This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: Hello, ladies and gentlemen. Thank you for standing by for NEO Incorporated's first quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. Today's conference call is being recorded. I'll now turn the call over to your host, Ms. Eve Tang from Capital Markets. Please go ahead, Eve.
spk04: Good morning and good evening, everyone. Welcome to News First Quarter 2022 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 Lee, Founder Chairman of the Board and the Chief Executive Officer, Mr. Stephen Fung, Chief Financial Officer, Mr. Stanley Chu, Senior Vice President of Finance, and Miss Jade Wei, Vice President of Capital Markets. 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 and the Stock Exchange of Hong Kong Limited. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that news earnings press release and this conference call include discussions of unaudited gap financial information as well as unaudited non-gap financial measures. Please refer to news press release which contains a reconciliation of the unaudited non-gap measures to comparable gap measures. With that, I will now turn the call over to our CEO, Mr. William Lee. William, please go ahead.
spk01: Hello everyone, thank you for joining NIO's first quarter 2022 earnings conference call.
spk04: In the first quarter of 2022, we delivered 25,768 premium smart electric vehicles. Another record quarter with a growth of 37.6% year-over-year. In the middle of March, the COVID-19 pandemic in some parts of China affected the company's entire production and delivery.
spk01: In April and May of 2022, we delivered 5,074 cars and 7,024 new cars respectively. Starting in June, the supply chain and the production of the whole car have basically returned to normal, including the delivery work of many important markets in Shanghai. In June, we will speed up the production and delivery of cars. The total delivery amount for the second quarter of 2022 is expected to be 23,000 to 25,000 cars.
spk04: Since the second half of March, new wave of coronavirus outbreaks in certain regions in China has impacted other vehicle production and delivery. In April and May, we delivered 5,074 and 7,024 vehicles, respectively. Starting from June, while the supply chain and the vehicle production have basically returned to normal, Our vehicle deliveries have also gotten back on track in Shanghai and several other important markets. We will continue to work closely with our supply chain partners to further improve the overall supply chain production capacity and accelerate vehicle deliveries. We expect the total delivery in the second quarter of 2022 to be between 23,000 to 25,000 units.
spk01: Despite the challenges of the epidemic, the demand for future products is still high. The new orders in May have created a new height in history, especially the orders of ET7. We believe that the introduction of new products will continue to grow with the demand. At the same time, recent Chinese governments have also launched positive policies to promote car consumption and encourage the acquisition of new energy vehicles. This will further promote the exchange and purchase needs of high-end smart electric vehicles. Next, we will continue to improve the production capacity of the entire supply chain. We are confident that we will achieve the rapid growth of delivery in the second half of the year.
spk04: Despite the outbreak, other products have continued to witness robust demand. Overall, the intake stays strong, especially for E27, and reached a new high in May. We believe the launch of new products will drive continuous order growth. In the meantime, governments at all levels in China have also introduced positive policies to encourage vehicle consumption and purchase of electric vehicles. This will further promote the up-trading and new purchase of premium smart electric vehicles. Going forward, We will further increase the overall supply chain production capacity and we are confident of ramping up our deliveries at a much faster pace in the second half of this year.
spk01: In terms of net profit, the industry is facing an increase in battery, raw materials and chip prices. Our total net profit is also affected. In the first quarter, the future total net profit is 18.1%. In the second quarter, battery costs continue to rise significantly. In terms of vehicle cost margin, the whole industry is faced with the rising cost of batteries,
spk04: raw materials, and chips, which has also affected our vehicle margin. In the first quarter, our vehicle margin stood at 18.1%. As the battery cost continued to surge and peak in April, the vehicle margin in the second quarter will be under even higher pressure. To mitigate the impact of the rising material cost, we have taken a series of countermeasures, such as adjusting product prices, With the deliveries of new products, higher revenue per vehicle, and increasing production output, we expect the vehicle margin to start bouncing back from the third quarter. On May 20th, 2022, NIO was listed on the main board of the Singapore Exchange, which marks another important milestone of NIO. With that, we have further enhanced our footing in the global capital markets, which lets us better connect with the investors and serve the investors from around the world. It is also of great significance for our global business development.
spk01: In addition, according to the announcement made by the Henshen Indexes Company Limited, NIO will be included in the Henshen Tech Index and the Henshen Composite Index
spk04: starting from June 13th.
spk01: Next, I would like to share with you some updates on recent operations and R&D.
spk04: Research and development of new products and core technologies has been one of NIO's long-term strategic focuses. We have been making positive progress on various related fronts.
spk01: On March 28th, ED7 officially opened for delivery. The superior price experience received good reviews from the first batch of users and the media. Since the delivery of ED7, we have continued to upgrade, quickly improve and launch more intelligent experiences through FOTA. NT2.0 technology platform has launched more than 200 new features. Based on the new generation of voice interaction emotional intelligent engine, NOMI has realized the comprehensive evolution of the interaction experience. Based on the support driving system of the full-time self-propelled algorithm, it performs well in external evaluation and measurement data. In the third quarter, we will use the self-propelled high-resolution map jointly developed by our partners to launch the NOP Plus enhanced carrier support function. Through the powerful remote hardware platform, the full-time self-propelled algorithm, the end-to-end data security and operation capabilities, On March 28, we started to deliver ET7, whose extraordinary handling and the riding experience has been well recognized by the users and the media. Since the delivery of ET7,
spk04: We have made fast iterations and released more smart features via photo updates on a continuous basis. We have introduced over 200 new features on the NT 2.0 platform with the next generation voice interaction and emotion engine technologies. Nomad's interactive experience is comprehensively upgraded. The driver assistance system powered by Neo's full-stack in-house algorithms has achieved outstanding performance in external reviews and the build test. In the third quarter, we will release NLP Plus based on the HDMAP co-developed with our partner. Enabled by the powerful software and hardware platform, full-stack in-house algorithm, and close-loop data collection and operations capabilities, NT 2.0 is capable of fast iteration and upgrades laying a solid foundation for releasing NAD services in more scenarios and providing the autonomous driving experience beyond expectations.
