NIO Inc.

Hello, ladies and gentlemen. Thank you for standing by for NEO Incorporated's third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. Today's conference call is being recorded. And I will now turn the call over to your host, Mr. Rui Chen, Director of Investor Relations at the company. Please go ahead, Rui.

Thank you.

Good morning and good evening, everyone. Welcome to NIO's third quarter 2020 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted at the company's IR website.

On today's call, we have Mr. William Li, founder, chairman of the board, and chief executive officer. Mr. Yuen Fong, chief financial officer.

, VP of Finance, and Ms. Jade Wei, ADP of Capital Markets and Investor Relations. Before we continue, please be kindly reminded that today's discussion will contain forward-looking statements made under the state proper provisions of the U.S. Private Security Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, The company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain filings of the company with the Direct Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that new earnings press release and this conference call include discussion of unaudited gap financial information as well as unaudited non-gap financial measures. Please refer to new press release which contains a reconciliation of the unaudited non-gap measures to compatible gap measures. With that, I will now turn the call over to our CEO, Mr. William Lee. William, go ahead please. Hello, everyone. Thank you for joining the new 2020 Q3 Earnings Call.

In the third quarter of 2020, we have delivered 12,206 ES8, ES6, and ES6 in total, with a growth of 154.3% and 18.1% in return.

In the third quarter of 2020, you delivered 12,206, yes 8, yes 6, and 86, representing a strong growth of 154.3% year-over-year and 18.1% quarter-over-quarter.

In October 2020, we delivered 5,055 vehicles, achieving another monthly delivery record.

ES6 has been the champion of the Chinese electric SUV market for the past 13 months. ES8 has been ranked number one in the high-end electric SUV market for more than 400,000 yuan in China. EC6 has also started to deliver successfully. We have maintained a high-level quality and service reputation, and have continued to receive good reviews from users. In September, in the 2020 China Ximinglan Car Experience Research published by J.D.POWER, the first place of pure electric new cars in the future.

ES6 has been the best-selling electric SUV in China for 13 consecutive months. ES8 has reached the number one in sales this year in the premium electric SUV segment, priced above RMB 400,000 in China. Our third product, EC6, has started deliveries in September. We have gained and maintained a great word-of-mouth reputation for our product's quality and service, and continuously received positive feedback from our users. In the 2020 China New Energy Vehicle Experience Index released by JD Power in September, new has once again ranked highest in NEV New Vehicle Quality among all brands.

After the launch of Battery as a Service or BUS, new products and services have been increasingly accepted by more users.

The new order intake in October broke the historic record and exceeded our expectations. In the fourth quarter, we are confident that the deliveries will further grow to between 16,500 and 17,000 units.

In terms of our gross profit, supported by the steadily growing quarterly deliveries, increase of higher margin products in our product mix, as well as continuous improvement on material cost and manufacturing efficiency,

Our growth margin in the third quarter has continued the upward trend, with the vehicle margin and overall growth margin reaching 14.5% and 12.9% respectively, surpassing our previous expectation.

The company's system advantages are gradually emerging. The third quarter's operating losses in 2020 were further reduced to 9.46 billion yuan, New system efficiency is getting more and more self-evident. The operating loss has further narrowed to 946 million RMB in the third quarter of 2020.

representing an 18.4% decrease month over month and a 60.7% decrease year over year. In addition, we have achieved a positive cash flow from operating activities for the second sequential quarter in Q3. We are confident to achieve a positive operating cash flow for the full fiscal year 2020. 接下来我们再来交流一下近期的一些重点工作。 Next, I would like to share with you some key tasks of the company.

With respect to R&D, we released the Navigate on Pallet feature, or NOP, to users via FOTA in October, which has further boosted the competitiveness of Neo Pallet over ADAS systems and received great reviews from users and the media.

are using the environmental data from the center suite with high-definition maps. MOP can guide the vehicle to follow the navigation route, automatically drive from on-ramp to off-ramp, and overtake slower cars. It can engage not only on highways, but also urban expressways, with optimizations based on specific use cases in China.

We are now accelerating the development of the second-generation technical platform, NT2. We are accelerating the development of the second-generation technology platform, NT 2.0. The core of NT 2.0 is industry-leading mass production autonomous driving system.

We will share more details of NT 2.0 at Neo Day 2020.

On the 6th of November, Weilai released the 100-degree battery pack. The 100-degree battery system uses high-grade C2P design. The density of energy has been increased by 37%. It greatly improves the battery life of all products in the future. The 100-degree battery pack uses a safe design that does not spread heat. On November 6,

now launch the 100-kilowatt-hour battery pack. It features a highly integrated cell-to-pack architecture with 37% energy density increase, which significantly extends the drive range of our product lineup. It has also adopted other advanced technologies, including thermal propagation prevention design, all-climate thermal management, and bidirectional cloud BMS. to make the battery safer and better. The 100 kWh battery pack will begin deliveries in December. Together with the launch of the 100 kWh battery pack, we also provide permanent upgrades and flexible upgrades by month or by year to users of the 70 kWh battery pack. As of today, we have successfully closed the loop. for our innovative fast model through vehicle battery separation, battery subscription, and chargeable, swappable, and upgradable battery solutions.

In terms of production capacity, we have already reached 5,000 batteries in September. Our team is working with our partners to further increase production capacity, which means that by January of next year, the production capacity of the entire supply chain will be increased to 7,500 batteries per month, to meet the demand for continuous growth.

As for production capacity, Oval supply chain production capacity has already reached 5,000 units per month in September. The teams are working diligently together with other partners to further elevate other production capacity. The target to expand the Oval supply chain production capacity to 7,500 units per month in January 2021 to meet the growing user demand.

