NIO Inc.

Hello, ladies and gentlemen. Thank you for standing by and welcome to the NEO, Inc. fourth quarter 2022 earnings conference call. At this time, all participants are on a listen-only note. Today's conference call is being recorded. I would now like to hand the conference over to your host, Ms. Yi Tang from Capital Markets. Please go ahead.

Good morning and good evening, everyone. Welcome to News of Fourth 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 Chief Executive Officer, Mr. Stephen Fong, Chief Financial Officer, Mr. Stanley Kru, Senior VP of Finance, and Ms. Jade 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 Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain filings of the company with the U.S. Securities and Exchange Commission, the Stock Exchange of Hong Kong Limited, and the Singapore Exchange Securities Trading Limited. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that NIO's earnings press release and this conference call include discussions of unauthentic gap financial information, as well as unauthentic non-gap financial measures. Please refer to news press release, which contains a reconciliation of the unauthentic 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.

Hello, everyone. Thank you for joining NEOS 2022 Q4 earnings conference. In the fourth quarter of 2022, the future supply of 40,052 high-end smart electric vehicles will increase by 60% and achieve a new high in the quarter. According to the sales data of Zhongqi Center, China's high-end electric vehicle market with a sales price of more than 300,000 in the future ranks first with a market share of 54.8%. In the high-end electric vehicle market with a sales price of more than 400,000, the market share reaches 75.8%.

In Q4 2022, NIO delivered a total of 40,052 smart electric vehicles, up 60% year-over-year, achieving a new quarterly record. According to the retail data released by CATAC, China Automotive Technology and Research Center, NIO was the best-selling brand in China's premium EV market, priced over 300,000 RMB, with a market share of 54.8%, while over market share in the premium EV market, priced over 400,000 RMB, reached 75.8%.

In 2022, despite the impact of the COVID-19 pandemic and the fluctuation of supply chain factors, the future total delivery of 122,486 high-end smart electric vehicles will increase by 34%.

In 2022, despite the impact posed by COVID and supply chain disruptions, NIO delivered a total of 122,486 smart electric vehicles, up 34% year over year.

In January and February of 2023, we delivered 20,663 vehicles, representing a 30.89% increase year over year.

We expect that the total deliveries in the first quarter of this year to be between 31,000 and 33,000 units. 随着高端市场电动汽车渗透力的持续提升,以及未来更多新产品在今年二季度相继交付,我们对2023年全年的市场需求充满信心。 As the penetration rate of the premium EV grows and more new products expected to be delivered in the second quarter, we have a strong confidence in the market demand in 2023.

接下来,我跟大家交流一下产品研发和运营方面的进展。 Next, I would like to share some recent highlights of our product R&D and operations. Since the end of September 2022, since the start of the delivery, the production has been stable, climbing, and the overall delivery has risen. According to the retail data of Zhongxi Center, in January this year, in the medium-sized delivery market of more than 300,000, Yixi Wu surpasses the traditional brand of the same level of multi-tourist supercar type. In 19 cities such as Beijing, Shanghai, Guangzhou, Shenzhen, the delivery volume is ranked first, and the market is ranked second in the country.

Since we started to deliver ET5 in September of 2022, its production and delivery has been ramping up steadily. According to Catax retail data, this January, among all the midsize sedans priced over 300,000 RMB, new ET5 outperformed popular internal combustion vehicles from well-established brands and became the top-selling model Beijing, Shanghai, Guangzhou, Shenzhen, and other 15 cities in China, and the second best-selling model nationwide in China.

On December 24, 2022, NIO Day 2022 will be held in Hefei. It will include the SUV EC7 and the new EX8, the all-terrain automatic electric SUV. The EC71 5-seater race SUV has become a future high-performance generation with excellent driving performance, and is expected to start delivery in May this year. As a future flagship SUV model, the new upgraded ES8 based on the NT2 platform has two 6-seater layout, which can meet the needs of the work, family, social and exploration scene, and is expected to start delivery in June this year. The two new products have received widespread attention and good reviews after release.

On December 24, 2022, we held New Day 2022 in Hefei, where we launched the smart electric flagship coupe SUV EC7 and the all-round flagship SUV, the all-new ES8. EC7 is a large-size coupe SUV that inherits NIO's high-performance DNA and delivers ultimate handling and riding experience. The delivery of the EC7 is expected to start in May. As new to flagship SUV based on the technology platform 2.0, the six-seater all-new ES8 offers two-seat layout, catering to all scenarios, including work, family, social, and exploration. The delivery of the all-new ES8 is expected to start in June. Both new products have attracted wide attention and received great feedback.

In the first half of this year, NIO will gradually launch more new products and shorten the waiting time from launch to user delivery.

Other supply chain and manufacturing teams have been preparing for new product launches and production ramp-up, making sure that supply and production go hand-in-hand with the growing demand for the new product.

智能驾驶方面,未来已经向NT2平台用户全量申批推送了NOP Plus增强领航辅助的Beta版。 Based on the self-proclaimed smart driving technology and data security, the NOP Plus beta version has significantly improved in terms of security, comfort, traffic efficiency, and other dimensions. The usage power has been doubled compared to the NOP. The total usage journey of the last week has exceeded 1.75 million kilometers. We will introduce more features in the first half of this year and gradually realize high-speed line charging.

For intelligent driving, NIO has gradually rolled out NOP Plus data to all NP2 vehicles. Based on our full-stack in-house developed intelligent driving technologies and the closed-loop data management, NOP Plus data has realized significant improvements in areas of a sense of reassurance, comfort, and efficiency. The utilization rate has doubled with a total engaged mileage of over 1.75 million kilometers in the recent week. We plan to roll out more features and functions to our users and will gradually release power swap pallets for highway in the first half of this year.

With respect to the sales and service network, we now have 375 new houses and new spaces in 141 cities and

305 new service centers and new delivery centers in 148 cities.