spk01: On April 29th, ET5's first production line four-wheel drive car was officially launched at the F2 factory in the Neopark Xinqiao Smart Electric Vehicle Industry Area. The team is actively advancing the final mass production work. Jiang'an plans to start delivery in September.
spk04: On April 29, the first E-T5 tooling trial built rolled off the production line in F2 at Neo Park. The team is working towards the final stage of mass production of E-T5, and the delivery is expected to start this September.
spk01: This month, we will release the new five-seater SUV E-S7 based on the NT2.0 platform,
spk04: This month, we will unveil ES7, a brand new mid-large five-seater SUV based on the NT 2.0, and we'll start the delivery in late August.
spk01: We are also continuing to expand our investment in the field of power and battery. Currently, we have more than 400 battery-related teams in the future. We are deeply involved in the design of battery materials, power supply and packaging, battery management system, manufacturing and engineering, and other research and development work. We have fully established and strengthened battery system development and industrialization capabilities. We believe that these investments will improve the long-term competitiveness and profitability of future products.
spk04: We will continue to step up our investments in battery-related fields. As of now, we have over 400 employees working on battery-related technologies, including battery materials, cell and pack design, battery management systems, and manufacturing processes. We aim to build and enhance our comprehensive battery R&D and industrialization capabilities. to improve the competitiveness and the profitability of our products in the long run.
spk01: In terms of production capacity, the future F1 factory in Jianghuai has reached the production capacity level before the pandemic, and will gradually increase the actual production output in conjunction with the production and production of new products. The F2 factory in Neo Park has achieved a comprehensive production capacity and entered the stage of car manufacturing verification. Jiang'an plans to officially start production in the third quarter of this year. With regards to production, F1 has fully resumed its capacity to the level before the recent outbreak. In addition, we will further ramp up the production output on a gradual basis.
spk04: to support the mass production of the new product. New F2 and new parts has completed the production line installation and the tooling and has entered into the production validation phase. It will be put into operation from the third quarter this year. It only took us 12 months from kicking off a construction to rolling off the first tooling trial built in F2, which is a record construction speed in the industry.
spk01: In terms of the sales and service network, we now have 381 new houses and new spaces in 152 cities.
spk04: as well as 247 new service centers and delivery centers in 149 cities worldwide. With regards to charging and swapping networks, We've installed over 960 battery swapping stations in 197 cities. So far, we have 829 supercharging stations and 1,140 destination chargers. The continued deployment of our sales service and the power network will bring long-term benefits to our brand awareness, user satisfaction rate, and the sales growth.
spk01: In the global market, while further improving the Norway market layout to increase user satisfaction, relevant teams are accelerating the promotion of products and service systems in Germany, the Netherlands, Sweden, and Denmark.
spk04: With respect to the global market, while further expanding our sales and services network and improving the user satisfaction in Norway, our teams have been accelerating preparations to launch our products and services in Germany, the Netherlands, Sweden, and Denmark.
spk01: In terms of our mass market brand, our product development and production preparation are in steady progress.
spk04: On May 10th, NIO signed a strategic cooperation agreement with Hefei on the second phase of the vehicle production plant and the facilities for key components and new parts. The agreement marks the start of the planning and preparation of the production capacity of the new brand.
spk01: We are committed to making continuous investments in environmental protection and social welfare and contributing to global sustainable development. Since the launch of the Clean Parks Global Ecological Cooperation Program in December last year, the future and various organizations have actively promoted the landing of projects to support national parks and natural reserves. On April 22, the WWF, the Future and the World Natural Fund, reached strategic cooperation. The WWF will be one of the co-initiators of Clean Parks, and will work together with the global natural reserve to build a clean and low-carbon energy self-circulation system.
spk04: Since we announced the Clean Parks, a global ecosystem co-construction initiative last December, Neil has been actively cooperating with several organizations to roll out various projects to support national parks and natural reserves. On April 22, Neil reached a strategic cooperation with the Worldwide Fund for Nature, who has joined hands with us in establishing a clean and low-carbon energy circulation system in national parks and natural reserves in China and beyond.
spk01: Although we went through many challenges in the first half of 2022, 2022 is still a critical year for NIO to make committed investments and efforts in new products
spk04: poor technologies, global market entry, and the mass market trend. In the second half of this year, we will accelerate our new product delivery and the capacity expansion. We are confident of and look forward to realizing satisfying results in 2022. As always, thank you for your support. With that, I will now turn the call over to Stephen to provide the financial details for the quarter. Stephen, please go ahead.
