NIO Inc.

Ladies and gentlemen, thank you for standing by for NIO Incorporated's fourth quarter 2020 earnings conference call. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Eve Tang from Capital Markets and Investor Relations. Please go ahead, Eve.

Good morning and good evening, everyone. Welcome to News of Fourth 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 Lin, Founder Chairman of the Board and Chief Executive Officer, Mr. Stephen Fung, Chief Financial Officer, Mr. Stanley Chu, VP of Finance, and Ms. Jade Wang, 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 safe harbor provisions of the U.S. Private Securities 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 U.S. 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 discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Please refer to news press release which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. With that, I will now turn the call over to our CEO, Mr. William Lee.

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大家好,非常感谢各位参加未来2020年第四季度的电话会议。 Hello, everyone. Thank you for joining NAILS 2020 Q4 Earnings Call. 2020年第四季度,未来总共交付了17,353辆ES8,ES6和EC6,同比增长111%,反比增长42%。 In the fourth quarter of 2020, new daily

17,353 ES8, ES6, and EC6, representing a strong growth of 111% year over year and 42% quarter over quarter. The cumulative deliveries of 2020 reached 43,728, representing a strong growth of 113% over 2019. We achieved a historic monthly delivery of 7,225 vehicles in January 2021, and a resilient delivery of 5,578 vehicles in February 2021, representing strong 352% and 689% year-over-year growth, respectively.

In 2020, all three models in the future have achieved good results. The ES6 is the champion of the Chinese electric SUV market in 2020. The ES8 is ranked number one in the high-end electric SUV market in China with 400,000 or more. The EC6 has been ranked number one in the high-end SUV market in China for three consecutive months since November 2020, relying on high-level product quality and service reputation. In 2020, all three new models have achieved exceptional performance in the market. ES6 has been the best-selling electric SUV in China for the full year of 2020.

PS8 has reached the number one in sales in 2020 in the premium electric SUV segment, priced above 400,000 RMB in China. 86 has ranked at the top in the premium coupe SUV segment for three consecutive months in China starting from November 2020, backed by the top-notch product quality and service. NIO has gained growing positive recognition and feedback from users and the industry. In the China Insurance Automotive Safety Index published in January 2021, EC6 achieved the best safety rating among all models tested by CIASI in 2020.

With a competitive product range, high-quality service, and innovative business model, NIO has gained more and more users' recognition.

我们预计2021年第一季度的总交付量将达到2万到2万零5百辆。 Supported by competitive product offerings, outstanding services, and innovative business models, we have long-increasing user recognition and expect the overall deliveries in the first quarter of 2021 to reach 20,000 to 20,500 vehicles. 在

In terms of gross margin, driven by steadily increasing delivery, stable average selling price,

and improving material cost and manufacturing efficiency. Our vehicle gross margin in Q4 reached 17.2%. Moreover, benefited from the new energy credit revenue, the overall gross margin has also increased to 17.2%.

We continued to achieve positive financial activity cash flow in the first quarter of 2020. At the same time, we achieved overall financial activity cash flow improvement throughout the year.

You have continued to achieve positive cash flow from operating activities in the fourth quarter and the full year of 2020. In all aspects, new operational efficiency and overall system efficiency have significantly improved in 2020.

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Next, I would like to share with you some key tasks of the company. At the new day on January 9, 2020, or actually 2021, we launched the ET7 of the first flagship sedan based on the new technology platform 2.0.

NT2 with its cross-leading dimensions, breakthrough exterior, sophisticated interior, efficient powertrain, immersive digital cockpit, and industry-leading autonomous driving capabilities, ET7 has received remarkable feedback from users, media, and the industry. Its order performance has also exceeded our expectations.

ET7 will be based on the future full-fledged autonomous driving technology platform, with NIO Acura Super Sensing and NIO Atom Super Computing NAD, NIO Atom Driving System. NIO Acura Super Sensing system has 33 high-performance sensor hardware, including 11 8-inch high-definition cameras and a high-precision laser radar with a range of 500 meters. NAD's Inhouse Full Stack Autonomous Driving Technology Platform will be equipped with NAD's new autonomous driving, consisting of new Acura Super Sensing and new Aden Super Computing.

New Acura Super Sensing System has 33 high-performance sensing units, including 11 8-megapixel high-resolution cameras and one high-resolution LiDAR with a detection range of 500 meters. The computing power of new ATOM is up to 1,016 TOPS. The sensor suite and the computing power of NAD far surpass other competitors. and will expedite the mass production progress of the autonomous driving industry.

NAD will gradually realize the point-to-point automatic driving experience, which is easy and safe for high-speed, urban, parking, and home appliances, and will reduce the time of release and reduce the number of accidents. In the future, NAD will launch the service subscription mode, AD as a Service, so that more people can enjoy the NAD function.

NAD will provide a safer and more relaxing AD experience from point A to point B, gradually covering highway, urban, parking, charging, swapping, and other use cases to free up time and reduce accidents. In addition, new NAD will be the first AD system offered through a monthly subscription service or AD as a service, so more people can try out and enjoy new NAD.

We also released the second generation of power station in NIO. Compared with the first generation of power station, the cost is lower, and the service capacity has been increased by three times. At the same time, the future has released 150 degrees of electromagnetic bags, which has achieved a 50% increase in energy density, and greatly improved the range of future products. The range of 150 degrees of electromagnetic bag ET7 will exceed 1,000 kilometers. Under the future service system, each existing user can upgrade the electromagnetic bag of different sizes as needed.

We have also launched the PowerSport Station 2.0 at the new day, which enjoys much lower cost and the three times higher service capacity compared with the first generation. In addition, we have launched the 150 kilowatt hour battery pack, which shows 50% energy density improvement and can significantly extend the driving range of all new models. With the 150 kWh battery pack, the NEDC range of ET7 can reach over 1,000 km. Under new service system, every user can choose to upgrade to different battery packs on demand. 未来致力于打造车电分离,电池周用,可充可换可升级的创新体系,为用户提供全场景的家电服务。

As the number of users continues to grow, more and more users are choosing Battery as a Service. In February 2021, the number of users choosing BUS as a Service reached 55%. We believe that BUS and the future perfect power supply service system will accelerate the transformation of car users to full electric vehicles.