In terms of charging network, we have already set up 1,331 charging stations, and we have set up more than 1,800,000 charging services for users. We have also set up 6,385 supercharging stations and 7,555 destination charging stations. At the same time, our charging map includes more than 1,040,000 third-party charging stations, In terms of the charging and swapping network, NIO has installed a total of 1,331 power swap stations and provided over 18 million battery swaps for our users. In the meantime, NIO has cumulatively deployed

60,385 power chargers, and 7,558 defamation chargers. And overpower map has been connected to over 1.04 million third-party chargers. In 2022, 50% of the power charged by our users is from battery swapping stations. which has become the most convenient and favorite solution among new users.

In 2023, we will speed up the deployment of the exchange network, and plan to add 1,000 exchange stations. By the end of 2023, more than 2,300 exchange stations will be built. Currently, the production of the third-generation station is progressing smoothly. It is expected to start large-scale production in April. In 2023, NIO will speed up the development of the battery swapping network and plan to install additional 1,000 power swap stations. By the end of 2023, there will be more than 2,300 power swap stations in total.

So far, the mass production of PowerSwap Station 3.0 is going forward smoothly, with the large-scale production expected to start in April. The accelerated deployment of PowerSwap Stations can not only provide existing users with experiences beyond expectations, but also significantly boost user demand. In Q4 2022, NIO started to offer NT 2.0 products and comprehensive services in Germany, the Netherlands, Denmark, and Sweden.

未来产品在欧洲受到专业媒体的高度认可, 用户满意度也达到了我们的预期。 继掌握德国金方向盘之后, ET7屡次荣获欧洲大奖, 包括丹麦汽车大奖,年度领先技术奖, 瑞典传威汽车杂志, AMS sponsored annual car and best luxury car awards. We are confident in the long-term development in Europe.

New products have been highly recognized by professional media in Europe, and the user satisfaction rate has also reached all the expectations. After obtaining the prestigious Golden Steering Wheel Award, ET7 was honored with multiple awards in Europe, such as the Technological Front Runner of the Year at the Danish Auto Awards, Car of the Year, and the Best in the Luxury Segment by Automoto Sports. and the promise of 2023 by the Association of Business Drivers in Netherlands. On January 31st, 2023, we started to deliver EL7, our new large smart electric SUV, to the first batch of users in Europe. As we continue to introduce a more diversified product portfolio, expand our sales service and power network, improve our brand awareness, we are confident in our long-term development in Europe.

There aren't the efforts of our strategic new businesses, including batteries, AD chips, and the mass market brand are also well on track. The development of NEO wouldn't have been possible without our users' continued support. In 2022, 4,447 users volunteered at auto shows, NEO Day, and other events.

New users have also been actively making contributions to society with the participation of public welfare activities reaching 6,200 people times in 2022. On January 18, 2020, the World's Longest Sustainable Development Enterprise List was published.

On January 18, 2023,

NIO was recognized in Corporate Night 2023 Global 100, the world's most sustainable companies list. Among 333 companies in the car and trucks manufacturing, including parts category, NIO ranked first. In the meantime, on January 31, 2023, NIO's second advanced manufacturing base was certified three-star grain building and lead gold, marking the first of its kind in China. We attach particular importance to low-carbon development, environmental production, and ecosystem co-construction, and actively practice sustainable philosophy to continuously improve our ESG performance.

In 2022, to build our long-term competitiveness, we make decisive investments and achieve the positive strength in the research and development of core technologies and products.

the deployment of charging and swapping infrastructure, as well as the sales and the service network, and the global market expansion, laying a solid foundation for the company's long-term growth.

In 2023, with the release and delivery of all products on the ND2 platform, we will do our best to provide users with an exciting experience. At the same time, we will make a full-scale improvement in the execution efficiency, and participate in long-term competition in the global electric cycle market with a sharp and efficient working rhythm.

As our product portfolio transitions to NT 2.0 with more new products to be launched and delivered in 2023, we will do our level best to provide users with experiences beyond expectations. At the same time, we aim for all-round execution efficiency improvements. so as to compete in the global EV market in the long run in an agile and efficient manner.

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 fourth quarter. Over to you, Stephen.

