NIO Inc.

Q2 2023 Earnings Conference Call

8/29/2023

spk14: Hello, ladies and gentlemen, and thank you for standing by for the NEO Incorporated's first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Eve Tang from Capital Markets. Please go ahead.
spk16: Good morning and good evening, everyone. Welcome to News Second Quarter 2023 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 Fung, Chief Financial Officer, Mr. Stanley True, 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 that are made under the safe harbor provisions of the US 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 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.
spk02: Hello everyone, thank you for joining NIO's 2023 Q2 earnings call. In the second quarter of 2023, NIO delivered a total of 23,520 smart electric vehicles. In July, as more new products are produced and the supply increases rapidly, the supply of 20,462 high-end smart electric vehicles will increase by 104% and the monthly supply will be higher. According to the sales data of Zhongqi Center, in July, the high-end electric vehicle market with a trading price of more than 300,000 yuan in China will be ranked first with a market share of 59%.
spk13: In July 2023, as we started mass production and the ramp-up of more new models, NIO's monthly delivery volume grew rapidly to 20,462 units, representing a year-over-year growth of 104% and a new monthly high. According to the retail statistics of Qatar, in July, NIO was the best-selling brand in the premium electric vehicle segment, with a transaction price of over RMB300,000, claiming a 59% market share. As NIO completes its product line-up, further expands the sales and service network and the power network, enhances its all-round sales capability, and rolls out sales and marketing plans. The competitiveness of the NT2 products has been further unleashed. The delivery volume in the third quarter of 2023 is expected to be between 55,000 and 57,000 units. 接下来我跟大家交流一下产品研发和运营方面的进展。 And now I would like to share with you the recent highlights of our products, R&D, and operations.
spk02: 即开启交付旗舰轿跑SUV EC7, 旗舰轿车2023款ET7和全新升级的全能SUV ES6之后, 未来于6月开始向用户交付智能电动旅行车ET5T以及旗舰SUV全新ES8, 未来在二季度完成五款新车型的高质量交付。 Following the delivery of the flagship coupe SUV EC7, the flagship sedan 2023 new ET7, and the all-round SUV all-new ES6 earlier this year, we started to deliver the smart electric tourer ET5 Touring, or ET5T for short, and the flagship SUV
spk13: or new ES8 in June. In the second quarter, NIO achieved high-quality delivery of five new models, with user satisfaction exceeding our expectations. This also proves NIO's capabilities of conducting fast product iteration and managing product complexity.
spk02: 未来计划于9月发布和交付全新升级的中型轿跑SUV EC6, 完成基于NT2平台的全部产品切换。 In September, we plan to launch and deliver the new mid-size coupe SUV EC6, which marks the completion of our product transition to the NT2 platform. With that, new entire NT2 product lineup featuring eight different models,
spk13: will have entered the premium BEV market to better cater to the diverse needs of the users in the premium segment and drive the steady growth of deliveries.
spk02: 未来的产品安全性受到国际传媒机构的高度认可。 2023年7月12日,未来智能电动中型轿跑ET5, 智能电动中大型SUV EL7在中国市场叫EST, 双双获得欧盟新测安全评鉴协会EURO NCAP五星安全评级, Euro NCAP, 2023, will be the first car brand to reach a five-star safety rating.
spk13: New product safety has been highly recognized by authoritative institutions worldwide. On July 12, 2023, new smart electric mid-size sedan ET5 and the mid-large SUV EL7, which is called ES7 in China, Both obtained the 5-star safety rating from Euro NCAP, making NIO the first car brand receiving the 5-star rating since Euro NCAP adopted the new testing protocols for 2023. 智能驾驶方面,基于全站自研的端到端能力和数据闭环, 未来已经取得了重要进展。 一方面,智能驾驶的用户规模和活跃度继续攀升, NOP Plus的开通用户数超过10万, 累计行驶里程超过8000万公里。
spk02: Enabled by the full stack technologies developed in-house and the closed-loop data management, NIO has made significant progress in the assisted and intelligent driving. User base and engagement continue to grow.
spk13: At present, over 100,000 new users have activated Navigate on Pilot Plus, or NOP Plus, and have driven on it for over 80 million kilometers. The mileage penetration rate of NOP Plus has reached 53%. In the meantime, we have carried out multiple rounds of early bird programs in Beijing and Shanghai for NOP Plus in all operational domains, including in urban environments.
spk02: From now on, In terms of the sales and service network,
spk13: So far, we have 420 new house, new space, and pop-up stores in 143 cities, and 304 service centers, as well as 58 delivery centers in 201 cities worldwide. Since July, we have started to take a more active manner in expanding the user touchpoints and sales channels, and enlarging the sales team in China. These actions will further increase our sales capabilities and the propelling sales growth.
spk02: From the supply chain network, so far, we have deployed a total of 1,747 supply chains around the world, providing more than 2,700,000 services to users. Of these, 476 high-speed supply chains are connected to the high-speed supply chain network of 68 major cities. We have also deployed more than 7,900 superchargers and 9,700 targeted charging stations. As for the charging and swapping network, to date, we have installed 1,747 power swap stations worldwide and provided more than 27 million battery swaps.