NEO is devoted to building an innovative model of battery vehicle separation and battery subscription with chargeable, swappable, upgradable batteries, as well as providing holistic power solutions to users. Along with the growing user base and expanding battery offerings, more and more users opt for battery as a service. But in February 2021, the take rate of FAS among new orders has reached 65%. We believe fast and new holistic charging and swapping service system can accelerate the conversion from ICE to BEV.

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The continuous development and the research of new products and technologies is the cornerstone of sustainable development. New will decisively step up over R&D investments. and speed up the development and production of core technologies and new products. In 2021, our R&D investment is expected to double and reach around 5 billion RMB.

In terms of production capacity, in January, we have reached 7,500 total supply chain production capacity. Our partner, JEC, has already launched factory expansion work, and is planning to achieve 150,000 units per unit by the end of this year, and 300,000 units per double unit by the end of this year.

Our production capacity has reached 7,500 units in January. Our partner, JAC, has already kicked off a further production capacity expansion in the Hefei plant and plans to expand the annual production capacity to 150,000 units under one shift and 300,000 units under two shifts to prepare for the production of ET7 and future products.

In February 2021, you entered into a further collaboration framework agreement

with the Hefei government to jointly plan and build the Xinqiao Smart Electric Vehicle Industrial Park, including R&D and manufacturing, pilot demonstration, and industrial supporting services, and build a world-class smart electric vehicle industry cluster with a full-fledged industry value chain.

In terms of sales and service network, we currently have 23 future centers and 203 future spaces covering 121 Chinese cities. We see that the offline space continues to contribute to improving brand knowledge, order growth, and community operation of users. In 2021, we plan to set up another 20 future centers and 120 future spaces, expand the area of coverage, and play an important role in the online and offline sales system, improving the experience and efficiency of the entire sales process.

With regards to the sales and the service network, we now have 23 new houses and 303 new spaces covering 121 cities in China. In light of the continued contribution of the offline spaces towards brand awareness, order growth, and the user community operations, we plan to open 20 new houses and 120 new spaces in 2021 to further expand the network coverage, leverage new competitive edges of direct sales, consolidating both online and offline traffic, as well as improve the user experience and efficiency of the overall sales process.

In the second quarter of this year, we will gradually deploy lower-cost, better-experienced second-generation charging stations. The goal is to increase the total number of charging stations to at least 500 this year. At the same time, we want to expand the construction of super-large network and target charging stations. Currently, we have 127 super-large stations and 1,700 target charging stations. At the end of 2021, we plan to reach 600 and 15,000.

You have built 191 swap stations. in 76 cities. Starting from the second quarter of this year, we will gradually deploy the PowerSwap Station 2.0, which offers better experience with lower cost. Our target in 2021 is to ramp up to at least 500 PowerSwap stations in total. Moreover, we will step up our efforts in building our supercharging network and destination chargers We currently have 127 power charger stations and over 1,700 destination chargers, which will reach 615,000 respectively by the end of 2021.

As the number of users continues to increase, the operating efficiency of the future customer service system is also increasing. Currently, we have 31 future service centers, 158 delivery service centers, While the user base grows, the operational efficiency of a new after-sales service system is also improving. We now have... Gotta move. Gotta get out.

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31 new service centers and 158 authorized service centers. To deliver better service experience to the users, we will expand our after-sales service networks to further optimize our after-sales service systems.

Taiwan Taiwan Our second year of the user trust board has also confirmed the importance of user care, industry community, social justice, and environmental protection as the focus of this year's work. User support is our driving force.

Neil aims to build a community starting with the smart EVs, where we share joy and grow together with users. The live broadcast of the New Day 2020 held on January 9, 2021, has attracted near 100 million views. At the New Day, we launched the Bluepoint plan and became the world's first auto company to help users to certify emission reduction and treat carbon credits. In 2021, the second user council offered the new user track has decided to focus their work this year on user care, industry sub-communities, public welfare, and environmental protection. The constant support of our users is the constant force to drive us to always move forward.

2020 is an important milestone in the development of the future. With the support and efforts of the users and the team, the overall business of the future is moving in the right direction and entering an accelerated stage of development. 2020 is an important milestone on the development journey of NIO. With the user's support and the team's efforts, the companies of all operations are back on track and have entered into a rapid development stage. As a startup,

we will stay true to our original mission, continue to make a decisive and efficient investment in the R&D of new products and core technologies, and further expand the charging and swapping network and the after-sales service network to provide the best holistic experience to new users.

As always,

Thank you for your support. With that, I will now turn the call over to Steven to provide the financial details for the quarter. Steven, please go ahead.

Thank you, William. I will now go over our key financial results for the first quarter of 2020. And to be mindful of the length of this call, I encourage listeners to refer to our earliest press release, which is posted online for additional details. Our total revenues in the first quarter 6.64 billion RMB, or 1.02 billion US dollars, representing an increase of 133.2% year-over-year, an increase of 46.7% quarter-over-quarter. Our total revenues are made up of two parts, legal sales and other sales. Legal sales in the fourth quarter were 6.17 billion RMB, or 946.2 million US dollars. accounting for 93% of total revenues in this quarter. It represented an increase of 130% year-over-year and increase of 44.7% quarter-over-quarter. The increase in vehicle sales year-over-year was primarily due to higher deliveries achieved from more product offerings and the expansion of our sales network through the continued launch of new spaces in 2020. Other sales in the fourth quarter were 467 million RMB, or 71.6 million US dollars, representing an increase of 184.1% year-over-year, an increase of 80.2% quarter-over-quarter. The increase in other sales year-over-year was mainly attributed to sales of automotive regulatory credits, as well as the increased revenues derived from the home chargers installed, and accessories sold in line with incremental vehicle sales. Cost of sales in the fourth quarter was 5.50 billion RMB, or $842.8 billion, representing an increase of 77.3% year-over-year, an increase of 39.6% quarter-over-quarter. over a year, with a 1.5 million increase of the scheduled volume in the fourth quarter of 2020. Gross profit in the fourth quarter was 1.14 billion RMB, or 175 million US dollars, representing an increase of 1.40 billion RMB from the fourth quarter of 2019, an increase of 556.1 million RMB on the third quarter of 2020. The increase in gross profit was mainly contributed to increased vehicle sales and increased vehicle margin. Gross margin in the fourth quarter was 17.2%, compared with the active 8.9% in the same quarter of 2019, and 12.9% in the third quarter of 2020. The increase of gross margin was mainly driven by the increase of vehicle margin in the first quarter of 2020. More specifically, the equal margin in the first quarter was 17.2% compared to the expected 6.0% in the same quarter of 2019 and 14.5% in the third quarter of 2020. The increase of equal margin

