NIO Inc.

Ladies and gentlemen, thank you for standing by for Neo Incorporated's third quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Mr. Ray Chen, Head of Investor Relations of the company. Please go ahead, Ray.

Good morning and good evening, everyone. Welcome to NIO's third quarter 2023 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website. On today's call, we have Mr. William Lee, founder, chairman, and CEO, Ms. Stephen Fong, our CFO, and Ms. Danny Chu, Senior VP of Finance. 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 US Securities and Exchange Commission, the Stock Exchange of Hong Kong Limited, and the Singapore Exchange Securities Trading Limited. The company does not assume any obligation to update 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 GAAP financial information, as well as unaudited non-GAAP financial measures. Please refer to Neil's press release, which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. With that, I will now turn the call over to our CEO, Mr. William Li. William, please go ahead.

Hello everyone, thank you for joining NEOS 2023 Q3 Earnings Call. In the third quarter of 2023, by making the most of a complete product lineup on the NT2 platform, the improvement of overall sales capacity and capability

as well as the continuous expansion of self, service, and power networks. NIO delivered a total of 55,432 premium smart electric vehicles, up 75.4% year-over-year. The retail stats from Qatar showed that in Q3, NIO ranked first in China's BEV segment with an average transaction price of over RMB 300,000. with market share above 45% in the segment. In 2023, October to November,

In September, NIO launched and delivered the all-new EC6, a mid-size coupe SUV upgraded to the second generation. It also marked the completion of NIO's product lineup on the NT2.0 platform.

In Q4, as price war deepens and competition gets tighter for smart EVs, NIO delivered a total of 32,033 vehicles in October and November, up 32.2% from last year, while maintaining our prices stable. In Q4, the total deliveries are expected to be between 47,000 to 49,000. 公司将专注于销售策略的执行和运营效率的提升,我们相信 未来NT2平台车型的产品竞争力将在明年进一步释放。 Going forward, we will stay focused on executing self-strategies and improving operational efficiency. We believe the competitiveness of NIO's second-generation products will be further unleashed next year. 财务表现方面受益于高售价车型占比提升,零部件成本下降,交付量增长带来的规模效应, In terms of news financial performance, attributed to the increased sales mix for higher-priced models, decreased parts costs, and improved economies of scale enabled by more deliveries, combined with the refined management of sales policies, the vehicle margin in the third quarter reached 11%.

Next, I would like to share with you the recent highlights of our products, R&D, and operations. On September 21st, NIO held NIO-IN, NIO's Innovation and Technology Day.

At the event, NIO's 12 full-stack technology capabilities covering the holistic business scenarios for smart EVs from multiple brands and platforms were introduced to the public for the first time. In the meantime, NIO also unveiled China's first vehicle operating system, SkyOS, and the in-house developed LiDAR SoC named Yangjian, demonstrating NIO's systematic R&D capabilities leading the industry.

智能驾驶方面,未来持续进行系统能力的快速迭代。 11月15日我们推出了高速服务区领航换电功能PSP的Beta。 目前全国累计29座高速换电站已经支持PSP。 PSP无缝连接NOP Plus并且深度融合未来换电体验,实现了高速换电场景的全流程自动化和全程的领航体验。 Regarding assisted and intelligent driving, NIO has been quickly iterating the system capabilities.

On November 15th, PowerSwap Pilot for Highway Beta was released in China. So far, 29 PowerSwap stations on highways already support this feature. PSP seamlessly combines NOP Plus and PowerSwap, bringing new users a hustle-free highway driving and battery swapping experience that is automated and intelligent from end to end.

同时,增强领航辅助NOP Plus从高速进入城区, 为用户提供全域通行的点到点智能驾驶体验。 我们基于通用方法能力, 以用户领航心愿单的热力为参考, to open the route, share the route, and connect to the city network. In November, we will start the functional experience of NLP Plus in the city area. Currently, in part of the major cities in the future, we have opened up the use of NLP Plus for先锋 users. The number of coverage and access to the city in the city area is increasing rapidly. It has greatly exceeded the goal proposed by the Innovation Technology Day. In the upcoming Smart Carrier Communication Meeting,

In the meantime, NIO has rolled out the NLP Plus for urban traffic, providing users with uninterrupted driving experience from point A to point B, both on highways and on city streets. Enabled by NIO's generalization capability in-house and taking into consideration the high-demand roads on users' wish lists, we've started to roll out NLP Plus for cities. route by route from November, and we'll gradually realize wider coverage. At present, the NLP Plus has been released to early bird users in several major cities and is quickly becoming available for more routes and in more cities, which has far surpassed the target announced at new in. At our upcoming NAD communication event, we will be sharing more information about that. 销售和服务网络方面,截至目前,

In terms of the sales and service network, so far we have 468 new house, new space, and pop-up stores in 152 cities, as well as 314 service centers

and 62 delivery centers in 217 cities. As for the charging and the swapping network, To date, we have installed 2,226 power swap stations, over 9,400 power chargers, and over 11,000 destination chargers worldwide. More than 1.46 million public chargers have been connected with NEOS charging map.

In the future, the energy cloud and the future electric network will begin to open up to the industry. In November, the future and Chang'an Motor Co., Ltd. signed an electricity exchange cooperation agreement. In the future, we will work together with more industry partners in the field of electronic standard, electric network, electric vehicle research, electronic asset management, and other fields. to provide more smart electric car users with a chargeable, changeable, and upgradeable battery experience, and jointly promote the development and development of the battery mode.

Niel's long-tested and well-proven battery swapping system has offered over 32 million convenient, efficient, and safe battery swaps to new users, making PowerSwap the most trusted recharging solution for them. New PowerCloud and Niel's PowerSwap network have been opened to the entire industry. In November, NIO partnered with Chang'an Automobile and Geely Holding, respectively, on battery swapping. In the future, NIO will join hands with more industry partners in such areas as formulation of swappable battery standards, battery swap network, R&D of battery swapping vehicles, and the management of battery assets, so as to provide the holistic, chargeable, swappable, and upgradable solution to more smart EV users, and jointly contribute to the development and wider adoption of battery swap. News Grand Annual Gatherings with Users will be held on December 23rd in Xi'an, Shaanxi Province. This year, we will unveil a brand new flagship model, a real epitome of news innovative technologies. This product will become a technology benchmark for smart EVs and a trendsetter of the smart EV technologies worldwide. 九月二十六日未来凭借电动汽车换电关键技术

On September 26th, with contributions to shaping a low-carbon industry with innovative EV battery swapping,

NIO received the Green Innovation Award of the 2023 Paulson Prize for Sustainability. This award is a recognition of the novelty and expandabilities, as well as the economic and environmental benefits of NIO's battery-swapping technology and business model.

On November 8, 2023, the future of the Chinese university city-wide series of competitions was officially launched in Hefei, and was officially closed on November 12. Since 2015, The 2023 NIO Cup Formula Student China, a racing car design competition for college students, was held from November 8th to November 12th in Hefei. NIO has been sponsoring and supporting the competition since 2015.

So far, Formula Student China has cultivated more than 40,000 young professionals for China's automotive industry, becoming one of the most important cradles of young automotive talent in China.

In order to ensure that core key technology continues to be invested and sales services are able to cope with intense market competition, under the premise that three brands and nine core products are expected to be listed, we will continue to change the internal work flow and division, focusing on investing in projects that can improve the financial performance of the company, and comprehensively improve the efficiency of organization and resource use. We are full of confidence in the long-term competitiveness of the future in the field of smart electric vehicles.

The next two years will see the most intense competition during the transformation of the automotive industry. Faced with massive uncertainty in the external environment, recently we've sorted through and adjusted our key objectives, priorities, and action plans to become more focused on efficient execution and improvement of system capabilities. While ensuring long-term investment in core technologies, strong sales and service capabilities to navigate the intense market competition and on-time release of the nine core products from the three brands. We will continuously optimize internal working processes and the division of roles and responsibilities, stay focused on projects that can contribute to the company's financial performance, and comprehensively improve organizational efficiency and resource utilization. We are very confident of NIO's long-term competitiveness in the smart EV industry. 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 third quarter. Over to you, Stephen.