spk13: Our expressway battery swap network in China consists of 476 swap stations along the 10 major expressways connecting 68 major cities. We've also deployed over 7,900 power chargers and 9,700 destination chargers. NIO has become the automotive brand with the most public chargers and the most chargers along expressways in China. In the meantime, NIO's charging map has connected with over 1.36 million third-party chargers worldwide.
spk02: On July 20th, NIO announced the flexible battery upgrade service by day, providing users with more options and fulfilling more use cases. In July, we organized the host city election for Neo Day 2023, and the city of Xi'an was voted by new users as the host city this year. On August 20th, we partnered with Worldwide Fund for Nature and Qilian Mountain National Park
spk13: in installing the world's first photovoltaic self-consumption system with V2G capability. It features solar power stations, V2G chargers, and battery electric vehicles. Moreover, we initiated the Clean Parks Citizen Scientist Program to engage more users and the public in conserving biodiversity and supporting the establishment of a volunteer system for national parks in hope of striving for a shared vision of blue skies.
spk02: In July, NIO received a strategic equity investment from Saigon Holdings, an investment vehicle majorly owned by the Abu Dhabi government. The investment package totaled
spk13: 1.1 billion U.S. dollars. In addition, we will also cooperate with the new strategic investor to jointly pursue opportunities in our international business.
spk02: Although the current market environment is full of challenges, the electric vehicle market is growing rapidly. We are fully prepared to meet the challenges in terms of core technology, product layout, sales capability, manufacturing and supply chain, etc. We believe that the company has the ability to focus on the execution of market sales strategy and promote stable increase in delivery volume. At the same time, further enhance the cost structure and fully enhance the operating efficiency. We are looking forward to the market performance in the second half of the year.
spk13: Although the smart EV market is full of challenges and the competition is increasingly fierce, with our continuous efforts in core technologies, product portfolio, sales capabilities, manufacturing and logistics, we are fully ready to rise to the challenge. We believe that with focused marketing and sales strategy as well as execution, NIO can drive the steady growth of sales and deliveries while further optimizing the cost structure and enhancing operating efficiency on all fronts. We look forward to NIO's strong market performance in the second half. As always, thank you for your support. With that, I will now turn the call over to Stephen, who will provide the financial details for the second quarter. Over to you, Stephen.
spk07: Thank you, William. I will now go over our key financial results for the second quarter of 2023. And to be mindful of the length of this call, I will reference to RMB only in my discussion today. I encourage listeners to refer to our earnings press release, which is posted online for additional details. Our total revenues in the second quarter were 8.8 billion RMB, representing a decrease of 14.8% year-over-year, and a decrease of 17.8% quarter-to-quarter. Our total revenue was made up of two parts, vehicle sales and other sales. Vehicle sales in the second quarter were 7.2 billion RMB, representing a decrease of 24.9% year-over-year and 22.1% quarter-over-quarter. The decrease in vehicle sales year-over-year was mainly due to lower average selling price as a result of higher proportion of 85 and 75 kilowatt-hour standard range battery pack deliveries and decrease in delivery volume. The decrease in vehicle sales quarter-by-quarter was mainly due to a decrease in delivery volume. Other sales in the second quarter were 1.6 billion RB, which is an increase of 119.9% year-over-year, and 3% quarter-of-a-quarter. The increase in other sales over the year was mainly due to the increase in sales of used cars, accessories, and provision of power solutions as a result of continued growth of our users. The increase in other sales quarter-of-a-quarter was mainly due to the increase in sales of used cars and provision of power solutions as a result of continued growth of our users. partially offset by decrease in revenue from provision of auto financing services. Gross margin in the second quarter of 2023 was 1.0%, compared with 7.0% in the second quarter of 2022 and 1.5% in the first quarter of 2023. Legal margins in the second quarter was 6.2%, compared with 16.7% in the second quarter of 2022, and 5.1% in the first quarter of 2023. The decrease in vehicle margin year-over-year was mainly attributed to changes in product mix, partially offset by the decreased battery cost per unit. The increase in vehicle margin quarter-of-quarter was mainly due to decreased promotion discount for the previous generation of ES8, ES6, and EC6. Our expenses in second quarter were 3.3 billion RMB, which is an increase of 55.6% year-over-year and an increase of 8.7% quarter-to-quarter. The increase in research and development expenses year-over-year and quarter-to-quarter was mainly attributed to, first, the increased personal cost. in R&D functions and increased share-based compensation expenses recognized in the second quarter of 2023. And second, the incremental design and development costs for new products and technologies. Ex-gen expenses in the second quarter were 2.9 million RMB, representing an increase of 25.2 percent year-over-year and an increase of 16.8 percent quarter-to-quarter. The increase in SGEN expenses year-over-year and quarter-by-quarter was primarily due to, first, the increase in personal costs related to sales functions. Second, the increase in sales and marketing activities, including the launch of new products. And third, increased rental and related expenses related to company sales and service network expansion. Last, The operation in the second quarter was 6.1 billion RMB, representing an increase of 170.5% year-over-year, an increase of 18.8% quarter-to-quarter. Loss in the second quarter was 6.1 billion RMB, representing an increase of 119.6% year-over-year, an increase of 27.8% quarter-to-quarter. Our balance of cash and cash equivalents. Restricted cash, short-term investment, and long-term time deposits was 31.5 billion RMB as of June 30, 2003. Now, this concludes our prepared remarks. I will now turn the call over to the operator to facilitate our Q&A session.