spk13: Thank you, William. I will now go over our key financial results for the first quarter of 2022. And to be mindful of the length of this call, I will refer to RMB only in my discussion today. I encourage listeners to refer to our earliest press release which is posted online for additional details. Our total revenues in the first quarter were 9.9 billion RMB, representing an increase of 24.2% year-over-year and remaining stable quarter-over-quarter. Our total revenues are made up of two parts, vehicle sales and other sales. Vehicle sales in the first quarter were 9.2 billion RMB, representing an increase of 24.8% year-over-year and remained relatively stable quarter-to-quarter. Increase in vehicle sales year-over-year was mainly attributed to higher delivery. Other sales in the first quarter were 0.7 billion RMB, representing an increase of 15.6% year-over-year and remained relatively stable quarter-to-quarter. The increase in other sales year-over-year was mainly attributed to the increased sales of service and energy packages and others in line with the incremental vehicle sales in the first quarter of 2022, which was partially offset by the decrease of revenue from battery upgrade services. Rossmark in the first quarter was 14.6%. compared with 19.5% in the first quarter of 2021 and 17.2% in the fourth quarter of 2021. The decrease of gross margin year-over-year was mainly attributed to the decrease of fiscal margin and reduction in other sales margin resulting from expanded investment in power and service networks. The decrease of gross margin quarter-over-quarter was mainly attributed the decrease of vehicle margin. More specifically, vehicle margin in the first quarter was 18.1 percent compared with 21.2 percent in the first quarter of 2021 and 29 percent in the fourth quarter of 2021. The decrease of vehicle margin year-over-year was mainly driven by the lower average selling price due to changes in our product mix. The decrease of vehicle margin quarter-over-quarter was mainly attributed to the increased battery cost per unit. Iron expenses in the first quarter were 1.76 billion RMB, representing an increase of 156.6% year-over-year and remain stable quarter-over-quarter. The increase of iron expenses year-over-year was mainly attributed to the increased personnel costs in research and development functions, as well as incremental design and development costs for new products and technologies. SG&A expenses in the first quarter was 2.01 billion RMB, with an increase of 68.3% year-over-year and a decrease of 14.6% quarter-over-quarter. The increase in SG&A expenses year-over-year primarily due to the increase in personal costs, in sales and service functions, and the costs related to the sales and service network expansion. The decrease in SG&A expenses, horticulture, are mainly attributed to the decrease of marketing and promotion expenses, especially the marketing and promotion expenses incurred from the hosting of Neo Day in December 2021. as well as decrease of professional subsidies expenses. Loss from operations in the first quarter was 2.19 billion RMB, representing an increase of 639.7% year-over-year and a decrease of 10.5% quarter-over-quarter. Loss in the first quarter was 1.78 billion RMB, representing an increase of 295.3% year-over-year, and a decrease of 16.8% quarter-over-quarter. Last, attributable to NIO's ordinary shareholders in the first quarter was 1.83 billion RMB, representing a decrease of 62.6% year-over-year, and a decrease of 16.3% quarter-over-quarter. or advanced cash and cash equivalents. Restricted cash and short-term investment was 53.3 billion RMB as of March 31st, 2022. Now, this concludes our prepared remarks. I will now turn the call over to the operator to facilitate our current aid session.
spk03: 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 wait for your name to be announced. If you wish to withdraw your request, please press the pound or hash key. Please limit to two questions at a time. If you have follow-up questions, please request to rejoin. So once again, it's star 1 for questions. Our first question comes from the line of Jeff Chung from CT. Please ask your question.
spk06: Hello, everyone. Thank you for giving me the first chance to ask a question. I'll speak in Chinese first, then I'll help you translate it. I have two main questions. The first is, what do we expect from the second quarter's net profit? Because I looked at it, the second quarter's high net profit sales should be about 36%. In the second quarter, only 17% of sales in the first quarter are from high-performance products. This is the first sign. The second one is to ask about the delivery in the second quarter. How much percentage is the model that has already increased the price? Because we know that we increased the price a long time ago, but the order backlog is still very strong. So it means that some of the sales may not increase the price. So the margin will be lower. So I want to know how big the 2Q volume portion is after adding the price. This is the first question. Then the second question, I still want to ask a question. In the third quarter, is it possible to have a total production capacity of 48,000 or 50,000 units? Because if we look at June, if we go back to 12,000 or 13,000 units, that is... In July, August and September, it was 15,000, 16,000 and 17,000, which is easily 48,000. Moreover, we now have three old products. However, in June and July and the second half of the year, there will be six new products, including the 866, which is a mid-term facelift, plus ET7, ET5 and ES7. Three old products become six new products. I want to know how much this amount will explode. So I have two questions. One is the second quarter GP margin outlook. So look like the high margin products as a percentage of sales in second quarter could reach about 37% versus 17% in the first quarter. I think this is one of the positive that may potentially lift up the GP margin trend. And secondly is that there has been some MSRP hike recently and we would like to know how much of the sales volume from the second quarter has been a price hike versus the first quarter. Obviously, this is the first question. And the second question is that our new model cycle suggests that our current aging products, three products, is going to turn into the six new products into the next six to 12 months. So my question is whether the third quarter production capacity can reach above 48,000 units Since by referring to Tesla, we saw a strong week-on-week and month-on-month recovery from the past weeks. And my understanding is that a lot of our supply, all the past suppliers overlap with Tesla. So if Tesla recovers fast, would that mean that we are going to enjoy the similar pace into June and the third quarter? Thank you.
spk01: Thank you, Jeff. The first question is that since April, we and our battery supplier CTL, according to our new agreement, the cost of our battery will be linked to the raw material. Simply put, we are using the index of the material of the battery to move the price of the battery. So from the second quarter, our battery cost is indeed relatively high, much higher than the first quarter. Of course, the specific number is linked to the battery material, so we basically decide the price of the battery material last month to determine the cost of the battery pack delivered this month. Of course, we saw that in May, the price dropped a bit from April. From a trend point of view, it was going down. However, the pressure from the second quarter was relatively high. Our added price was basically three quarters. These cars are produced by orders. Most of these orders need three quarters to pay the added price. Thank you for your question, Jeff.