Thank you, William. I will now go over our key financial results for the fourth quarter of 2022. And to be mindful of this lens of this call, I will reference to RMB only in my discussion today. I encourage listeners to refer to our earliest press release, which is posted online for additional details. Also, the revenues in the fourth quarter were 16.1 billion RMB, representing an increase of 62.2% year-over-year and 23.5% quarter of a quarter. Our total revenues are made up of two parts, vehicle sales and auto sales. Vehicle sales in the fourth quarter were 14.8 billion RMB, representing an increase of 16.2% year-over-year and 23.7% quarter of a quarter. The increase in vehicle sales year-over-year was mainly attributed to higher deliveries as a result of a more diversified product mix offered to our users. The increase in vehicle sales quarter-by-quarter was mainly due to volume ramp-up of the 85 and ES7. Other sales in the fourth quarter were 1.3 billion RMB, representing an increase of 93% year-over-year an increase of 22% quarter-of-quarter. The increase in other sales year-over-year was mainly due to the increase of revenue from rendering of research and development services and increase in other revenues in line with the incremental vehicle sales. The increase in other sales quarter-of-quarter was mainly due to the increase of revenue from rendering of research and different services and in creating sales for accessories, charging piles and used cars in line with incremental vehicle sales. Partially offset by the sales of automotive luxury credits in the third quarter of 2022. Gross margin in the fourth quarter of 2022 was 3.9%. Compared with 17.2% in the fourth quarter of 2021, and 13.3% in the third quarter of 2022, the decrease of gross margin year-over-year was mainly attributed to decrease of vehicle margin. Decrease of gross margin quarter-over-quarter was mainly attributed to decrease of vehicle margin, and the decrease of sales margin mainly resulted from the sales of automotive production credits with high gross margin in the third quarter of 2022. More specifically, vehicle margin in the fourth quarter was 6.8% compared with 20.9% in the fourth quarter of 2021 and 16.4% in the third quarter of 2022. With the credit of vehicle margin year-over-year, was mainly attributed to, first, increased inventory provisions, accelerated depreciation on production facilities, and losses on purchase commitments for the existing generation of ES8, ES6, and ES6 that are expected to have lower production levels and deliveries due to their transition to new models on the new technology platform 2.0. which in totality impacted vehicle margin by 6.7%. And second, increased battery cost per unit. The decrease of vehicle margin on the third quarter of 2022 was mainly due to the increase in trade provisions, accelerated depreciation and the losses on purchase commitments for the existing generation of ES8, ES6, and EC6. Iron expenses in the fourth quarter were 4.0 billion RMB, which is an increase of 117.7% year-over-year and 35.2% quarter-of-a-quarter. The increase in iron expenses year-over-year and quarter-of-a-quarter were attributed to the increase personnel costs in research and development functions, as well as the incremental design and development costs of new products and technologies. SGN expenses in the fourth quarter were 3.5 in RMB, representing an increase of 49.6% year-over-year at 30% quarter-of-a-quarter. The increase in SGN expenses year-over-year and quarter-of-quarter was primarily due to, first, the increase in personal costs related to sales and general corporate functions. Second, the increase in marketing and promotion activities to promote our vehicles in China and Europe. Third, increased expenses related to the company's sales and service network expansion. plus for operations in the fourth quarter was 6.7 billion RMB, with an increase of 175.5% year-over-year and 74% quarter-by-quarter. Our income net in the fourth quarter of 2022 was 315.7 million RMB, representing an increase of 262.2 million RMB from the fourth quarter of 2021 and an increase of 811.3 million RMB from other losses of 495.6 million RMB in the third quarter of 2022. The increase of other incomes year-over-year and quarter-of-quarter was mainly due to the gains from the revaluation of our overseas RMB-related assets as a result of appreciation of RMB against its donors in the fourth quarter of 2022. Net loss in the fourth quarter was 5.8 billion RMB, which is an increase of 169.9% year-over-year, and 40.8% quarter of a quarter. Last, attributable to NIO's owner shareholders in the fourth quarter was $5.8 billion, which is an increase of 168.3% year over year and 41.2% quarter of a quarter. Our balance of cash and cash equivalents, restricted cash, short-term investment and long-term time deposits was 45.5 billion RMB as of December 31st, 2022. Now, let's conclude our prepared remarks. I will now turn the call over to the operator to proceed with our Q&A session.

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 then two. If you want to speak to friends, please pick up your handset to ask your question. For the benefit of all participants on today's call, please limit yourself to two questions. And if you have additional questions, you can re-enter the queue. Our first question today comes from Tim Day with Morgan Stanley. Please go ahead.

Hello, Mr. Guan. Thank you for accepting my question. I have two questions. The first question is about the supply chain and LAMP. Last year, at the end of this year, we looked at the future of this exchange, and we saw that the LAMP, such as the oil and gas price, EDS, and camera, head, chip, etc. were involved. According to this financial report, EGC's guidance shows that the exchange rate in March is still weak. So my first question about the supply chain and also the volume, because NIO's ship last year were seriously dragged by the supply bottleneck. of aluminum parts, EVs, and chips. So, according to the announcement of NIO's first quarter volume guidance of 31 to 33,000, also suggests more moderate vehicle sales in March. Is that because some components are still suffering from supply constraints? What current vehicle production run rate and how fast you could ramp up on weekly and monthly base into second quarter? I'll just leave it at that.

Thank you. Last year's fourth quarter was indeed because of the supply of zero components that has increased the delivery of our vehicles. But you also know that this year's first quarter, from the beginning of the month, the control of the epidemic in China has basically ended. So in terms of money, our supply of zero components is generally not a calm one. Thank you, Tim, for your question. In the fourth quarter of last year,

the supply of the parts have affected over vehicle deliveries to some extent. But starting from the first quarter of this year, we have seen that the control and prevention measures regarding the COVID have been lifted. So currently, we believe that the supply of the parts is not the bottleneck for us. Starting from the second quarter, we believe with all the new vehicle deliveries, we will need to have some time to ramp up the production, but we don't believe that the part supply will be a constraint for us.

Okay, thank you. The second question is about the price of wool and battery. First of all, we can see that the price of wool has decreased significantly. In the public opinion, you mentioned that the 6.7 point of the wool rate will affect how many units will last for a period of time. At the same time, the good news this year may be the drop in the battery price. After the long-term purchase cooperation and the drop in the battery cost, there will be a contribution to the group profit. Because before, William may have mentioned that the price of carbon-fiber may fluctuate, which will affect the future. So we are negotiating with the battery market, how much contribution will it make to us all year round? Can you share this with us? So my second question is about the battery cost in those of the gross margin. Because the fourth quarter eco-gross margin dropped more significantly. So within the 6.7 percentage point margin drop-off mentioned in the announcement, how much of that would be runoff and how much of that would be lasting into first quarter? In the meantime, On the bright side, I think the battery prices cost should go well to the vehicle margin, you know, to the vehicle margin this year. So how should we think about the contribution from the new battery country prices? Because as we record, I really mentioned that the 100,000 RMB decrease in bp and cognate will lead to about 2 percentage point vehicle gross margin . So could you please share some updates regarding how much more contribution from the lower battery cost should we expect this year or in first half? Thank you.

Thank you, Tim. This is Stanley. First, I want to further clarify the Q4 2020's gross profit margin. Since our brand-new ES8, ES6, E6 will start user delivery in Q2 2023, so we lower our order forecast for current generation ES8, ES6, and E6. in Q4 2022. So, inventory provision and losses on purchase commitments relate to those products was booked in Q4 with total amount of RMB 985 million. Excluding this impact, the vehicle margin in Q4 was 13.5%. So, compared with the last quarter, the decrease results from the change of product mix, especially more 85 sold in Q4 with lower gross profit margin. And for the forecast for gross profit margin in 2023, I ask William to help explain.