In regards of the sales and service network,

NIO has opened 22 new houses and 159 new spaces in 106 cities and 169 power swap stations in 70 cities in China Moreover, we are developing the second-generation power swap station with lower cost and better experience and are planning to deploy the second-generation swap station in the first half of 2021

As our user base continues to expand,

The new user community is becoming ever more vibrant. November marks the second anniversary of the New User Volunteer Initiative. As of November 10, 2020, there are 3,101 user volunteers from 118 cities. They take it upon themselves to promote new and contribute to the community at the showrooms, auto shows, live streaming platforms, Delivery Centers and NEO Day, users' trust and support have always been the biggest motivation for NEO to do more and be better.

On November 26, 2020, NIO will embrace its 6th anniversary with huge support and team effort.

We have achieved a milestone performance, but we are still set up with a rather short history. In the face of a fierce competition and intense challenges, we will remain committed to making decisive investments into products and the core technologies and offering the best service and holistic user experience to live up to the expectations of our loyal user community.

Thank you for your support.

With that, I will now turn the call over to Stephen to provide the financial details on the quarter. Stephen, please go ahead.

Thank you, Vivian. I will now go over our key financial results for the third quarter of 2020. And to be mindful of the length of this call, I encourage listeners to refer to our early press release which is posted online for additional details. Our total revenues in the third quarter were 4.53 billion RMB or 666.6 billion US dollars representing an increase of 146.4% year-over-year and an increase of 21.7% quarter-over-quarter. Our total revenues are made of two parts, legal sales and other sales. Legal sales in the third quarter were 4.27 billion RMB or 600 to 8.4 million US dollars accounting for 94% of total revenues in this quarter. It represented an increase of 146.1% year-over-year and an increase of 22.4% quarter-over-quarter. The increase in legal sales year-over-year was primarily due to the increase in sales of ES6 and ES8. Other sales in third quarter were 259.2 million RMB or 38.2 million US dollars, representing an increase of 157% year-over-year and an increase of 11.3% quarter-over-quarter. The increase in other sales year-over-year was mainly attributed to increased revenues derived from the home charger installed, service packaging and energy package subscribed, and accessories sold, which were in line with increased vehicle sales in the third quarter of 2020. Cost of sales in the third quarter was RM3.94 billion, or 580.3 million US dollars, representing an increase of 94% year-over-year and an increase of 57% quarter-over-quarter. The increase in cost of sales year-over-year was minimized by the increase of delivery volume in the third quarter of 2020. Gross profit in third quarter of 2020. was 585.8 million RMB, or 86.3 million US dollars, representing an increase of 807.4 million RMB from a gross loss of 201.6 million RMB in the third quarter of 2019, an increase of 272.7 million RMB from the second quarter of 2020. The increase in gross profit was meaning driven was mainly contributed by increased vehicle sales and increased vehicle margin. Gross margin in the third quarter of 2020 was 2.9%, compared with active 2.1% in same quarter of 2019 and 8.4% in third quarter of 2020. The increase of gross margin was mainly driven by the increase of vehicle margin in third quarter of 2020. More specifically, vehicle margin in the third quarter of 2020 was 45%, compared with active 6.8% in the same quarter of 2019, at 9.7% in the second quarter of 2020. The increase of vehicle margin was mainly driven by the decrease in purchase price of certain materials and lower unit manufacturing cost, particularly for increased production volume of the ES6 and ES8 in the third quarter of 2020. Our expenses in the third quarter were 590.8 million RMB, or 87 million US dollars, representing a decrease of 42.3% year-over-year and increase of 8.4% quarter-to-quarter. The decrease in R&D expenses year-over-year was primarily attributable to higher design and development costs occurred in the third quarter of 2019. For EC6, an all-new ES8 launched in the fourth quarter of 2019, and the company's overall cost-saving efforts and improved operational efficiency in R&D functions since the fourth quarter of 2019. SGN expenses in third quarter were 940.3 million RMB or 108.5 million US dollars representing a decrease of 19.2% year-over-year, an increase of 0.4% quarter-to-quarter. The decrease in SGN expenses year-over-year was primarily driven by the company's overall cost-saving efforts and improved operating efficiency in marketing and other supporting functions. Plus, for operations in the third quarter was 946 million RMB or 139.3 million US dollars, representing a decrease of 60.7% year-over-year and a decrease of 18.4% quarter-over-quarter. Share-based compensation expenses in third quarter were 49.2 million RMB or 7.3 million US dollars, representing a decrease of 30.1% year-over-year and increase of 8.3% quarter-of-the-quarter. The decrease in share-based compensation expenses year-over-year was primarily due to less offerings granted to them by the decline in numbers of employees An impact of part of the share-based compensation expenses is localized by using the accelerated method under which the expenses decrease gradually over the resting period. Left last in the third quarter was 1.05 billion RMB, or 154.2 million US dollars, representing a decrease of 58.5% year-over-year and a decrease of 11% quarter-over-quarter. At last, attributable to NIO's ordinary shareholders in the third quarter was 1.19 billion RMB or 175 million US dollars, representing a decrease of 53.5% year-over-year and a decrease of 1.6% quarter-over-quarter. were both 0.98 RMB or 14 cents per ADS. Excluding share-based compensation expenses and accretion of redeemable non-controlling interest to redemption value, long-gap adjusted basic and diluted loss per ADS were both 0.82 RMB or 12 cents per ADS in the third quarter. for a balance of cash and cash equivalents. The restricted cash and short-term investment was 22.2 billion RMB or 3.3 billion US dollars as of September 30, 2020. Additionally, we achieved positive cash flow for operating cash activities for the second sequential quarter. And now for a brief outlook. As William mentioned, For the fourth quarter of 2020, the country expects deliveries to be between 16,500 and 17,000 vehicles, representing an increase of approximately 100.6% to 106.7% from the same quarter of 2019, an increase of approximately 35.2% to 7.3% from the third quarter of 2020. The company also expects the total revenues of the fourth quarter 2020 to be between 6.46 to 6.44 billion RMB, or between 900 to 1.8 to 947.9 million US dollars. This will represent increased of approximately 119.7% to 106% from the same quarter of 2019, an increase of approximately 38.3% to 42.2% from the same quarter of 2020. This split outlook reflects the company's current and preliminary view on the distribution and market conditions, which is subject to change. Now, this concludes our prepared remarks. I will now turn the call over to the operator to participate in our Q&A session.