Thank you, William. I will now go over our key financial results for the third 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 earliest press release, which is posted online for additional details. Our total revenues in the third quarter were 19.1 million RMB, representing an increase of 46.6% year-over-year, and an increase of $106 million. 17.4% quarter-over-quarter. Our total revenues are made of two parts, vehicle sales and other sales. Vehicle sales in the third quarter were 17.4 billion RMB, representing an increase of 45.9% year-over-year and 142.3% quarter-over-quarter. The increase in vehicle sales year-over-year and quarter-over-quarter was mainly attributable to higher vehicle deliveries. Other sales in the third quarter were 1.7 billion RMB, representing increase of 55% year over year and increase of 4.5% quarter over quarter. Gross margin in the third quarter of 2003 was 8%, compared with 13.3% in the third quarter of 2002 and 1% in the second quarter of 2023. The changes of gross margin year-over-year and quarter-of-quarter was mainly attributable to the changes of vehicle margin. More specifically, vehicle margin in the third quarter was 11%, compared with 16.4% in the third quarter of 2022 and 6.2% in the second quarter of 2023. The decrease in vehicle margin year-over-year was mainly attributable to changes in product mix, partially offset by the decreased battery cost per unit. The increase in vehicle margin quarter-to-quarter was mainly due to changes in product mix, as well as decreased promotion. R&D expenses in third quarter were 3 billion RMB, representing an increase of 3.2% year-over-year and a decrease of 9.1% quarter-of-quarter. The slight increase in research and development expenses year-over-year was mainly attributable to increased personal costs in research and development functions, partially offset by the decreased design and development costs and deduction of expenses due to support for technology advancement provided by local government authorities during the third quarter of 2023. The decrease in research and development on expenses quarter to quarter was mainly due to the support for technology advancement provided by local government authorities during the third quarter of 2023. As general expenses in the third quarter were 3.6 billion RMB, representing an increase of 33.1% year-over-year, an increase of 26.3% quarter-of-quarter. Last, for operations in the third quarter was 4.8 billion RMB, representing an increase of 25.2% year-over-year and a decrease of 23.3% quarter-of-quarter. Last, in the third quarter was 4.6 billion RMB, representing an increase of 10.8% year-over-year, and a decrease of 24.8% quarter-of-quarter. Our balance of cash and cash equivalents, restricted cash, short-term investment, and long-term time deposits was 45.2 billion RMB as of September 30, 2023. Now, this concludes our prepared remarks. I will now turn the call over to the operator So for today's 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 2. If you are on a speakerphone, please pick up your handset to ask your question. For the benefit of our 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 comes from Tim Sauer with Morgan Stanley. Please go ahead.

Thank you very much for taking my questions. I actually have two parts of the questions.

The first one is about the battery swapping. Because Anil has just mentioned for the expanded strategic alliance, in battery swapping from previous partner like Sinopat to Chang'an and GDE. Could you share a little bit more about your plans of how to structure the new alliance of battery swapping and the potential financial impact like your CapEx and operating loss? So in the long term, will you consider to spin off the battery swapping business and operate it independently or even go public as a standalone third-party battery swapping business? or utility operator? So that's my first question.

Thank you, Tim.

We recently announced our strategic cooperation with Chang'an and Geely. Of course, from the perspective of NEAR, look at the SWAP Station Network. We always think it is very similar to the infrastructure of cloud services. This is a very strong network effect. There is a long-term investment construction. At the same time, we must first fully verify and prove that it is in line with the needs of the user, and then start to open it up. So after more than five years of actual operation, we think we can now open it up externally. We already have the ability to open it up.

Thank you, Tim, for your question. Yes, recently we have announced the cooperation agreements with both China and the Gili on the battery swapping. And in terms of the battery swap network, the way we look at it is a bit similar to the cloud service or the cloud infrastructure. Both power swap stations and the cloud infrastructure require and rely on the network effect. Both can have a pretty long investment cycle. And both are actually started with the internal services first, and after sufficient validations and verifying the demands and the fulfillment for our users' needs, we will then open up the service to the public. So after five years of validation and internal services, we believe that we are ready to provide such network and service to the industry, and it's about time to open up the network to the industry. 当然,在说到换电的时候,我们一直说它有非常多的优势,

uh standard package standard uh

And as we all know that there are quite a lot of benefits with PowerSwap. It is faster than charging, and also it has better user experience. It also brings values and benefits to users and also the society. Especially in China, many users living in the urban environments or compound and apartments do not have a home charger. In fact, actually, more than 50% of our users cannot install a charger at home. In this case, BetterSwap becomes even more important and convenient for those users who do not have home chargers. This is also very important for the mass market brand because Neo is, after all, a premium brand, and many of our users can still have chargers at home But for the mass market brands, the percentage of not being able to having the home chargers will be higher. That's why when we started to share our battery design standards and also specifications for the mass market brand to the industry peers, many of them are very interested in this alliance. We have already announced two agreements, and there are several more that are still in negotiation. as they also believe that with NIO's current battery swap technologies, service standards, and also service network, this is what they need for their products as well as for their users.

当我们相信换电的business长期来说肯定是一个可以持续, 也有非常好的盈利能力的这样一个business, 这个我们是经过我们实际的运营,我们已经充分的相信这一点。 uh uh uh uh uh uh In terms of NEO Power itself, our charging business is basically break-even, because more than 80% of our electricity is used by users outside of NEO, brand users. We believe that in the long term, this swap service can also be profitable. In some areas, we have already seen such a profitable fact. Of course, there are also some investors

And also, in terms of the business model for the power swap, we believe that it is sustainable both from the business perspective as well as from the finance perspective. Especially after five years of operations and validation, we have confidence in the sustainability of battery swaps. In terms of our battery swap network, as we will continue to expand our power swap network, there will be CAPEX also relevant to such network development. But in the meantime, we are also looking for approaches where we may introduce partners into our power swap network. Basically, they will buy the battery swap station as a product from us, and then they will install the stations and hand it over to us for the operations. In this case, they will be beholding this battery asset for us There are a dozen of stations already running based on this business model. So for the longer term, we will also be looking for partners holding the battery swap station assets. In terms of the new powers charging service, itself is already almost breaking even. As you may know, that 80% of our power was charged for the non-new users. So for the longer term, new power charging will also be a profitable business. Actually, in certain areas and with certain charging stations, The operations with certain swap stations, the operations is already profitable. This is also, in terms of spinning of the power swap stations, there are some investors showing their interest into having power swap or power swap business as an independent business. We are also in conversation with them.

Yeah. Okay. Thanks, Tim. Your next question?

Sure. Thank you. Thank you, Ellen, for sharing all the details. So my next question is about the car manufacturing, because as you just mentioned, NIO announced to acquire the production facility from JAC. So first, does that mean NIO has been granted the manufacturing license? In the meantime, I think that means NIO officially shifted from the asset-like business model to asset-happy. So in the near term, how should we think about the unique cost vehicle manufacturing from fourth quarter onwards. So I think previously we provided vehicle margin guidance for 15% for December quarter. And in the long term, do you still think that the full step in-house development, production, and direct to vehicle sales without relying on dealers would be the most ideal model for both NIO and Albus, the mass market brand, or if there will be any major difference? That's my second question. Thank you.

Steven will answer this question.

Okay, so I'll start with your question about the manufacturing, time manufacturing.

During this acquisition, the manufacturing agreements between NIO and JEC are still performed, stipulated. And the production activities of the models in the corporation are going on normally. Going forward, if there is any change to the manufacturing corporation with regards to risk models between NIO and JSC or other situation that constitute significant information after this acquisition or in the future, NIO will communicate with and disclose the capital market in a timely manner, comply with the red laws and regulations and the rules for listed companies.