spk14: Thank you. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. We ask that you please limit yourself to two questions. If you are on a speakerphone, please pick up the handset to ask your question. And the first question will come from Ben Wong of Credit Suites. Please go ahead.
spk08: Thank you. My question is about your sales network structure. Recently, I heard you hire a few operating salesperson from other luxury brands such as BMW, Mercedes, and Audi. So what's the reason you hire a non-NEO salesperson recently and how is the impact so far for your sales volume increase? We also found that in your third quarter guidance, you actually imply in August and September, September will be lower compared to January. So can you know what's the reason behind that? Is it because of any supply chain issue? Thank you so much.
spk02: Thank you, Wang Bin. We realized a problem in June this year. the number of our salespeople and our sales capabilities are still behind our competitors in the entire market. For example, from the perspective of high-end luxury brands such as BMW and Benz, their salespeople are roughly six to seven times that of ours at that time, that is, the entire salespeople. If the number of salespeople and sales participants is not enough, In fact, it has a great impact on our users' satisfaction, market share, and conversion rate in all aspects. It can't meet the needs of selling seven to eight cars at the same time. In many aspects, it can't be done. So we actually started from July. We actually started to fully improve our sales ability. Our internal goal is to Every month, we can sell about 30,000 units to see our sales personnel and some of our sales network points. We plan to complete this expansion work by the end of September. Of course, this refers to sales capabilities, but we also need to recruit these personnel and train them. There are also locations. We have to find such places. to achieve this kind of sales capacity. We hope that by the end of September, we will be able to establish this capacity. By October, we will be able to really start to form this kind of sales capacity. So this is actually a problem that we are currently discovering. We are making some improvements. So if we look at it from this aspect, we have been relatively active since July and August. We are doing some layout and expansion. Of course, in the middle, in terms of energy, especially in some low-end markets, such as low-end cities, some three or four-line cities, we of course hope that more experienced salespeople can join. They have the skills of their users to better develop this. Although we have no stores in some places, but we have experienced people who can better help us carry out this sales task. So this is the first problem that we really have to solve.
spk13: Well, thank you, Bing Wang. For your first question, actually, around June, we have realized that inside of the company, in terms of the number of our salespersons, as well as the capabilities of the selling products, we are left behind by the competitors in the market. For example, for those luxury brands like BMW or Mercedes, the size of their sales team is six to seven times of ours. Without sufficient personnel or touchpoint, we cannot realize a very good user satisfaction, realize very good test drives, or high conversion rate from leads to orders. So starting from July and August, we have taken a more active manner in improving our sales capabilities. And with that, we hope that the company will be able to support the new orders of 30,000 units per month. that will be contributed by our self-network as well as the personnel increase. So that by the end of September, we will be able to realize that target. Of course, it takes time for us to really train the personnel and also to find the locations. So we will have that initial capability ready by the end of September, and then the real effect will kick in from October. That is our existing plan for the improvement. This is also why starting July and August, we've been taking some active measures and actions in expanding our sales network and touch points, especially in lower tier cities where we don't have a full-fledged facilities or stores. We hope to really secure and hire experienced and seasoned salespersons who have their networks and user bases already to help us with the sales tasks.
spk02: Yeah. Yeah. Yeah. China China China China China China uh uh It's about 10,000. Sometimes it's more than 10,000. Compared to June and July, there is a significant improvement. We can also see some progress in the layout of energy consumption. The transition from market price to order takes some time. We need to be patient. In general, we are confident in the stable growth of demand. However, there is some pressure on the external environment in the near future. There is also some pressure on the macroeconomic aspects. In terms of the forecast in the near future, we still hope to fully consider the macroeconomic pressure. This is a comprehensive consideration. We are confident in the number of deliveries completed. Of course, I also hope that everyone understands that From July, we have 59% of the total electric market, which is more than 300,000. In fact, our position in the high-end electric market is still very stable. We are indeed in the process of high-end users transitioning from oil cars to electric cars. We hope to accelerate this transition through more channel coverage and more preparation of sales capabilities.
spk13: And regarding your second question, in July we have delivered more than 20,000 vehicles and as shown by our guidance, our delivery volume in August and September are lower than that in July. This is mainly because by the end of July we have announced the adjustments to our power swap user benefits. before users enjoy or are entitled to four or six free swaps per month. But starting from August the 1st, all the new orders are not entitled to free swaps anymore. This also helped us to put ahead some orders for users with strong demand for power swap to in July. And this has also affected the delivery volume in July. In terms of the August, we believe that it will take some time for the order momentum and intake to be back to the normal track. But in the meantime, in August, we've also witnessed the new high of the numbers of test drives and leads. Average speaking, during the weekend, we have more than 10,000 test drives. This represents a significant growth from the past month. And in the meantime, we also understand that it will take some time for the test drive to be truly converted into orders. and we will wait for that. But overall speaking, we are very confident in stabilizing the order intake as well as the delivery volume. In the meantime, we also needed to understand the external challenges, especially the challenges and the pressure from the microeconomic environment. So our forecast and guidance have also considered those external factors. But overall speaking, we are confident in the delivery volumes we provided. Also, we must understand that in July, Inside of the premium battery electric vehicle segment priced over 300,000 RMB, we have already realized the 59% market share. This has proven a very solid foothold of new in this segment, and we will continue to make efforts in transforming and converting ICE users into buying EVs in the premium segment. In this case, we will also make more efforts in expanding our channels as touch points.