Okay. We believe that Q4 or the whole year, we believe that Q4 will climb to 18 to 20 points. We are still confident. Of course, there are several aspects of the impact. One is our product combination. Because we started from QR, our relatively small products will be delivered one after another. Then the second one, the price of raw materials and the price of raw materials, including the cost of chips. This has a big impact on us. At present, the carbon footprint has been decreasing relatively quickly. We have also seen that the market generally thinks that, including two days ago, we just had a very close exchange with a lot of upstream material companies, and we also understand their production capacity and head production situation. So this year, there are still a lot of this kind of leading output, head production this year. Then we also see that the demand will certainly not be as strong as last year. This last year really exceeded everyone's expectations. So in general, we think that in Q4, there is a chance to drop to 200,000, or even lower than it, such a price in the carbon economy. So the third answer is also that we think that from Q3, our entire delivery volume will rise significantly. Because in Q2, our new products will be delivered one after another. For the growth margin for the full year of 2023, we are confident that

In the Q4 of 2023, the vehicle cost margin will go back to 18% to 20% due to several factors. The first one is our product portfolio. Starting from the second quarter of this year, we are going to start the delivery of vehicle models with higher vehicle cost margins. And the second factor is, just like you mentioned, Recently, we have witnessed the cost reductions of the raw materials, including the lithium carbonate chips and other commodities. So we believe that this will also contribute to our vehicle cost margin improvement in this year. Especially when it comes to the lithium carbonate cost, we have witnessed significant cost reductions. We have also engaged discussions with the upstream companies in the battery supply chain. When I stand, there are some capacities reserved for the lithium cabinet this year, and starting from this year, we're going to see more output from the upstream capacities. At the same time, considering the market demand, we believe the demand probably is not going to be that strong compared with the past, but if we balance the supply and the demand regarding the lithium carbonate, we believe probably in the fourth quarter of this year is quite likely the lithium carbonate cost will go down to probably around 200,000 RMB or even lower. The third factor we believe is that starting from the third quarter of this year, we're going to start more product deliveries. This is mainly because more new products will be delivered to our users starting from the second quarter of this year. So we believe with the ramp-up of the vehicle deliveries, the amortization rate of the fixed cost will also improve. So our target still remains that we can achieve the vehicle cost margin of 18% to 20%, and we're very confident that we can achieve that.

I would like to add that we are still under a lot of pressure in the first quarter, because the first quarter is still a transition period for us. You can see that our sales are also in a transition period, because we are waiting to switch to the second platform. On the other hand, the current 866 models that we have produced, We have some financial policies in order to make up for the decline of the national stock market. There is also some financial policies in order to make up for the decline of the national stock market. There is also some financial policies in order to make up for the decline of the national stock market. There is also some financial policies in order to make up for the decline of the national stock market. There is also some financial policies in order to make up for the decline of the national stock market. There is also some financial policies in order to make up for the decline of the national stock market. There are some financial policies in order to make up for the decline of the national stock market. So for the first quarter of this year, we believe that we're going to face more pressure on the vehicle cost margin, considering the overall situation. Because this is a transitional period for the company,

When it comes to the vehicle sales, because we are transitioning into a new technology platform for our product portfolio to the NT2.0, so it means that for the existing generation of the EF-80S6 and the EC6, we will need to have some measures to accommodate the subsidy reduction as well as some subsidization of the show carts At the same time, when it comes to the production capacities, because we need to prepare for the launch of the new generation S8, S6, and EC6 in factory one, so we need to do some modifications of the toolings of the production lines. This has affected the output of the factory one in the first quarter, which resulting a higher footprint vehicle cost of a product. So at the same time, when it comes to the specific quarter, that is the first quarter of this year, we will also see that the ET5 contribute as a large portion of the overall vehicle delivery, which will also affect our vehicle's margin in the first quarter.

Thank you, Tim. Great. Thank you for sharing. Thank you very much.

The next question comes from Mingzhen Li with Bank of America. Please go ahead.

Hello, William. Thank you for your question. I have two questions. The first question is about the management of the cost. Because I remember last quarter, William mentioned that he hopes that in the future, or in any quarter, he hopes to be able to control RMD So my first question is related to operating expense. So in the past, you mentioned that R&D per quarter is expected to be around 3 billion R&D. But this year, this quarter, we saw that the expense is close to 4 billion. So we want to understand if there is a new guidance for sales and marketing as well as R&D expense. I mean, this is Danny.

The guidance for R&D expense, I think we keep this guidance. And our average base for each quarter of 2023, we will, the non-GAAP R&D expense will be around 3 to 3.5 billion RMB. So that's for R&D expense. And for SDNA, as mentioned by William, along with the start of user delivery of our new NT2 product in Q2. We think our sales efficiency will be improved gradually, and that the ratio of SG&E versus sales revenue is expected to drop significantly. So that's for the first question. Thank you, Ming.

So I would like to add that when we are at SG&E, because we will put all of Europe's products on the list, Just to add to Stanley's point, regarding the SG&A, because we also need to consider the investment for the European market,

For the European market right now, we're still at a relatively early stage in terms of the vehicle sales and the deliveries. We believe that this is more like an investment period for our global market expansion.

谢谢,那我的第二个问题是关于产品投放。 那想确定一下,因为今年的新车主要就是866 EC7跟E75的列装版, 那想確認一下目前這個EC6 新的EC6跟ES6的話 它會是在跟ES8差不多的時間 也同時準備交付 那另外也想要再確認一下 像我們目前的這個ES7跟ET7 那今年會不會也有一些這個小改款 或者是小的upgrade 把這個去年的這個版本 做一個小的升級 那另外可不可以請William這邊 So my second question is related to product pipeline. So this year you will have a new ES8, ES6, and the EC6, EC7, and the ET5 wagon version. So what will be the time for ES6? and the EC6 to be delivered. Besides that, for ES7 and the ET7, where you have a facelift version to further improve your autonomous driving function as well as . Meanwhile, could you also elaborate your rough product pipeline for 2024, include a second ?

