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spk01: Hello, ladies and gentlemen. Thank you for standing by and welcome to the Neal, Inc. Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please note today's conference call is being recorded. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Ms. Eve Tong from Capital Markets. Please go ahead, Eve.
spk05: Good morning and good evening, everyone. Welcome to the second 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 Lin, founder, chairman of the board, and the chief executive officer, Mr. Stephen Fung, chief financial officer, Mr. Stanley True, Senior VP of Finance and Ming-Shi Wei, VP 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 Security Juridication 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 US Securities and Exchange Commission, the Stock Exchange of Hong Kong Limited, and the Singapore Exchange Securities Trading Limited. The company does not assume any obligation to update and forward-looking statements, except as required under applicable law. Please also note that Neil's 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 Neil's 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 Li. William, please go ahead.
spk09: 大家好,非常感谢各位参加未来2022年第二季度的业绩沟通会议。 Hello, everyone. Thank you for joining NEOS Q2 2022 Earnings Call. In the second quarter of 2022, there will be 25,059 high-end smart electric vehicles, with a growth of 14.4%. In July and August, there will be 10,052 and 10,677 new vehicles, with a growth of 26.7% and 81.6%. 在此期间,公司的整个生产和交付受到了来自于疫情、极端天气、供应链等多方面的挑战。 我们将与供应链合作伙伴密切合作,进一步加快车辆的生产和交付工作。 NIO delivered a total of 25,059 vehicles in Q2 2022, representing a 14.4% increase year-over-year.
spk05: In July and August 2022, NIO delivered 10,052 and 10,677 vehicles respectively, marking increases of 26.7% and 81.6% year-over-year. During this period, the company's vehicle production and delivery were faced with challenges from the COVID-19 pandemic, extreme weather conditions, and supply chain uncertainties. We will work closely with our supply chain partners to further accelerate the production and delivery of our vehicles. 得益于高端电动汽车需求的持续增长和未来出色的产品和服务竞争力,
spk09: Benefiting from the continued demand growth,
spk05: for premium electric vehicles and mirrors outstanding product and service competitiveness. We believe the vehicle deliveries will witness robust growth in the second half of 2022 with the delivery and production ramp-up of EC7, ES7, and EC5 based on the NT2 platform and the upgraded 2022 ES8, ES6, and EC6. We expect the total delivery in the third quarter of 2022 to be between 31,000 to 33,000 units. We expect the total delivery in the third quarter of 2022 to be between 31,000 to 33,000 units. In terms of financial performance, despite the significant increase in battery costs in Q2, the vehicle growth margin reached 16.7%, contributed by the deliveries of ET7 with high specifications, part of the orders with adjusted prices, and refined management of sales policies.
spk09: Next, I would like to share some recent key highlights of our R&D and operations. 作为未来NT2平台的第一款产品, EBT上市后凭借其行业领先的软硬件平台与智能化体验,
spk05: 在中大型高端轿车市场展现出了极强的产品竞争力。 At NIO's first product based on the NT2 platform, the ET7 has demonstrated strong product competitiveness in the mid-large premium sedan segment, with its industry-leading software and hardware platforms and smart digital experience.
spk09: On June 15, NG2 will launch its first 5-seat SUV, the ES7. The ES7 is the successor of the future high-performance model. It will have excellent handling and safety performance, and it will be more comfortable than its predecessor. In addition, the ES7 can be selected as a hidden variable decoupler, and it can be hung on the road. It will provide a new outdoor experience. The ES7 received good market feedback after the launch of the 4-car model in August.
spk05: On June 15, NIO launched the ES7, a mid-large 5-seater SUV based on the NT2 platform. Inheriting NIO's high-performance DNA, the ES7 boasts ultimate driving, handling, and safety performance. creating comfort and intelligent experiences beyond expectations. In addition, ES7 offers an electric crowbar as an option, enabling a new outdoor experience with a towed touring caravan. Since the start of the user test drive in August, the ES7 has been well-received in the market and kicked off deliveries at scale starting from August 28th.
spk09: We have also launched the 2022 ES8, ES6, and EC6 fitted with the new digital system ELDA.
spk05: which comprehensively enhanced the perception unit and computing power. The three products offer richer digital corporate experience and have strengthened their competitiveness in the market.
spk09: NT2 platform's medium-sized smart electric car E-T5 mass production work is also in full progress. E-T5's performance and configuration have been further optimized and enhanced compared to the release date. The mass production preparation of the ET5
spk05: A mid-sized smart electric sedan based on NT2 is also in full swing, while its performance and configurations have been further optimized and enhanced compared with those at the time of the product launch. With pure and progressive design, ultimate performance, and outstanding intelligent experience, the comprehensive competitiveness of the ETS5 far surpasses the peers in the same segment. we're confident that the ET5 will become one of the most popular mid-size premium sedans. The production order confirmation of ET5 will start from September 9, and the first batch will be delivered to users on September 30.