spk04: Starting from April, we actually updated our agreement with our battery supplier, CATL. And right now, our battery cost is connected with the raw material indexes. So basically, it means that if in the second quarter, we can see the battery cost is going to significantly increase compared with that of the first quarter. and this is going to affect our vehicle gross margin performance, but there's going to be some latencies. The battery prices increase in the prior month is going to be reflected in the battery cost of the later months, and this is going to incorporate it into our vehicle gross margin performance. According to the current forecast and the market trend, we can see the battery cost is going down a little bit starting from May. And we have also taken some measures, for example, increasing offer product prices. This is going to help us improve our performance in the third quarter. Right now, we are still delivering vehicles without the price adjustment, and we expect to start to deliver the vehicles with the price adjustment starting from the third quarter, because our business model is make-to-order or order-to-delivery. So just now you have also mentioned that our products with a higher gross margin is also going to kick in in terms of the performance of the vehicle gross margin, just as the ET7 that is launched in the second quarter, and we expect the production of ET7 is going to gradually ramp up starting from June and then starting from the third quarter is going to maintain at a normal level. Overall speaking, we believe the over vehicle cost margin is going to face higher pressure in the second quarter. So this is mainly due to the battery cost impact. The vehicle cost margin of the second quarter is going to be lower compared with that of the first quarter. But With the price assessment, we expect we are going to start to deliver the vehicles with higher prices starting from the third quarter, which is going to contribute to our vehicle cost margin.
spk01: The second question, we are in the third quarter. Actually, now, our first factory's expansion work has already started to contribute to our production capacity in June. Of course, the production line of its expansion also needs time to climb. So from the perspective of a whole car production, the number you just mentioned is no longer equal to us. From the perspective of demand, we don't think it's a problem. We said that
spk04: production capacity expansion in the F1. We expect that this is going to start to improve the overall production output starting from June. Of course, it will need some time to gradually ramp up the production, but we believe the vehicle production is not going to be a bottleneck, and the demand is not an issue for us. The main challenges that we're facing right now is the supply chain. especially in terms of the chipsets and also the production capacity of our suppliers. We are very confident of our delivery performance starting from the third quarter.
spk01: Thank you, Jeff. Thank you.
spk03: Thank you. Our next question comes from Team Shell from Morgan Stanley. Please ask your question.
spk10: Hi. Thank you for accepting my question. Congratulations. I see that the overall delivery will be restored in June. I have two quick questions today. The first one is about the orders. William mentioned in the presentation that the new orders in June are very strong. Can you share more details about this? First of all, most of these new orders are based on ET7. Does this also represent the original 8-speed model I don't know. I don't know. I don't know. I don't know. As mentioned in the briefing, there are 400 types of battery technologies in the future, including the battery core, battery pack, BMS, and more new technologies. In the long term, will we consider the production of batteries in the battery section? Or will we seek the help of professional manufacturers based on future patents? So let me translate my questions. The first question is about orders. So could you please provide further details? Do orders of ET7 dominate the current order in tech while the demand for in carbon SUV are falling more mid-fall. And are we going to have a play for our current SUV model in Tyson? And you mentioned the record order book. Does that include the orders of ET5? My second question is about the batteries. Because during presentation I think William mentioned NIO now has more than 400 battery-related technology covering cell, pack, BMS and more. Will NIO consider involving more in battery production over time or for professional battery OEM vendors help to produce the battery based on NIO's own patents and the technology? So those are my two questions. Thank you.
spk01: Okay, thank you, Tim. The first question is about orders. In May, our order growth also included 866 has also seen a growth in orders. 866's overall orders are stable. There are still some growth in stable orders. Of course, you just talked about whether we will have some changes in the year. We will have some new smart hardware applications, software applications. We will release some plans on 866 in the near future. Thank you, Tim, for your question.
spk04: Regarding your first question for order, basically in May, our order growth is quite significant, and this actually includes the order intake for the existing ES8, ES6, and the EC6. The overall order intake performance of the existing ES8, ES6, and the EC6 is quite steady, and we have witnessed certain growth. You have also mentioned whether we are planning for some upgrades of our existing models. We are planning for incorporating some smart hardware and some new software features for the upgraded version of the existing models.
spk01: After we launched the ET5 in last year's New Day, we have witnessed the steady growth of the order intake.
spk04: Recently, because of the auto shows and exhibitions, we have witnessed a very positive order performance of the E-T5.
spk01: The second question is that we are talking about a team of more than 400 people. The size of our team in the past... The investment in battery development has significantly increased for a period of time. The overall direction is that in the next generation of cars in the next 24 years, we will have a new 800V high-pressure platform, a fast charge, and of course, a battery pack that can be replaced. We will launch such a battery pack. We believe that there will be many revolutionary technologies that will be applied. Then in this regard, we believe that the definition of a battery will have some new definitions, including the advantages of cost, performance, and safety. So in this regard, if we talk about it today, our plan is to start producing our new battery pack in the second half of 2024. But the specific manufacturing strategy, from a long-term perspective, we must be a strategy of self-development plus outsourcing. At this point, we are very firm. We believe that for the competitiveness of companies, competitiveness of products, Just now, for the 400, this is actually about the R&D team focusing on the battery technology. So we have over 400 employees.