Thank you. In the second quarter of this year, we will, according to the latest plan, we will deliver four cars. Of course, this includes the ES6. Of course, it is our most important model. Then we will deliver the fifth car of this year in July. So this is a little later than our original plan. Because our original plan was to deliver five cars in the second quarter. Then we realized this later. Or do you need to give each car a little more time to maintain the quality at the time of launch, including the pace of sales at the time of launch? The other single product continuous delivery improvement has always been done by me. We will communicate with the market in time. The product cycle for next year is still too early. We still have to hand over five vehicles in the next few months. The pressure is already great. We still have to hand over these recent vehicles. But what we are talking about is that the future product planning has always been very rigorous and very progressive according to the plan. So, of course, from the current point of view, according to our rhythm and plan, including new brands, Thank you for your question.

Actually, for the second quarter of this year, according to our latest plan, we expect to launch four new models, including our most important product, probably that is the ES6. And in July, we plan to deliver the fifth model. Actually, this is a little bit late compared with our previous plan, because our previous plan is that in the second quarter of this year, we're going to deliver all the five new models. we realized that probably it's better for us to have some breathing room between different product launches, so we can probably ensure much higher quality of the products and also make sure the things have a much better pace for the product deliveries and sales. In terms of the product upgrades, we have been continuously making product improvements, and we will keep the market informed if there's any kind of updates. When it comes to the product launch cadence for the next year, I think probably this is not the right timing for us to share those information, because right now I believe the teams are facing tremendous pressure to make sure we can deliver the 5-minute models this year with very high standards. But all in all, we have our own pace and our own schedules when it comes to our new product launch and also our new brand. And in terms of the product launch cadence and our new brand, everything is on track according to our plan.

Thank you. Thank you, William. Thank you, William.

The next question comes from Langdon with Credit Suisse.

Please go ahead.

Thank you. I actually got two questions about guidance. Number one is about volume. For four years, do you maintain the guidance for 250K? Because given that recently the price cut by the competitors in the first quarter delivery, you actually earlier fixed all of the products. So would you actually maintain the three-year volume guidance about 250K is number one? But you actually mentioned earlier the number four quarter, four-year plans, that alone will be turned around to profitable. Given a change in the internal competition, did you actually maintain the same guidance? Thank you.

Okay. This goal can be achieved after we deliver this new product. We are still very confident about the demand in three aspects. The first one, of course, is that in the first half of this year, we will deliver five new products based on NT2 platform. Then our entire product will be switched to this new platform for a relatively strong product cycle. It is very important to avoid selling products of two generations at the same time. This can also improve the efficiency of our first generation. This is very different from the situation of Q4 last year and Q1 this year. Secondly, after we switch products, we can cover the DBA 80% sales ratio of such a mainstream model. In addition, we have a very huge supply chain pressure from the point of view of product advantages in all supply markets.

For the full year of 2023, we are confident that we can achieve our targets. After we complete our product deliveries, we believe we will see some upside momentum for our vehicle deliveries. For this year, we are going to deliver five new products based on the NT2 technology platform, After all of our product portfolio transitions to the NT2 platforms, it means that we are going to enter a very strong product cycle. We believe that this can actually improve our team efficiency much better because the teams don't need to sell two generation products at the same time. After we transition all the product portfolio into the technology platform 2.0, We believe we are going to cover probably 80% of the mainstream vehicle models for the BMW, Audi, Mercedes. And when you compare our products with their products, we believe our product competitiveness is much stronger.

Then we think this will also get us into more markets. For example, cities in the three and four lines provide a motivation. This is very important. Last year, so far, more than 50% of our users are in Shanghai, Jiangsu and Zhejiang. These three cities. Then from the other side of the story, The second driver is going to be overcharging and swapping network.

This year, we plan to deploy additional 1,000 power swap stations to cover more markets. Especially, we believe that this is going to help us to boost our demand in the Tier 3 and Tier 4 cities. Probably some of you know that for our current vehicle deliveries, over 50% of our vehicle deliveries happen in Shanghai, Jiangsu, and Zhejiang. So at the same time, if you look at the overall vehicle delivery landscape of the products, it means that we have a huge potential to explore in other cities and the regions. So we believe with the deployment of the additional 1,000 power swap stations, we can cover more users and also improve the experience of the existing users, which can also support over vehicle demand growth in other different cities and the regions as well.

The third growth power comes from the gradual release of these functions on the NT2 platform and more mature. I mentioned earlier that in the past week, our NOP Plus has used more than 1.75 million kilometers. Because all our cars are standard, this power calculation and sensor The advantage of data security is huge. In many third-party tests, our NOB Plus is ranked first. I think this, as well as other experiences of NT2 platforms, such as making warehouses and audio, are gradually perfected. We believe this can greatly increase our product competitiveness, because some of our peers choose At the same time, when we look at the software features and functions that are planned to be released on the new technology platform 2.0, we believe it will also contribute to other vehicle demands

Just like I mentioned in the recent week, the engaged mileage of the NLP Plus beta is over 1.75 million kilometers. All of our products come standard with the strong computing power and the sensor suite. So this actually provides a huge foundation for us to have a closed-loop data management. If you look at all the tests by the third parties or by the professional medias, MLB Plus Beta ranks the first in all those tests. So we believe together with other improvements in terms of the digital cockpit as well as the audio systems and other softwares and features in our product, this will significantly boost the product competitiveness of our products because when you look at the competitors or the peers in the markets, Most competitors, they offer those functions and features as an option, but for us, because everything comes as a standard, so it means that we will have a huge room to upgrade the experience of our users.

