 121,000 units, a 51% year-on-year growth in scooter revenue to RMB 493 million. The micro mobility tech sector, specifically the kick scooters, was the main driving force behind this surge, accounting for more than 100,000 units in sales. However, the electric two-wheeler category saw a 46% decrease in sales, selling a total of 18,000 units in 2022. The drop in the electric two-wheeler sales was mainly due to the shutdown of the sharing market as most of the sharing operators did not raise additional capital for expansion. The loss in sharing market led to a decline in sales of over 11,000 units. which accounted for nearly 70% of total sales drop in the electric two-wheeler market overseas. Now, our overseas market, like the China market, also faced challenges from the lithium battery price hype. The increase in lithium battery price, coupled with the rising of Euro and the US dollar exchange rate, necessitated us to increase the selling price by an average of 22% in the European market, where we sold 70% of our electric two-wheelers previously. the increased selling price had an impact on our sales in electric motorcycles in the consumer market, particularly in Europe. Now, as we reflect on the past year, the shift in market dynamics has significant negative impacts on operations. In China, the surge of lithium-ion battery prices has reversed the lithium-ion penetration in the electric bicycle and motorcycle market, and they rendered our entry-level products representing 35% of sales volume in 2021, uncompetitive in this market. In the international market, besides the lithium-ion battery increase, the shutdown of the sharing market has essentially zeroed one-third of our electric two-wheeler sales volume, or more than one-half our electric two-wheeler revenue. We recognize that both of the shifts may not be temporary, and we start to make strategic adjustments to adapt to the changing market conditions in 2022. Those adjustments did take time and resulting in some short-term setbacks in 2022, but it would create sustainable quality growth in the long run. First, in product development in the China market, we have shifted our R&D focus to premium product lines, i.e., the NIU products and the high-end Gola product lines in 2022. In 2021, we mainly focused on entry-level products to the mass market, taking advantage of a low lithium-ion battery cost. However, although those entry-level products contributed a one-time revenue surge, it had a negative impact on growth margin once the lithium battery price increased Additional customer recognition suffered due to the short drive range and the brand image as well. In 2022, we pivoted our product development strategy to focus back on premium mid-end products. We further introduced graphite lead asset battery solutions for our mid-end product lines for both electric bicycles and motorcycles, which allowed us to improve drive range at a low cost. Our high-end product lines enabled us to improve our margins to strengthen our brand position, and our mid-end product lines enabled us to achieve volume sales and gain recognition from the mass market with products that combine design aesthetics and practical functionality at affordable prices. To highlight our product development achievements so far in 2022, I'd like to mention the long-term revolutionary SQI and the new UKI Plus in the high-end market. The SQI is our product debut in the most high-end electric bicycle market. It boosts innovative design and cutting-edge material technologies. Priced at RMB 9,000+, the straddle motorcycle-like SQI was well-received by the market with customers waiting for five to six months for deliveries. The new UQi Plus is the newest addition to our all-time most popular new series. The new UQi Plus has been enhanced with improved light design, smart controls, writing ergonomics, and additional personalization functionalities. The UQI Plus has garnered significant attention on social media and generated widespread trends since its launch, with nearly 50,000 units ordered in the first month alone. This positive reception is a testament to our brand leadership and capability in product creation, and we have more exciting products planned for Q2 2023. Now on the mid-end product line, we introduced the B2 and the G6 series in 2022. B2 is the electric bicycle with a simplistic design style, but it was a large form factor. It's about 10% to 30% larger than our popular G2 and F2, which were released in 2020 and 2021. The G6 is a light electric motorcycle design with upgrade battery capacity, with a range of over 100 kilometer on single charger with graphite lead asset batteries. Even though all those products were introduced late in September, which missed the peak season with the exception this product quickly represented more than 70% of sales during the fourth quarter in just three months of the launch. This also helped us of our ESP to increase by 16% quarter-over-quarter in Q4 2022. This was also a promising sign that our strategic adjustment worked. By focusing on the premium and mid-end products, we're gradually mitigating the impact of lithium-ion battery cost hikes and start to reclaim