spk04: For this, we plan to leverage other R&D capabilities in terms of the battery to launch a 800-volt high-voltage battery pack, which will also support the battery swapping technologies in 2024. We understand that this is going to bring many innovative technologies and revolutionary solutions. We believe that this unified pack concept is going to redefine the battery technologies in terms of the battery cost and the battery safety. Our plan right now is to start the production of this new next generation battery pack in the second half of 2024. Our long-term battery strategy is going to be a combination of in-house production and also outsourcing. We believe that this long-term strategy is going to benefit the overall competitiveness and the vehicle cost margin, as well as the profitability of new products. This is also going to be offered.
spk01: Thank you, Kim.
spk03: Thank you. Our next question comes from Ben Wang from Credit Suisse. Please ask your question.
spk11: Thank you, Director. I have two questions about numbers. I would like to ask how much the interest rate between the second quarter and the first quarter will drop. Because we had a price increase of $10,000 before. This $10,000 should be used to offset the increase in the dividend. Can we say that our interest rate will only drop by $10,000 in the second quarter compared to the first quarter? At the same time, we also talked about the return to normal level in the third quarter. This normal level means that I actually want to quantify the margin because you actually see that second quarter will be a low margin. Can you see what's the level of the decline in margin because you actually raised the price a column price by around 10,000 RMB, kind of doing that is the decline in the gross profit margin, a gross profit just 10,000 RMB. And you also mentioned that in the third quarter we're back to normal. What's the back to normal you're referring to? You're referring to the 18% gross margin in the first quarter or the last peak level around 21%. Meanwhile, I suppose you will further increase the price for the upcoming better semiconductor in touch and carpet version of the Is there going to be another increase in the gross margin? Thank you.
spk01: Okay, thank you, Wang Bin. We basically need to go to the third quarter to show this part of the price increase. As I said before, the part of our price increase, the orders before the price increase, we are still delivering those orders. So the price will have to go up to the third level to show it. The second-level battery cost has indeed increased a lot. But the specific impact, we still have some uncertainty. If we look at it from now on, This is a little more than 10,000. If we look at it from the current point of view, we may need to look at the change in the price of the material in the near future. Because we are already in a joint way. So this is a situation in the second quarter. In the third quarter, it will recover. In fact, there is indeed a little uncertainty. In the third quarter, although we have increased the price, but we need to look at the trend of the battery's upper material. When our second-generation platform car in the third quarter, it can increase some horsepower. So in general, when we can see the third quarter, it will definitely rebound. But what level of rebound do we really have today? Thank you, Bing, for your questions.
spk04: Regarding the price increase of our products, previously I have also explained that this is going to be reflected in our vehicle cost margin in the third quarter, because right now we're still delivering vehicles without the adjusted price. For the second quarter, the battery cost is higher than that of the first quarter, but the impact of this is still uncertain. Specifically, we believe it's going to be higher than the 10,000 RMB you have just mentioned. But we believe there's still many uncertainties that we need to weigh out a little bit because just like I mentioned, right now the battery cost of a product is actually based on the raw material trends and the index. So it means that for the third quarter, we will probably see some trend of the raw material cost going down a little bit. And with the vehicle gross margin improvement based on the new technology platform 2.0, the vehicle gross margin in the third quarter, we believe it's going to bounce back. But there are still many uncertainties. because the battery cost is very difficult to forecast and determine at this moment.
spk03: 好,谢谢王斌。 Thank you. The next question comes from the line of Mingxuan Li from Bank of America. Please go ahead.
spk02: Because this year, there are three new cars and three mid-range cars, so the volume growth in the second half of the year should be quite strong. I would like to know if our management has any new models for next year, including 866, right? and next year is a change of pace. Okay, so this product cycle can give us more tips. This is the first question. The second question is about our other revenue. In fact, in the past few seasons, we can see that the other revenue has usually increased gradually. I think this is related to our current base, which has been going up. If you notice, in this first season, Other Revenue fell a little bit. I don't know if it has something to do with the pandemic. Other Revenue's net profit is the same as last year's quarter. It's over 30%. I'd like to know if it's because the battery swap station is more open, so the net profit will be lower before the use rate goes up. Do you expect Other Revenue's net profit to use? My first question, could you also give us some guidance regarding your potential product pipeline for 2023, especially for the 866? Will you consider to launch the new generation next year? Second question is regarding your services and others business. First, the revenue cited in QOQ, is it because of the COVID impact? And secondly, the gross margin of this business is also not very good for the quarter. Is this because of the lower utilization when you build a new battery swap station? And what do we expect the margin improvement for this business?
spk01: Thank you, Ming. Thank you, Ming, for your question. Of course, for the existing models, including the ES8, ES6, and the ES6,
spk04: Our plan is to upgrade all those models to the NT2 platform in the next year.
spk07: Hi, my name is Stanley. The other operating laws mainly because the increase in depreciation and also operating expenses relate to our power source stations. And in this year, we will continue to build the battery charging and swapping network which can bring the unique experience to our users and can benefit the further improvement of our user satisfaction and also brand image. So from the short term, I think the other laws will increase along with the expansion of the network. And from the long run, the numbers of the delivery and also users growth we will make our charging and swapping services more efficient. The losses arising from the charging and swapping service will gradually narrow down. And our innovative business models, including Neolife and also ADAS, can also bring extra gross profit and books in this account. Thanks, Ming.
spk03: Thank you. And next question comes from Nick Lai from J.P. Morgan. Please ask the question.