Ladies and gentlemen, we'll now begin the question and answer session. And if you wish to ask questions, please press R1 on your telephone and wait for your name to be announced. And for the benefit of all participants on today's call, please limit yourself to two questions. And if you have additional questions, you can re-enter the queue by pressing star 1 again. The first question we have is from the line of Tim Hsiao from Morgan Stanley. Your line is now open.

Hi, William, Steven, Jade and Tim. This is Tim from Morgan Stanley. Congratulations on a strong result and thanks for taking my questions. So I have two questions and we'll quickly go through them and Mandarin first. So I have two questions and we'll quickly go through them and Mandarin first. So I have two questions and we'll quickly go through them and Mandarin first. So my first question, we saw NIO making solid operational progress this year at our front. for example, like in the launch of EC6 bus and 100 kilowatt-hour battery pack. So looking into 2021, in addition to the fourth model launch and ongoing investment in the time-thriving, what else would be our key focuses for R&D investment? And if possible, could the management share any rough guidance regarding the overall R&D spending versus 2020? My second question is about bus. Battery as a Service, could you please share some market feedbacks on the Battery as a Service program and with the launch of the 100 kilowatt hour battery pack, what's our expectation of the TechRay bus services for 2021 and beyond? These are my two questions. Thank you.

Thank you, Tim. In terms of next year's R&D, as I mentioned earlier, from the core technology perspective, it is MG2. Of course, MG2 is the core, the leading mass-produced automatic driving system in the industry. Of course, there are many other updates and progress. Of course, from a technical perspective, As you all know, we now have three SUV models. We are about to release a sedan. The first model of our MT2 is a sedan. We are about to enter the sedan market. Of course, I can also say that other models are also in the process of development. Thank you for your questions.

Regarding the R&D focus for next year or of a recent focus, just like I mentioned in my prepared remarks, the NT 2.0 is the focus in terms of the core technologies. The core of NT 2.0 is the industry-leading mass production autonomous driving system. Of course, we also have other ongoing projects. In terms of the vehicle models, We have already successfully launched three SUVs. For the next product we are going to launch, it's going to be a sedan on the NT 2.0 platform. It means that we are going to enter the sedan market. At the same time, we are also developing other vehicle models. For example, the second new product in the pipeline is also going to be a sedan. So with the launch of the next two new products, we believe that we can complete our product portfolio.

第二个问题就是Buzz的Tick Rate, 我们从8月份发布这个Buzz以后呢, 我们非常高兴地看到每个星期它的Tick Rate是在逐渐地增长, 那么到11月份到目前为止的话呢, 我们的这个新增订单里面的Buzz的Tick Rate, have already reached 35%. It should be faster and better than we expected. Of course, from the point of view of delivery, because we are always based on orders, the tick rate of delivery will be earlier than the tick rate of order. But overall, in the order tick rate, we are still very happy to see the growth of BaaS. From BaaS, Now the user should get to know its benefits more and more because it not only can reduce the threshold of the structure so that the user will not rely on the deceleration of the battery. The main thing is that it can have flexible and upgraded service. So this whole program is actually the same as our goal. It is useful to promote more 7th generation users to convert. After more than 100 stores are released, our entire bus model will be more competitive. In terms of the bus take rate, after we announced the bus in August, we are very happy to see the increase with the take rate every week.

and in November, we can see that among all those new orders, the take rate of bus is around 35%, which is faster and better than our previous expectations. Because our model is make-to-order, so this will be reflected a little bit later in our deliveries. We're very happy to see this bus take rate and Lihong Qin. We believe that this is also going to improve in the future. BUS can help us to lower the initial purchase price and eliminate the user's concerns regarding the battery depreciation and also provide a flexible upgrade service to the user. The purpose of BUS is to convert more gasoline car users to EVs. After the launch of the 100 kWh battery pack, We believe the competitiveness of a bus has been significantly enhanced. And as the users can get much better understanding about the benefits of a bus, we believe this take rate will increase in the future in the long run.

Perfectly clear. Thank you, William, and congratulations again on the result. Thank you.

Thank you, Tim. Thanks. Thank you. And the next question we have is from Ming Li from Bank of America. You may now proceed with your question.

have improved by about 5%. Could you please give us a little more information about the improvement of our net profit? In addition, I would like to confirm that this quarter, because of the sales bonus, we have received additional net profit. Is this in the non-vehicle gross profit? In addition, the non-vehicle gross margin

My first question is regarding the margin expansion from second quarter to third quarter year gross margin.

I want to ask Stanley to answer this question. Hi Lin, this is Stanley. The vehicle margin increased in Q3 compared with Q2, mainly contributed by two factors. The first is the average selling price increased by 10,000 RMB per vehicle, mainly because the more ES8s with higher price are sold in Q3. Second is bomb cost reduced by 7,000 RMB per vehicle. also which are contributed by the cost reduction of battery pack and also EDS. You mentioned the revenue from Senate dual credit points. We received the revenue in Q4 with total amount of 120 million RMB. and we will recognize this as other revenue in Q4. So in Q3, we're not included in the financial results, yeah. That's your question about the vehicle margin. And regarding the service revenue, I think we are continuing to working on to improve the service margin to reduce the loss. So I think the trend will be positive in future.