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1.2 to 7.1 million stone, which is a decrease of 19.2% year-over-year, an increase of 40.4% quarter-over-quarter. The decrease in R&D exchanges year-over-year was caused by the decrease of R&D exchanges related to the DC6, which came to mass production in September 2020. And the common of all cost-saving efforts and improved operational efficiency in R&D functions. SGN expenses in the fourth quarter were 1.2 billion RMB, or 185 million US dollars, representing an increase of 21.9% year-over-year, an increase of 28.3% quarter-over-quarter. The decrease in SGN expenses year-over-year was primarily driven by the company's overall cost savings efforts and improved operational efficiency. for operations in the fourth quarter was 931.4 million RMB, or 142.7 million USD, representing an increase of 57% year-over-year and a decrease of 1.5% quarter-over-quarter. Share-based compensation expenses in the fourth quarter were 16.2 million RMB, or 9.2 million USD, representing an increase of 17.6% year-over-year, an increase of 32.3% quarter-over-quarter. The increase in share-based compensation expenses year-over-year was primarily attributed to the incremental options granted with relatively higher grant date sale values to the increased share price. Net loss in the fourth quarter was 1.39 billion RMB, $203.8 million, representing a decrease of 51.5% year-over-year, an increase of 32.6% quarter-over-quarter. The increase in net loss quarter-over-quarter was attributed to the unrealized foreign exchange losses. It was from the depreciation of US dollar cash balance held by domestic entities with functional currency of RMB in the fourth quarter of 2020. At last, 2.2 million U.S. shareholders in the fourth quarter was 1.49 billion RMB, or 228.7 million U.S. dollars, which is an increase of 48.4% year-over-year, an increase of 25.6% . Basic and then last for ADS in the fourth quarter for 0.05 RMB, or 16 cents per ADS, excluding share-based compensation expenses and the creation of renewable non-controlling changes to reduction value. Long-gap adjusted basic and diluted loss per ADS were both 0.03 RMB, or 14 cents per ADS, or a balance of cash and cash increments. with strict cash and short-term investment was 42.5 billion RMB or 6.5 billion dollars as of December 31st, 2020. Additionally, we achieved positive cash flow for operating cash activities for the full year of 2020. And now for this audit. As William mentioned, for the first quarter of 2021, we can't expect deliveries between 20,000 and 20,500 vehicles, representing an increase of approximately 421% to 434% from the end quarter of 2020, an increase of approximately 15% to 18% to the fourth quarter of 2020. The company also expects its total revenues in the first quarter 2021 to be between 7.38% at 7.56 billion R&D, or between 1.13 and 1.16 billion US dollars. This will represent an increase of approximately 478% to 451% from the same quarter of 2020, an increase of approximately 11.2% to 7.8% from the quarter of 2020. If this outlook reflects current and the preliminary view on the visitation and the MOX condition, which is subject to change. Now, to conclude, I'll prepare remarks. I will now turn the call over to the operator to process our Q&A session.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and with your name to be announced. If you wish to cancel the request, please press the pound or hash key. For the benefit of all participants on today's call, please limit yourselves to two questions. And if you have additional questions, you can re-enter the queue. Your first question comes from Edison Yee from Deutsche Bank. Please ask your question.

Thank you very much. So first question I wanted to ask is on Neo's focus in the premium market. It seems you're very focused on that and that's not going to change. Would you consider developing another brand to go after the mass market or more mid-tier markets? The second question is about the international expansion. You've indicated that you'll enter Europe later this year. I'm wondering what kind of sales volume would you expect in the longer term. And in relation to that, there's a lot of speculation from the press lately that NIO is getting much more serious about getting to the U.S. Could you share your latest thoughts about that? And I'll translate that down. Thank you, Edison.

This massive market, from our perspective, we certainly have the possibility. But from NIO's perspective, NIO's brand will focus on the premium market. To put it simply, NIO's brand will not enter the massive market. This is for sure. Of course, if you know about us, A few years ago, we made some attempts through investment and GAZ and Guangxi Chang'an. Of course, we have already reduced our share price in this company. We have reduced it to less than 5%. It used to be more than 40 shares. Now we have reduced it to less than 5%. From another perspective, it also gives us a more positive Thank you, Edison, for your question. Of course, it's possible for us to enter the U.S., to enter the mass market. The new brand

is going to focus on the premium market. Simply speaking, a new brand is not going to enter the mass market. But in the past few years, we have already tried different approaches to enter the mass market. For example, we established joint ventures through investments with GAC and Chang'an, previously over shareholding in those joint ventures. is around or over 40%, and now our shareholding has reduced to 5%. This gives us more flexibility and possibilities to try different approaches to enter the mass market, and we would like to be more active to do this. This is going to be part of our long-term strategy.