spk09: In terms of the system, we released a special 1.1.0 version based on the NT2 platform in August. We launched more than 60 new features and improvements. With regards to digital systems,
spk05: We released the Banyan 1.1.0 based on NT2 in August with over 60 new features and optimizations. In terms of the digital cockpit and the driving experience, this update has introduced modes under the parking scenario, diversified the audio and the video experience in the cabin, and further optimized the suspension comfort and the vehicle handling. In the aspect of the advanced driver assistance system, we have further upgraded the environment simulation display and automatic emergency braking, which has enhanced the interaction experience and the driving safety for the users.
spk09: 生产方面,8月下旬EP5首批生产线预生产车辆 As for production, we rolled the first batch of the ET5 pre-production vehicles off the production lines at New Factory 2 at New Park, and we plan to start the mass production this month. With regards to sales and the service network, we now have 395 new houses and new spaces in 149 cities across the globe. And
spk05: 263 new service centers and delivery centers, covering 151 cities in the world.
spk09: At the same time, we have already deployed 1,873 charging stations, including 5,341 supercharging stations and 5,466 USB-D charging stations, including more than 560,000 third-party charging stations, providing more than 86,000 additional power services. In terms of charging and swapping networks, we have built an expressway power swapping network
spk05: covering five vertical and three horizontal expressways and four metropolitan areas in China. We have installed 1,094 power swap stations, including 285 situated by the expressways, and completed over 12 million battery swaps for our users. At the same time, we have deployed 1,873 power charger stations, including 5,000 341 power chargers, and 5,466 destination chargers, and connected with more than 560,000 third-party chargers, offering over 860,000 times of a one-click for power services. Neil is dedicated to putting in place a power system with chargeable, swappable, and upgradable experiences. makes the recharging experience better than refilling. To this end, we have been making continuous investments. With a vertical and horizontal network across the country and a hub and a spoke laid out in the metropolitan areas, we aim to bring a more convenient and joyful travel experience for our users. 关电站不仅是高效不能设置,也是虚拟电厂,
spk09: Power swap stations are not only efficient recharging facilities,
spk05: but also serve as a virtual power plant. During this summer, we responded to power grid peak shaving in different cities, about over 100 stations. In the meantime, up to 60% of the stations are regularly involved in the off-peak charging by increasing the electricity consumption in off-peak hours. To support energy saving and emissions reduction, new power swap stations will continue to support power-grade demand response and optic charging in more regions.
spk09: 全球市场方面,8月份未来ET7启航发明欧洲并将于今年面向德国、荷兰、丹麦、内地、挪威用户开放预定和交付。
spk05: As for the global markets, with the new EP7 being shipped to Europe in August, the order placement and user delivery of our new product will take place in Germany, the Netherlands, Denmark, and Norway this year.
spk09: 八月二十八日,经过未来用户社区的积极参与, 合肥被选为Near Day 2022的主办城市。 On August 28, Hefei was chosen by our user community as the host city for Neo Day 2022, and the preparations for the event have been officially kicked off.
spk05: We look forward to sharing with you all the latest progress regarding our products and the core technologies at that time.
spk09: In August this year, the future will also officially become a partner of the German university and office. We look forward to the support of SAIS to assist the development of young people in the global automotive industry. On August 15th, the UNDP will officially cooperate with the United Nations Development Programme. The UNDP, as a partner of the Clean Park platform, will work with the Environmental Protection of the Future in the Environmental Protection of the Environmental Protection of the Future in the Environmental Protection of the Environmental Protection of the Environmental Protection of the Environmental Protection of the Environmental Protection
spk05: As a player in the smart electric vehicle industry, Neil has been devoted to practicing corporate social responsibility and supporting global sustainable development. Since the very beginning of our establishment, Neil has been endorsing the Formula Student Electric China and starting from last year, we began to endorse the Formula Student Autonomous China, FSAC. In August this year, Neil officially became a partner of Formula Student Germany. We would like to contribute to the development of young talents in the global automotive industry by supporting this event. On August 15, NEO officially entered into a partnership with the United Nations Development Program, UNDP. As a partner of the Clean Parks Platform, the UNDP will conduct in-depth collaborations with NEO in areas such as the environmental protection of protected areas and the natural reserves, and supporting social entrepreneurship to encourage young innovators to explore business solutions to advance biodiversity conservation and ecological protection. The second half of 2022 will be a critical period for the delivery and production ramp-up of multiple new products of new, which will present huge pressure on the supply chain, production, delivery, and services. The team will work closely with other partners to improve the system's efficiency, accelerate the mass production and the delivery of our vehicles, and ensure high-quality product and service experience.