spk02: Thank you, Wangbin.
spk15: Thank you. The next question comes from Tim Hasayo of Morgan Stanley.
spk14: Please go ahead.
spk06: Hi. Thanks for taking my question. So my first question basically just want to follow up regarding the sales volumes into second half. Because as William just mentioned, we successfully upgraded our sales team and sales network. So looking into fourth quarter, I recall that we expect our monthly sales can stay at about 20,000. So if that's the case, looking into fourth quarter, should we expect NIO to grow the sales further to about 20,000 or even like 25,000? And what could be the contribution from the four volume driving models covering like ET5, ES6? So could you just provide some update regarding volume? And my second question is about the gross profit margin. Because according to the management's previous guidance, I think the RICO gross part margin could get back to double-digit in second half. So after the 30,000 RMB caught in late June, do you still stick to your previous view on sequential margin expansion into second half? What would be the pace in third quarter and fourth quarter, respectively? That's my second question. Thank you.
spk02: Thank you, Tim. The first question, our goal is to stabilize the sales volume of more than 20,000 per month. This is our goal. We also strive for this goal according to Q4. From now on, I mentioned earlier that our sales capacity is to prepare our sales capacity for 30,000 per month, whether it is the layout of the channel or the layout of the personnel. These sales improvements We completed the layout at the end of September. We also trained the personnel. We prepared for many aspects. We believe that we will see a positive result in October and November. So if we look at the past history of NIO, the sales of our first-generation platform has grown to a reasonable level. A relatively good level of growth is that our car was listed after one to two years. So in 2021, for example, we released ES6 in 2019. In 2021, our entire sales reached a relatively good state. So we think that the increase in sales of this wave of products, we think, is still very confident. Of course, the most important amount of 5566 in this is 5566. EC6 is paid by 9FN. It takes a certain amount of time to go bankrupt. Thank you.
spk13: Thank you, Tim, for your question. Regarding your first question, of course, we target to realize and stabilize our monthly delivery to be above 20,000 units starting Q4 this year. But in the meantime, we are also preparing our self-capability so that we can support the new orders of 30,000 units per month. In this case, we are expanding our channels and also our personnel. As mentioned, we will be occurring this initial capabilities by the end of and we will take some time for the preparation and the ramp up. We believe that the effect of our sales capability improvement will be kicking in from October and November with positive progress from that time point. In terms of the reference to the NT1 product we've experienced, normally we realize that it will take around one to two years for the new product to reach a sound and stable volume on a monthly basis. For example, for our first generation ES6, it was launched in 2019, and it was not until 2021 that it has a rather stable and sound monthly delivery. So we are very confident with our new products. In terms of the volume products, including ET5, ET5T, ES6, and EC6, these are four volume products. For the EC6, it will be delivered starting September, and it will take some time for the production and the delivery ramp-up. But within its own segment, it will be dominating the major market share. So, with these four models combined, we believe that its monthly volume will be stabilized at around 15 to 20,000 units. In terms of higher volume, higher series products like EC7, ET7, ES7, as well as ES8, we are expecting also increments on their self-volume.
spk04: Male Speaker 1 Yeah. Finally, we'll answer the second question. Male Speaker 2 Yeah. Hi, Tim. Regarding the gross profit margin, As shown in our Q2 financials, the vehicle margin is 6.2%, similar with Q1. The key reasons are sales and production volume at lower level, driving higher manufacturing costs and other cost allocation, and also more promotions to the users and also marketing efforts during the product transition period. But along with our sales and volume wrap-up of all our NT2 products, our target to achieve the double-digit growth profit margin in Q3 and 15% in Q4, if we can control the battery cost and other costs well.
spk02: Yeah, the price has been digested.
spk12: Yeah. So we have already digested the impact of the price reduction.
spk06: Got it. Thank you very much, Ruilin and Stanley. Thank you.
spk15: Thank you, Tim. Thank you, Tim. The next question comes from Yuquan Ding of HSBC.
spk10: Please go ahead. Thanks, Tim. Yuquan here. I got two. First question is, we practically have all the models are now refreshed and then newly launched based on 2.0 platform. It is a pretty comprehensive coverage. We will be expecting strong ramp-up in the coming six months in a visible way. But how do we expect the key growth drivers if we're looking at 12 to 18 months, especially in terms of new product? How do we fill in the already comprehensive product portfolio or the software going to be the next leg of growth? The second question is on the OPEX side. So this year, we have new model launches and we have the sales channel upgrade. But next year, when we're rolling into next year, could we see the absolute OPEX value dialed down a little bit? Thank you.