Okay, that's me.

From the perspective of other revenue, of course, with the increase of maintenance capacity, we believe that it will continue to optimize. From this point of view, in fact, the revenue of other consumers, instead of increasing with the increase of scale efficiency, it will improve better. We believe that Q2 to Q3 is a small change, but from a long-term perspective, we believe that this continuous improvement is very promising.

Almost speaking regarding the close margin of the other service and the sales, we believe it will be further optimized as our user base continues to expand, and this is going to be reflected with the growing economics of the sales. In the Q2 and the Q3, The change is not very evident, but we are quite confident this is going to have a continuous optimization in the future.

我這邊還有另外一個問題是關於ASP跟電池的部分。 因為根據公司的指引的話,我們這邊算了一下大概四季度的公司的ASP大概又會比三季度高了 and so on. I'd like to know more about this issue, mainly because of the increase in the supply of the EC6 in the 4G system, which leads to the increase in the ASP. I'd also like to ask about the increase in the ASP of the 4G system and the increase in the 100-degree battery of the 100-degree battery that we launched.

Is there a certain relationship? The main reason I want to ask here is because we actually have nearly 160 batteries now.

Next year, we should be back to There are more than 350 cases. So, will it be helpful to the customer's journey? In fact, the most important thing is to understand that the customer chooses 100 degrees and 70 degrees. What do you think about the constant ratio in the future? Is the current journey enough? I'm very sorry. The participant's line got disconnected.

May we suggest please press star one again if you have further questions? I'll move on to the next one. We have Bin Wang. I'll go again.

I'll go again. Let the management to answer the question first. Yeah, you can . Sure, sir. Please go ahead.

Just to recap a little bit on the question, basically the question is about the average selling price. In the fourth quarter, I think that the average selling price will increase compared with the third quarter by around $12,000 to $13,000. So we would like to know whether this is driven by the E66 or the 100-kilowatt-hour battery pack. And we also would like to know for the battery packs, what is the take rate ratio between the 100-kilowatt-hour battery pack and the 70-kilowatt-hour battery pack?

I would like to give a brief answer. If we simply calculate the value of our sales and revenue, we are still neglecting the growth of our other revenue. As I mentioned in the previous lecture, we will probably have a double-discount revenue this year, so we will increase the revenue of the entire company, and the revenue of other companies will be higher. So, from the overall We didn't raise the ASP as our main target. Currently, we expect the ASP to maintain the same level as Q3. It won't show any increase or decrease. According to the current order, if it changes more than 100 times, because we have just started to pay for it, it won't have such a significant impact on the current ASP. However, we are still very confident about the continuous improvement of the 4G degree.

In terms of the sales revenue guidance, we would like to clarify a little bit. Just like Stanley mentioned, for the due credit revenue, this is going to boost the revenue for the other sales. And in other guidance, we don't actually consider the increase of the average selling price as part of the target. We believe the average selling price in the fourth quarter is going to be at the similar level and the third quarter, according to the orders we receive right now. And we just started the deliveries of the 100-kilowatt-hour battery pack in the fourth quarter, so we believe that this is not going to have any impact on the gross margin in such a short time. But we are very confident to continuously improve our gross margin throughout the fourth quarter.

Operator, we can move on to the next question.

Certainly, sir. The next question is from Bin Vang from Credit Suisse. Your line is now open.

Thank you, everyone. I have two questions. One is about the interest rate and the other is about the new product. As for the interest rate, I would like to ask if any factors have been considered. For example, we have cancelled the battery of the battery. I did not see any explanation from Stanley about the interest rate. The second is whether the production arrangement in Jianghuai has caused no scale effect. I haven't heard anyone explain the benefit of this scale effect. Looking forward, if BUS is used more, is BUS an advantageous factor? Or is it negative? Can it be quantified? This battery of 100W, Are there positive or negative rates? For example, if 50% or 60% is equal to 100% electricity, how much will such a rate help? And will the carbon deficit be calculated in the new car's rate? Because I don't seem to have explained this just now. Finally, are there any one-off factors in the third quarter? Because our friendship is ideal, they have a one-off, a countermeasure of the age. Are there any one-off battery returns in the third quarter? Are there any one-off factors? These are all about the price-performance ratio. The second one is about this new product. I actually also see that in the future, both new products will be called cars. This is relatively generally speaking, the price may be lower and the price will be lower. So is it possible to make a bigger SUV than ES8? For example, ES9. Why do I mention this? It's because our U3's next model is a bigger SUV. Actually, I just want to know what are the margin factors going forward in the past. Going forward, we see a few factors. For example, adoption. and some removal of the interest rate subsidy for the previous battery. And it was one of the factors that impacted the margin in the past. That's about the margin. And second, about new products, because we've seen the next two products will be the sedan likely to be lower pricing or maybe lower margin. So there's an even bigger SUV or even bigger one because, for example, maybe the name is the ES9. We've seen R&P is actually planning for a much bigger one. So basically it was the upcoming plan for an even bigger product. Thank you.

Hello, this is Danny. I will break down into the factors to further explain the growth margin improvement. The first you mentioned is about the subsidy. We further reduced the subsidy to the end users in Q3 with the launch of our bus model. And so in Q3, there's a little bit light factor like to do to the subsidiary production. And the second is the skills of the economy. As you can see, the production volume in Q3 is 12,000 vehicles and almost 20, over 20 increase compared with Q2. As William mentioned prior and we invest more to improve our production capacity in September to 5,000 units. So the manufacturing cost, I think almost all the same with the second quarter. Yeah, and about the bus and also the, what has the kilowatt impact, I'd like to answer this question.