spk09: As always, thank you for your support.
spk05: With that, I will now turn the call over to Stephen to provide you the financial details for the second quarter. Over to you, Stephen.
spk02: Thank you, William. I will now go over our key financial results for the second quarter of 2022. And to be mindful of the length of this call, as a reference to Army only in my discussion today, I encourage listeners to refer to our audience press release, which is posted online for additional details. Our total revenues in the second quarter was $7.3 billion RMB, representing an increase of 21.8% year-over-year and 3.9% quarter-to-quarter. Our total revenues are made up of two parts, vehicle sales and other sales. Vehicle sales in the second quarter was $9.6 billion RMB, representing an increase of 21% year-over-year and 3.5% quarter-of-quarter. The increase in vehicle sales year-over-year was mainly attributed to higher deliveries. The increase in vehicle sales quarter-of-quarter was mainly driven by higher average selling price. Other sales in the second quarter were 0.7 billion RMB, which is an increase of 34.6% year over year, and 8.2% quarter over quarter. The increase in other sales year over year was mainly attributed to increased revenue derived from auto financing services, sales of service and energy packages, and sales of used cars. The increase in other sales quarter over quarter was mainly attributed to the increased revenue derived from sales of used car and auto financing services. Gross margin in the second quarter of 2022 was 13.0%, compared with 18.6% in the second quarter of 2021 and 14.6% in the first quarter of 2022. The decrease of gross margin over the year was attributed to the decrease of vehicle margin and reduction in other sales margin resulting from expanded investment in power and service-style work. The decrease of gross margin for auto-procure was mainly attributed to decrease of vehicle margin. More specifically, vehicle margin in the second quarter was 16.7%, compared with 20.3% in the second quarter of 2021, and 18.1% in the first quarter of 2022. The decrease of vehicle margin year-over-year and the quarter of cultural was mainly attributed to increased factory cost per unit, which was partially offset by favorable changes in sales needs of the 87. Our incentive in sector cultural was 2.1 billion RMB, which is an increase of 143.2% year-over-year and 22% quote-of-court. Increasing R&D expenses year-over-year and quote-of-court has many attributes, the increased personal cost, the research and development functions, as well as the incremental design and development costs, the new products and technologies. As G&A expenses in second quarter, the 2.3 billion R&D, there is an increase 54% year-over-year and 13.3% quarter-of-quarter. The increase in SGN expenses year-over-year was primarily due to the increase in personal costs and costs related to sales and service network expansion. The increase in SGN expenses quarter-of-quarter was mainly attributed to the increase in personal costs and increase expenses, including expenses related to launch of ES7. Loss for operations in the second quarter was 2.8 billion RMB, representing an increase of 272.8% year-over-year and 30% quarter-to-quarter. Net loss in the second quarter was 2.8 billion RMB, representing an increase 369.6% year-over-year, and 54.7% quarter-of-quarter. Net loss attributed to New York's ordinary shareholders in the second quarter was 2.7 billion RMB, with an increase of 364% year-over-year and 54% quarter-of-quarter. Our balanced cash and cash equivalents The strict cash and short-term investment was 54.4 billion RMB as of June 30, 2022. Now, this concludes our prepared remarks. I will now turn the call over to the operator to proceed with our Q&A session.
spk01: Thank you. 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 cancel your request, please press star 2. If you're on a speakerphone, please pick up your handset to ask a question. For the benefit of all participants on today's call, please limit yourself to two questions. If you have additional questions, you may re-enter the queue. First question comes from Tim Hissow from Morgan Stanley. Please go ahead.
spk04: Hi, I'm Tim from Morgan Stanley. Thank you for answering my question. I have two questions I'd like to ask you. The first question is, according to the guidance of our 3G2, the short-term impact of the zero component is actually longer than before, and the impact is greater. Do we need to worry about other supply bottlenecks that will affect the export of ES7 or ET5 4G2 in the future? At the same time, in view of the development of the new epidemic, what do we think of the impact of 4G2? In the future, are we currently taking any further preventive measures to prevent such a situation from happening in the second half of the year? and even a major reform of the 866 next year. This is the first question. The second question is, I would also like to ask you how you see the recent US export of high-end chip to China. I understand that the short term may not have a great impact on the entire enterprise, but from the point of view of the medium and long term, will the future of the car be accelerated and the domestic chip factory, in our future car development and evolution cooperation, or the acceleration of the future of the car in automatic driving chips, So I've got two questions. The first one is about the component supply crunch because the supply bottleneck continuously kept itself outside of models like ET7. Should we be concerned about any potential hiccups to the productions of models like ES7 and ET5 in upcoming months? And in light of the fresh round of the COVID outbreak in China, what has NIO's team done so far to hedge the risk of potential disruption to the company's upcoming models. And even for next year, we are going to have the NT2.0 upgrade for EFAE ES6 and EC6. So what have we done to avoid this kind of risk to our production? The second question is about the chipset. I just want to learn that what's your take on the restriction to the export of high-end GPU from companies like NVIDIA and AMD to China? Well, in your turn, the impact to other industry should be pretty limited. But would that accelerate newsprint of semiconductors, the localization in the upcoming models, or even speed up the in-house development of our own chips or functions like autonomous driving in the future? Thank you.