the goals margin. Now fueled by the premium product introduction of SQI and new UQI+, we also pivot our marketing strategy to be product-focused and user-centric. This allowed us to get a better ROI on our marketing investment and also help to continue enhancing the brand. Just to list a few examples, in 2022, the marketing campaign surrounding the launch of new products of SQI and the UQI+, resulting in a total of 1.4 billion views across all platforms. We also launched a new innovative ambassador program, a core to our user-centric marketing strategy, and invite 40-plus new users who are also influencers to co-create with new and host local events. During the 2022 World Cup, we mobilized our ambassadors for World Cup theme new scooter shows. The theme scooter shows demonstrated scooters customized and painted with elements from the World Cup. Those demonstrated scooters gained a total of 3.7 million views across China's social media platform in just two weeks. Now in our international market, our strategy has been diversify our product portfolio beyond the electric two wheelers and expand the geographic regions beyond the main European market for the past two years. This strategy demonstrated early success in 2022, although the growth in the new products and new markets has only partially offset downturns in the electric two wheeler sharing market. And the upfront investment in growing in the new product and new market created a red line in the profit. On the product portfolio expansion, we have achieved early success in 2022 in electric kick scooters. We launched the category in the last quarter of 2021 and has since strategically rolled out our kick scooter product mix. To enter this category and establish brand awareness in the market, we started with a high-end product priced at $800 and $900. and gradually introduced mid- and low-end products with prices ranging from $300 to $500. This strategy caused a slow volume ramp-up initially, but it helped with brand building in the new entered categories. NIU was awarded the Writer's Choice Award 2023 as the best scooter company presented by MicroMobility World. Our high-end product, K3, also received coverage from some of the top tech media outlets, such as TomSket, TechRadar, and Xtaca. In terms of sales channels, we also took a gradual approach. We first launched the Kickstarter category focusing on online channels like Amazon. Our Kickstarter models ranked number one, number two on Amazon's bestseller list in multiple countries in Europe and North America during 2022 Amazon Prime Day campaigns. Riding with the momentum from the online channels, we started to enter the offline primary sales network like Mediamarkt and Europe and Best Buy in the US towards the second half of 2022. We believe those slow efforts build a solid foundation for sustainable growth in 2023 and beyond. Now on the regional expansion part in the electric two-wheeler sector, We see the opportunity that grows in the market, in the Southeast Asian market, mainly in Thailand, Indonesia, and Nepal. We continued our effort in expanding the Southeast Asian market as we hope to grow the trend of transition from the traditional gas-filled two-wheelers to electric two-wheelers. In those high-growth Southeast Asian markets, we expanded a number of stores and working with local partners with a wide range of sales networks. In 2022, during the G20 Summit in Bali, New Pradali provided electric scooters to be used by Indonesian national police officials to support the local government's effort to green transportation. Now, as a result of those efforts, the electric two-wheeler sales in the Southeast Asia market increased for nearly 60% year-to-year. Lastly, as advocates of sustainable living were committed to providing our customers with eco-friendly smart urban vehicles that help reduce our impact to the environment. 2022 also marked another year of our dedication to promote the development of the entire two-wheeler industry in an environmentally friendly direction. We released our first inaugural ESG report this year. As of today, the accumulated riding data reached 16 billion kilometers, which means reducing 4 billion kilograms of carbon emissions compared with fuel vehicles. To further spread the idea of building green futures through technology, we launched Renew, a global sustainability initiative during our Earth Day campaign in 2022. The campaign included a global Earth Day cleanup, which mobilized new users across four continents to clean up trash in the public areas, including places like Bali, Antwerp, and Guatemala. Sustainable living has been the core at our brand since its inception and we take pride in making positive impact on the journey of sustainability with our users. Now that 2022 is behind us, we are confident to regain growth in 2023 with the strategic adjustment we made in 2022 starting to have positive impact in Q2 2023. When compared to the pre-price adjustment Q1 2022 on a year-over-year basis, our Q1 2023 still shows a sign of negative impact due to the price increase and delayed product launches, and we hope to recover into Q2. Now, with the strategy in product development