And also to add on to Stephen's comment, if we bring the entire manufacturing fully in-house, overall speaking, our manufacturing cost will be reduced by around 10%.

Great. Thanks very much, William and Stephen, for all the details.

Thank you. Thanks a lot.

Our next question comes from Nick with J.P. Morgan. Please go ahead.

Hello, everyone. I have two simple questions.

First, William just mentioned that we have some recent adjustments to increase the efficiency of organizations. My first simple question is really about NIRS plan to increase or enhance operation efficiency, and we allocate our resource to more important priorities. So if you can give us some example and elaborate a bit more on this initiative. Thank you, Nick.

Thank you, Nick. Specifically, in terms of projects, we have a more basic principle, which is to invest in projects that cannot improve the financial performance of the company in three years. For example, projects that cannot improve labor or P&L performance cannot be invested. We all cut or deduct. For example, for example, battery self-sufficiency. If we evaluate it, We believe that in terms of our own production of batteries, we cannot see that we can improve our efficiency in three years. So we have chosen some other methods. We will also develop this battery, we will also develop this material, we will also develop this pack. But we will ask others to produce it in this way. For example, these adjustments are very...

In this round of organizational optimizations, we have identified several principles. Because over the years of development, we have some low efficiency positions and jobs, and also some duplicated roles and responsibilities. In this case, we have identified these low efficiencies or redundancies in the organization. We've improved the processes of lower efficiencies, and we've also eliminated jobs and positions that are duplicated or are of low efficiencies. And also, in terms of the projects deferred or terminated, basically, we look at the projects and their financial contributions. If they cannot bring any financial contribution in the coming three years, we will be thinking about deferring them or terminating them. For example, if they cannot contribute to the growth margin or the P&L, they may need to be deferred or reconsidered. A quick example is regarding the in-house manufacturing of our batteries. We've identified that in the coming three years, bringing battery production in-house will not help us with the growth margin improvement. In this case, we have decided to defer the plan. We will still continue to do the in-house R&D of battery cells, battery materials, and the battery packs. But we will outsource the manufacturing of the battery packs for better overall efficiency and performance. So for this round of optimization, we've found a detailed and thorough review and adjustments, and also made necessary adjustments based on the needs of the business and the resources of the entire company.

Of course, we think that in the next two years, we will continue to invest in our core key technologies to ensure that we are ahead of the technology and products. I mentioned earlier that we will release a new flagship model on the NIO Day this year. Many of these technologies are, I believe, leading the world. We will continue to maintain such a leading advantage in technology. But the second high priority is our sales and service network. We have added sales personnel and added some sales network points. Of course, these sales will become sales. It still takes some time. Of course, if we also see that in such a fierce competition now, if we do not expand our sales network, then this is not enough for us to deal with market competition. China China China China China We have a very long way to go. The gap between us and Benz and BMW is still very large. So we will continue to expand sales and service networks. This will give us a continued increase in sales to increase opportunities. So I want to emphasize that we are now in Jiangsu, Zhejiang, Shanghai. Three places account for more than 50% of our national sales. This of course shows that our products can be recognized in competitive markets. On the other hand, it is also a problem that shows that we still have a very big task to establish our sales and service network in some broader markets in China. Of course, the last one is to ensure that our third high-end level will ensure that the nine core products of our three brands will be on the market as scheduled. Of course, there are many investments in the process. These products will gradually meet with us in the near future.

But in the meantime, we will still make sure that we don't miss our focus or dilute our investment and resources for the high priority items for the coming two years. The first is the long-term investment for the core technologies so that we can still keep leading in terms of the products and the technologies. As I've mentioned earlier today, at the new day 2023, we are going to unveil a brand new flagship model And this car will be equipped with a lot of state-of-the-art technologies that are leading the entire automotive industry. And our second priority is the continuous development of our sales and service networks. Recently, we have enlarged the sales teams. We have also increased the number of the point of sales so that we can get ready for the more intense competition in the coming two years. Because if we don't make such preparation, we will not be navigating the intense competition. An example is that in October in Shanghai, our sales volume has outnumbered that of BMW and Mercedes running on all power sources, including ICE cars as well as EVs. And in cities from Jiangsu or Zhejiang provinces, we are also establishing a pretty solid foothold with a pretty significant market share. But when it comes to lower-tier cities like fourth-tier or fifth-tier cities, we still have a long way to go. Or in cities where the EV infrastructure is not yet ready, we are also not outperforming those well-established brands. In this case, we need to continue to develop our sales and service networks. In terms of our sales performance in Zhejiang, Jiangsu, and Shanghai, actually 50% of our sales volume is contributed by the sales in these three areas. On the one hand, it shows that our products are well-recognized in the highly competitive markets in these three places. On the other hand, it also means that we need to further enhance our brand awareness in the lower-tier cities. And the third priority in the coming two years is to secure the on-time release of our nine core products from the three brands. We have already made investments, and the products of these three brands will be coming into the market very quickly in the coming two years.

Thank you, Nick. Okay, thank you. Very clear. My question is also relatively simple. In this industry, there are more customer concerns. The problem is that we are in sales and profit. How to take the risk in the middle? At the start of the phone call, I mentioned that the market share this year is 4.7 to 4.9 million units. The goal in the middle, the consideration in the middle is to maintain a better price. I would like to ask, under this premise, are we going to maintain 15% of the market share in the fourth quarter? In the long term, for example, next year, will we have a chance to maintain the long-term target of 20% or 22% of the market share in the long term? How do we think about the relationship between sales and liquidity? I think the question is really about the balance or the choice between sales volume and margin. And how should we consider these two factors when it comes to the market competition? And are we still maintaining 50% of vehicle GP margin in 4Q and a long-term target of, let's say, 20% to 22% of vehicle GP margin, sometimes to 24 or beyond? Thanks.

Yeah. Yeah.

We will keep the price stable. From the third quarter to now, when we made a user transfer adjustment in June, the old users can accept it, and the new users are very happy. So we estimate that it is the only price adjustment in the world. New users and old users feel happy about it. Or they all feel happy. I think it's a good thing. After that, we kept the price stable. We think this is very important for the user interest and the brand. When we entered the fourth quarter, we saw the price increase further. We saw that even in the premium market, our competitors, such as Mercedes and BMW, they have a lot of models. especially electric vehicles, have a price drop of more than 30%, more than 1% of the price drop. We still maintain a stable price. I think this is very important. This can also reflect on our increase in horsepower. So our strategy on NIO Brand, our thinking is to maintain a stable price and continue to increase the horsepower rate. On this basis,

Our strategy for the third quarter is pretty clear. That is to keep our prices stable. Earlier this year in June, we have adjusted our user benefits. Actually, both our existing users and the new users were accepting this adjustment pretty well. So we may be the only company able to satisfy both existing users and the new users with a benefit adjustment. And since then, we have been keeping a pretty stable price strategy, as we believe that it is beneficial to our brand image and also product competitiveness. And also users' experience and benefits. As going into Q4, the price worth deepens. The competition also gets more fierce. For many well-established brands, like our competitors BMW and Mercedes, they are also slashing prices pretty aggressively today. Even on their EV models, the price reduction can be as high as 31%. But we still keep a pretty stable price amid this fierce competition. These stable prices also are reflected in our improved vehicle margin. So our longer-term strategy will be keeping our price stable while continuously improving our vehicle margin. In the meantime, we will also improve our sales capacity, capability, and efficiency so that we can bolster our sales volume. But this can take time, and we will be staying patient. We will not realize or boost our sales volume at the cost of our product margin, as this is not healthy for the longer run. Maybe Stanley can also add more information regarding the specific financial numbers.