spk09: Okay, thank you, Tim. China China China uh uh We believe that overall, this problem should be solved in the early stage. We think that in October, we should be able to get a more fundamental solution. So, comprehensively speaking, for us, in the fourth quarter, uh uh
spk05: Thanks, Tim, for your question. Regarding the first question, in the third quarter, especially in terms of July and August, we have encountered some supply chain pickups. And we believe the COVID-19 resurgence in some regions in China in September will also affect our supply chain to some extent. But based on our experience, accumulated throughout the March and April shutdown experience in Shanghai, we believe that the COVID-19 impact is under control compared with that of the second quarter. Regarding the megacasting components, the yield rate is below our expectation and this has affected the vehicle deliveries to our users. but we have already taken multiple measures to improve the yield rate of the megacasting components. For example, we have already sent over dozens of engineers to other suppliers to help them to improve the yield rate, and we have already witnessed some improvement. At the same time, we have also introduced some new partners for the megacasting components We believe we have already resolved this issue to some extent at the preliminary stage and we understand probably in October we should be able to resolve this issue at once. Of course, we are very confident about our delivery in the fourth quarter and we are confident to achieve our delivery targets for the whole year. Of course, there will be many challenges ahead of us, but we will try our best to achieve the target and improve the delivery performance in the fourth quarter. 第二个问题就是最近美国对华的一些大项链芯片的一些出面芯片的一些出口的一些新的政策。
spk09: We believe that in the short term, it will not have a real impact on our business. Because in general, it does not involve such chips for car operation. However, the chip for some training purposes in terms of AI, we have already formed a algorithm that can support the training needs of the next stage of AD algorithm. Of course, because we are cooperating with the foundation, We hope to pay close attention to this dynamic, including our cooperation with some cloud services, and actively evaluate this long-term plan. We also noticed that in China, there are also many companies that train chips, and their products are already on the market. We will of course actively evaluate the possible technology solutions in all aspects, including cooperation with some more chip companies. Regarding the U.S. chip band related with the AI training chipsets, we believe that this will not have an impact on our business operations.
spk05: Based on our estimations, our computing power is sufficient for autonomous driving technology development in the aspect of the AI training for now, and we have been working very closely with our partner, NVIDIA. At the same time, we have been monitoring the situation very closely. There are also many AI training chipset companies in China who are working on the mass production of their chipsets. We are evaluating different kind of technical solutions for these AI training chipsets, and we would like to work with different companies on this respect. Basically, we believe this is not going to affect our long-term strategy.
spk04: Okay, thank you, William.
spk05: Of course, we are building over core technology and the capabilities, including the chipset. And we believe our target is to build the full stack in-house capabilities in all those key core technologies. We are building our capabilities, and we believe that this is going to help us to mitigate the political risks and the regulatory risks. At the same time, it can also help us to improve our technology powers and also offer a growth margin as well.
spk01: The next question comes from Ming Sun Lee from Bank of America. Please go ahead.
spk10: 谢谢威廉还有管理层。 那我这边两个问题提问。 第一个问题是因为最近就是包括公司 然后还有整个行业其实竞争也比较激烈。 所以说我们公司目前有没有最新的一个 包括这个Sales and Marketing 还有这个R&D的一个 This is for this year and next year. And the other one is our point of sale, the latest target. This is my first question. The second question is, recently at the Chengdu Auto Show, including ET5 and ET7, there has been very good feedback. I want to know, because the speed of product delivery in the entire industry is getting faster and faster, including new players, so how do we view the competition of the entire industry? What is your latest guidance in the SG&A and R&D ratio considering more industry competition and also overall slower sales for the industry. Do you have any new target for your point of sales? Second question, your ET5 and the ET7 have very good feedback during the trend auto show, but currently there is more competition in the product iteration in the industry. Will you speed up the new product launch? And also, could you give some guidance regarding your 2023 new model plan? And can you also share, do you have any plan for a third brand? Thank you.