The second question is about the international market. This year, we will be in Europe In the long term, we are able to occupy a share of the global major markets. But we know that this is definitely not done in one day. From NIO's perspective, we have established our development team in Europe and the United States. We have the ability to manage this kind of global team, but we still know that entering the global market is a more complicated job. As you mentioned about the US market, we have been working on it for a long time. We are still exploring the business model and exploring various possibilities. Of course, we will get closer to it, but we will be very patient and take steps.

Regarding the second question of the international markets or the global markets, starting from this year, we're going to enter the Europe market. We will build our own sales and service network in the European market. Right now, we have already kicked off the preparations regarding the team setup, product, and the sales and service network building, basically covering all aspects of operations in Europe. This is going to be part of the long-term strategy for us to enter the global market, so we need to be patient. In the long run, of course, we would like to achieve significant shares in important major markets in the global arena, but it will require a lot of effort and time to do this. Starting from day one, we have over R&D operations and other operations in different regions and countries. But we understand that the sales and the service is going to be more complicated if we decide to enter different regions and countries. Regarding the U.S. market question, we have already kicked off the research about the U.S. market entry at a very early stage. We have studied about the possible business models and strategies and the different approaches about how should we enter the U.S. market. But this will require lots of patience, and we would like to do this step by step.

Thank you, Edison.

The next question comes from Ming-Sun Lee from Bank of America Securities. Please ask a question.

Thank you. Thank you, William and the management team. So my first question is regarding the margin improvement in fourth quarter. If I adjust the contribution from the credit sales, the gross margin of the company is around 15.7% in this quarter, still improved a lot from last quarter. So could you give us some breakdown regarding margin improvement, for example, like ASP improvement in the quarter, bone cost improvement in this quarter. Besides, could you also elaborate more regarding on the battery supply and also the chip supply recently, especially we already see company will postpone the battery upgrade for certain customers in June. So could you elaborate more on this? And the second question is also regarding on battery related. because recently we already see the upstream cost inflation. So we are interested about the cost trend in 2021, and also probably some rough gross margin guidance for this year. Thank you.

Zhang Jiumin, can you answer the first question?

Yes. The vehicle gross margin increased from 14.5% in Q3 to 17.2% in Q4. It was mainly driven by more ES8 and EC6 with higher gross profit margin delivered. And the material and manufacturing cost of vehicles slightly decreased. And back to numbers, I think these setting price, average setting price increase was 10,000 per unit. And manufacturing costs and material costs slightly decreased. And to the overall gross margin, we booked 120 million RMB EV credit sales in Q4. The gross profit, overall gross profit margin contribution was 1.8%. That leads to the overall gross profit margin increase. And regarding the gross profit margin guidance in 2021, what I can see is the margin in Q1 can also be slightly improved. but the trend is not so large as much as in 2020. And for the four-year guidance, I think it's too early for us to give at this moment. For the battery and chip supply, I'll go back to William. Okay, understand.

Yes, indeed, the impact of the new supply chain is very big. It does have some impact on our Q2, but so far, we can see that it is basically able to meet our normal production plan. But now, indeed, there are a lot of changes in the situation every day. The impact of Q2 on the entire global car industry is still very, very big. Our team has been working on it since the fourth quarter of last year. It is also a bottleneck. The supply of batteries in the second quarter, especially the 100-degree battery supply, is indeed a little less than we hoped for. This is because the demand for electric vehicles has indeed increased a lot recently. Our cooperative partners, their production capacity is still there, and they can achieve our standard production capacity in these industries. It really needs to be improved. Thank you for the question.

Regarding the chip supply and the battery supply, of course, this has a very big impact on the overall supply chain. This is also one of the constraints in the second quarter of this year. Of course, right now, we have sufficient chip supply to support the normal production, but it's a changing time, so the situation will evolve gradually. For the second quarter of this year, we will do have some risks regarding the chip supply. But starting from last year, our team has already kicked off the communication and the collaboration with our supply chain partners to secure the sourcing of the chip. We even have some direct communications with the chip suppliers to make sure we have sufficient supplies of the chipsets. We believe for the second quarter, we should have the chip supply to meet our basic demand, but the risk is still quite high. Regarding the battery supply, this is another constraint for our second quarter performance. We do have some limited supplies regarding the 100 kilowatt-hour battery pack and other battery packs, which is actually less than our demand. because right now the market is actually quite booming. And starting from July, we believe that the battery supply should go back to the normal level and meet over demand. So because of the constraints of the battery supply and the chipset supply, overproduction capacity will kind of be limited in the second quarter to around 7,500.

Yes, the third one is that the electricity cost has no effect on us. This year, overall, we can still see that the cost of our battery has dropped a little, but it will not be as obvious as it was last year. Overall, the market change has limited impact on us, because we locked some of our partners. Because we are still in the current position,

For the battery cell cost, we believe the impact on us is not that big. For this year, the cost of the battery will further reduce to some extent, but we believe it's not going to be on a large scale. but the impact on us is quite limited because we have already locked the supply with other battery partners. Let's do a very important, probably the most important customer for CHL, so we have a very good pricing with the CHL battery.

Thank you, Min.

The next question comes from Bin Wang from Credit Suisse. Please ask a question.

Thank you. I have just one question about the near-term EV sales, because actually recently we got different pictures. For example, your peers, you also have a pretty weak guidance. However, today's guidance seems to be surprised on the upside, especially the March has been reaching new highs for NIO. We're also facing the competition from Tesla Model Y, and we need to elaborate what's happening in the near-term EV demand. Is it still or bad? So since that is quite confusing, And meanwhile, you seem to be quite positive about second quarter, you've got about 7.5 thousand per month. Is that your guidance for second quarter? Thank you.

Thank you, Wang Bin. To be honest, in general, Q1 is a bit challenging for the EV market. This is mainly because of the policy related to the stock market and the year end. There are some influences in many aspects. Q1, for most companies,

Thank you, Bing, for your question. Normally speaking, the first quarter of the year is the low season for the EV industry because of the subsidy and the other policies.