Hi, Anika. Our weekly gross profit margin is 11 for Q3, and we are confident to achieve a higher margin in Q4, considering more production efficiency, lower price of lithium carbonate, and also decreased part cost. Our target is also still kept at 15% for Q4. And from long run, as an important project internally, We have started to further improve our cost structure for NT2 products by optimizing design, improving supply chain and production efficiency, and also business negotiation with our partners. As mentioned by William, our new brand keeps focus on premium market segment, and we will keep product prices relatively stable. So combine all those factors together, we believe Our vehicle margin can be further increased to 15% to 18% in 2024. That's the general guidance for vehicle margin. Thank you.

Yeah.

And also, looking at our previous vehicle margin history, before the crisis of the lithium carbonate spike, we actually managed to realize a vehicle margin as good as 21%. So for a much longer term, we will also target as well as a vehicle margin of about 20%.

Thank you. Thank you.

Our next question comes from Yu Qionding with HSBC. Please go ahead.

Thanks, Kim. This is Yuqian here. I've got two questions. Maybe we wrote it one by one. The first one is on the cash position. We noticed the cash balance increasing quarter on quarter. Other than the strategic investment and the convertible bond, there is also still a $1 billion increase. Does that come from the improving operations? Can you shed a little bit more light on that?

Hi, Yuchen, this is Danny. And thanks to the new product delivery wrap-up in Q3, we achieved a positive operating cash flow. Yeah, going forward, if our sales continue to grow, we are confident to realize a healthy operating cash flow. So that's for your first question. Yes.

Okay, got it. Thank you. The second question is on the OPEC reduction. Thanks for William's sharing on optimizing the battery business. We also read there is also a headcount cut. Could you share more on whether there will be asset write-offs during the process of the cost optimization, and when we would expect us to reach a lean yet sustainable shape?

Yeah, hi. About the cost optimization, yeah. We reduced 10% of working positions and completed the adjustment in November. But for Q4, there will be almost no financial impact since we need to pay additional compensation for the employees who left the company, offset with less payroll cost. But for next year, together with the headcount reductions, We also delayed or canceled a certain project as mentioned by William. So the total impact to 2024 will be saving of total cost around 2 billion RMB.

Yeah, but this is... From our budget, there is a net net, but the original one-time financial cost is still related to several billion RMB.

Yeah, around $200 million.

Yes, this round of optimization has helped us to improve the financial performance slightly over our previous budget. However, we do need to have some one-time expenses due to the severance package for the terminated employees.

Got it. Thanks, William and Stanley.

Our next question comes from Ming Sun Lee with Bank of America. Please go ahead.

Hello, William, and management. Thank you for taking my question. My first question is regarding your second brand, Alpas, in 2024. In the future, will you consider to share the charging station and the battery stop station along with the new brand, and also, Will you also consider to share the sales channel with Neil Brett? Thank you.

Thank you, Mim. Yes, our second brand's first car, we have recently completed the VB car's status. The status should be very good. It is the best VB car in our history. So we are very confident about the competitiveness of this car. But we still have enough time to continue to optimize and improve. Our new brand, we will have a special network, NIO's special network, and a shared network. So, from next year, we will build this shared network. So, this shared network, NIO's users can use it. Then the ARPS users can also use it, and it will be open to the third party. So when it comes to charging, it has always been open to us. Now it is already open. Sales will be separate. We will not use the store. But we will use part of the service network, this service center. So basically this is one of our directions.

Yes, when it comes to our mass market brand codenamed Alps, actually recently we have just had the very first validation build of this brand, a road of the production line. Actually, the condition of this verification build is pretty good. It can be maybe one of the best VB cars we have in the history. of NIO, so we are very confident in the competitiveness of this product. And before the official launch and the delivery, we still have time to continue to optimize and improve the product. In terms of our power swap and the charging network strategy, for NIO, our battery swap network will be coming in two parts. The first is the exclusive network for NIO and NIO users, and the second will be a shared network not only for NIO users, but also for ELPS users and other brands with swappable vehicles. In terms of the charging network, we've been sharing our chargers already to many non-NIO brands. In terms of the self-network, this will be separated. So they will have their own self-stores, but we will be sharing the service capacities and the facilities. So service centers will be shared between NIO and ELPS.

Thank you, William. Thank you. So my second question regarding your 2024 product, because this year you already update all of your new models and also launch some new models. So in 2024, will you have some facelifted version of the existing model and start to use 800 voltage charging system on your car?

So in this case, do you have any

guidance about the battery stop station you will expect. Thank you.

Yeah.

There won't be any major changes. There will be some minor changes. As for Huanlian Station itself, we have already initially established this network. Next, as I just mentioned, we will build this public network. We will start to build this shared network. On the other hand, we will add some more networks according to the needs of NEO users. We will continue to build them.

Yes, it's a common standard and the practices for the automotive industry to have model years or phase leaps. But for our NT2 products, we will not have any major modifications or upgrades as many of them were just newly launched or delivered to the market. To stabilize our quality and the supply chain, we will only make minor improvements and upgrades on our NT2 projects. In terms of our plan for the power swap stations in 2024, as I've mentioned, we will be not only building our exclusive battery swap network, but also a battery swap network for sharing. On the one hand, we will build this power swap network for other brands, or that can be shared with other brands. In the meantime, we will also continue to be looking at the demand of our new users so that if there are any requirements or high-demand stations or locations, we will also install stations there. But we are still working on the specific plans and the numbers.

Thank you. Thank you, William.

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

Hi, thanks. Thanks for taking my question. My first question is regarding your sales force, sales team. I think in last quarter's earnings, you mentioned that you are going to significantly increase your sales people's headcount. May I double-check how this has been proceeding at this moment? Have you achieved your original target of expanding sales team or have you adjusted your original plan?

Thank you, Paul. From now on, we have more than 5,000 sales consultants.

Currently, it's about 5,700 people. But most of them have just been employed within a few months. More than 3,000 people have just been employed recently. So they need some time to develop sales capabilities. Because we train our employees for more than half a month. They still can't... China. China. China. China. At present, for our frontline fellows, we have a team of around 5,700 persons, but many of them were just newly on board.

Around 3,300 of them were newly on board into the company. And it still takes some time for them to really get to know the brands and also get familiar with the entire sales processes. Because for the newly hired fellows, we will spend around one month and a half on the trainings. And afterwards, they can start to sell vehicles to our users. According to our history data, a seasoned fellow, on average, will need to spend around six months to be familiar with the brands and the processes and will become a real sales force for the company. So we need to stay patient with these newly hired fellows, as many of them just joined the company in September and October. But in the meantime, we were also completing and improving our assessment and evaluation systems our training systems, we will also bring these fellows more efficient tools so that they can really make full use of their self-capacity and capability.

Thanks. My second question is regarding the R&D spending. I think this quarter you had about $300 million quarter-over-quarter decline on the R&D, and the explanation is some incentives from the local governments. May I quantify that number? And more importantly, going forward, what would be your projected quarterly undispending?

Yeah, Stanley.

Yeah, there are some slight decreases considering some support we received from the local authorities. But on the long run, as we mentioned during the past also earnings core, our non-GAAP R&D investments per quarter will also be kept at RMB 3 to 3.5 billion. As also mentioned by William in previous statement, we will also ensure investment in core technologies and also the The advantages of technology and product guarantee the timely launch of the new product. So the investment on R&D will not decrease. There will be a slight fluctuation across different quarters. Thank you, Paul.

Thank you. That's very helpful. Thank you.

Our next question comes from Changing with CICC. Please go ahead.

Okay, thank you for the introduction. I have two questions here. First of all, the first one is about driving. We have been opening the route of the transit line since September. We still want to do this through the community intelligence method. The function of the city ONA is to expand. It's a little different from other vehicles. Can you introduce some ideas about the landing of our city ONA function? And then in terms of goals, it also shows that by the end of this year, the journey of the accumulation of cities can reach 60,000 kilometers to open, so that next year's 2Q may reach 400,000 kilometers or a faster growth. I want to ask how the current progress is. So my first question is regarding to autonomous driving. We have already opened the submission of wish list in September. So relying on group intelligence, we try to expand the function, NOA function in MAP cities, which is a little bit different from other OEMs. They open up city by city. So could you please introduce our ideas on the implementation of NOA function in the city area. And also, what's our, again, our target of the cumulative mileage of 6,000 kilometers by the end of this year.