spk00: 好的,谢谢Ming. 第一个问题,我们确实看到这个行业有非常多的这样的一些新的这样的一些同行推出的很好的这样的产品。
spk09: But overall, in terms of cost and investment, we are still moving forward according to our own pace, including R&D. Of course, this year is a year of increased investment. In terms of our investment in R&D, for a long-term competitiveness, we have made a very big investment. But in terms of SG&A, overall, the proportion of our sales will definitely continue to decline. This is definitely a basic rule. So we will not change our own strategy and rhythm because of external competition. In general, we will continue to invest in R&D. This is our specific strategy. SG&A's overall sales ratio will continue to decline. This is in line with our rhythm. Let's move on to the first question.
spk05: Thanks, Ming, for the question. Yes, in the industry, we have seen many companies launching good products in the market. But in terms of the investment, we would like to follow our own strategy and the cadence. In terms of R&D, of course, this is our long-term strategy. We would like to make decisive investments on R&D. This year, we have ramped up our R&D investment to improve our long-term competitiveness. And also for the SG&A, as a percentage of the revenue, we believe the long-term trend is that this is going down. And we don't expect to change our pace or our strategy just because of the competitions in the external environment. We would like to make sure we can focus and determine our own strategy and pace.
spk09: 第二个问题就是ET5我们近期在包括成都车展 We have done a lot of shows on these exhibitions. The media has done a lot of reports on the appearance of the interior. We can see that the heat of 1T5 is constantly rising. The expectations of users are very high. So we believe that 1T5 will become a very popular product. Of course, next year, we will have more new models, including the release of the new generation model. The existing 866 products will of course be switched to our new NT2 platform next year. This is part of our plan. So, for the performance of the entire market after all products are switched to NT2 platform next year, We are still very confident. Whether it is in ET7, ES7, or ET5, we see the competitiveness of NT2 platform technology. We see that users are very welcome to our innovation. Of course, we will have some time to communicate with you about the details, but in general, we will speed up the development of new products next year.
spk05: For the ET5, we have already showcased the ET5 in different aspects in the Chengdu Auto Show and other exhibitions and auto shows as well. We have also received a wide range of media coverage for the ET5. ET5 has attracted a lot of attention of the users, the public, and the media, and we have received very good reviews and feedback from the user itself. Next year, we plan to further launch more products based on the NT2 technology platforms, and we plan to upgrade our current ES8, ES6, and ES6 to the new technology platform 2.0. We believe with all the products rolled over to the new technology platform 2.0, we will be very confident regarding our market performance at that time. Because if we look at the ET7, the ES7, and the ET5, we can see the comprehensive competitiveness of the NT2 technology platform. And we have launched many innovations that have been very much welcomed by our users. Of course, at this moment, I cannot share much details regarding the new product launch, and we would like to say that we are going to accelerate the ramp-up of our new products based on the new technology platform.
spk09: The third question, we have always wanted to make our products and products for more people to use. But on the other hand, we also need to pay attention to the needs of users in different price ranges, including the brand's Okay.
spk05: Regarding the third question, of course, we would like to have more and more users to use our products and enjoy our technologies. But at the same time, we're also going to pay attention to the users' needs and demands at different price range and users of different brands may have different needs regarding the products and the technologies. So for us, We would like to have more Smart EV users to experience our products and enjoy the benefits of those core technologies, and we will make decisive planning regarding this.
spk09: Thank you.
spk01: Our next question comes from Ben Wong from Credits. Please go ahead.