spk02: Okay. Thank you, Yuchen. The first question is, in September, we launched eight NT2 products. If you look at it, in the past few months, we have launched five new models, plus a modified model. You can see that the efficiency of our entire development and entire execution is still very high. This is also a challenge for the entire automotive industry. You need to launch these cars in a relatively short period of time, because the change in automation is very fast. From another perspective, many of the functions of our NT2 software are still in the process of gradual release. For example, these functions related to AD, these functions related to autonomous driving, we will introduce them in the coming months. There will be a lot of ground-breaking services to be developed. So, of course, these will promote the improvement of our entire product competitiveness. In addition, we also talked about the expansion of our sales capacity. We hope that in general, we will set up our entire channel and source according to the sales capacity of 30,000. These can give us a good foundation for our subsequent growth. So if we look at it, we have basically covered the needs of 80% of users in the high-end market. What we are going to do now is a very important task. We have also completed an organizational price adjustment in the third quarter. We need each car from headquarters to the area. Thank you for your question. Regarding your first question, as you may know that starting from September, we will launch our EC6 into the market. And with that, all eight models on the NT2 platforms will be launched to the market.
spk13: And over the past several months, we have launched five brand-new models, plus a facelift. In such a short timeframe, we are able to realize the high-quality deliveries of these models. This has also demonstrated our R&D efficiency, as well as the strong execution. But in the meantime, we also need to realize that it's a challenge brought by the smart electric vehicles to the entire industry, as in a very short timeframe, we need to catch up to the changes of all the smart technologies. But in the meantime, for all the NT2 projects, we're looking at more software features to be updated and released. For example, our new assisted and intelligent driving. For the coming month, we will be rolling out some new features and also services. This will help us to improve the competitiveness of the project. And also, as we've mentioned, we are developing the sales capabilities inside of the company so that we can reach out to broader channels with more salespersons. and support the new orders of 30,000 units per month. This will also be a very concrete foundation for the continuous growth of the sales and the deliveries in the coming months. If you look at our eight models on the NT2 platform, they are already covering 80% of the needs in the premium market. And also, we have also adjusted our organizational structure starting from the third quarter, so that from the headquarters to the original companies, we will be having dedicated teams managing and responsible for each of the models across the lifecycle. This is also the effort we've made from the sales and marketing perspective.
spk04: Hi, Yuchen. Regarding the OPEX of next year, You know, the next year, the budget for us has not been ready. So at this moment, I may not be able to give you the precise number, but I can give you some feeling. Regarding the R&D expense as introduced in last quarters, on average, each quarter this year, The non-GAAP R&D investment will be RMB 3.5 billion for this year. I think for next year, we will keep similar like investment R&D activities. And regarding the SGA expense, as explained by William, we have the a relatively more aggressive target for the second half of this year. I think it should be for next year. So the absolute value for SG&A will grow accordingly since we need more market activities and events. But the percentage of total sales revenue I think will decline compared with, the first half of this year and also the whole, I think, the whole year of 2023 because of the improvements in both, I think, delivery volume and also operating efficiency. Thank you, Yuchen.
spk15: The next question comes from Jeff Chung of Citi.
spk14: Please go ahead.
spk05: Hello, I have two questions. First question is our refinancing plan going forward. And the second question is our cash flows projection into the third quarter and fourth quarter. So why I am asking this is because we saw the first quarter, the net cash outflow was $10.6 billion. but improved to a cash outflow of $5.9 billion in the second quarter. And within the second quarter, we also saw the inventory Q on Q delta of around $5 billion, while the account payable, account receivable remained stable. So that said, if the third quarter inventory came down, plus the operating leverage with a volume hike, whether we should see the cash outflow should be significantly narrowing further. This is my first question. And my second question is about the third quarter and fourth quarter GP margin guidance. When can we return to a 10% or double-digit level, as well as the third quarter, fourth quarter SG&A as a percentage of the revenue guidance? That's all from me. Thank you.
spk02: Okay. Thank you, Jeff.
spk17: Danny, please answer the first question.
spk04: Regarding the cash flow and also the refinancing plans, I think several points about this. One is regarding operating cash flow. I think as the delivery volume wrap up from Q3 this year, our operating cash flow will be significantly improved compared with Q1 and Q2 of this year. And we also carried out a series of measures to control the CapEx investment. and also manage our investment cadence prudently, like delay or cancel of certain type of investments. This will also help us to manage the healthy cash flow. And additionally, as explained in William's comments, we received $740,000 million U.S. dollar strategic investment from CYVN. And we also completed the offering of our first off-balance sheet EBS in Q3. I think both our U.S. dollar and also RMB financing channels remain unobstructed. And all those will enable us to keep a healthy cash position and support the ongoing business development of the company. And regarding the refinancing plan, we will disclose our plan accordingly if there is any capital market related update. But at this moment, I think we don't have the precise information to communicate with you. That's the first question regarding the cash flow and also refinancing plan. The second is for this year's margin, yeah. For this year's margin, I think we have explained in the previous questions and for Q3, Our target is to achieve the double-digit gross profit margin, and Q4 is 15%. And for SG&A guidance, I think the absolute value will grow, along with our delivery volume and sales growth. But its percentage of total revenue will decrease. But according to the market situation, the adjustment and change of our marketing strategy will be quite dynamic. So at this moment, I cannot give you a precise guidance about the percentage of SG&A over sales revenue. Thank you, Jeff.
spk05: Thank you. Just a correction here. I mentioned the inventory Q-on-Q Delta was $5 billion, which was wrong. I just checked it. The Q-on-Q Delta was only $2 billion. That's it from my side. Thank you. Thank you very much.