and branding and marketing and the sales channel expansion in place, we believe we are able to regain growth in 2023 as a whole year for both China and the overseas markets. Now, particularly in the China market, we'll drive quality growth with new product in the premium mid-end segment to continue our leadership. Product focus on this user-centric marketing to optimize our ROI and the retail efficiency improvement to drive the same store growth in the 3,000 plus franchise stores. On the product side, we have a product rollout plan for a few key products in China, starting with Q2 this year. Those product lines will focus on premium new series, high-end Goa series, covering from high-performance motorcycles, light motorcycles, to premium and mid-end China electric bicycles, with powertrain platform from NCM lithium battery, LFT lithium battery, to graphite asset batteries. We started those product developments in 2022, and they will be released on schedule in Q2 2023. Now, driven by the unique and differentiated product propositions, we continue to focus on building new as a leading lifestyle brand for urban mobility. And this company may extend beyond just our product. Besides the product-centric and user-centric marketing strategy, we also plan to expand our co-branding initiatives with brands with similar philosophies and lifestyle. In 2022, we successfully launched collaborations with leading global lifestyle brands, such as Razor and Diesel, with co-branded product design with each partner. And we plan to continue a success model in 2023. Now, on the sales channel, we have launched initiatives to focus driving same-store sales improvements starting Q4 2022. We recognize offline stores as a crucial center to product exhibition, test drive, and after-sales services. We're supporting the offline store Will sales leads generate from our online? And with this O2O approach, we're able to provide better pre and after sale experience for our users and boost sales numbers for our retail stores. We have also launched projects to optimize and standardize store layout and the marketing materials for each store to create a consistent high quality brand image. Additionally, we have a digitalization program to help the store showcase their product and go in platforms, resulting in better traffic and potential conversions. Those initiatives will aid over 3,000 stores in achieving health same-store growth. Now for the international market, we'll remain laser-focused with our diversification strategy in both product portfolio and geographic expansions. Those diversification efforts in the last two years will start to contribute significant growth in both the revenue and the profit. First, on the micro mobility category, it has been a high growth in 2022 with near 7x volume growth in 2022. We'll continue the super fast growth of micro mobility segment with comprehensive product portfolio building in 2022 and establish sales channels both online and offline with retail partners like Best Buy and MediaMarkt. With the comprehensive KickScooter product mix layout in 2022, we also plan to keep refreshing our product offerings in 2023 to enrich the product options for our users. Now, besides the KickScooters, we also recently officially launched our first e-bike product, BQiC3, to the US market in March 2023. The BQiC3 is a dual-battery e-bike with two lightweight swappable batteries with maximum riding distance of over 90 miles. Now with the established sales network we built out last year, the BPUI C3 will be sold in 100 plus Best Buy stores along with the online channels in the United States and the plan to be sold within Canada in the near future. Now having invested in the micro mobility market since 2020, We're confident that foundation we lay out in the last three years in both brand building, product portfolio, and the channel building will drive the accelerated growth in 2023 and make substantial contributions in both revenue and the profit. Now, in the electric two-wheeler categories, We had a setback due to the shutdown of the sharing operation market in 2022. We expect to be on the fast growth path again in 2023 through product expansions and geographic expansions. On the product side, we plan to allow the high-performance new products such as the quiet electric motorcycle RQI in order to compete in the electric two-wheeler product offerings, capturing the growth demand in Europe. On the geographic expansion in Southeast Asia, to build on the growth we have achieved in 2022, we plan to launch the battery swapping and enable product and solutions by partnering with several key operators in the countries like Indonesia, Thailand. Those trials are already on the way, and we expect this will finally open up the Southeast Asia market for us, which hosts more than 20 million petrol motorcycle sales annually. Now, as we are implementing those growth strategies for both China and international market, we expect our total sales volume to grow to 1 million to 1.2 million units in 2023, representing a 20% to 45% growth compared with 2022. Now, I'll turn the call over to our CFO, Fionn, to go through our financial results.