For their short-term demand, this should be a good demand. But the latest situation, because Tesla is like this, they often make a news and collect a batch of orders. We usually focus on long-term stable demand growth. So we are not the kind of selling-off type, so we will not suddenly get a lot of orders through a certain price drop and then uh, We can see the growth of take-away from this point of view. Our unique competitiveness and our long-term user development strategy allow us to fight against the entire cycle, unlike others that are affected by the season and the short-term impact.

Model Y has announced their pricing for the locally manufactured vehicle, but this is the normal strategy and the practice of Tesla. Normally they cut the price and then they can boost the order backlog. Our approach is quite different from Tesla because we would like to make sure we have a stable order performance instead of these ups and downs in the order backlog For us, we don't actually want to cut the price to boost the order backlog, so it's quite different from Tesla. We would like to focus on the service and the experience, the improvements, as well as building a positive word-of-mouth reputation in the market because we do not want to cut the price. Because of our strategy, we can achieve a very stable and solid pricing with our which will also help with other gross margin and the vehicle gross margin. Just like I mentioned, in February, the BAT take rate among the new orders has reached 55%, and these are growing every month. So with our unique competitive edges and our long-term capabilities, we believe that we should be able to secure a strong footing in the market instead of being affected by those short-term strategies and practices.

Thank you, Wang Bin.

Your next question comes from Tim Xiao from Morgan Stanley. Please ask a question.

Morning, management team. Congratulations on this strong result and good guidance. So I have two questions. The first question is about the vehicle sales this year because since our next model, ET7, won't kickstart the delivery deal next year, how can NIO to medically grow the vehicle sales in 2021? And will there be any spec upgrades or major model facelifts? on top of the aggressive channel expansion plan and BOSS program. My second question is about your comments from the new house. Because I remember, like last year mentioned, your house might be less cost efficient. So could you elaborate more about a key consideration when deciding to resume the deployment of your house? And what would be the overall investment and additional operating expenses to fill up the coverage of the new house based on the current estimate. Thank you.

Thank you, Tim. The ET7 will be delivered next year. Of course, there is a lot of preparation work to be done, especially in the AD part. We will also carry out a lot of testing and development. However, from now on, the delivery of our ET7 We mainly rely on ES8, ES6, and EC6 products. If we look at EC6, it was delivered last September. ES8 was delivered in March last year. Now it is a new ES8. ES6 was actually delivered in the second half of 2019. So from the perspective of product life cycle, they are still very competitive products. In comparison with other electric vehicles or gasoline vehicles, we have enough competitiveness. So we don't think that we need to make any major changes to these three products before our NT2 technology. We will not do such a thing. On the other hand, as I said before, China is a very large market. If we can improve the infrastructure of every city we go to, we believe that the increase in sales will be very effective. This is what we will do from this year to next year The MP2 technology, before the update, we mainly use the expansion of the sales service network, the expansion of the experience, to be a driving force for sales. So we are still very confident that our overall sales goal can be achieved. Another point is the bus we mentioned, the delivery of 100 degrees of electricity,

After saving with customized car insurance from Liberty Mutual, I customize everything, like Marco's backpack.

This will provide a very good reason for car users to switch to electric vehicles. We see that this trend is actually getting faster and faster. So, in fact, from the point of view of our smart electric vehicles, our main competition is still the same price of gasoline vehicles. We are in the range of $300,000 to $400,000. Benz, BMW, Audi, they all created a new high in sales last year. Of course, their electric cars are really worse than ours. But their oil cars are selling very well. So we still have a lot of opportunities. We are not asking for a sales of hundreds of thousands a year. Our current sales target, we think, is enough.

Thank you, Tim, for your question. We will start the delivery of the ET7 from the first quarter of 2022. This means we will have a lot of preparations to do before the actual launch, especially in terms of autonomous driving technologies. We will need to do sufficient testing and development work for the autonomous driving technologies. Starting from now to the delivery of the EC7, many rely on three current products, including ES8, ES6, and the EC6 for the sales performance. Regarding the EC6, it's actually launched around September 2020, and for the all-new ES8, it's launched around March 2020. So for the ES6, it started the delivery from the second half of 2019. So in terms of the product lifecycle, we believe all the three models are quite competitive in the market compared with the gasoline cars and other EVs. We believe before the launch of the NT 2.0, we do not need to have significant changes and to our current three products. But on the other hand, we would like to further expand our sales and service network. China is a very big market, so we will still have a lot of opportunities. If we can further improve our infrastructure building, This can also help us to improve our sales performance. Starting from this year to next year, before the launch of the NT2.0, we will mainly focus on the sales and service network and experiencing improvement to improve our sales performance. So we're quite confident that this should be able to help us to achieve our sales target. At the same time, we also have battery as a service and the 100 kilowatt-hour battery pack delivery. This is going to contribute to the conversion from ICE to BEVs. We're witnessing the trend is accelerating from this conversion. We believe our main competitors are the gasoline parts at the same pricing level. That is around 300,000 to 400,000 RMB. In 2022, as you can see, Audi, BMW, and Mercedes have achieved their sales new highs. So it means that this is actually a very big market. We believe all the products are actually much better than their products. So it means that we have a lot of opportunities. We also do not have a very aggressive sales target because we're not going to sell hundreds of thousands of vehicles in one year. So we believe with over current sales target that we should have the competence to achieve the objective.

Hi Tim, I would like to elaborate the reasons why we bring new horse back and the cost efficiency of our new horse. I would like to remind you of the three key functions of a new house. First, it helps us to convert leads to order, and speed up the deployment will enhance the brand awareness, increase our user touch points. And second, new house also represents a very strong brand presence. Increased investment into brand communication will be conducive to the long-term benefits of our brand. Newhouse is also very important for our user system and for our user community. And also, on the other hand, we have accumulated rich experience in operating offline stores and better control the set selection, planning, and cost, which significantly lowers the investment and approaching cost per store. To give you a rough number, the average store investment is just 40% of the original and the average rent and operating cost is just half of the original.

Thank you, Tim.

Thank you, Ruilin.

Your next question comes from Nick Lai from JP Morgan. Please ask your question.