spk11: Hello, everyone. I have three questions for you. First, I would like to ask if the company has maintained a sales target of 100,000 units in the second half of the previous year. If it maintains this number, it means that it will reach about 68,000 units. Does it mean that in October, it will reach 20,000 units? For example, in November, it will reach 22,000 units. In December, it will reach 25,000 units. Does it maintain this guidance? This is the first question. Ah, the second question I would like to ask is the order. Because we do some Chinese brick research, it is found that ES7 and ET7 have to wait for three to four months, and ET5 will have to wait until next year for a long time. So according to the current sales, then ET7 will have an order of 15,000 or more, and there will be 15,000 or more, and ET5 will exceed 50,000. If you add it up like this, it will be more than 80,000 orders. I want to ask if this prediction is reasonable. This is the second question. The last question is about the interest rate, because we already feel that the company's 2G interest rate is actually better than the original value of 3 to 4. So I want to ask if the direction of the 3G interest rate is going up or not, because we seem to increase the price twice. If there is a second increase, it should be reflected in this 3G. Then the volume will be bigger. Can you say that this 3G interest rate will at least return to the level of 1G? My first question is about the four-year volume guidance. Basically, you already put it with the guide that second half of this year, the volume guidance will be 100,000 units. If you're considering your third quarter guidance, that means that in the last quarter, number four quarter, your volume will be roughly around 68,000 units. Is that true? Or roughly, say, in October, 20K, in November, 22K, and December, 24 to 25K. Is that a right way to think about your volume progress? That's number one question. And number two is about the order backlog. We actually do some dealer visits to call dealers. They told me that they got three to four months waiting list for all the new products. Say, yes, seven, 87, and 85. So can I assume you got 15K order for the year seven, 15K for 87, and roughly 55K for 85. So together you've got an 80K order backlog. That is the right way to think about the order backlog. That's the second question. And last one is about the margin outlook in the number three quarter. Basically, the second quarter guidance previously is that it will be declined 3% to 4% Q&Q, but right now the margin seems to be better than your guidance. So what's your outlook for the number three quarter? You actually have been raising the price two times for the old product. Should the third quarter gross margin return to the level in the first quarter of this year?
spk12: Thank you.
spk09: Thank you, Mr. Wang. The first question, as I mentioned earlier, we will continue to achieve our goal for the beginning of this year. Of course, this means that the pressure of our Q4 delivery and supply chain is indeed very high. But in the third quarter, we also made some creative preparations in all aspects. In the fourth quarter, because we have two factories to start production, The F2 factory in Xinqiao has been preparing for the third quarter. We are very confident because its initial work will be very single, which is to produce 1T5. The whole factory is producing 1T5, so its production complexity will be much lower. In general, Thanks, Dan, for your question.
spk05: Previously, I've also mentioned that we will try our best to meet the delivery target for this year. Of course, this means that the fourth quarter is going to witness a lot of pressure and the challenges on our delivery and the supply. We have already started to make the preparations for the delivery starting from the third quarter. We believe starting from the fourth quarter, we're going to have the two factories running to make sure we can support the delivery demand. Actually, starting from the third quarter, we have already kicked off the tooling and the preparations for the mass production of the EG5 at large scale in the factory two in the new park. at the beginning we believe that the production capacity of the factory 2 is relatively lower compared with the factory 1 because the factory 2 will only need to manufacture one product that is 85 so we believe in the fourth quarter we're going to break records every month and we are competent to achieve the record-breaking target for the fourth quarter, and we have been making active preparations to meet this target as well.
spk09: But what we can say is that whether it is ET7 or ES7, our orders are still very sufficient. Especially ES7, the recent performance is beyond our own expectations. Of course, ET5 is undoubtedly going to take a longer time. In general, our recent problems are really mainly the power supply chain and the power supply chain. We haven't disclosed this information for a long time.
spk05: because different companies have different definitions and understandings regarding the orders. But what I can say now is that we have a sufficient order backlog regarding the ES7 and the ET7. Actually, for the ES7, we believe the order performance is actually much better than of expectation. For the ET5, the waiting time is much longer. Recently, we believe the bottleneck or the constraint is not about the demand. It's mainly about the production capacity of the supply chain. Of course, for our own production capacity, we believe that we have already made sufficient preparations, but the main constraint will be in the supply chain.
spk03: For the third question, about the... Okay, William, yeah. For the third question about the gross profit margin of Q3, second half year, sure, the company has taken multiple measures to improve our gross margin profits, and we reached the selling prices of certain vehicle models like ES8, ES6, E26, and E27, and most of the positive impact will be reflected in Q3. Most of ES7 starting to be delivered in Q3, our first edition, with higher price and margins. So we expect a slight increase of vehicle margin in Q3, but in short term, we are still facing great uncertainty and challenges regarding the battery cost, which will have a negative impact to our gross margin. Thank you, Bing.
spk09: Thank you, Wang Bin.
spk00: Thank you.
spk01: The next question comes from Jeff Chung from Citi. Please go ahead.
spk07: Hello, Mr. Guan. I'm Jeff from Huaxi. I'd like to ask about production capacity. To put it simply, what level do you think we can reach with ET5's single-month production capacity in December this year? In addition to that, in October, November, and December, do you think ET5 is a linear or non-linear climb? First of all, this is a small question about ET5. Second, I still want to ask more specifically about the climb of the production capacity. Because we gave more than 30,000 levels of guidance. In the best case scenario, it means that the return ratio for September is 15 points, right? If you want to reach 150,000 units in the whole year, that is to say, October, November, December, every month, you have to have a return of 30 points. What I want to ask is that in addition to the one-off stock, in our comprehensive capacity, should we shoot like this? Or is it possible that October and November will be a little gentler? This may be about a dozen points. December is relatively fast for capacity expansion. I just want to ask about this rhythm. This is my first question. So my first question is about the ET5 production capacity. How many ET5 we can produce in December? And what is the pace on ET5's ramp up from October to December? This is the first question. And the second question is about the overall production ramp up from September to December. So our third quarter guidance implied the September runway should be accelerated by 15% month-on-month. So in order to meet our four years target, the October to December month-on-month runway has to be at least a 30% month-on-month every month. So should we expect a straight line ramp up or accelerating pace? That's a, December, November's portion could be more critical rather compared to October. Thank you.