Okay.

In the long term, with the increase of our volume, we know that there will be room for improvement in the stock market. But to a certain extent, it will not fall again. But there is still room for decline at the moment. The contribution in Q3 is definitely smaller than Q2. It will probably be smaller in the future. When we get to next year, I'd like to add some points regarding the manufacturing cost and efficiency. In the long run, of course, we will further improve our manufacturing efficiency and the cost, and we believe this is going to

From a French perspective,

This is because we are in the company will sell this battery and whole separately to This electronic asset company and the user have the same confirmed income. So overall, it does not affect the profit of the whole car. But from a long-term perspective, because we provide this battery upgrade service, so it will increase our profit outside of the whole car. From a long-term perspective, because our battery upgrade service still has profit. So from this perspective, it does not affect the profit of the whole car, but it will increase the profit of our non-whole car in the long term.

For the battery as a service, we will sell other cars to the users and the battery to the battery asset company under the FAST model. So it means that this is not going to affect the vehicle gross margin, but we saw the battery upgrade the service. This is going to provide some good benefits to other revenues. In the long run, this is not going to have any significant impact on the vehicle cost margin, but it will give some incentives to other revenues.

Yes, but the new car points will be counted in other revenues. So, we are not like Tesla. Tesla puts the points in the whole car. We put the double points in other revenues. So, it increases the profits outside the whole car.

For the due credits, we actually include this in other revenues or other sales. We have different approaches compared with Tesla because Tesla considers the revenue of the credit in the vehicle model, but we include that in the other revenues.

Of course, we have our own very complete market entry plan. From a specific point of view, we will enter the market from a medium-sized SUV first, and then we will go to a medium-sized SUV, and then to a coupe SUV. We are very close to each other. In the field of teaching, we will definitely be closer. Our next step is to enter the market of teaching. For the new product planning, we have a very comprehensive product and the market entry planning. This is going to be carried out step by step.

For example, we started with our flagship SUV ES8 in the mid and large segment. Then we entered the midsize SUV segment with the ES6, then the coupe SUV with the EC6. This is a very systematic approach. For the next step, we're going to enter the sedan market. When selecting different market segments, we need to balance the size of the segment and the volume objectives. At this moment, the leech markets are not going to be over-focused.

I think I also mentioned the wind time factors in Q3. We did not receive significant like sales rebates from the suppliers in Q3. So I don't think, yeah, we have also the material factors, yeah.

Okay. Okay. Can you also answer me about the 100 kilowatt hours battery, whether that were improving your margin? Also, I think in this flow, you also mentioned about 150 kilowatt-hour battery were coming. So did you think that margin for the upside from the battery upgrade?

There is no doubt that if the user chooses to install a 100-year-old store, it will certainly increase the efficiency, but we also provide flexible upgrade services for this 100-year-old store. If it is pre-installed, it will increase the overall efficiency, and if it is flexible upgrade service, it will increase the efficiency of other services. So we are going to look at the whole package separately. We think that when more than 100 stores are launched, we will see that some users will choose to install, but we are going to use a flexible performance service in the month and year. So many users will feel that they can use flexible performance. So in general, there is no doubt that more than 100 stores will increase the profit margin of our entire company. But for For the 100 kilowatt hour battery pack, the users can purchase the battery pack as an option, which is going to improve the

and others. These are two different stories and approaches. After the launch of the 100 kWh battery pack, we have seen some users choose to install the 100 kWh battery pack as an option. and at the same time we also provide the flexible upgrade so we also have some users opt to the flexible upgrade by month or by year. We believe this is going to improve the gross margin of the company but in terms of the new car gross margin or new vehicle gross margin we think it's not going to have a significant impact but in the long run this is going to gave us some boost to the gross margin of the other sales and the revenues.

其他的更大容量的电池包,其实基本上也是这个逻辑啊,就是说, 其实王平我们总体的一个大的思考就是说, 平时你用70度电,日常的使用就够了, 如果你需要一些长途的出行, 那你可以租用我们的一个更大容量的电池。 and many more. We think this method is our unique competitive advantage. From the financial point of view, we have created more possibilities for long-term overall labor. In the future, every new battery pack will be able to have this kind of income for mass users. I think this is a unique advantage in our business model.

Our logic for this approach is basically the 70-kilowatt-hour battery pack can meet the daily needs of the users. And if the users need to travel for long distance, then they can subscribe to the bigger batteries or the batteries with higher density or capacity. Users can choose this service on demand. This is quite flexible, and this is the advantage of our service. We believe that this is also going to contribute to the possibilities of, of course, margin growth in the long run, and the battery pack is going to provide a very good There is an opportunity for us to improve the gross margins among the existing users and this is a very unique advantage of our business model.

From this point of view, it actually greatly increases the attraction of more than 70 battery pack users, because they have the opportunity to be flexible and upgrade. This is very important. It is not necessarily that everyone must buy a more than 100 battery pack or a 150 battery pack that is larger. In fact, they usually use more than 70 batteries, and when they need it, they use a larger battery pack. So from this point of view, it actually greatly increases our The 100 kWh battery pack or the future bigger battery packs can, in the end, improve the attraction of the 70 kWh battery pack because the users of the 70 kWh battery pack

will have the opportunity to upgrade the battery pack on demand. They don't actually need to have the 100-kilowatt-hour battery pack or 150-kilowatt-hour battery pack right from the beginning. They can just use the 70-kilowatt-hour battery pack to meet their daily usage needs. Then when it's needed, they can upgrade to the bigger batteries. and we believe that this is going to significantly improve the competitiveness of over 70 kilowatt-hour battery pack.