Yeah, hi, good morning. It's Nick from . So two simple questions. First, new autonomous driving solution, yeah, you mentioned that for a new ET-7 model, which will be equipped with a super computing solution and actual supersensing capability. I wonder whether these two solutions will be used for other existing models such as EC6 and ES8, and if so, how soon can we see this happening in the future? And related to this question is, yeah, is it fair to say that we'll broaden our monetization strategy beyond battery as a service and to more and more AD as a service in the future? And the second question is related to volume. You just mentioned that 2Q monthly capacity of production volume would be somewhere about 7,500. But at the same time, you also mentioned that the JSC is expanding capacity to 150,000 units capacity on a single ship basis. So as we move into second half of the year, and hopefully the supply bottleneck on battery and the chip can be solved? And how should we think about capacity or monthly production increase into second half? And also related to volume questions, you just mentioned that ET7 is well above expectation. What does that mean? Does that mean 20,000, 30,000 units or anything? Any guidance will be appreciated. Thanks.

Thank you, Nick. Yes, the first question is, of course, our ET7 is the first car to be equipped with NT2 technology. Of course, there is no doubt that our future cars will all be developed on the NT2 platform. Of course, this is definitely not an immediate thing, but we are definitely in the development plan. But the specific Thank you, Nick, for your question. IT7 is the first model built on top of the NT2.0. Of course, all future models will be developed based on the new technology platform 2.0, but we're not going to kick off this work

as soon as possible but it's already in the pipeline for other products and the future models we will leverage the latest technologies and we will share with more information with everyone regarding the product planning and the product portfolio at the right time

We believe that in the future, AD services will be provided in the form of subscription fees. This is the right direction. Because this is the best benefit for the user, and it is more reasonable to do it from the perspective of technical means. Of course, compared to the current ADAS one-time collection fees, It's more of a saving model based on the number of users. For this user, as long as this car is in this life cycle, for example, if this car is in the 15-year life cycle, then in these 15 years, you are able to have the opportunity to get income. So from this perspective, we think that ADS Service's From the perspective of the entire life cycle of the car, its income model is better than the current one. This is a better income. So at this point, if we look at all the cloud services now, whether it's Microsoft, Google, or Amazon, these cloud services in China, this is definitely a better growth engine. So we are For the AD as a service, we believe that this is the right direction because we believe in the future all the AD services should be provided through the subscription model.

because it's going to benefit the users and from the technology point of view is also quite reasonable and feasible compared with the AD as a business model. The AD as a service business model is based on the install base. So it means that if one user's life cycle is 15 years, then within this 15 years we should be able to generate revenue based on the AD as a service business model. In this regard, we believe the ADS service business model is much better than the traditional ADS business model. If you look at the cloud service business like Amazon, Google, Microsoft, and other domestic players in China, we believe this ADS service subscription model is going to be a very good revenue stream for us. That is why we are going to be quite decisive to promote this business model and the subscription model. And from the battery as a service, we have already learned a lot of experience and the confidence, and we believe that this means that the user should be quite acceptable regarding the AD as a service.

For the ADS service,

In a nutshell, we believe the take rate is going to be higher and they can generate the revenue throughout the user life cycle. It's also going to be beneficial for the users and we believe it's also going to be a very good business model and it's going to be quite sustainable.

The third question is about capacity. During the Spring Festival, I don't know. This Hefei factory's production capacity, the factory's own production capacity has been further improved. We now have the ability to produce 10,000 cars every month through part-time work. But in the second quarter, as I said before, the second quarter is limited to the production capacity of some supply chain cooperation partners, including chips and batteries. We can only guarantee the production capacity of 7,500 supply chains per month. In other words, although the entire car factory can produce 10,000 cars every month, we can only China. China. China. China. China. China.

I would like to provide more information regarding the production capacity. We have already achieved 7,500 units production capacity in January. I would like to explain a little bit about the overall supply chain production capacity concept because this covers both our own plants and the supply chain production capacity. During the spring festival, the Hefei plant has already kicked off their production capacity ramp up. So we now have the capability to produce 10,000 units per month by having two shifts in some workshops. However, just like I mentioned, because of the constraints of the chipset, supply and the battery supply in the second quarter, we may only be able to secure an overall supply chain production capacity of 7,500 units per month. But starting from July, we expect to elevate the overall supply chain production capacity. Just like I mentioned before, our partner JEC has already kicked off their further production capacity expansion. Probably the annual production capacity is going to reach 150,000 units under one shift and 300,000 units under two shifts by the end of this year or the beginning of next year. Let's talk about the order of ET7. We announced the opening of the order on January 9th.

I can say that the performance of ET7 Another question is about the E27 auto performance.

Actually, ET7 was available for order on the new date on January 9, 2021. The ET7 order backlog performance has exceeded all other models we have right now, but we cannot disclose the specific information regarding the order backlog. We would like to just focus on the delivery performance. But overall speaking, Regarding the pricing of the 87 is around the 448,000 RMB. With this kind of a pricing, we believe that 87 has performed very well in terms of accumulating sufficient orders.

Thank you, Nick. Thank you, William.

Your next question comes from Lei Wang from CCICC. Please ask a question.

Good morning. This is Wang Li speaking from CSCC. I would say that's a very strong early report and a very strong first quarter guidance. I have one follow-up question about the joint venture of Bars. William just mentioned 55% of the tick rate. Could you please inform what is the capital status of the joint venture and how many battery services this company can support theoretically? Thanks.

Thank you, Wang Lei. Our Battery Assets Company has completed two rounds of financing. There are eight shareholders in total. In addition to NIO, there are seven investors who participated in this investment. Of course, they are all very qualified investors. We have completed 14.4 billion RMB of investment. Recently, Ah, ah, ah, ah, Thank you, Lei, for your question. Regarding the battery asset management company, we have already finished

two rounds of financing. Right now, we have eight shareholders, including Mio. We have already raised around 4.4 billion RMB. Right now, many new investors have approached me and asked whether it's possible for them to invest in the battery asset management company. At the same time, we also secured sufficient credit facilities from the bank for the battery asset management company. As a very important player or a very important role in the battery as a service business model, the battery as a company has already secured sufficient cash to support this business model operation.