Thank you, Yan. And hello, everyone. Please note that our press release contains all the figures and the comparisons you need. And we have also uploaded Excel format figures to our IR website for your easy reference. As I review our financial performance, we're referring to the fourth quarter figures unless I say otherwise. And all the monetary figures are in R&D if not specified. As Yan just mentioned, we have been facing multiple challenges in 2022. Our total sales volume for the fourth quarter was 138,000 units, decreased by 42% compared to the same period of last year. Specifically speaking, China market sales volume was 118,000 units, and the overseas market was 20,000 units. In the overseas market, we managed to maintain a decent year-over-year volume growth for kick scooters, up 15% to 17,000 units, For the full year 2022, the total sales volume was 832,000 units, including 711,000 units from China market and 121,000 units from overseas market. Although sales volume from China market as a whole decreased by 28% year over year, NIU and Gova Premium Series together only dropped by 10%. The overseas market showed strong growth momentum due to the kick scooter sales increasing up to 102,000 units in aggregate, and the e-moped sales volume decreased by around 45%, mainly due to the termination of 2B sharing orders, as Yan just mentioned. The total revenue in the fourth quarter was RMB 612 million, decreased by 38% compared to the same period last year, To break down the scooter revenues by rating, the scooter revenues from China markets were RMB $447 million, down by 35%. Since we began to execute a strategy to refocus on the premium and mid-end segments, the Gova entry series only took 5% of the total domestic volume in the fourth quarter. As a result, ASP in China markets reached RMB 3783, 14 higher on a year-over-year basis. The overseas scooter revenues, including kick scooters, E-mopads, and E-motorcycles, were RMB 87 million. Blended scooter ASP of the overseas market was RMB 4300. decreased by one-fourth year-over-year due to a higher sales contribution of kick scooter with lower ASP. However, the kick scooter's ASP year-over-year increased more than 50%, quarter-over-quarter 10%, due to the higher proportion of high-end kick scooters like the K3 series priced at $800 to $900 U.S. dollars. Accessories, spare parts, and services revenue were RMB 79 million, decreased by 31% due to the battery pack sales reduction from overseas shared mobility operators. For the full year 2022, our total revenue decreased by 14.5% to RMB 3.2 billion. The China scooter revenue as a whole saw a 19% year-over-year decline. However, the mid- to high-end products only dropped by 6%. And the international scooter revenues increased by 15% to RMB 494 million. The total international revenue, including scooters, accessories, spare parts, and services, contributed to 18.5% of the total revenue due to the fast growth of kick scooters. Let's look at the ASP in 2022. The overall scooter ASP was 3432 versus 3134, a 9.5% increase. The domestic scooter ASP, 3322, a 12% increase, among which half is due to the better premium product mix. and the rest due to the price increase. International blended scooter ASP is 4079 versus 6597, a decrease compared to the last year since the proportion of kick scooters ramped up 10 times, while both e-motorcycles ASP and the kick scooters ASP increased 17% and 13% respectively. The gross margin for the fourth quarter was 22.5, a 0.1 PPT lower than the same period of last year and 0.4 PPT higher than the previous quarter. For the year ended December 31, 2022, the gross margin was 21.1% compared to 21.9% on an annual basis. The better product mix in the Chinese market brought up gross margin by 1.2 ppt, while the battery cost hikes and the higher sales contribution of kick scooters dragged down the gross margin by 2 ppt. Specifically, the gross margin from China markets increased by 1.5 ppt. Talking about operating expenses, the fourth quarter OPEX was $196 million. $7 million higher than the same period of last year, while the OPEX amounts almost stayed at the same level. The OPEX as a percentage of revenue rose from 19% to 32%, mainly due to a lower revenue base. And the selling and marketing expenses were around $107 million, $8 million higher year over year. Out of that $8 million increase, depreciation and amortization expenses of the new stores were $6 million. The overseas selling expenses increased by RMB 24.5 million as we continue to expand our footprint to fewer growth of kick scooter sales, while domestic promotion expenses decreased by 20 million since we took a conservative position under the volatile retail environment. Research and development expenses were RMB $40 million, $5 million lower than the fourth quarter of 2021, mainly due to the decrease in outsourcing professional fees. And G&A expenses were RMB $48 million, $4 million higher year over year, mainly caused by an increase of RMB $12 million provision for credit loss, offsetting by a decrease in financial service fee of RMB $9 million. For the full year 2022, the OPEX was RMB $775 million, $166 million higher than 2021. And the increase was mainly due to the ongoing 2021 new store depreciation impacts increased by $42 million. And the increase in overseas business expansion $83 million, particularly selling expenses for kick scooters like online trafficking, warehouse stalking, product insurance, etc. And $24 million increased credit loss, $41 million R&D expenses for new scooters and kick scooters rolling out in 2022, offsetting by $24 million decrease from domestic marketing and promotions. The non-cap operating expenses, excluding share-based compensation, were RMB $718 million, representing a 22.7% of revenue compared to 15.2% in 2021. And this quarter, we had an income tax benefit from RMB $21.8 million compared to $47 million income tax expenses last year for the same period stated in our previous calls. And in the fourth quarter, we had a net loss of RMB 37 million with a net margin of negative 6.1% under the gas measure compared to net income of 47 million with the net margin of 4.8% for the same period of last year. On a full year basis, due to the factors including lower than expected domestic sales, battery cost pressure and increasing overseas business expansion as mentioned above, we had a net loss of RMB 49 million with the net margin of negative 1.6%. But excluding share-based compensation expenses, we still deliver a positive 8.8 million net income in 2022. And turning to our balance sheet and cash flow, we ended a year with RMB 1.1 billion in cash, restricted cash, term deposits, and short-term investments. Our net cash used in operating activities for Q4 was $300 million, mainly due to the reduction in payable to suppliers as a result of seasonality. On a four-year basis, the operating cash flow was $126 million outflow, partially due to an increase in kick-scooters inventory at international warehouses for quickly responding to incoming orders. Our Q4 capex was $43 million, and on a four-year basis, the capex was $135 million compared to $286 million, continuing to slow down as our channel strategy in China market, shifting from fast-door extension to post-door performance improvements. And now let's turn to guidance. In light of volatile domestic markets and our strategy focused on premium and mid-end markets, we expected the first quarter revenue to be in the range of RMB $403 million to $489 million, representing a decrease of 15% to 30% year-over-year. Please be aware that this outlook is based on information available as of the date and reflects the company's current and preliminary expectation, which is subject to change due to the uncertainties relating to various factors. With that, let's now open the call for any questions that you may have for us. Operator, please go ahead.

Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Please stand by while we compile the Q&A queue. Our first question comes from the line of Yating Chen from CICC. Please go ahead, your line is open.

Hi, I'm Yating from CICC and I have two questions. The first one is, could you please introduce your plan for channel expansion in 2023? And what is your expectations on selling and marketing ratio in 2023? And how do we figure out the impact of channel expansion on this expansion? This is my first question.

OK, maybe I'll address the channel expansion part and also mention the marketing expense. And then I think I'll let Fionn to add a bit more. 2023, we look at the two parts. On the China market side, I think we take a more moderate approach where we still do expect to expand a little bit, but it's not significantly like what we did in the last couple of years in 2020 or 2021. I think the focus for China is really to improve the same store sales. I think currently, what do we have? About 3,000 stores is sufficient in terms of absolute store counts. is sufficient to support the China sales growth. But having said that, I think there are optimizations where there are regions that I think we still need more stores where we need to expand. And there are some regions that we feel like we actually had more stores than we needed, and there may be some optimization to that. Now, on the international part, I think that That's where we're going to focus the most, both on the European market, the U.S. market, and the Southeast Asia market. With the European and the U.S. market, those would be channel expansions and more about expand our footprint in the already entered offline channels. for the kick scooters and for the e-bags. For example, with the kick scooter with Best Buy, we were in about 300 stores and now we have a shelf display in about 650 stores. And in the Southeast Asia, it's actually working with traditional dealer network to get our scooters into the dealers. I think this is actually on the channel part. I think your question next is about the sales marketing expense. I think if we look at the overall sales marketing expense compared year to year, I think there's a plan to definitely the percentage that we spend on sales marketing.

Yeah, I think I'll take this question from my side.

Okay.