So how is our current progress?

Thank you, Changjing. From NEO's point of view, our NOP in the city area NLP Plus is based on the ability to let go and then to open the route. We have established a data-saving production model based on the ability to let go and then to open the route. From the current point of view, it should be said that this progress exceeds our expectations. So it must be able to exceed the 60,000 kilometers of mileage we said on Near In. In fact, as of now, we should say that we already have more than 100 cities to carry out this kind of ability to use this kind of open test for先鋒用户开放测试. In the near future, we will very gradually invite users to carry out such a trial. Of course, from the perspective of the port support in the city area, we have also seen a lot of and some marketing statements from our colleagues. We believe that the top service in the city is still a very serious service. We will go step by step to ensure that the user experience and safety will be in place. What I can say is that the current progress of data security, the development of community intelligence according to the route, In terms of news, NLP Plus for cities, actually we leverage our generalization capabilities as well as the cloud-sourcing AI capabilities so that we can roll out

this NLP route-by-route for our users based on their demand. Of course, in the meantime, we have also formulated the data closed-loop capabilities where we can really leverage all this data coming from the generalization and also called AI. At the new in, we have announced that by end of this year, we are going to open up the routes covering around 60,000 kilometers of mileage. And so far, our progress is pretty good. And we already have established the capabilities of releasing NLP Plus for early bird users in more than 100 cities. And we will be rolling out such a service and invite our users into the program step by step so that it can be covering more cities with more users regularly. Of course, in terms of city-based or road-based programs, Alternative Striving or NLP will be some of our peers. They have some marketing slogans regarding their services, but we believe that NLP Plus, especially NLP Plus for Cities, is a pretty serious service. And we would like to make sure that our users have a safe and also good experience. And then we will roll out the service and its coverage step by step. But overall speaking, our progress has far surpassed our expectations. And after all, we already have more than 100,000 vehicles running on the road. This will also help us to further formulate and improve our data culture.

Yeah, what I want to emphasize is that all of our NTR vehicles, each vehicle is marked with our SQL RIN chip, plus more than 30 sensors. All vehicles are of the same configuration. Especially for every new NT2 vehicle, it is standard with four O-ring chips and also 33 high-performance sensors.

This will further help us to formulate the data closed loop and improve the data capabilities. And in return, we will also accelerate the capabilities for iteration. This is also a very unique advantage of new, which is quite different from any other competitors offering the similar service.

Thank you. So my second question is regarding to overseas market, will it still be one of our strategic focus? Could you please introduce the current operation situation of our overseas market this year regarding to our sales volume, our layout program of our co-regions and

also about the dealerships and the infrastructure, and also our next year's target and plan.

Yeah.

We have opened six new houses in five European countries, eight future spaces, two multi-functional service centers, and 54 mobile service centers. Of course, we have about 30 more. Let's take a look at the numbers. There are around 30 screens. In terms of our entire business in Europe, we are still in the early stages of our business. We will continue to run our entire business model to ensure our service experience and user service experience. So we did not put this amount in At the moment in five European countries, we have opened six new houses, eight new spaces,

two multifunction service centers, and also partnered with 54 authorized service centers. We have also installed 30 power swap stations in five European countries. But in terms of our business development in Europe, we're still at the early stage of the business development and expansion. We want to continue to test the water, ensure we have good user experience before we scale our operations and the business there. That's why volume is not a priority for us in terms of our European business. And in the coming one year, we will continue to be staying at this stage. We will make sure that our capability and capacity are sufficient to serve our users in Europe before we start to work on a higher scale.

Thank you.

Our next question comes from Jason Goetz with Missouri Securities USA. Please go ahead.

Hi, guys. Thanks for letting me ask the question. You talked a couple months back about 20,000 vehicles a month in December. We're running a little bit below that now. What have been the biggest headwinds there? Has it been some production challenges, maybe broader macro weakness? And then what would it take to get to that 20,000 units, and how should we think about the run rate moving through 2024 with the new sales force?

OK, if we look at the share of our high-end pure electricity market, for example, we are in a market of more than 300,000 pure electricity, our market share in Q3 this year is 45. We have basically remained at more than 40. What does that mean? In fact, in the high-end pure electricity market, the share is always very stable. And this has always maintained a relatively high proportion. From another perspective, we think that in the high-end users, it is necessary to turn it into a user from a car to an electric car. If it turns into an electric car, it is indeed difficult. Maybe it will be easier to convert more than 100,000 cars into 200,000 cars, because more Korean companies will pay more attention to the cost of use. For high-end users, there are more things to consider. We have to be patient with this. On the other hand, I mentioned the problem of basic facilities earlier. If we look at the three Shanghai, Jiangsu, Zhejiang, and Changsha corners, Our sales have actually exceeded the same price in many cities, such as BMW, Mercedes, Audi, etc. But we also see that in this area, for example, in three provinces, we have more than 700 exchange stations. So the infrastructure is still very effective in promoting sales. Of course, in the whole country, we now have more than 2,000 exchange stations. There are nearly 700 seats on the highway. In many areas, the coverage is actually not enough. So the infrastructure is also a limiting factor for these wider market users. So these two points, I think, are the two main difficulties at present. One is the purchasing psychology of high-end users. The other is the infrastructure in wider areas. In the last four years, we believe that the high-end market will speed up this transition. In fact, in the past two years, it has been more in the massive market. In the last four years, we believe that the high-end market will speed up the trend of turning to pure electricity. We also saw that some of our peers have also launched products that they used to only do in the real world, and now they are also starting to launch products with pure electricity. This will speed up the process of turning traditional oil-based users to pure electricity. Because other forms of power are excessive. This is something we are very happy to see. Another thing is the infrastructure. More and more people are starting to build superchargers. Of course, we will also build power stations. I think this will also promote the penetration rate of power users. So in general, I think that in 2024, it will be better for us than in 2023. And we don't need to deal with the frequent switching of products in 2024.

Thank you for your questions. As we've mentioned earlier today, in the premium battery electric vehicle segment priced over RMB 300,000, NIO has realized a 45% market share in the third quarter of this year. Actually, our market share in this segment has been pretty stable, around 40%. So this has proven that we have a relatively solid foothold in the premium BEV segment. We have a pretty significant, also stable market share already established in the segment. But when it comes to convincing users of premium ICE cars of buying a premium EV, it is actually more difficult than convincing a mass market user. Because for the mass market users buying a car of 100,000 or 200,000 RMBs, they pay attention to the ownership cost and also the usage cost of the product. But for the users of premium electric vehicles, they pay more attention to other factors. And the second reason that may be affecting the wider adoption of a premium BEV is regarding the coverage of infrastructure. As I've also shared in the Yangtze River Delta areas, mainly Shanghai, Jiangsu, and Zhejiang, We have a pretty significant market share. Our south volume has outnumbered that of BMW, Audi, and Mercedes with their ICE car sales. A very important reason behind is because we have 700 power swap stations already established in this area. So infrastructure is also playing a very important role in boosting the south volume and the adoption of electric vehicles. So far in China, we have already installed over 2,000 power swap stations, but roughly 700 of them are along the highways. In some regions and areas, our power swap stations are still not widely accessible. In this case, we will need to also speed up and enhance our infrastructure coverage so that we can further boost the water adoption of electric vehicles. So basically, two main reasons. The first is regarding the consumption habits of the premium vehicle users and the second is mainly because of the coverage of the infrastructures for electric vehicles. But we believe that this trend convincing ICE users of buying EVs where this overall trend of transforming into battery electric vehicles will be picking up its speed because we also find that some of our peers and competitors before they only had hybrid vehicles or range extended vehicles but now they're also launching their battery electric vehicles. Such strategy will also push the transformation of the entire industry, so we are actually happy to see such transformation. And also, many car companies are now also installing and expanding their charging network, and NIO is working on our battery swap network. With wider infrastructure, we will also boost the adoption of the battery electric vehicles. So overall speaking, we believe that 2024 will be better off than in 2023, because in 2024, we will also be having a more stable product portfolio without frequent product launch and delivery, which has also slightly disturbed our overall execution.