spk04: Welcome. Thank you.
spk14: The next question comes from Ming-Hun Lee of Bank of America.
spk09: Please go ahead. So I have two questions. The first question is, Currently, you have eight products to cover the majority of the luxury car segment. So could you give more guidance on any of the new product plans next year under the NIO brand, as well as the Elkis brand? And the second question is, what is your latest business progress for the mobile business. Thank you.
spk02: 谢谢,谢建明。 明年NIO的brand不会交付新的全新产品, 当然我们会有一些年度的产品改进, 这个是按照每年的一些常规的产品的改进, 这个当然会有。 But we don't have any new products to deliver. We think that if we sell these products now and their quality is stable, we will have a great opportunity to improve their sales performance. As I said, we don't have any new products in 2021, but our sales, profit, and quality have reached a very good level. So this is one aspect. In the next half of the year, we will have the first product to be released. The entire development work is still very smooth. We have already, this VB car, we have actually already launched it. So far, the entire development progress is very smooth. So this car, the first car of Arbis, we believe is very competitive.
spk13: Thank you for your question. For new brand, actually, we don't plan to launch any new products in the year of 2024. Of course, we will still roll out some routine face lifts or product upgrades, but we haven't planned any new products for next year because we think that it's more important for us to stay focused on our existing eight products on the NT2 platform. to continuously improve its qualities and also market performance. Just like in 2021, we didn't launch any new models, but still we have realized a very good growth margin, sales volume, as well as quality performance. So that's the plan for the brand of NEO. In terms of our mass market brand, Alps, we plan to launch the very first model from Alps in the second half of next year. Right now, the R&D activities are proceeding according to the plan. Actually, we have just rolled out the verification build of the first model from Alps. And this model will be highly competitive in its product segment.
spk02: The concept of Alps development will be different from NIO. Because Alps is a massive market, we will pursue the sales of each car. We will not have too many cars. Our second car is already in the process of development. As for NIO, because it is a premium market, we think that the need for individualization is a very important need for users. Just like Mercedes and BMW, there are about 40 or 50 cars in China. So this is a feature of a high-end market. In the massive market, we will look at the sales of each car more. So our development concept will be a little different. and more focused on the home market. So this is currently from a product point of view, we can do some communication with you. Of course, for mobile phones, we are indeed around NIO users, especially second-generation car users. We have a lot of mobile Internet experiences centered on cars. We believe that the launch of mobile phones is meaningful for increasing the competitiveness of our cars. We are not going to enter like domestic mobile phone manufacturers, to fight for their market, we still see that our users are better suited to the needs of mobile devices like cars. I believe that the definition of mobile phones can fully meet this need. And the software itself, the underlying software, is the same as the software for our car seats. It is also compatible.
spk13: And also for the brand of Alps, its R&D philosophy is different from that of Neo. Alps is targeting at the mass market, and we will not have many products in the lineup for Alps. But for Neo, it's different. It is targeting at the premium segment where we care more about the personalization and also the differentiation of the products. Just like Mercedes and BMW in China, they're selling 40, 50 models. That is a unique character of the premium segment. But for Alps, for the mass market, it will be more family-oriented, and we will also care more on the sales volume of each model launched by Alps. In terms of our phone business, our mobile phone will be developed mainly for our new users, especially the users of our NT2 products. And the phone itself is developed centering on the vehicles, but with better mobility and connectivity experience. We are actually believing that with the phone business, it can help us to improve the competitiveness of our vehicle products because our phone business is not to compete with those phone makers. Instead, we would like to use the phone as a carrier to provide the best experience for our vehicle users. Moreover, the underlying software and the underlying logic between the phone and the cards share quite a lot of similarities. In terms of the launch plan for the phone, we plan to introduce our first phone product in the second half or in the late September.
spk15: Thank you, Ms. Williams.
spk14: The next question comes from Paul Gong of UBS. Please go ahead.
spk01: Thanks for taking my questions. So two questions here. The first question is regarding the sales channel. You mentioned that you are going to expand it. You feel it's behind of the BMW method and in terms of the channel as well as a salesperson, But how does it compare to other EV startups? Are we ahead or are we behind? And how much do you think about the extension of the stock network and the sales personnel versus the cell efficiency improvement. And you also mentioned you are going to reach 30,000 monthly cells capability. How does that compare to today? Is it fair to assume currently we have the capability to sell 20,000 monthly cells given we already achieved that in July and expanding would be about 50% compared to today to 30,000? How does this mathematics work? This is my first question. The second question is regarding the battery swap versus fast charging. Given the batteries, the semiconductors, as well as even the charging piles, DC charging stations, all this seems to be rolling out with industrial efforts. I understand it's good to have both the battery swap as well as the fast charging, but would you consider the rolling out of the fast charging kind of awaken the battery swap convenience and competitive edge of new cars? Thank you.