Yeah, this is Fionn. I'll take the selling and marketing expenses ratio from my site. Actually, in 2022, it's a special year. As percentage of revenue of the selling and marketing expenses was high up to almost 14% as percentage of revenue, considering that we shifting the domestic marketing strategy only from Q4 and late Q3. While in the meantime, we kept the continuing footstep for the expansion of the kick scooters in 2022. so that we got the results of around 14% selling and marketing expenses. If we look at the marketing and selling expenses as percentage of revenue in 2021, our ratio was only 9%. And in 2021, we're balancing the expansion in the domestic market retail and also the traditional e-motorcycle and e-moped business in the international market. So our targets we expect in 2023, the overall selling and marketing expenses ratio will stay at the same level at around 9% to 10% as at the same level in 2021. balancing the international kick scooters continuing expansion and also the domestic new products rolling out in 2023. And with that, I think it is the ideal selling and marketing expenses ratio we expected in this year.

OK. It is very clear. And my second question is, as you've mentioned, you are trying to improve store performance. And could you please share more with it? For example, how will we improve the store performance? And if we decide to decrease the channel store, what is the benchmark of its profit? Yes, that's my question.

Can you repeat what is the benchmark of the start of the work?

What is the benchmark of your decision to open one more channel or just close it? Right.

I think, so let me answer the second one first. I think the second one is actually easy, whether the stores are self-profitable. Because all our stores are franchise stores. So in reality, if the stores are profitable, you know, the store owners tend to, you know, keep the store open. If the stores are not profitable throughout the year, on a monthly basis, they may not be profitable. But for the entire year, it's not profitable. then it's actually difficult to keep the store open. I think that's, so it's, you know, and this will be, we look at city by city, we look at regional basis. Now in terms of the store sales improvement, I think there are really two things we're looking at. One is how do we get more traffic to the stores? So this year, We started a little bit last year, but really this year is actually, what we're planning is actually, as we mentioned, basically providing stores with sales leads generated from this online JDM Tmall. So our sales online, so this is what we call the O2O method. Basically, the users make the purchase online and decide to pick up the scooter. at an offline store. Last year, it only represented roughly about less than 10% of our sales. And this year, we're looking to boost that to basically to 20% or 25% of our sales coming from online leads. So that will actually increase traffic to the stores. I think second is actually a list of initiatives that we're implementing in the stores to help the conversion rate. So once you increase the traffic, it's about how do you convert the traffic to purchase. Those will be things like optimize the store layout and the product portfolios in the stores, because we also recognize different regions, different cities. We have extensive product portfolio, but some product actually sells better in some regions. So we need to make sure the store optimize the product portfolios that carry in their store. And with a clear message and the clear trainings to the store staff such that when users come in or potential customers come in, there's easy to communicate to the customers what to buy. And lastly, I think we also recognize actually accessory sales are a great percentage of the store sales and the store profit. I think with our product, like the UQI, which actually really call for customizations. There are tons of accessories can be developed for the particular product, such that store can, you know, besides selling the scooters, they can sell additional accessories to make profit. I think that's sort of the three things, really the three things we're taking. But having said that, I think there is an underlying theme, which is the product itself has to be attractive and competitive. So I think this is actually what we feel very confident this year is having the new product online. We have a bunch of new products ready to roll out in the second quarter of starting our second quarter this year and we have demonstrated really last quarter well Fourth quarter last year is actually with all the positive news we received from the new product. Once we have the newly defined product out, it helps boost the sales and also help improve the store performance. Hopefully that answers the question.

Okay. Thank you very much. That's all my questions.

Thank you. We'll now move on to our next question. Please stand by. Our next question comes from the line of Zhijun Li from Citix. Please go ahead. Your line is open.

Hi. I'm Zhijun Li from Citix Securities. And here I have two questions. And the first, I wonder our product positioning. Because last year, you could see our sales growth indeed faced some pressure. But looking at the situation in the past two months, it seems that the resumption of commuting after the epidemic has stimulated the overall demand of the industry. I would like to know how we will position the focus of our product line in the near future. Yes. This is my first question. And second question, I wonder, how do we evaluate the impact of upstream change, such as lithium battery price reductions? And we could also see some sodium batteries on our product and also our financial performance. it could be better if you could share your insights respectively. Thank you.