spk09: 好,謝謝Jeff. Then we take this from 1 to 5, then we will be in December, uh, in the month of March, uh, from us, our preparation work in all aspects is very full. Uh, then our internal goal is definitely higher than 10,000. If you go to see it in December alone, then of course, in October, November, and December, we will definitely break the record every month. That also means that it is still a China China China China China China China Thank you, Jeff, for your question. Yes, actually I think for the production capacity ramp-up,
spk05: Everyone understands this will need some time, and there's a process, especially when you come to new products, production ramp up. At the beginning, it will start at a relatively low volume, and then it can accelerate to a stable level. We have already made sufficient appropriations for the mass production of the T5. and we believe that EG Pfizer will have the opportunity to surpass 10,000 units in one month. If we look at December, of course, our internal target for EG Pfizer should be higher than this. For November and December, we believe we are going to break the delivery record month over month, especially we are going to see the peak at December. Previously, I have also mentioned that in October, the supply chain bottleneck will be resolved for the ES7 and the ET7. And around that time, we will also ramp up the production of the ET5. So it means that we're going to see the delivery volume to gradually ramp up. But at this moment, we cannot predict with certainty because there are many factors outside of our control. But in the past few years, we have experienced many challenges and extreme situations. In the past, we have accumulated a lot of experiences, so our team knows how to handle those challenges and Rambaba Productions meets those challenges. We believe in the fourth quarter, of course, we are going to experience many pressures in terms of the supply chain and the production, but we are confident to make sure we can meet the target we set for ourselves.
spk07: Thank you, President Li. I would like to ask a small question. I would like to ask a small question. If there are 10,000 units in December, My question is if the production capacity can reach 10,000 units a month. Yeah, okay. Yeah, yeah, yeah.
spk09: Of course for the reservation orders, there are some fluctuations and uncertainties.
spk05: But for the production order confirmation, this is the starting point for us to make the arrangement of the actual production of EG5. If you would like to get your EG5 earlier, then of course you should place your orders as soon as possible.
spk07: Thank you. I will place my order tonight. Let's see when I can get it in two years. Thank you, Mr. Li. Thank you.
spk01: The next question comes from Edison Yu from Deutsche Bank. Please go ahead.
spk08: Thanks for taking the questions. First one, we noticed that William visited the U.S. last month, and we're wondering what kind of decisions or perhaps considerations were taken while he was there, perhaps earlier entry into the U.S.? And then the second question is, The original plan was to introduce a solid hybrid battery pack, I believe, in the fourth quarter. Is there any updates to this? Is it still on track? 我很快翻譯一下。 第一個問題是我們看到 William 上個月去了美國。 你們可以分享一下這個 visit 有什麼新的消息嗎? 還有第二個問題是 We originally planned to recruit a new battery in the fourth quarter.
spk09: Do you have any updates on this? Thank you. Okay, thank you, Edison. We all know that NEO has been a global startup from the beginning. In 2015, we set up a research center in the U.S. Because of the pandemic, we haven't been to the US office for many years. We still have hundreds of colleagues here. So during this period, if we go to the US and then to Europe, we have to meet our colleagues and learn about their work. Of course, we have been preparing for the US market for a long time. China China China China China Thank you for your question.
spk05: New is a global setup from day one. Actually, we set up the San Jose R&D Center back in 2015. Because of the COVID-19 situation, I haven't been able to visit our colleagues in the U.S. for several years. We actually have hundreds of colleagues here based in the US, and we also have colleagues based in Europe. So this time I would like to visit our colleagues here in the US, and then I will also go to Europe to visit our colleagues over there. For the US market entry, we have been making preparations for a long time. We have been thinking about the US market entry strategy back in 2017, and this has been in planning for almost five years already. We have been thinking about what kind of a product should be the best product for the US market, what kind of user experience we should provide, and what should be the right business model for the US market. We believe right now we have a much clearer plan regarding the U.S. market entry and we have been making comprehensive appropriations based on our plan and the strategy for the U.S. market. U.S. market is quite different from the China market and also the European market. The U.S. market is very competitive, and the regulatory environment is also quite different from China and Europe. We have been making long-term thinking and appropriations about the U.S. market entry, and we believe that the right strategy is to make comprehensive appropriations and be patient. Of course, there isn't much detail that we can disclose at this moment, but we believe we have a clear strategy for the U.S. market entry, and we just need to be patient for the execution.