So, to summarize, our goal is to double our experience per year. We are very confident about that. So when it comes to the whole question of profitability, this is of course fixed with the interest rate because our cost is relatively fixed. This is of course highly related to the interest rate. So if this The price of raw materials, according to the current trend, is able to meet our expected drop in speed. We still think that we are not considering some innovative business investment in today's Q4. Because this is compared to our plan at that time. This is some of our new investments. If we don't consider the investment of these innovative businesses, we are still following today's Q4.

In a nutshell, our target is still to double the volume in this year, and our teams are quite confident to achieve this target. When it comes to the profitability, This is closely bundled together with the gross margin. So if the raw material cost reduction can meet our expectations, like I explained before, then for the fourth quarter, we probably can still achieve the target that we set before. But when we made the plan to become positive, we didn't consider the strategic new business investments. So it means that for the fourth quarter of this year, our target is to put aside the investment for the strategic new businesses. Our new brand, the main business of the new brand, can still achieve break-even.

Thank you. Thank you, Bin. Thank you so much.

Next question comes from Yukun Jing with HSBC. Please go ahead.

Thanks, team. Yu-Chan here. I got two. First, on ET5, we noticed audible contraction on this flagship volume model, ET5. How would a management look at a stabilized monthly sales volume on ET5 to 10K per month? What's the key driver to support? Is it more broadly a sector demand related or any specific service network expansion supported? The second question is on lithium to margin. The lithium price is correcting. We talked about before about 100K RMB per ton price correction roughly released 2% margin. So, roughly, we might get 4% to 8% this year. Can we keep them all, or we might have to pass some to the consumers given the universal pricing pressure? On that notion, will I take the to get lower lithium price, but to lock up more , share with them? Thank you.

Thank you. In general, if we look at our Q2 or this year's NT2 products, after they are all released, you can basically call our products into three categories. The first one is our main sales, including ET5, including ES6. But ET5, we will be with ET5's Torrent. Everyone already knows, although we haven't released it yet. We will combine this together. We think ET5 plus ET5 Torrent and ES6, Our goal is to achieve a sales volume of 21,000 a month. We think the market capacity is sufficient. We set a goal. Then on this, we will have some models that contribute to sales. For example, ET7, ES7, ES8. Then this car, each car is about 2,000 to 4,000 units. If you add it up, it may be about 10,000 units. About 8,000 to 10,000 units. Then if you look at it again, some of them are the models of our brand, such as our Coupe SUV, EC7, EC6, and so on. So this answer, this one, it mainly shows that we are designing some pursuits in terms of taste. There are some individuals who pursue individual users and prefer such a car. Of course, we hope it can sell more, but of course it will be a little heavier. Thank you for your question. Starting from the second quarter of this year, we are going to gradually launch and deliver all the products.

based on the new technology platform 2.0. When it comes to the total product portfolio, we can look at them into three different dimensions. The first one is the volume driver, that is the ET5, the ES6, and the ET5 Touring that we haven't released, but I believe everyone knows. So if we combine the ET5, ET5 Touring, and the ES6 together, we believe that is possible to achieve 20,000 units per month if we consider the addressable market. When it comes to the second dimension, that is the volume contributor, that includes the ET7, ES7, and the ES8. We believe for those models, each model can achieve a delivery volume around 2,000 to 4,000 per month. And if we combine them together, then for this volume contributor segment, this probably can contribute 8,000 to 10,000 units for overall vehicle delivery and sales. For the third dimension, that is the brand shaper, that is of a coupe SUV, the EC7 and the EC6. Because the coupe SUV is a relatively rich market, and we believe this can probably help us to better showcase our brand design taste And for those users who would like it to be different and they want to show off their taste and their sense of design, then probably they can choose this brand shaper product. Of course, we hope to sell more products, including the brand shaper, but this is a relatively niche market segment. So we believe it's the brand shaper that is the EC7 and the EC6. probably the volume is around 1,000 to 2,000 per month for each product. So if we look at the complete product portfolio of all those products, we believe those strong product portfolio and diversified product portfolio should be able to support us to achieve a volume of 30,000 units per month.

Okay, Chair, this is Steven. I would like to answer your second question about the lithium price. First, we can all agree that our GP margin is very sensitive to the lithium price. As you have mentioned, if the lithium price by 100,000 R&B per ton, our GP margin can be boosted by as far as 250 points, two points. So that means we expect, or we believe, this year there's a good chance that the lithium carbonate price will trade to around 200,000, 200,000 MB per ton, and that will translate a good treating margin elasticity for NEO. And if you look at the lithium carbonate price, In the past, it was just like around 100,000 RMB and then it peaked around 570,000 RMB in November 2022, which increased the whole EV industry. And then from the beginning of this year, the lithium carbonate price already retreated to around 400,000 RMB per ton. Looking forward, on the supply side, As several battery suppliers invested in the upstream raw material efforts, and these efforts started to yield meaningful lithium company supply from the second quarter of this year. So from the supply side, we do see a stable increase. On demand side, yes, last year, China's EV sales volume almost doubled. But if you look at this year, a good estimation is around 30%. So we expect the gap between the supply and demand will reduce significantly, which will lead to a lower and more reasonable eastern capital price, around 2,000 RMB per ton, not for the least, when we look at the production cost of lithium carbonate, if you look at the lead-pidolite plant cost, which is around 150,000 rmb, so a lithium carbonate price around 200,000 rmb per ton can offer a good profit room for such lead-pidolite plants. supply to offer stable. So in short, the price will retreat quite a lot this year, and that's good for the whole industry.

Thank you, Sam.

The next question comes from Paul Gong with UBS. Please go ahead.