spk12: Hello, everyone. I have two simple questions. Some of them have already been answered. I would like to ask about the supply chain issue. You mentioned that in the second quarter, there will still be some chip contracts. In June, the expected sales will be 11,000 to 13,000 units. Taiwan Taiwan Taiwan The same is true for the supply chain problem. We just mentioned the link between the supply chain and the battery. The price of the battery in the previous year was more than $10,000. Does this reflect the price of the battery in the first half of the year? NextMarketBrand Let me explain very quickly my two questions. First is related to supply chain. Can you give us an update on chip supply condition in June as well as second half, as well as the pricing with battery supplier. Thank you, Nick. The first question is that the supply of chips often has uncertain shortcomings.
spk01: We have about 1,000 chips in each car. There are very few, for example, the short circuit that appears every now and then may be a little different. This is completely based on the situation of Tier 1. These are all basic chips, such as TI or NXP. or something like that, such as Infilin, they have some, because they have a lot of chip models, so they have some uncertainty. It's hard to say which one. If we know which one, this thing will be much easier. It does have some uncertainty, such as one or two. Basically, in our risk list, generally speaking, there are one or two chips, Yes, don't the number seem to end可能这个月和下个月的是不太一样的当我们所以要不停的去解决不停的去解决那总体上来说的话呢我们也找到了这样的一些方法吧就通过各样的方各种方法去解决这个问题那当我们对这个订单的角度来讲我们原来的计划里面也是下半年开始爬升产量所以我们提前在去年我们就在不可这样的一些 Thank you for your question.
spk04: There are many uncertainties in terms of the chip supply because in our vehicle, we probably have over 1,000 chips. And the chip shortage situation for those 1,000 chips may vary from time to time. And this is totally depends on the upstream suppliers of the tier one suppliers of the meal. Many of the chip shortages are actually caused by the basic chipsets used by those tier 1 suppliers or the upstream suppliers of those tier 1 suppliers. For example, like TI and Infineon, they provide various kind of chips to the OEMs, and it's very difficult to actually identify specific risky chips that were going to face the shortage. That is why we do have a risky chip list. Normally, it includes probably around 1 to 20 different kind of chips, and this list may change month to month. Of course, we will try to mitigate all those risks with different kind of measures. Previously, our plan is to expand our production capacity starting from the second half of this year. So that's why starting from last year, we have already started to work closely with our suppliers to make sure we can secure sufficient supplies for our products. We have some risks in terms of the chip supply, but we believe this is actually manageable and is under control. For the production capacity of the in the month of June, this is actually not specifically related to the chip shortage or other supply chain rates, because this is just a part of the normal ramp-up process for the production capacity expansion.
spk01: The second question is, our massive market brand, these specific plans, we can give some directions, Oh, sorry, there was a battery problem just now. The battery, in the second half of the year, because we started in April, it was a joint price. So, simply put, it has a bigger relationship with the cost of the material of the battery. But at present, we have seen that the high point from April has begun to go down. Then from one of the most related ones, of course, is the price related to this price. Then we see that China has some of this Li mine, then it is also accelerating the production has begun to have some output that I think this battery in general the cost of this material will go down but but in the end go to how much this is indeed the market there are some uncertain factors but I according to the general view of the industry, then it will not continue to go up should be going down this is a big direction but go to how much there are different predictions but some The industry believes that carbon dioxide emissions will be similar to Q3, Q4, or Q4, up to 300,000 tons per ton. Compared to now, it is likely to drop more than 20%, 20% to 30%. There are also some predictions. The price of lead will also see some drop in some of these predictions. So in general, this is still a bit uncertain. But the overall trend should be going down.
spk04: Regarding the second question of the battery, starting from April, our battery cost is linked together with the raw materials of the batteries in the market. We can see the raw material cost actually picked in April, and we started to see some trend of going down, specifically for the lithium carbonate In China, we have already started to see there are more resources for the lithium, and there are some companies trying to mine the lithium to make sure they can supply to the market and meet the demand. So I believe the general consensus of the industry is already picked. in April, so it's going to gradually go down. But of course, people have a different forecast in terms of what is going to be the final cost of those raw materials. Some people may think that the lithium cabinet is going to go down to around probably $30,000 per ton. This means that we are going to reduce the cost of the lithium carbonate by 20% to 30%. And we also have a similar forecast for the MECO material as well. So we believe that the general trend is that the cost of those battery materials is going down, and it's not going to go up again.
spk01: Then the second question is about our massive market brand. According to our current plan, we will deliver it in the second half of 2024. It will be equipped with our third generation NT 3.0 technology. Currently, we hope that the price position of the mid-range will not be too different. The main product is at 200,000 to 300,000 RMB. The exchangeable structure will have a battery pack that is different from NIO. The next question is about the mass market brand. Our plan is to start the delivery of the product of the mass market brand starting from the second half of 2024.
spk04: This product is going to be based on the new technology platform 3.0, and we believe the mainstream products of the mass market brand is going to be at the price range from $200,000 to $300,000. Of course, the mass market brand products will also support battery swapping, and we are going to use our in-house developed and manufactured batteries for the mass market Of course, this platform is also going to support high voltage technologies, and we believe with all those advanced technologies and the competitive pricing, those products under the mass market brand are going to be very competitive.
spk01: Thank you.
spk03: Thank you. Our next question comes from Paul Gong from UBS. Please ask your question.