Thank you. Thank you, Wang Bin.

Thank you. Once again, ladies and gentlemen, you may press star 1 for questions and it is the hash key to cancel the questions. And again, may we remind everyone to please limit yourself to two questions and you may press star one again if you have additional questions. The next one is from Edison Yu from Deutsche Bank. Your line is now open.

Thanks everyone for taking the questions. First, can you talk a little bit about the plan, the operational plan to boost the production target in January, what needs to get done just on the ground? And then secondly, as it relates to the next-gen autonomous platform, can you talk about your latest thinking in terms of insourcing the chip design, maybe the implications for Mobileye in that relationship and how you think about the use of LiDAR? Thank you, Edison. The first question is about the production capacity.

Yes, because you mentioned that we will upgrade our production capacity in January.

And now, have you started implementing the relevant plans? Yes, of course. We always emphasize the production capacity of the entire supply chain. Because not only the production capacity of the factory, but also every partner in the supply chain can meet our needs. We now have to wait for some time for the customer to book our car. We also hope to speed up the delivery. Our factory's capacity improvement has been progressing according to the plan. We also have some supply chain partners helping them improve their capacity. Yes, we have been doing this work for a long time. We are very confident that in January we will be able to reach 7,500 capacity in the entire supply chain.

We have always been emphasizing on the overall supply chain production capacity, not just about the production capacity of our own plants. We would like to work together with all the supply chain partners to make sure they can support us to boost our production capacity. The users right now will need to wait for some time to pick up their parts because of the production capacity constraints. We are also trying to speed up the deliveries to satisfy the users' demands. So right now we are working on our own production capacity expansion and also working together with the supply chain partners to improve their production capacity. We are very confident to be able to improve our production capacity to 7,500 units.

The second question is about the choice of new chips for our NT2. I think this is something that the industry is very concerned about. But this still gives us some time. We still hope to release more details on NEO Day soon. It may be too early to talk about this today. Of course, we made our own choice, but it's too early now. What we can ensure is that it will be the leading solution in the industry.

The second question is about the chipset of the NT 2.0. We understand this attracts a lot of attention in the industry and in the market, but we still need some time to disclose the specific information. As the new day, 2020, it's still too early for us to share those information. Of course, we have already made our decision internally. We believe that we should be able to provide the most advanced chipset with the best performance in the industry, and this can also help us to guarantee our leading position in the industry for the coming years.

Let's talk about our thinking about the evaluation of the value of automation. We think two things are the most important. The first is how much time you have released for the user. From this point of view, it is a question of usability. The other is how many accidents have been prevented. This is a question of reliability. So whether it's from usability or reliability, LIDAR has its own positive meaning. It's actually a thing that's easy to calculate, how much usability and reliability can be increased. From this point of view, we believe LIDAR has its own meaning. Of course, LIDAR has its own deployment cost problem, which needs to be balanced. From a direction point of view, No matter what kind of technology Camel develops, no matter what kind of computing power it has, we believe that LiDAR has its own meaning under certain scenarios, and has its own meaning when it comes to reducing the probability of an accident. So we believe that LiDAR is a very meaningful supplement from a technical point of view.

For the lighter question, I would like to share some thoughts on the autonomous driving direction first. When thinking about autonomous driving, we should evaluate the two aspects. The first one is how much time we can free up for the users. This is a question of the availability or usability. The second question is how many accidents can we prevent with the autonomous driving system. This is a matter of reliability. So we need to think about these two aspects when we evaluate the strategy of autonomous driving. We believe LiDAR should be able to help with both aspects. This is a very simple math. But we will need to tackle the issue of cost when it comes to LiDAR, and we need to balance this out with our product strategy. In the future, with the improvement of cameras and the compute powers, we do believe that LiDAR can play a role in some cases and the domains because it can help us to reduce the accident rate in some corner cases. So LiDAR is a very good addition to the technology competence.

如果是一個把用戶的利益放在第一位的企業的話, 我們相信這是需要

If a company could use its interest first, then they should find ways to tackle the technical issues in terms of cost and performance.

Thank you, Edison.

Thank you. We have the next question from Nik Lai. Your line is now open.

Hello, I'm JP Morgan. I have two simple questions.

The first one is about capacity and cash burn. You just mentioned that in January of next year, our monthly capacity will be about 7,500 units. In terms of our current design capacity in Jianghuai, in the next year or a year and a half, should we consider the problem of capacity increase and how to look at capital spending? At the same time, under the same premise of capital opening, we will add more battery swap stations and more new houses next year. Overall, how do we look at the future year of CapEx and cash burn? Should be inferior in the next two years. In the first half of this year to the first three seasons, there will be financing, so in the next one or two years, it should not be necessary to go to the capital market to do fundraising. This is the first question. The second question is about autonomous driving. I would like to ask again, is it a speech that I just heard from William? Can we understand that our long-term strategy in autonomous driving is basically to buy with better vendors? Let me translate my question very briefly.

The first question is regarding the cash burn and the CapEx and the investment.

In the next one year, for instance, William just mentioned that our monthly capacity can ramp up to 7,500 in January. And would that mean that in the next one year also we need to expand our capacity at the Chiang Mai plant? On top of that, how should we think about the capacity needed to build a swap station as well as new space? So the first question is about cash flow and cap as related.

And second question, on longer term autonomous driving solution or strategy, based on what William Chairman's comment just now, is it correct to understand that our long term strategy is to procure cheap from top vendor, but at the same time, we'll do most of the offers and capability or solution in-house?

Thank you.