从这个交付的battery as a service用户的, 它肯定是会比订单的会晚一点, 因为这个我们是按订单生产, 它肯定会有一些, But in terms of the penetration rate of the batteries, among the battery as a service users, the delivery is going to be later compared with the orders.

because we have a make-to-order business model. So first we have a penetration rate in the order backlog, and then this will be gradually reflected in the delivery of the batteries to the users.

Thank you, Wang Lei. Thanks, William.

The next question comes from Paul Gong from UBS. Please ask a question.

Yeah, thanks for taking my question. I have two questions. The first one is on the real-time cells. Do you foresee the lower-tier cities increasingly to be the key focus for your expansion? And how do you think about your expansion of network and your ideal mix of the cells into Tier 1, Tier 2 versus Tier 3 cities? And do you foresee to gradually moving from tier one focus into lower tier cities in the next 12 months? The second question is regarding the autonomous driving system development for the ET7. Obviously, you have put very redundant, very powerful hardware on the vehicle. And for those who choose not to subscribe to the AD system, will you still put the same hardware on the vehicle or will you choose to upgrade for the later stage when they choose to subscribe that? And if you put such kind of redundant hardware, does that mean the costs tend to be higher and you will strategically accept a lower margin on the car sales than try to monetize it through the subscription in the later surface in the later life of the stage for the whole vehicle. Thank you.

Thank you, Paul. In fact, we have always been relatively positive in terms of network coverage. Now, our new house and new space have already covered 121 cities in China. Last year, we increased the coverage of NeoSpace. This year, we will add 20 new houses and 120 future spaces. Our basic strategy is BBA, Lexus, Benz, Audi, and Lexus. With Benz and Audi, we will Thank you, Paul, for your question.

In fact, we have always been quite aggressive in building and expanding our sales network. Just like I mentioned, we have already got new houses and new spaces in around 12 cities. And starting from last year, we have accelerated the expansion of the new spaces. In 2021, we're going to build 20 new houses and 120 new spaces. Our basic strategy or principle is to build our point of sale in those cities that have dealerships of the BMW, Audi, and the Mercedes or Lexus. Based on this principle, we haven't achieved full coverage yet in those cities, but we believe with our efforts this year, we should be able to achieve full coverage. And for our existing new houses and new spaces, we already got some in the Tier 3 and Tier 4 cities.

In general, we don't have any particular opinion on which areas should be built and which areas should not be built. We do not have any specific tactics regarding welfare. We have the new houses or new spaces is more driven by the sales performance. For example, in the

Yangtze River Delta region, the sales performance is quite good. That is why we decided to build the new houses and the new spaces in this region. So of all things, we would like to expand our sales network coverage in more cities and more areas.

There are some differences in terms of charging network. including the super network, including our destination charging network, we will go to some more remote places to clean up. For example, Inner Mongolia, Heilongjiang, or Xinjiang, their infrastructure, no one is willing to build infrastructure there. This year, we will focus on these places where the infrastructure is poor, and we will increase some investment. Our idea has always been that Um.

But we would like to build more charging and swapping network in the remote places or remote cities, especially including the supercharging network and the destination chargers. For example, we would like to deploy over charging and swapping network in Inner Mongolia, Heilongjiang, and other remote cities. In those cities, they do not have a very good infrastructure for the EVs. Starting from this year, we're going to ramp up our infrastructure in those places. Our principle and our vision has always been that the users can go everywhere with a very good user experience. So we would like to focus on those cities because right now the cities do not have a very high EV penetration. That is why no third parties would like to build the infrastructure in those cities. But we would like to start this work first.

The second question is about ETC's ADS service. We do have all these hardware that are standard. But we will not, because of the sales model of ADS Service, make some drop in the overall profit. We will still maintain the reasonable profit of the overall profit, the profit of the overall profit during sales. Of course, we also know that we think that a profit of more than 20%, a profit of about 20%, is a reasonable target. So we will not take the initiative to reduce this. We will not reduce this part. Regarding the ADS service on 87,

The hardware, including new and the new add-ons for computing, all come as a standard on the ET7. But we're not going to lower of a vehicle cost margin just because we are now using the AJS service subscription model. We would like to still keep a reasonable vehicle cost margin at the time of the sales. Previously, we have already said that around 20% is a reasonable vehicle cost margin target, so we're not going to lower this target. For the NAD, we believe that this is going to make long-term contributions to overall cost margin and the vehicle cost margin.

Thank you, Paul. Thank you.

Your next question comes from Jeff Chung from Citi. Please ask your question.

Hello, Mr. Li. I have two small questions. First, I want to ask about the past and future of NLP and BaaS. What will happen in the future? What will happen from the end of the year to the end of the year? And the second question is, as I said, our demand is very good, but there may be some bottlenecks, so we are now controlling 7,500 units a month. Let's say we have about 7,500 units per month. Have we calculated that the NLP, BUS, PENETRATION, or TAX RATE have not increased by 10 points? How sensitive is this to our labor? The last question is about annual sales. I think if we have 7,500 units in April, In April to December, if the return ratio is 0 increase, there will be 87,000 units in the whole year. But if the return ratio is the CAGR of each point increase, from April to December, there will be 3,000 units in the whole year. I would like to ask, can you give us a range estimate? Because the supply of chips and batteries will definitely slow down in the end. That is to say, if we look at the 0% volume CAGR, which is 87,000 units, So I've got three questions. What is the NOP and BAS attached rate in the past, right now, and in the future? And how sensitivity does it relate to the GDP margin and earnings? The second question is the range estimate of four years sales volume target. Thank you.