spk02: Okay. Thank you, Paul. Yes, compared to some of the new startups with relatively high sales, if we look at the number of pure salespeople at the end of June, we are only half of the others. This is our problem. We are indeed investing in the service network. For example, people from Huan Dian Zan, people from our road service, for example, some of the people from our near house, Actually, whether it's more sales than us or less than us, it's all less. We are aware of this problem because in April and May, we had fewer deliveries. So our actions were not very fast. In June, we realized that our market satisfaction and quality were greatly affected by manpower issues, including the efficiency of sales. So we started to increase manpower in July. including increasing the number of stores. This is actually an action we are doing in July. So in general, we think we need to reach about 5,000 people in order to be able to have a similar sales performance as we do now, which is higher than our current sales. Of course, it still takes some time to increase the average sales volume of each person. Thank you for your questions.
spk13: If you look at the size of the sales teams in comparison to other EV startups in China, actually by the end of June, the size of our sales team is only half of those of other companies. Of course, in terms of the service network, we have specialists and the teams working for the power swap stations, roadside services, as well as the new houses. So for the service and the community part, we have a bigger team. than other EV startups. But when it comes to the actual salesperson, in our company, we call them fellows. In terms of the number of fellows, we actually have a much smaller team than all the other companies in the industry. In April and May this year, our delivery volume was not very high. By then, we didn't really realize the importance of the sales capabilities or taking any actions. But starting from June, as we ramped up our delivery volumes, we gradually realized that the insufficient sales teams has affected the satisfaction and also the executions of many things, including test drives and also order conversions. That's why starting from July, we have started to develop our sales channels as well as the sales teams. For comparison, to ramp up to the comparable size, we believe that we need around 5,000 people working on the sales team. But of course, it takes time for us to have that many people on the team and also to train them with the corresponding capabilities. In terms of the delivery volume in July, we have delivered more than 20,000 cars, but that demonstrated our capability in terms of the deliveries, which is relatively easier than realizing sales capabilities.
spk02: 另外一点我想强调一下渠道。 我们目前从NIO来讲的话, 我们 Jiangsu, Zhejiang, and Shanghai, the three provinces, accounted for more than half of our sales. Then in some provinces like Anhui, the provincial and western provinces, our provincial and western provinces accounted for about 90% of our sales, about 80% to 90%. So if we take Anhui as an example, the half of the sales of Baomao and Benzi came from uh, uh, uh, And another thing is about the channels.
spk13: If you look at our sales distribution, Jiangsu, Zhejiang, and Shanghai, these three places basically contribute half of our sales volume. But for other provinces like in Anhui, the capital city itself is contributing around 80% to 90% of the sales volume. If we take Anhui as an example, for other brands like BMW or Mercedes, half of their sales volume in Anhui province is contributed by cities outside of Hefei. And they basically have dealership stores in all the cities in Anhui province. And for us, we've just opened our new house in the second largest city in Anhui province, that is in Wuhu. In this case, we really need to take efforts in increasing our penetrations into the lower tier cities. In addition to the south channels, we are also developing and expanding our power swap networks into more cities. For the past several months, we've been developing our power swap stations in a much faster manner. And in August, we expect that we will deploy and install more than 100 power swap stations. Of course, it will take time for all these measures to kick in, but this investment will be very important for our long-term capability.
spk02: The second question is the relationship between charging and charging. In fact, we have always insisted on a comprehensive concept that can be charged, replaced, and upgraded. We are based on the user's scene and user experience to give him the best charging and replacement experience. We are also a car brand that has the most charging and installation in China. As I mentioned earlier, we think that fast charging technology is a positive thing for the replacement station. Because in general, Regarding your second question about power swapping versus faster charging,
spk13: As we've always mentioned, that chargeable, swappable, and upgradable has been the philosophy of our power solutions. And we've been choosing the optimal solutions and also the best experience for our users based on the actual scenarios and the use cases. And as we are developing our power swapping network, we are also the automotive brand with the most public chargers in China, as I've mentioned in my opening remarks. Of course, we believe that with the development of the fast charging technology, it will also help us with the power swap operations as it can improve the service capacity of these swap stations. Not to mention that many of the stations we've installed as of today are integrated stations featuring both chargers as well as power swaps. So in terms of the power swapping and the faster charging, we've also had many discussions between these two technologies, but we believe that so far power swapping is still having a much better experience than faster charging, and it will continue to be a very unique advantage and the competitiveness of new.
spk01: Thank you very much. That's very helpful.
spk15: Yeah, thank you. Thank you, William.
spk02: Thank you, Paul.
spk14: The next question comes from Jing Chang of CICC. Please go ahead.
spk11: Okay, thank you for your sharing. I have two follow-up questions. The first is about our other sales revenue and the profit margin. As we can see that after our policy adjustment, what is our expectation for the future revenue and also profit margin for other sales? after our battery swap started to gain profit? And in particular, do we have any internal calculation of the profitability of the battery swapping business? So what is the upward trend of our gross profit margin for other cells in the following few quarters? and when will it turn positive? This is my first question. And my second is about technology improvement. We have always been focused more on R&D investment and also technology accumulation. So looking forward, regarding to our next generation platform, ND3, so what improvement can we expect? What are the major areas of our effort So can you just share a few insights of information about that? This is my two questions. Thank you.
