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.