Thank you, thank you, thank you. We've talked about 80 take-away. Now, from the order point of view, we've already reached 55 in February. As for NeoPilot, we now have a pre-selected package and a full package. If we add these two packages together, it's about 50%. Of course, we also have some postage. Some users can also choose postage. In general, it's about 50%. Basically, it doesn't have a big impact on the overall influence of interest rates. Or maybe a little bit. Basically, you can understand that it doesn't have much impact. But it can increase. It didn't go down and didn't go up. Basically, it's almost the same. Of course, NOP will definitely increase the profit, but if we look at our profit increase, it is definitely one of the reasons why its peak rate has increased in the past. We can calculate this, because we now have a large package of 39,000, so if it has some increase in proportion, it must be beneficial. This year, we will increase the recommended power of some post-sales, because we already have a large mass user. We now have more than 88,000 users, and half of them have not installed MP. This year, we will have better policies, such as analysis, so that the rear-end users can install and use NEO Pilot. We have done some tests, and the results are pretty good. So this is actually a good change, which increases our overall margin. But the rear-end users will enter the overall margin. So this is a general situation. We are now talking about the production capacity of the whole supply chain. From this year and the previous year, it is expected to be about 7500. The demand situation in the second half of the year, we were confident at that time, but today it is too early to give a full trade. Thank you, President Li.

Thank you, Jeff. Thank you, Jeff, for your question. Just like we mentioned before, the take rate of butts among the new orders in February is around the 55%. Regarding the new pallets, we have two different packages. One is the full package, and another one is the selected package. So the blended take rate of the new pallet with these two packages is around the 50%. We believe for some users, they would like to choose to install or activate the new pallet after the vehicle purchase. So this is also going to help us to increase the take rate of the new pallet. But different people have different preferences. We think this is going to increase to some extent, but it's not going to be a very significant jump. Battery as a service, this is not going to have a significant impact on overall gross margin. So the impact, I think, is going to be quite minimum. The MOP is going to contribute to overall gross margin, and it's going to be beneficial to the overall gross margin. The take rate increase of the MOP is one of the reasons that we have improved overall gross margin. full package for the NLP is priced at $39,000. So this is going to be a very good contribution to the gross margin. Starting from this year, we're going to focus on expanding to the install base because right now we have already got 88,000 users. So half of them haven't opted for NOP yet, so we would like to provide some innovative models or plans for those users. For example, we have tried some financing models for the NOP or new pallet to the users and received very good results. For the after-sales installation of the NOP or activation of the NOP, this is going to contribute to the overall gross margin instead of the vehicle gross margin. Another question is about the overall supply chain. For the first half of this year, we would like to be more conservative and prepare offer production based on the 7,500 units, like I mentioned. But for the second half of this year, we're quite confident about the demand, but we do not have the full visibility yet. We will further expand our sales and service network, as well as our charging and swapping network. We believe that this can help us to improve the sales performance and This is going to help us to achieve a much higher sales in the coming second half of this year.

Thank you, Jie.

Our final question comes from Fei Feng from Goldman Sachs. Please ask a question.

Thanks for the opportunity. Congratulations on a strong performance. Just a quick question about your power swap station build-out. How do you strategize your footprint? How do you choose location? How often do you assume consumers will be using the infrastructure on a per-vehicle basis? And then long-term, how do you think about the right size for your power swap network, given the strong option? Thank you.

Thank you, Fangfei. One of the advantages is that we can directly serve the user. So, in general, whether the user can install the charger, whether the home can install the charger, and the main path of the user, and the distribution of the user, We also produce according to orders, so we are able to know the location and the main parking areas of these users. So we will combine these to make the best selection plan. Of course, there are also some high speed aspects. We mainly look at which high speed our users may go to more. This is the overall logic of the plan. From now on, the efficiency of the switch station selection is getting higher and higher. The accuracy of the plan is also getting higher and higher. Compared to the early stage, the accuracy is much higher. The efficiency is much higher. Basically, after each switch station is invested and used, it will soon reach a reasonable amount. We now have almost 10,000 power changes every day during peak times. So it should be said that this efficiency is already very, very high. From this long term point of view, we believe that in China, there are still a lot of users who can't install charging stations at home. We are now in fact, although our family charging station installation ratio is very high, we also see in new users that there are more and more users who can't install charging stations at home. This proportion has been significantly increased. On the other hand, it also shows that our charging solution is very suitable for the needs of users. So in general, the charging solution and the combination of BUS, as well as the addition of a third-party charging network, such a comprehensive solution is the best experience for Chinese users.

Thank you, Fei, for your question. Regarding the power swap, we actually provide services directly to the users, and we can have the information regarding the users with whether they can store the home chargers or what should be their routine route, what is the distribution of the user base. So based on all those information and over make to order business model, we should be able to have a very good planning for the battery swapper locations. Based on the location information of the users, we can make the optimal choices regarding where should we deploy the power swapper stations. We can also have the information regarding how, what should be the highways that are frequently visited by other users so we can deploy the power swap stations in those highways. Of all speaking, the efficiency of battery swapping stations and the planning accuracy of the battery swap stations have significantly improved compared with the past. After the deployment of the battery swap stations, we have also accelerated the speed of the service providing or the service offering to the users and achieved a very good performance. For example, during the peak hours, the battery swap stations can achieve around 10,000 battery swaps. Right now in China, we believe the long-term trend is many users will not be able to install the home charger. Although our installation rate of the home chargers is already quite high among the peers, but as our user base grows, we can see that this trend is going to gradually go down. So it means that we would like to provide a more holistic power solution to the users, including the home chargers, the power swap stations, and other services And the battery swapping shows that it can better support this part of the user's demand. Together with the battery as a service, the battery swapping technology, battery swap stations, and the third-party charging infrastructure, we believe that we can provide the best holistic battery, best holistic power solutions and experiences to the users.

Thank you, Fangfei.

As there are no further questions, now I'd like to turn the call back over to the company for closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact the New Investor Relations team through the contact information provided on our website. This concludes the conference call. You may now disconnect your line. Thank you.

Thank you, everyone.