spk04: Hi, Jing. This is Danny. Regarding your first question about the other sales revenue and margin, as you mentioned, we canceled the free battery swap policies in Q3. So therefore, there will be more users to pay for battery swap services. And as the sales keep growing, we think more battery self-service revenue can be realized. But since it's only one month from the policy adjustment, so we still need some time to observe and assess the impact of this policy change. With the power swap station, the third generation put into operation starting from this April, we will accelerate the deployment of the power swap station in the following quarters. And for this year, our plan is to build 1,000 stations. But at current stage, the capacity won't be fully utilized. So the losses from the accelerated construction of a power source station will increase. So I think that's basically the guidance for the other sales revenue. Yeah.
spk02: Yeah. But I'm already going to meet him and they want them to be on them. They have to hand that again. You're going to find that you got some food. I don't think I'm the one. I'm going to find them. So food for one of the food for one of the food for one of the food for one of the food for one of the food for one of the food for one of the food for one of the food for one Every three-generation power station can be baked even 60 times a day, and the service fee can be turned into a profitable business. From now on, we have almost 20% of power stations that have reached this standard. So in general, we are very confident in the sustainability of our power station business, because it considers the income of many aspects. This business model will be better than this.
spk13: Actually, the inherent efficiency of the power swap business is pretty high. Before, we had negative margin on this part. It's mainly because when we were offering free power swaps, the electricity costs were also included in that offering. But now we are charging that separately. In addition, we are also charging our users 30 RMB per swap as the service fee. Actually, we are seeing growing demand for such charged power swap services, especially many used car users. They are actually using the service, so the percentage for the users to use the paid swap service is also growing. It's meaning of business for the existing users and the existing population. For the third-generation power swap stations, we've also done a rough calculation. When it completes 60 swaps per day, it basically can be breaking even. and its service revenues will be covering its operating costs. Right now, around 20% of our third-generation stations are able to realize such performance and capability. So for the long run, we believe that PowerSwap is also a sustainable business, as in addition to offering PowerSwap services, we also have other diversified business models, like we can leverage the energy storage.
spk02: 第二个问题,从NP3的研发的角度来讲, 一方面提高我们这个 The ability of the whole station is based on our product experience and the performance of the product itself. It is definitely able to surpass this one that can bring us a competitive advantage around the world. On the other hand, our core technology research can also help us to improve this horsepower. This is also able to see the improvement of horsepower and efficiency, including the efficiency of research.
spk13: Regarding the second question about our next-generation technologies, of course, we will be leveraging our full-stack capabilities developed in-house. With that, we will continue to improve the experience and also the performance of our products, and we believe that this will give us a strong product competitiveness worldwide. And also, the continuous investment into the research and the development of the core technologies will also help us to optimize and improve the vehicle margin, as well as improving the efficiencies of our operations and R&D.
spk02: Thank you, Jing.
spk11: Okay, thank you. That's all for my question. Thank you.
spk14: The next question comes from Edison Yu of Deutsche Bank. Please go ahead.
spk03: Thank you. I have one question. I'm wondering what is the management team's openness to embarking on some more strategic action? We've obviously seen a lot of activity from the European OEMs in China trying to revive or restructure their efforts. And I also think in the context of, you know, I think Neil has made some mistakes. You know, we talked a lot about sales, the sales force today. We had a lot of supply issues last year, many of which are related actually to more traditional auto side. Can we perhaps benefit actually from having some more closer strategic relationships with some of the OEMs out there? Thank you.
spk02: Thank you, Edison. In recent years, we have already mentioned that we are willing to open up our next generation of battery packs and our entire charging network to the entire industry. There are also some companies that are discussing this with us. Because if they want to use our charging network and some of our technologies, they need to carry out some research on their vehicles and some of their modifications. Thank you, Edison, for your question. Overall speaking, we are very open to all kinds of cooperation with the peers in the industry. But so far, we don't have much information to update or share with you.
spk13: But if you look at our smart technologies as well as our charging and swapping networks, actually we aim to use these technologies to catalyze the transformation of the entire industry. As we've also announced at the Power Day 2023, we are willing to open up our next generation battery technologies as well as our charging and swapping networks to the entire industry. Right now we're in some initial communications with certain OEMs. They are also thinking about using our battery technologies for swapping networks. But to use that technology, they need to adapt their products to our standards, which can take some time for them to make the final decisions. But overall speaking, we are very open to all kinds of cooperation.
spk02: I would like to add that in fact, more than 80% of our charging network's electricity is from the future. These car brand users to use. A while ago, there was a thing that was mentioned in the online media of Salimu Lake in Xinjiang. Because that Moodily charging station, this tour route is too hot. We had to limit some time for our user service. This also made many other brand users complain. But we had no choice. And in terms of our existing charging network, so far 80% of our electricities are actually charged for the non-new users. Maybe you've also read this news recently in Xinjiang's Sarim Lake.
spk13: Because it's such a popular tourist spot, we have to limit access to our public chargers for the non-new users at certain time frames, and that caused some complaints by the non-new users. But Oval Speaking is also a very good example showing our existing charging and swapping facilities are helping many EV users, not just the users on the new. Great.
spk15: Thank you.
spk02: Thank you, Edison.
spk14: As there are no further questions now, I'd like to turn the call back over to the company for any closing remarks.
spk16: Thank you once again for joining us today. If you have further questions, please feel free to contact the Nielsen Investor Relations team through the contact information provided on our website. This concludes the conference call. You may now disconnect your line. Thank you.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

-

-