Got it. Thanks. And then quick follow-up. On the battery swap partnership side, is there any kind of design changes that your partners would have to do to their vehicles in order for them to use the swap stations? And if so, have you guys talked about what percent of mix of vehicles they produce might need to be kind of changed or edited in the production process in order to do battery swapping?

Yes, we are opening up the battery pack used by Massive Market Brand as a standard battery pack to other car companies. They will develop their models based on our electronic bag. They need to modify the chassis and the car. Actually, we have shared the battery spikes and also the design details of our battery packs for the mass market brand to our battery swap partners. And they will need to

design and engineer their vehicle products, mainly chassis interfaces, following our battery standards. It will take some time for them to decide on the right models and complete the product R&D. But the overall investment and R&D expenses for developing such new models based on our battery standards won't be very high.

Got it. Thank you. Thank you.

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

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

Thank you. Thank you. you Bye. Thank you.

Hello, ladies and gentlemen. Thank you for standing by for NIO Incorporated's third quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Mr. Ray Chen, Head of Investor Relations of the company. Please go ahead, Ray.

Good morning and good evening, everyone. Welcome to NIO's third quarter 2023 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website. On today's call, we have Mr. William Lee, founder, chairman, and CEO, Ms. Stephen Fong, our CFO, and Ms. Danny Chu, Senior VP of Finance. 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 US Securities and Exchange Commission, the Stock Exchange of Hong Kong Limited, and the Singapore Exchange Securities Trading Limited. The company does not assume any obligation to update 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 GAAP financial information, as well as unaudited non-GAAP financial measures. Please refer to Neil's press release, which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. With that, I will now turn the call over to our CEO, Mr. William Li. William, please go ahead.

Hello everyone, thank you for joining NEOS 2023 Q3 Earnings Call. In the third quarter of 2023, by making the most of a complete product lineup on the NT2 platform, the improvement of overall sales capacity and capability

as well as the continuous expansion of self, service, and power networks. NIO delivered a total of 55,432 premium smart electric vehicles, up 75.4% year-over-year. The retail stat from Qatar showed that in Q3, NIO ranked first in China's BEV segment with an average transaction price of over RMB 300,000. with market share above 45% in the segment.

With market share above 45% in the segment, In September, NIO launched and delivered the all-new EC6, a mid-size coupe SUV upgraded to the second generation. It also marked the completion of NIO's product lineup on the NT2.0 platform.

In Q4, as price war deepens and competition gets tighter for smart EVs, NIO delivered a total of 32,033 vehicles in October and November, up 32.2% from last year, while maintaining our prices stable. In Q4, the total deliveries are expected to be between 47,000 to 49,000. 公司将专注于销售策略的执行和运营效率的提升。 未来NT2平台车型的产品竞争力将在明年进一步释放。 Going forward, we will stay focused on executing sales strategies and improving operational efficiency. We believe the competitiveness of NIO's second-generation products will be further unleashed next year. 财务表现方面受益于高售价车型占比提升,零部件成本下降,交付量增长带来的规模效应, In terms of news financial performance, attributed to the increased sales mix for higher-priced models, decreased parts costs, and improved economies of scale enabled by more deliveries, combined with the refined management of sales policies, the vehicle margin in the third quarter reached 11%.

Next, I would like to share with you the recent highlights of our products, R&D, and operations.

On September 21st, NIO held NIO-IN, NIO's Innovation and Technology Day. At the event, NIO's 12 full-stack technology capabilities covering the holistic business scenarios for smart EVs from multiple brands and platforms were introduced to the public for the first time. In the meantime, NIO also unveiled China's first vehicle operating system, SkyOS, and the in-house developed LiDAR SoC named Yangjian, demonstrating NIO's systematic R&D capabilities leading the industry.

智能驾驶方面,未来持续进行系统能力的快速迭代, 11月15日我们推出了高速服务区领航换电功能PSP的Beta, 目前全国累计29座高速换电站已经支持PSP, PSP无缝连接NOP Plus并且深度融合未来换电体验,实现了高速换电场景的全流程自动化和全程的领航体验。 Regarding assisted and intelligent driving, NIO has been quickly iterating the system capabilities.

On November 15th, PowerSwap Pilot for Highway Beta was released in China. So far, 29 PowerSwap stations on highways already support this feature. PSP seamlessly combines NOP Plus and PowerSwap, bringing new users a hassle-free highway driving and battery swapping experience that is automated and intelligent from end to end.

同时,增强领航辅助NOP Plus从高速进入城区, 为用户提供全域通行的点到点智能驾驶体验。 我们基于通用方法能力, 以用户领航心愿单的热力为参考, to open the route, share the route, and connect to the city network. In November, we will start the functional experience of NLP Plus, which strengthens the navigation support of the city. Currently, in some major cities in the future, the use of NLP Plus has opened up the full range of navigation support for先锋 users. The number of routes covering and reaching the city is increasing rapidly, which has greatly exceeded the goals proposed by the Innovation Technology Day. In the upcoming Smart Carrier Communication Meeting,

In the meantime, Neil has rolled out the NLP Plus for urban traffic, providing users with uninterrupted driving experience from point A to point B, both on highways and on city streets. Enabled by Neil's generalization capability in-house and taking into consideration the high demand roads on users' wish lists, we've started to roll out NLP Plus for cities. route by route from November, and will gradually realize wider coverage. At present, the NLP Plus has been released to early bird users in several major cities and is quickly becoming available for more routes and in more cities, which has far surpassed the target announced at new in. At our upcoming NAD communication event, we will be sharing more information about that. 销售和服务网络方面,截至目前,

In terms of the sales and service network, so far we have 468 new house, new space, and pop-up stores in 152 cities, as well as 314 service centers

and 62 delivery centers in 217 cities. As for the charging and swapping network, To date, we have installed 2,226 power swap stations, over 9,400 power chargers, and over 11,000 destination chargers worldwide. More than 1.46 million public chargers have been connected with NEOS charging map.

This is the most reliable way for future users. The future energy cloud and the future power exchange network will open up to the industry. In November, the future and Chang'an Motor Co., Ltd. signed a power exchange cooperation agreement. In the future, we will work together with more industry partners in the field of power exchange battery standard, power exchange network, power exchange vehicle development, and battery asset management. to provide more smart electric car users with a charging experience that can be charged, changed, and upgraded, and to promote the development and development of the charging mode.

NIO's long-tested and well-proven battery swapping system has offered over 32 million convenient, efficient, and safe battery swaps to new users, making PowerSwap the most trusted recharging solution for them. NIO PowerCloud and NIO's PowerSwap network have been opened to the entire industry. In November, NIO partnered with Chang'an Automobile and Geely Holding, respectively, on battery swapping. In the future, NIO will join hands with more industry partners in such areas as formulation of swappable battery standards, battery swap network, R&D of battery swapping vehicles, and the management of battery assets, so as to provide the holistic, chargeable, swappable, and upgradable solution to more smart EV users, and jointly contribute to the development and wider adoption of battery swap.

New Day

News Grand Annual Gatherings with Users will be held on December 23rd in Xi'an, Shaanxi Province. This year, we will unveil a brand new flagship model, a real epitome of news innovative technologies. This product will become a technology benchmark for smart EVs and a trendsetter of the smart EV technologies worldwide. 九月二十六日未来凭借电动汽车换电关键技术

On September 26, with contributions to shaping a low-carbon industry with innovative EV battery swapping,

NIO received the Green Innovation Award of the 2023 Poulsen Prize for Sustainability. This award is a recognition of the novelty and expandabilities, as well as the economic and environmental benefits of NIO's battery-swapping technology and business model.