So we got to the context to improve our production capacity. Most of the context will be covered by GAC. Of course, we will spend very little context on our own, but the majority will be covered by GAC.

Yeah, and we also will invest more in the expansion of sales and service network and also the power substation. But we will manage well the progress. So I don't think there will be a very big, big cash burn in, I think, next year.

So yeah, that's about the question about the CapEx.

From the perspective of our current development plan and cash, we can support our entire development within the short term. Another issue is the automatic driving. As you just mentioned, We have been able to do in-house full-time work. We have been able to do in-house full-time work. We have been able to do in-house full-time work. We have been able to do in-house full-time work. We have been able to do in-house full-time work. We have been able to do in-house full-time work. We have been able to do in-house full-time work. We have been able to do in-house full-time work. We have been able to do in-house full-time work. Um...

Of course, for the current development plan and the cash position, we believe we have no need for financing in the short term. We should be able to have sufficient resources to support the business development of the company with respect to autonomous driving directions. Our objective is to build in-house full-stack capabilities for autonomous driving. Of course, we have always had this capability in our company in-house. Recently, we have even enhanced our capabilities in terms of the algorithm and the system development. Starting from 2016, we have developed the new pallet first generation by ourselves in-house. But for the first generation new pallet, chipset is closely bundled together with the algorithm For the second generation Neopalette, we would like to make sure we can have the in-house capabilities, especially in terms of the algorithms, data, and the system development.

Thank you, Nick.

Thank you.

Thank you. We have the next question from the line of Jeff Chung from CT Group. Your line is now open.

Hello, everyone. I'm Jeff from Huachi. I have a few questions. First of all, I have two questions. The first is, we know that there will be an expansion of production capacity in January next year. But February is a Lunar New Year. In the whole first quarter, what kind of improvement will our sales be compared to the fourth quarter this year? Will there be some unknown numbers here, such as the level of battery supply? My first question is about first quarter next year's sales volume outlooks. whether they can still expand queue-on-queue. The second question is about the differences between vehicle GP margins and non-vehicle GP margins growth outlook and forecast. Thank you.

Thank you, Jeff. It's too early to give the guidance for the first quarter. Anyway, from the aspect of production, We believe that there will be a lot of orders this year that need to be satisfied by the production capacity of the first quarter of next year. This is what we look at from the perspective of the current order development trend. Because from the perspective of NIO, we are producing orders, so we are not the same as the traditional system. We are talking about order depth. and other companies. We hope that from the point of view of order, we hope that it is at a reasonable level. If it is too long, it will affect the user experience. The user has to wait too long. So we hope that we can increase the depth of our orders through productivity, so that it can be within a month. It means that if a user orders a car to deliver this car, In terms of our current production capacity, we hope it can last for about three to four weeks. In terms of user experience, it is very good. Of course, we need to wait a longer period of time to reach this point. This is a happy worry. But we believe that after the production capacity is improved, there will be improved user experience. Thank you for your question, Jeff.

It's very early to provide the guidance for the first quarter of 2021. But of course, we need to be fully prepared in terms of the production capacity to make sure we can meet the usage amount and the order backlog. According to the current order momentum and the current backlog, we will need to have a sufficient production capacity for the first quarter of next year to meet the order backlog right now. So in our company, our business model is make to order, so we would like to focus on the level of order. For other companies, they talk about the inventory level, but we focus on the order level. We would like to control the order level within a reasonable range so users don't need to wait for a long time to pick up their car. We would like to improve our production capacity to make sure we can control the order level within one month. It means from the order placement to the user delivery, the lead time should be between three to four weeks. Then we can achieve a good user experience. At this moment, we still need a long time to meet this target, but we will need to ramp up all the production to make sure we can improve for the experience and we're quite confident that we can achieve this target in the future.

In the past, we have always been in the non-proliferated labor force. Its level is generally lower than the total labor force. But overall, we have seen that in the past few seasons, both the total labor force and the non-proliferated labor force have continued to improve. Of course, as we mentioned earlier, We will put the double-discount income into the non-proliferation interest. In this part, this year in China, the market value has really manifested. I believe that from the beginning of this year's quarter to the whole year of next year, in the future, our bonus income will significantly improve our non-proliferation interest. Another point is that and so on. The growth margin has been on the rise.

In the past, we have witnessed a consistent trend that is the non-vehicle gross margin is lower than the vehicle gross margin. In the past few quarters, we have seen both the vehicle gross margin and the non-vehicle gross margin have been increasing. Just like I've mentioned, the carbon credit revenue will be included in the non-vehicle gross margin in the future. And this year, we can see the value of the carbon credit has become one more evident in China. In the coming years going forward, we believe that the carbon credit is going to contribute to the improvement of the non-vehicle gross margin. At the same time, the revenue from our services and the power swap can also help us to narrow the operating loss. So this is going to improve together with the expansion of our user base. Overall speaking, the non-viable cost margin is going to improve in the long run, and the battery as a service bus can also improve the non-viable cost margin. Everything is going according to the plan.

I would like to add one more thing. The profit we have achieved this year is actually generated by our sales cars in 2019. The amount of profit generated by our sales cars this year is estimated to be at least 2.5 times that of last year, and the price of the profit From now on, our business will grow by at least one-tenth of what it used to be. So, in general, we can predict that our revenue for next year will be four to five-tenths of what we expected from the stock market. This is the overall level. Now, there are a lot of venture capital investors who are connecting with us and wanting to buy our next year's shares. In the fourth quarter, we're going to receive the revenues on the carbon credits, which is generated by the vehicles sold in 2019. In this year, because of the sales increase,

The carbon credit number has increased by over 2.5 times, and we believe that the piece price of the carbon credit will also double next year. So the overall revenue of the carbon credit will be four to five times more next year compared with this year. Now, a lot of OEMs are in discussion with us about the purchase of the carbon credit. So we believe that this due credit system and mechanism is going to be very beneficial to the development of the EV industry.