spk09: uh uh uh
spk05: For the 150-kilowatt-hour semisolid battery pack, this battery pack offers a very high power density, and we are making comprehensive evaluations of this semisolid battery pack. We are making preparations for the production of this battery pack together with our partners. But according to our current evaluation, we believe probably we're not going to provide this service to our users in the fourth quarter, and according to the current evaluation, this battery pack will be delayed for several months. Of course, we have been working with our partners to evaluate the progress, and this is the current situation that we will try to work with our partners to improve the situation.
spk00: Sounds quite like it.
spk01: The next question comes from Paul Gong from UBS. Please go ahead.
spk06: The order here may be stronger than the real demand. I don't know if the management has noticed such a problem. Are you worried that such an order situation will cause some misguidance to our production? Our subsequent production will cause some misguidance. Then the second question may still want to follow up on the next step of thinking. Because the second brand, the third brand, whether it's Arbis or this firefly, So two questions for me. The first one is, Have you realized that there might be some orders that have been placed by certain people who is not really intending to get the vehicle but just to jump the queue and try to sell the order to someone else for profit? which might inflate the order and give misleading information for your production plan. And how do you prepare for that? My second question is regarding your secondary and third brand preparation, IOPACE and Firefly. We noticed that there are some orders have been entered with some suppliers, especially from the batteries and other components. Is there more color management can share compared to, let's say, two quarters ago?
spk09: uh uh uh
spk05: Thanks for your question. Regarding the first question, of course, if we cannot meet the user demand in a timely manner, then probably some users may transfer their orders to others. But we have a very strict policy regarding the order transfer. So we believe there will be very few cases for the order transfer, and the percentage of the order transfer will be quite low. This is probably also because of our follow-up mechanism. If you place a reservation order for now, then our fellow will follow up with you regarding the specific orders, and then this can be converted to the actual production orders. In our current order backlog, we believe that the percentage of users who are only placing the orders to make sure they can transfer the orders to others in the future to make a profit this percentage should be quite low because of all those different mechanisms we have in place.
spk09: In terms of the general market brand, it will use our latest NT3 entire smart platform. So it will follow our NT3 smart platform to promote to the market. So this is also a new development of our brand about the general market. Of course, there are indeed some media, including the supply chain, everyone has some information that we may have a third brand. Indeed, in the past one or two years, we have learned two things. The first one is that if you want to achieve the acceleration from the oil car to the electric car, We do need more products to serve a wider range of users. This is something we are aware of. We also saw that in the past year, China's entry-level, including the demand for the public market, has grown very rapidly. China's electric vehicle penetration has also grown because of such a trend. On the other hand, we also saw some very interesting opportunities, including business models and user experience innovation. Everyone should know that NEO is good at combining user benefits, user experience, and technology innovation. We saw this opportunity. After full verification, we think we have the opportunity to use some more innovative services, including business models and technology innovation, to serve more wide range of users. For the mass market brands, previously we have already discussed about our plans for the mass market brands. Currently the R&D progress is on track.
spk05: Our plan for the mass market products is to follow the schedule and the cadence of our latest technology platform, that is the new technology platform 3.0. We're going to launch the mass market products based on the new technology platform 3.0. Yes, probably from the media and the supply chain, there have been some discussions about brand of meal. Actually, in the past, we have recognized that if we want to accelerate the conversion from the ICE to ED, we want to provide more products to cater to different users in different segments. And we believe in the past year, we have witnessed tremendous growth in terms of the EV demand at the entry-level market segment, which has also been driving the EV penetration here in the China market. We have realized that some interesting opportunities for the business model innovations, and I believe Neil is very good at combining the innovative technologies with the user experience and provide a very innovative experience to our users. We have identified some opportunities for us to make innovative technologies and blend it together with other business models to provide services to the users and provide a different kind of product to a wider range of user groups and communities. So at this moment, we cannot disclose much information about this. But what I can say is that we do believe that there are some opportunities for us to explore.
spk12: Thank you so much.
spk01: This concludes our question and answer session. I'll now hand the call back to Ms. Eve Tong for closing remarks.
spk05: Thank you once again for joining us today. If you have further questions, please feel free to contact the NEOS Investors Relations team through the contact information provided on our website. This concludes the conference call. You may now disconnect your line. Thank you.
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