On November 8, 2023, NIO will officially open a series of competition events in Hefei, China, and will be closed on November 12. Since 2015, The 2023 NIO Cup Formula Student China, a racing car design competition for college students, was held from November 8th to November 12th in Hefei. NIO has been sponsoring and supporting the competition since 2015.

So far, Formula Student China has cultivated more than 40,000 young professionals for China's automotive industry, becoming one of the most important cradles of young automotive talent in China.

In order to ensure that core key technology continues to be invested, sales service capability can deal with intense market competition, under the premise that three brands, nine core products are expected to be listed, we will continue to change the internal work flow and division, focusing on the project investment that can improve the company's financial performance, and fully improve the efficiency of organization and resource use. We are full of confidence in the long-term competitiveness of the future in the field of smart electric vehicles.

The next two years will see the most intense competition during the transformation of the automotive industry. Faced with massive uncertainty in the external environment, recently we've sorted through and adjusted our key objectives, priorities, and action plans to become more focused on efficient execution and improvement of system capabilities. While ensuring long-term investment in core technologies, strong sales and service capabilities to navigate the intense market competition and on-time release of the nine core products from the three brands. We will continuously optimize internal working processes and the division of roles and responsibilities, stay focused on projects that can contribute to the company's financial performance, and comprehensively improve organizational efficiency and resource utilization. We are very confident of NIO's long-term competitiveness in the smart EV industry. 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 third quarter. Over to you, Stephen.

Thank you, William. I will now go over our key financial results for the third 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 earliest press release, which is posted online for additional details. Our total revenues in the third quarter were 19.1 billion RMB, representing an increase of 46.6% year-over-year and an increase of $106. 17.4% quarter-over-quarter. Our total revenues are made of two parts, vehicle sales and other sales. Vehicle sales in the third quarter were 17.4 billion RMB, representing an increase of 45.9% year-over-year and 142.3% quarter-over-quarter. The increase in vehicle sales year-over-year and quarter-over-quarter was mainly attributable to higher vehicle deliveries. Other sales in the third quarter were 1.7 billion RMB, representing increase of 55% year over year and increase of 4.5% quarter over quarter. Gross margin in the third quarter of 2003 was 8%, compared with 13.3% in the third quarter of 2002 and 1% in the second quarter of 2023. The changes of gross margin year-over-year and quarter-of-quarter was mainly attributable to the changes of vehicle margin. More specifically, vehicle margin in the third quarter was 11%, compared with 16.4% in the third quarter of 2022 and 6.2% in the second quarter of 2023. The decrease in vehicle margin year-over-year was mainly attributable to changes in product mix, partially offset by the decreased battery cost per unit. The increase in vehicle margin quarter-over-quarter was mainly due to changes in product mix, as well as decreased promotion. R&D expenses in third quarter were 3 billion RMB, representing an increase of 3.2 percent year-over-year and a decrease of 9.1% quarter of quarter. The slight increase in research and development expenses year over year was mainly attributable to increased personal costs in research and development functions, partially offset by the decreased design and development costs and deduction of expenses due to support for technology advancement provided by local government authorities during the third quarter of 2023. The decrease in research and development on expenses quarter to quarter was mainly due to the support for technology advancement provided by local government authorities during the third quarter of 2023. As general expenses in the third quarter were 3.6 billion RMB, which is an increase of 33.1% year-over-year, an increase of 26.3% quarter-of-quarter. Last, for operations in the third quarter was 4.8 billion RMB, representing an increase of 25.2% year-over-year, and a decrease of 23% quarter-of-quarter. Last, in the third quarter was 4.6 billion RMB, representing an increase of 10.8% year-over-year, and a decrease of 24.8% quarter-of-quarter. Our balance of cash and cash equivalents, restricted cash, short-term investment, and long-term time deposits was 45.2 billion RMB as of September 30, 2023. Now, this concludes our prepared remarks. I will now turn the call over to the operator to proceed 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 2. If you are on a speakerphone, 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 comes from Tim Sauer with Morgan Stanley. Please go ahead.

Thank you very much for taking my questions. I actually have two parts of the questions.

The first one is about the battery swapping. Because Anil has just mentioned for the expanded strategic alliance, in battery swapping from previous partner like Sinopat to Chang'an and GD. Could you share a little bit more about your plans of how to structure the new alliance of battery swapping and the potential financial impact like your CapEx and operating loss? So in the long term, will you consider to spin off the battery swapping business and operate it independently or even go public as a standalone third-party battery swapping? or utility operator? So that's my first question.

Thank you, Tim.

We recently announced our strategic cooperation with Chang'an and Geely. From the perspective of NEAR, look at the SWAP Station Network. We always think it is very similar to the cloud service infrastructure. This is a very strong network effect. There is a long-term investment construction. At the same time, we must first fully verify and prove that it is in line with the needs of the user, and then start to open up to the outside world. So after more than five years of actual operation, we believe that we can now open up to the outside world. We already have the ability to open up.

Thank you, Tim, for your question. Yes, recently we have announced the cooperation agreements with both Chang'an and the Gili on the battery swapping. And in terms of the battery swap network, the way we look at it is a bit similar to the cloud service or the cloud infrastructure. Both power swap stations and the cloud infrastructure require and rely on the network effect. Both can have a pretty long investment cycle. And both are actually started with the internal services first, and after sufficient validations and verifying the demands and the fulfillment for our users' needs, we will then open up the service to the public. So after five years of validation and internal services, we believe that we are ready to provide such network and service to the industry, and it's about time to open up the network to the industry. 当然,在说到换电的时候,我们一直说它有非常多的优势,

uh standard package standard uh

And as we all know that there are quite a lot of benefits with PowerSwap. It is faster than charging, and also it has better user experience. It also brings values and benefits to users and also the society. Especially in China, many users living in the urban environments or compound and apartments do not have a home charger. In fact, actually, more than 50% of our users cannot install a charger at home. In this case, BetterSwap becomes even more important and convenient for those users who do not have home chargers. This is also very important for the mass market brand because Neo is, after all, a premium brand, and many of our users can still have chargers at home But for the mass market brands, the percentage of not being able to having the home chargers will be higher. That's why when we started to share our battery design standards and also specifications for the mass market brand to the industry peers, many of them are very interested in this alliance. We have already announced two agreements, and there are several more that are still in negotiation. as they also believe that with NIO's current battery swap technologies, service standards, and also service network, this is what they need for their products as well as for their users.

但我们相信换电的business长期来说肯定是一个可以持续, 也有非常好的盈利能力的这样一个business。 这个我们是经过我们实际的运营,我们已经充分的相信这一点。 Uh, uh, uh, uh, In terms of NEO Power itself, our charging business is basically break-even, because more than 80% of our electricity is used by users outside of NEO, brand users. We believe that in the long term, this swap service can also be profitable. In some areas, we have already seen such a profitable fact. Of course, some investors

And also, in terms of the business model for the power swap, we believe that it is sustainable both from the business perspective as well as from the finance perspective. Especially after five years of operations and validation, we have confidence in the sustainability of battery swaps. In terms of our battery swap network, as we will continue to expand our power swap network, there will be CAPEX also relevant to such network development. But in the meantime, we are also looking for approaches where we may introduce partners into our power swap network. Basically, they will buy the battery swap station as a product from us, and then they will install the stations and hand it over to us for the operations. In this case, they will be beholding this battery asset for us There are a thousand of stations already running based on this business model. So for the longer term, we will also be looking for partners holding the battery swap station assets. In terms of the new power charging service, itself is already almost breaking even. As you may know that 80% of our power was charged for the non-new users. So for the longer term, new power charging will also be a profitable business. Actually, in certain areas and with certain charging stations, The operations with certain swap stations, the operations is already profitable. This is also, in terms of spinning of the power swap stations, there are some investors showing their interest into having power swap or power swap business as an independent business. We are also in conversation with them.