Thank you, William. I have two more questions. Yes, thank you. First, is the carbon credit for next year... Is the carbon credit for next year also for the fourth quarter of next year? Just like this year, it is also for the fourth quarter of this year. So my last two questions is about the carbon credit. Will it be impacting on our P&L next year in 4Q? as well, rather than spread evenly throughout the fourth quarters. This is number one. Number two is about the attach rate on our NOP and BOS right now and going forward. Thank you.

这个积分收入到底在哪个季度确认我们会根据整个市场的情况,策略,还有整个的... 我们不一定是把它放在某一个季度或者说 If you sell too early, maybe you will sell cheaper. This is a decision of the market. As I said earlier, we have reached 35% from the order price in November. But we believe it will continue to increase. The confirmation of the carbon credit revenue is quite flexible. We are not going to put the

will be selling revenue confirmation in a specific quarter next year because this depends on the specific market conditions. If we sell too early, maybe it's a little bit too cheap. For the BAT take rate, just like I mentioned in November, the take rate of BAT has reached 35% among the new orders. Going forward, we believe this is going to further improve in the long run. and the take rate of the new pallet is around 50%. After the launch of Navigate on Pallet, we believe this is going to have a much better performance.

Thank you. Thank you, William.

Thank you. Thank you, Jeff.

Thank you. We have the next question from the line of Mei Yi from US Tiger Securities. Your line is now open.

Hi, thanks for taking my question. Great quarter, guys. My question first is, could you please comment on your thoughts about Tesla's made-in-China model Y? Will it impact on your order momentum? And secondly, could you please give us some updates on your internationalization plan? For instance, do you have a time table for multiple steps of going global? And where could be your focus market? What kind of models are you going to introduce to international markets? How to hire a local and competent team? So my question is two questions. One is, can we talk about some of our thoughts on the Tesla Model Y? And then this thing, is it positive or negative for our order? So the second question is, can you talk about our internationalization plan? For example, what are the timetables for internationalization in different stages? And which places will be our main market? And then I might introduce the type of vehicle and how to recruit a team that is more local and capable. Thank you.

Thank you, Henry. Yes, when we see Tesla, it is already relatively clear that their Model Y will be domestic. But in general, we believe that there are more products in the market for users to choose from. It is certainly very beneficial to promote the popularity of the entire electric vehicle. Of course, we also see that Tesla is indeed a company that is not the same as us. They will be able to reduce prices, In the past year or so, the prices have dropped a lot. In general, they are based on the logic of price adjustment. If we look at it from the perspective of a quarter, the first time the price dropped for us at the beginning of last year, the first time the price dropped for us at the beginning of last year, the first time the price dropped for us at the beginning of last year, the first time the price dropped for us at the beginning of last year, and so on. The average price of a car is about 100,000 yuan more expensive than Tesla. We actually think that our products and services have their own unique competitiveness. We think that after Tesla launched Model Y, we believe that it has a positive impact on the market overall. But from our point of view, I think Model Y is more likely to compete with Model 30. So there is a significant difference between China and Canada. From the point of view of the services of China and the United States, there is an advantage. I think from the point of view of the whole market, the whole pie is getting bigger. Our most important competitor is oil cars. So we believe that China's high-end Thank you for questioning, mate.

Tesla has officially announced that they are going to have the local production of the Model Y. We believe that this is actually good for the users because if we have more options for the users, this can help us to accelerate the popularization of EVs in the market. Of course, we believe that Tesla's strategy is quite different from NIO. Starting from last year, Tesla has cut their price multiple times. And they basically have the pricing strategy based on the cost. At the end of last year and the beginning of this year, their price cut has affected us for about one week. But afterwards, our order intake bounced back very quickly. After this price reduction, they also had several rounds of price cuts. The most recent one is around the 1st of October. The price cut is around 10%. We didn't see any specific impact on over-order intake. Actually, in October, over-order intake has broke the historic record and exceeded our expectations. Over transaction price is around hundreds of thousands RMB higher than Tesla's average selling price. So we believe this proves that we have our own unique advantages with our products and services. Model-wise introduction to the China market is going to be beneficial for the overall market, but we believe the competition It's more about the competition between Model Y and Model 3, because we have our own unique advantages regarding our products and services. For the market situation, basically, we believe the pie is growing bigger, and our main competitors in this market should be the gasoline cars. The China premium market is a very big market with the volume of millions and this gives us great confidence that we can have a sustainable growth in the long run.

This is Steven.

I'll give you some high-level update of our globalization efforts. First, we have a very concrete short-term target. That is, we will enter the EU market in the second half of 2021. At the same time, globalization is a very long-term vision for NIO. So NIO is a global brand, and we will be very patient to implement this strategy step by step. And so we have three principles. We will stick to our user enterprise business model. We believe it's a global and universal business philosophy. Second, we will maintain our premium brand positioning. So our key competitors are BMW, Audi, and Tesla. Third, our sales and service must be localized. to suit the European customers' needs. That's the update of our good-looking efforts.

Thank you.

Perfect. Thank you. Thank you. That will be the last question for today. I'd like to turn the call back over to the company for closing remarks.

Thank you again for joining us today. If you have any further questions, feel free to contact the new investor relations team through the contact information on our website. So this concludes the conference call. You may now disconnect your line. Thank you. Thank you, everyone.

Thank you, everyone.

Thank you, everyone. That will conclude our conference for today. Thank you all for participating. You may now disconnect.