Hi, thanks. Thanks for taking my questions. Two questions. The first one is regarding the latest sales trend of ES7 and ET7. I understand that the 866, these three models are phasing out. That is a temporary weekly before switching to the new platform. And I also see you have put a lot of the expectation on the NT2 platform products. But what has been... So even driving the weakness of the ES7 and the ET7 recently, is it due to the immediate hangover effect of the subsidy cut, or is it due to the supply chain bottleneck, or is it like capacity allocation to ET5 that has cannibalized the ES7 and ET7 cells? So what has been the reason for the recent weakness of these two new platform kind of flagship models? My second question is regarding the efficiency improvement. I think William has spoken internally beginning of this year regarding the key effort of efficiency improvement in 2023. So what has been the key area that you want to improve? We can still see you invest a lot for the future, including the 1,000 batteries working stations to be deployed for this year, including the expansion and new house in Europe. But where can we find the efficiency improvements and does the expense ratio or reduction for rest of this year?

Thank you, Pao. Looking at January and February this year, the demand of the market, especially the demand for pure electricity, has been affected. If you look at it, of course, we have already published the sales figures in January. There is some pressure. Of course, a very important reason is that last year, after China's subsidies, it was completely withdrawn at the end of last year. That means there is no subsidy this year. Then I think this will have some short-term impact on each family. Of course, it will have a little less impact on us. Because today our entire car has a relatively high MSRP. Then our subsidies have a relatively small impact. But it will still have an impact. If you ask me, we can still see the constant growth of demand from 2020. including ESG and ETC, compared to January this year, we can see that its demand is increasing every week. So in general, I think ESG and ETC are still very competitive in its market. We are confident in its long-term demand. Of course, there will be a little pressure in the short term. We think that Thank you for your question. We can see that for the first two months of this year,

the market demand is not that strong, especially when it comes to the demand for the BEV. We see this has suffered some impact. But if you look at all the peers, I believe most peers have published their delivery results for the first two months. This is actually affecting everyone in the market. I believe a very important factor is the subsidy cut Starting from this year, there will be no more subsidies, and this will create some short-term effect on everyone in this market. But when it comes to NIO specifically, because we have a relatively higher MSRP, so this impact on us is actually relatively lower compared with others. Starting from February, we can see the demand is recovering week by week. including the ES7 and the ET7 compared with January. So for the ES7 and the ET7, we can see that in their specific segment, they're still very competitive. So we are very confident when it comes to the demand for the ES7 and the ET7 in the long run. But in the short term, yes, we are facing some pressure. I believe that there are multiple factors we have to consider, probably like the spring festival and the low seasonalities of the auto market as well as the subsidies or other micro environments. But still, we are very confident with our product competitiveness in their specific segment.

In terms of efficiency improvement, this is indeed a key point of our work this year. Because last year, our energy expansion was very fast. Then we have a lot of projects to develop. A lot of projects are starting to be implemented. This year, for us, we are not going to reduce the number of projects, but to reduce the number of people or to close down the projects. We are going to increase the number of people. We need to have higher output, higher capacity output, whether it is in research, sales, or management. On the other hand, we will also Okay. Okay.

Yes, actually the efficiency improvement is the most important part for NEO this year. Last year, because of the project progress and we have multiple projects going in parallel, so the human resources increase is much faster compared with the past. But when it comes to the efficiency improvement, we are not talking about cutting projects We believe that the efficiency is more about improving the efficiency per person. We can improve the overall efficiency of the whole organization when it comes to the R&D, sales and service, and also management. At the same time, we also need to do some prioritization of different kinds of projects, including the R&D projects and also the CapEx investments. So it means that we need to look at the priority in terms of the timeline and also the investment. So all in all, the efficiency improvement will more focus on the output and the quality of the output as well as the prioritization.

Thank you, Paul. Thank you.

The next question comes from Nick Le with JPMorgan. Please go ahead.

Hello, William and Ms. Guan. Thank you for asking the question. I have two more simple strategic questions. One is about battery. This is your second question about finance. As for battery issues, I would like to ask if the purchase contract with JPL will be adjusted at any time from last year. There has been a lot of discussion in the market that the contract with JPL will be signed in the medium term. I would like to know if the contract with JPL will have some important changes in the future in the medium term. In terms of battery issues, can you update us on when the semiconductor battery will be released and seen? This is the first battery issue. The second issue is related to what William just mentioned. In the fourth quarter of this year, if we don't consider the new business to break even, let's look at it in a different way. Our new business is a mass-market brand. It may have some mobile phones, etc. The volume of its investment is... I don't know if you know this, but its investment is relatively cat-sized. How should we consider this issue? If we consider all of this, our overall break-even Let me try to answer my question very fast. The first question is about the cooperation agreement with CHTO and the pricing arrangement with CHTO and also an upgrade of the semi-solid state battery. And secondly, can we talk about the potential investment side for new initiative? Thank you.

This year, we will introduce a new battery partner. In March this year, we will launch a battery pack with China. Of course, we will maintain a long-term strategic cooperation with Ningzhe. We are also discussing some new price mechanisms with them. Of course, we have not signed the final agreement, but in terms of direction, I think the battery company also realizes that it must bear the price fluctuations of the battery material together with the car company. Of course, we are still discussing with them. Nick, thank you for your question. For this year, we will introduce new battery partners.

I believe probably around March we're going to launch new battery packs in collaboration with the ALB. At the same time, we'll also keep over a long-term strategic relationship with CHL. Right now we're in discussion with CHL in terms of the new agreements, but we haven't signed the agreements yet. I believe the discussion direction is basically that the battery companies will – started to work in parallel with the auto companies, and we are going to share the volatilities of the raw material cost together throughout the supply chain. When it comes to the semi-solid battery, we have a set of battery teams to help our partners in the semi-solid battery make sure they can have a smooth mass production for the batteries. But we're really sorry for the delay, but probably this will be available. We estimate this will be available probably after several months.

Regarding the investment for the strategic new businesses,

For the full year, we estimate that this will be around 4 to 5 billion RMB. So if we break it down, then it means that probably around 1 billion RMB every quarter. The overall target for the company is that for the group, we still aim to achieve a break-even for the company in 2024. Thank you.