Yeah. No, I think so. Let me try to address those. Those are great questions. First on the product positioning. I think our product offerings has always been basically from the premium end to the mid end of the market. And I think that has always been the case. Now, it just happened that really for our, you know, in 2022, the issue with the lithium battery price increase that actually made our entry-level product, basically the zero series, which is roughly priced at the market mid-end level or slightly below the mid-end level, that product uncompetitive and the gross margin point of view impossible to make. So that actually created pressure on the sales volume and on the revenue as well. So heading into this year, I think one, we're going to focus on bringing new product in the premium mid-term market. Second, we really starting at the second half of last year, we start to introduce the graphite asset. battery solutions to offset the lithium battery price increase. But we don't have enough product on the LAT asset, on the graphite LAT asset scooter yet. So we have more product coming out supporting the graphite LAT asset product solutions that can offset this lithium battery price hike that help us to regain the competitiveness in the mid-end market. So I think that's on the pilot positioning. The second, we did observe that recently, basically the upstream material for the NCM batteries has, the price has coming down. And then we also observed that that price coming down has also triggered down to the lithium battery itself. There is a downward, pressure on the price. I think having the lithium price coming down will be a significant positive or plus to our, you know, to our sales volume as well and the margin as well. Because we were, I think really we were in a position that majority of our sales were from lithium. So when the lithium price increased significantly, we got impact the most. But when the lithium price coming down significantly, we will benefit the most. But having said that, I think so far our 2023 basically financial outlooks and also our company internal budget, we haven't really taken into consideration of the lithium price coming down yet. And if it did come down, that means we will actually improve our gross margin as well as that will help us in terms of pricing our product to regain more sales.

Hopefully that answers the question.

Yes, well noted and understood. Hopefully we are looking forward to our back to game. Thank you.

Yeah, thank you.

Thank you. We'll now move on to our next question. Our next question comes from the line of Alice Ma from UBS. Please go ahead. Your line is open.

Hi. Thanks for taking my questions. I have two questions actually. One is regarding the domestic market and the other one is regarding the overseas market. For the first one, my question is, what is your view towards the growth of premium or need to premium electric two-wheeler market domestically this year? I think that for most of the market consensus, they believe that the overall electric two-wheeler sector will grow by around 20% in terms of volume this year in China. But in terms of the need to premium market, do you expect that it will achieve a higher than average growth? Which means that, do you think that the consumption power of the consumers actually recovers after the reopening these days? And will the company benefit from this trend? And the other question is about the overseas market. I'm really curious about your specific plan into the expansion into the Indonesia or Thailand market you mentioned just now. I'm wondering, like, how do you view the market potential and how do you view that your product competitiveness in this market? Thank you.

Yep. So let me address the first one with the medium to premium market one. So in terms of, I think my view on this one is kind of like less optimistic in the sense that I think the medium to premium market, I would imagine it actually would grow slightly slower I don't think it will grow faster than the market average. It will grow either slower or maybe just on par. The issue being that when you're looking at this entire market growth in China, a lot of consumer demands grows and a lot are actually through basically industry players doing a price competition, which we already observed in Q1 this year, you know, basically major competitors stashing prices on most of our entry level product, you know, product around, you know, 2000 RMB or less. So that actually, you know, that price competition and really shooting for, you know, you know, basically slashing price to drive the volume, uh, that, that, that has always been sort of the case for this industry. So I think that's actually, you know, to some extent, feel the market growth. So from that point of view, I think the, the mid end to premium market, uh, I don't think it will go faster than average market. Um, but having said that it's, uh, you know, it's still a lot of room for us to gain that market, right? Because if you look at last year, we only did about, you know, 700,000 units. And the year before, we actually did about, you know, about 980,000 units, all in the same segment. You know, the drop of you know, about 200 something thousand units because the lithium price went up, we had to increase our, some of our entry-level product, and it was the price in all the markets, right? And, but that doesn't mean this mid to premium market doesn't exist. I think the market still, this market mid to premium market, it still exists in terms of, you know, at least 8 million units plus. So for us, basically the mid to the premium. premium prop like at least like two to three million and mid and at least i think five to six million units so for us you know only last year's 700 000 units it was still small percentage so we're less concerned about how fast the world market grows but more focused on whether we can have a competitive product we know we can have like a great design product but it has to be price competitive in that market as well i think that address your first question. I think, can you repeat on your second question on the Southeast Asian market, which I didn't record down clearly.