spk09: 好,谢谢。谢谢让我提问题。 就两个问题。 第一个问题来说是关于ES7的。 因为像以前ET7和ET5的话, 从发布到交付间隔的时间都比较长。 为什么这一次从ES7来说, 它的交付还在那个ET5的之前, 然后相应的就是说ES7, In comparison with 866, how much will we expect? How much will we expect? How much will we expect? How much will we expect? How much will we expect? How much will we expect? How much will we expect? How much will we expect? How much will we expect? How much will we expect? 我们现在有些什么样的措施来保证这个供给? 我们和那个供应商是否都已经谈好了 相对比较大的一个量的一个 run-up? Let me translate my question. The first question is related to ES7. Why from unveiling or launch until delivery, it seems to be a lot faster than the previous ET7 or ET5? And how do you think about the cannibalization versus ES8, ES6, and EC6? given they are all kind of SUVs of similar size. My second question is regarding the supply chain preparation for the NT2 platform. Currently, it seems that the ET7 production remains to be relatively slow in terms of run power plants with a pretty long waiting period. In view, we are going to have an ET5 with a larger volume and the ES7 with a larger in the pipeline, have we done enough work to secure the key component supply to enable the ramp-up of the overall NT2 platform models? Thank you.
spk01: Thank you, Paul. The first question. In fact, our ES7 development work has been ongoing. The release time is according to the release rhythm. This is a normal release rhythm. Of course, we originally expected it to be a little earlier than now, because the epidemic has pushed it back a little. It looks like it's very close to delivery. It's definitely a little earlier than that. But overall, we're moving forward according to the plan. Of course, the ES7 is equipped with NT2 technology. Compared to the existing 866, it must be a smart technology platform, and the cost will be higher. So its price must be between the current ES8 and ES6. Will there be some replacement? I believe there will be some, but they still have a significant difference in product positioning. There is also a difference in price. For example, it has a positioning difference with ES8. Because ES8 is a 6-seat, 7-seat positioning, then ES7 is still a 5-seat. Compared to ES6, it is definitely higher in terms of price. We think there are some differences in pricing. We think 866 is still competitive. Overall, we think this replacement relationship should not be particularly large, and there will not be a particularly large compression effect. This is our first question.
spk04: Thank you, Paul, for your question. Regarding the first question, we have always been working on the development of new products, and we have been working on the development of the ES7 for some time, and the launch time of the ES7 is actually already planned when we were developing the product. It may seem that right now it's very close to the delivery of the ES7, but previously our plan is to launch the ES7 earlier. Due to the impact of the COVID-19, we delayed a little bit. That is why it seems that it's much closer to the actual delivery of the ES7. But everything is actually going forward according to our plan. ES7 is going to be based on the new technology platform 2.0, which is going to be offering higher and smarter technologies compared with the current NT1 technology platform. And the current ES8, ES6, and ES6 are actually based on the NT1 technology platforms. There will also be some price differences. The price positioning of the ES7 is going to be between that of the ES8 and the ES6. We believe there's not going to be cannibalizations between the ES7 and the existing models because we have different positionings and the pricing strategies for those products. For example, the ES8 is mainly focusing on the six-seater and seven-seater markets, and the ES7 is positioned as a mid-large five-seater SUV, which has a higher pricing compared with that of the ES6.
spk01: For the second question,
spk04: Of course, we have already and actually started at a very early stage to plan for the production ramp-up of the products based on the NT2 platforms. And we have already done this for some time. Of course, there are going to be some risks, but because we have a plan ahead, we believe it's still manageable.
spk01: Thank you, Paul.
spk03: Thank you. Our next question comes from Yuqian Ding from HSBC. Please go ahead.
spk05: Thank you, Manager Chen. I have two questions. The first is to follow up on the discussion just now. William also mentioned that there may be some exceptions in terms of price increase and cost increase. We can see that the company's pricing strategy is very restrained. We can see that our battery, including all the vehicles, including some supply and supply of chips, may bring additional cost increases. How much of these costs will we have to pay back to the consumer? Could you please talk about this in detail? Then the second question, I would like to ask ET5's model for this year's amount and the details in the direction of profit rate. The first is that this model has a very good early order, but in the second half of the year, it may face a This is the first time that entry-level luxury cars have been exempted from the purchase tax. If we are in the entry-level luxury car competition, other competitors will also have such an advantage. So how do we evaluate this? How does it affect our quantity? The second is that when we released the design, the profit rate was more than 20%. So we got two questions. The first is to ask about whether our price hike in May is enough to cover the cost headwind from the battery side, aluminum body, and also the chip side. alignment in a channel and what the management thought about the actual cost and also the pricing strategy coming forward. And second question is to ask about ET5 volume and margin conviction. We know there's a bit of auto stimulus splash on the entry luxury, which is currently ET7 has been located within the segment. And also, previously, we have designed 20% above margin. But back in the time, we might not consider the cost headwind coming from the commodity side might persist longer.
spk01: Hi, Yuqin.
spk07: This is Stanley. For the cost increase of battery, I think William has... give us a lot of guidance. And regarding the price increase of other material and also cheap cost, I think we have absorbed through close cooperation with our partners and also internal efficiency improvement. And also, as William introduced, the whole market for the raw materials are quite dynamic. At this moment, we cannot give the precise like estimation of the following months or quarters, the trend. So for the second question, William.
spk01: For the ET5s,
spk04: Because we have already accumulated a significant amount of reservation orders, so if we consider the production of the E-T5, we believe for this year the production of E-T5 will only be sufficient to meet the backlog for the E-T5 orders. So this price increase of the EG5 is not going to have any impact of our vehicle gross margin performance this year.
spk03: Great. Thank you. Our next question comes from Vijay Rakesh from Mizuho. Please ask your question.