The next question comes from Edison Yu with Deutsche Bank. Please go ahead.

Thank you for taking the questions. First one, can you maybe go over some feedback you've gotten in Europe? You've been in Norway for over a year. You recently launched in several other countries. What has been the user feedback, and what is a reasonable amount of volume we could expect there in the next few years? And then second question, really quick. On the other margin, it's still quite negative. It's been quite negative. When can we see some recovery in that level? Thank you.

In Europe, from the feedback we have given to the users, the overall evaluation of our products is very high. Of course, we will look at the satisfaction of the users every week. In general, it is up to our expectations. But objectively speaking, we are behind our expectations in the development of infrastructure in Europe. For example, as of now, we have only deployed 11 warships. This is far behind our expectations. Our colleagues are also working hard, but this is very far from our original plan. That includes our near house opening progress is also slower than we expected. So the speed of our infrastructure in Europe is still slower than our original plan. This will also affect some of our delivery. What we can see is that the needs of users, the growth of passenger drive, are still very good. Our team is gradually moving forward. But overall, we want to accelerate the speed of infrastructure construction. This year, we are not using the delivery volume in Europe as our target. So, if we look at it from this year's perspective, we think... For the whole year, we think... For us, we think it shouldn't be... Our goal is not to have more than 10,000 units. We only treat the user satisfaction as our top priority. But for the long term, we are still very confident.

Thank you for your question. For European markets, we have delivered our products to some users, and those users have been speaking very highly about our products. We have been tracking the user satisfaction rates on a weekly basis and we believe that it's basically meet of expectation. The one aspect that we think is lagging behind is the infrastructure building in Europe. Right now we have around 11 power swap stations. This is actually far behind of the original planning. That's the same with the deployment of the new houses in Europe. So we believe because the infrastructure deployment in Europe is lagging behind, which also affected the delivery and the sales in the European market. When we look at the user demand and the test drive data, we can see there are some improvements on a weekly basis, and the team building is also on track for the European market. But the only thing that we need to speed up is the infrastructure building in the European market. For this year, we believe the sales is not our top priority. To be honest, our target in terms of the sales volume for the European market this year is probably less than 10K, and we believe the most important thing for us is actually the user satisfaction rate. For the long run, we are very confident about our performance in the European markets when we consider the user satisfaction rate that we're seeing right now and the competitiveness of our product portfolio in the market.

Okay. For the second question about the other laws, As the sales and the car park growing in China, the losses from vehicle repair and maintenance are continuously narrowing. We kept expanding our power substation network in 2022, which drove the loss increase of other laws. And we will stick to the continuous deployment of power network and plan to newly build 1,000 power substations in 2023, as William mentioned. Therefore, we expect the loss of other business will continue to increase in 2023. But the continuous expansion of our power infrastructure will not only help us improve our user satisfaction, but also help us to sell more cars in the market. So that's all. Thank you, Edison.

Thank you, Edison.

The next question comes from Jin Chang with CICC. Please go ahead. So my first question is about

with the further increase in the number of our distribution stores, we will cover more low-tier cities, considering that these customers in the market are very sticky to traditional electric brands. So we make some more targeted adjustments in our products and marketing.

Thank you. For these markets, we may not necessarily invest in door-to-door markets. Why are we not going to exchange stores this year? It is also a summary of what we have learned from some of our experiments. Let me give you an example. For example, we have a Xinfu town in Bixing County, Binzhou, Shandong Province. There are more than 500 users in that town. The population of this town is not more than 50,000, but there are more than 500 users. The growth of this user is with us in the local users. In the early days, they thought of a way to set up a virtual station together. And then whoever did this, the user developed. Then we later added a virtual station. We see that there are two virtual stations in such a town. We can have more than 500 users. This also gave us a lot of inspiration.

Thank you, Tianjin, for your question. When it comes to the expansion to the sub-tier cities, we're not talking about the deployment of the new houses or new spaces. We believe the more efficient way is to deploy the power swap stations in the sub-tier cities. For example, in Boxin, in Shandong Province, Bingzhou, Boxin, there's some growing user base, and the users at the beginning, they actually grow the user base themselves, and then they work together with us to deploy the power swap stations. That's the first power swap station. Later, we deployed the second PowerSwap stations in this town, and now this town has around 500 users. So for those sub-tier cities, especially when it comes to the Tier 3 and Tier 4 cities, we think the more efficient way for us to grow our user base is to deploy the PowerSwap stations. Previously, our PowerSwap stations were mainly deployed in the Tier 1 and Tier 2 cities, but This is our strategy this year to make sure we can deploy more power source stations in the Tier 3 and the Tier 4 cities.

Thank you. I have a question about the overall pricing strategy, especially new products. This year, we can see that the overall new market price is still relatively intense. Although we may have a better positioning market, we can see that whether it is S&P 500 or oil car products, there may be a larger price drop and decline. So my second question about, we can see that at the beginning of this year, the price competition in the energy vehicle market has become more And also we are positioning on positioning market. We can still see a greater price reduction in both energy, new energy and the ICE vehicle market. So we will be more aggressive in the price strategy of new models. Will you consider the way of reducing some configuration and reduce to introduce more models with lower price?

We have always hoped for a stable price strategy. We have not made any plans to reduce the price. We believe that our pricing is valuable enough for the user, regardless of the type of car. If we look at the configuration, performance, the level of intelligentization, and the transmission of related services, Our consistent strategy is to keep our product pricing stable.

So we do not have any plan to cut the features and functions for our product. So each of our products in our product portfolio, when we look at the features, the functions, and the performance of those products, as well as the user benefits, We think every aspect of the product is well-deserved and well-established when it comes to the product pricing and strategy. So for the new brand, we do not have any plan to cut the features and the functions of our products. And I think this is consistent of our branding and the pricing strategy because low pricing is not good. a part of the strategy or the DNA of the new brand.

Thank you, Kim.

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

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

This does conclude our conference for today. Thank you for participating.