Okay, thank you. My second question about the entrance of the Indonesia or Thailand market, you mentioned that, I think you mentioned in your introduction that you will leverage the battery swap with the local partners into this market. And I'm wondering, like, how do you see the market potential in the Southeast Asia market and how do you view your product advantage or competitive? Thank you.

Yeah, thanks. So I think we've been talking about Southeast Asia market for at least for a few years. The entire market was huge. It's about, you know, they do about 20 million or I think 18 to 20 million of petrol scooters or petrol motorcycles for the you know, for an annual basis, right? I think Indonesia was at least 6 million units and Thailand, Malaysia, everything. And I think in the past, what's happening is that, you know, that market, there's basically electric moped or electric motorcycles from price point of view is too pricey for that consumer market. So there is, you know, it's difficult to find an entry point. We were able to gain about 60% growth last year, but still, you know, we're talking about small numbers, less than 10,000 units. So I think there are two, there are different solutions looking into it. One solution is sort of this battery swapping or battery rental solutions where people buying the scooters, but actually rent a battery or lease a battery. So the battery cost actually booking on monthly fee as opposed to upfront cost. So that will help to lower the upfront cost. There are also second speculation on potential government subsidies. I think just to give you an example here, where the Southeast Asian market, kind of like the Indian market, Indian markets, they're even bigger, about 24 million units of petrol motorcycles. Their pricing is very similar, Indian market and the Southeast Asian market. But the Indian market with the government subsidies, they had a subsidies about $250 or $300. The Indian market in the last three years was able to grow from annually about 100,000 units of electric two-wheelers to about 600,000 units last year. Whereas Southeast Asia market right now, the electric two-wheelers is very minimal. It's less than 100,000, but by electric motorcycles. So we do think there is, you know, you compare those two markets, we do think the Southeast Asia market at least has a potential you know, in the next couple of years to grow to the size of the Indian market. And, you know, we've been actually planting seeds there for multiple years. So, you know, this is actually, we do think in the next couple of years is the market that, you know, we're able to capture some of the potential high growth there.

Okay, very clear. Thank you. And also wish that we have some breakthroughs in the following years. Thank you.

Yeah, thank you.

Thank you. We'll now move on to our next question. Our next question comes from the line of Scarlett Ge from Credit Suisse. Please go ahead. Your line is open.

Thank you for taking my question. I have one question. How do you view the competition landscape with some new entrants or potential new entrants For example, the brands who are trying to transfer from traditional ICE motorcycle makers to the electrified motorcycle field. For example, Hongdai and the Dachangjiang and the Wuling, they all have launched new products. And the price range is from 3,000 RMB to 7,000 RMB. I guess there are uh some uh price overlap between those products uh so how do you view the difference between uh new and those products in terms of uh with those brands in terms of products or uh sales channels or some other aspects thank you um yeah so scarlet i think i think for for us it's uh of course you know china market is still a big market as well you know i think

may say 40 million units a year, 45 million units a year, some market says 50 million units a year. It's a huge market, such that I think it's a, you know, with more brands coming in, it's still able to accommodate more brands. So from that perspective, it's actually, it's less a worry from, you know, from our perspective, you know, because even we do about one million units in China, it's only still like, what, 2% of the market. So it's a, you know, we have less concern when more brands come in. I think it's a but I think the right one would be or the more related one would be actually the brands actually position their product similar to our product, like a premium brand. or those ones, which I think there was a buzz last year about Honda coming with leveraging their three models, like Zoomer. I forgot what the other two models, like well-known petrol models that made it electric. and actually that did raise actually quite a buzz in the industry. So we don't take those competitions lightly. We think with the Honda's brand, as well as the recognition in this market, and especially with sort of the legacy models that people recognize, it will create more competition in the premium market. And in reality, I think for us will be that just more really a pressure and push us, push you to come up with competitive product or with better product. I think I assume your question is on the China market per se.

Yeah.

Thank you. Thank you very much. Thank you. There are no further questions at this time, so I'll hand the conference back to you.

All right. So if there's no questions and thank you, operator, and thank you all for participating on today's call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress. Operator?

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.