spk08: Yeah. Hi. I have a quick two questions. On the, on your in-house capacity with . You talked about 240,000 annual capacity. Do you think you get to that 20,000 a month run rate by end of Q3 of this year, Q3 22? And the second question is on the new park, you know, that obviously has an incremental additional 300,000 per year capacity. You talked about ramp starting that in Q3. Can you walk through how that ramp should look? Will it be like 10,000 a month exiting this year and then gradually increase next year? That's it, thank you very much.
spk01: Okay, so Vijay sent a question.
spk13: For the prime capacity of our first plant with jazzy new, As we have mentioned, we will continue to ramp up its production capacity in Q3. I think probably at least in the second half of the year, our overall plant capacity should reach 20,000 units per month. It can be, it's not probably too early for us to see when. And then for the F2's ramp-up pace, actually first We will kick off the delivery of EG5 from this plant in Q3. So it will kick off production in Q3. And then we try to reach 10,000 units within a quite short period, probably three, four months. I think that's our plan. Of course, next year, as we introduce more models into this factory, the overall production volume of FT we can utilize.
spk03: Right. Thank you. Our next question comes from Jane Chang from CICC. Please ask your question.
spk04: Okay, thank you, Manager Teng. I have two questions for you. The first question is about the news we received in May. It mentioned that there might be some recruitment information in the U.S. I don't know if there are more details to be shared here. As for the overseas market, we also have some layout and sales in Norway and Northern Europe. What do you think My first question is about It was reported that in May that we have relevant recruitment information in the United States. So can you share more details about it? How do you see the breakthroughs in overseas market? Which potential market we think have more potential for us to deployment and what are the difficulties? And my second question is about NAD. Can you share more details about its current testing progress?
spk01: Thank you.
spk13: Okay. Thank you for your question. So first, with regard to the U.S. market, the short answer is we will definitely enter the U.S. market. And actually, we've studied the comprehensive study of the U.S. market. and have a dedicated team in charge of developing this plan for the market. We'll tap into the U.S. market with an innovative manner. But right now, it's still in the study phase, so we'll share more information when it's appropriate. And also, then, for the difficulties or difference in the larger European markets, first, actually, with a lot of commonalities between China and the European market, from the base model to the aspiration for green Smart EV products. The Norwegian users also enjoy the concept of Smart EV and user enterprise. But if we do need to name some difference, of course, first the culture and also the cost structure. So in Europe, surely the labor cost would be higher, and also we need to accumulate enough understanding of the local culture and get integrated into the local community. William, back to you.
spk01: Yes. The second question is about NAD. Because for Neopilot, This is our support driver. All the functions are based on our own combat technology. From sensing, to the entire algorithm, to the entire control, everything is done by our own technology. We have seen After the delivery of the ET-7 on March 18, we have seen that we have mastered this kind of full-fledged technology, which is based on data security, fast relay, and auxiliary driving capabilities, which is a huge advantage. In the past two months, we have seen that our auxiliary driving performance indicators in all aspects have been greatly improved, because we will continue to relay and improve training based on data. to train and improve the performance of our support drivers. According to our own testing, compared to the first generation of support drivers, we should have several times the performance improvement. We also mentioned that in the third quarter, we will release the NLP Plus, which is an enhanced version of support drivers. From the perspective of the current test, we are still very confident. So this high-tech map is also our collaboration with Tencent from the perspective of the word of mouth to have such a collaboration with it. Then we are integrated into our entire automatic driving and auxiliary driving. In such a frame where the whole data is closed, Of course, based on these foundations, we believe that NAD is based on a technical stand. We are very confident in NAD. We have seen our sensors, our computing power, our data security, our rapid evolution capability, and the overall ability of such a system. Compared to our first generation NT1, we have seen a significant improvement.
spk04: For the second question regarding NAD, the current ADAS functions and features based on the new technology platform 2.0 is actually derived from the full stack of technologies developed in-house by our own AD teams. We have comprehensive full stack capabilities starting from sensing algorithm and control strategy. Starting from the delivery of the ET7 on March 28th, we have witnessed the data closed loop management and collection, which has helped us to achieve a very fast iteration and upgrade of the vehicle autonomous driving or ADAS experiences based on the NT2. So for us, we have witnessed many improvements in the last two months because we can collect over data and we can actually see all those data, we can see that the performance of the NT2 is actually several times better than that of the NT1 because after we collect all those data, we can use the data to train over algorithm and over ADAS and AD technologies. So I have also just mentioned that we're going to release the NLP plus. We're very confident with the performance of the NLP plus. This NLP plus is going to be based on the high definition method developed together by ourselves together with Tencent, and this is going to be an in-house high-definition map. We are going to integrate all those different technologies, including the high-definition map with other AD and ADAS closed-loop data management. So we are going to use the same kind of technology stack to improve our autonomous driving and ADAS features. That is why we're very competent with the NAD performance in the long run, based on our sensing capabilities, the closed-loop data management, and also the fast iterations and the systematic capabilities.
spk01: Thank you.
spk03: Right. Thank you very much for all your questions. We have reached the end of the question-and-answer session. I'll now turn the call back to the management team for closing remarks.
spk04: Thank you once again for joining us today. If you have further questions, please feel free to contact the News Investor Relations team through the contact information provided on our website. This concludes the conference call. You may now disconnect to your line. Thank you. Thank you. Ladies and gentlemen, that does conclude our conference for today.
spk03: Thank you for participating. You may all disconnect.
Disclaimer