Yeah. Okay. Thanks, Tim. Your next question?

Sure. Sure. Thank you, Alan, for sharing all the details. So my next question is about the car manufacturing because as you just mentioned, NIO announced to acquire the production facility from JAC. So first, does that mean NIO has been granted the manufacturing license? In the meantime, I think that means NIO officially shifted from the asset-like business model to asset-happy. So in the near term, how should we think about the unit cost vehicle manufacturing from fourth quarter onwards. So I think previously we provided vehicle margin guidance for 50% for December quarter. And in the long term, do you still think that the full step in-house development, production, and direct to vehicle sales without relying on dealers would be the most ideal model for both NIO and Albus, the mass market brand, or if there will be any major difference? That's my second question. Thank you.

Steven will answer this question.

Okay.

So the question about the manufacturing, time manufacturing. During this acquisition, the manufacturing agreements between NIO and JSC are still performed, are stipulated. And the production activities of the models in the corporation are going on normally. Going forward, if there is any change to the manufacturing corporation with regards to risk models between NIO and JC or other situations that constitute significant information after this acquisition or in the future, NIO will communicate with and disclose the capital market in a timely manner, comply with the risk laws and regulations and the rules for listed companies.

And also to add on to Stephen's comment, if we bring the entire manufacturing fully in-house, overall speaking, our manufacturing cost will be reduced by around 10%.

Great. Thanks very much, William and Stephen, for the details.

Thank you. Thanks a lot.

Our next question comes from Nick with J.P. Morgan. Please go ahead.

Hello, everyone. I have two simple questions.

First, William just mentioned that we have some recent adjustments to increase the efficiency of organizations. My first simple question is really about NIRS plan to increase or enhance operation efficiency, and we allocate our resource to more important priorities. So if you can give us some example and elaborate a bit more on this initiative. Thank you, Nick.

Thank you Nick. Specifically, in terms of projects, we have a more basic principle, which is to invest in projects that cannot improve the financial performance of the company in three years. For example, projects that cannot improve labor or P&L performance cannot be invested. We all cut or deduct. For example, for example, battery self-sufficiency. If we evaluate it, We believe that in terms of our own production of batteries, we can't see that we can improve our efficiency in three years. So we chose some other methods. We will also develop this battery, we will also develop this material, we will also develop this pack. But we will ask others to produce it in this way. For example, these adjustments are very...

In this round of organizational optimizations, we have identified several principles. Because over the years of development, we have some low efficiency positions and jobs, and also some duplicated roles and responsibilities. In this case, we have identified these low efficiencies or redundancies in the organization. We've improved the processes of lower efficiencies, and we've also eliminated jobs and positions that are duplicated or are of low efficiencies. And also, in terms of the projects deferred or terminated, basically, we look at the projects and their financial contributions. If they cannot bring any financial contribution in the coming three years, we will be thinking about deferring them or terminating them. For example, if they cannot contribute to the growth margin or the P&L, they may need to be deferred or reconsidered. A quick example is regarding the in-house manufacturing of our batteries. We've identified that in the coming three years, bringing battery production in-house will not help us with the growth margin improvement. In this case, we have decided to defer the plan. We will still continue to do the in-house R&D of battery cells, battery materials, and the battery packs. But we will outsource the manufacturing of the battery packs for better overall efficiency and performance. So for this round of optimization, we've done a detailed and thorough review and adjustments, and also made necessary adjustments based on the needs of the business and the resources of the entire company.

Of course, we think that in the next two years, we will continue to invest in our core key technologies to ensure that we are ahead of technology and products. I also mentioned that we will release a new flagship model on the New Day this year. There are many of these technologies that I believe are leading the world. We will continue to maintain such a leading advantage in technology. But the second high priority is our sales and service network. We have added sales personnel and added some sales network points. Of course, these sales will become sales. It still takes some time. Of course, if we also see that in such a fierce competition now, if we do not expand our sales network, then this is not enough for us to deal with market competition. China China China China China We have a very long way to go. The gap between us and Benz and BMW is still very large. So we will continue to expand sales and service networks. This will give us a continued increase in sales to increase opportunities. So I want to emphasize that we are now in Jiangsu, Zhejiang, Shanghai. Three places account for more than 50% of our national sales. This, of course, on the one hand, shows that our products can be recognized in competitive markets. On the other hand, it is also a problem that shows that we still have a very big task to establish our sales and service network in some broader markets in China. Of course, the last one is to ensure that our third high-end level will ensure that our three brands and nine core products will be on the market as scheduled. Of course, there are many investments in the process. These products will gradually meet with everyone in the near future.

But in the meantime, we will still make sure that we don't miss our focus or dilute our investment resources for the high priority items for the coming two years. The first is the long-term investment for the core technologies so that we can still keep leading in terms of the products and the technologies. As I've mentioned earlier today, at the new day 2023, we are going to unveil a brand new flagship model And this car will be equipped with a lot of state-of-the-art technologies that are leading the entire automotive industry. And our second priority is the continuous development of our sales and service networks. Recently, we have enlarged the sales teams. We have also increased the number of the point of sales so that we can get ready for the more intense competition in the coming two years. Because if we don't make such preparation, we will not be navigating the intense competition. An example is that in October in Shanghai, our sales volume has outnumbered that of BMW and Mercedes running on all power sources, including ICE cars as well as EVs. And in cities from Jiangsu or Zhejiang provinces, we are also establishing a pretty solid foothold with a pretty significant market share. But when it comes to lower tier cities like fourth tier or fifth tier cities, we still have a long way to go. Or in cities where the EV infrastructure is not yet ready, we are also not outperforming those well-established brands. In this case, we need to continue to develop our sales and service networks. In terms of our sales performance in Zhejiang, Jiangsu, and Shanghai, actually 50% of our sales volume is contributed by the sales in these three areas. On the one hand, it shows that our products are well recognized in the highly competitive markets in these three places. On the other hand, it also means that we need to further enhance our brand awareness in the lower tier cities. And the third priority in the coming two years is to secure the on-time release of our nine core products from the third brand. We have already made investments and the products of this third brand will be coming into the market very quickly in the coming two years.

Thank you, Nick.

Okay, thank you. Very clear. My question is also relatively simple. In this industry, there are more customer concerns. The problem is that we are in sales and profit. How to choose in the middle? At the beginning of the call, it was mentioned that the market share this year is 47,000 to 49,000 units. The goal in the middle is to maintain a better price. The balance or the choice between sales volume and margin. And how should we consider these two factors when it comes to the market competition? And are we still maintaining 50% of vehicle GP margin in 4Q and a long-term target of, let's say, 20% to 22% of vehicle GP margin, sometimes to 24 or beyond? Thanks.

Yeah. Yeah.

We will keep the price stable. From the third quarter to now, when we made a user transfer adjustment in June, this adjustment, the old users can accept it, and the new users are very happy. So we estimate that it is the only price adjustment in the world. New users and old users feel happy about one thing, or they all feel happy. I think it's a good thing. After that, we kept the price stable. We think this is very important for the user's interest and for the brand. In the fourth quarter, of course, we saw the price drop further. We saw that even in the premium market, our competitors, such as Mercedes-Benz and BMW, they have a lot of models. especially electric vehicles, have a price drop of more than 30%, more than 31%. We still maintain a stable price. I think this is very important. This can also reflect on our increase in horsepower. So our strategy on NIO Brand, our thinking is to maintain a stable price and continue to increase the horsepower rate. On this basis, Through the improvement of sales and service system performance and the improvement of sales efficiency, we will maintain some patience. We will not use the way of lowering the price to exchange for sales. We think it is unhealthy in the long run. So, to be specific, Sanli can also talk about some of the growth of毛利 later.

Our strategy for the third quarter is pretty clear. That is to keep our prices stable. Earlier this year in June, we have adjusted our user benefits. Actually, both our existing users and the new users were accepting this adjustment pretty well. So we may be the only company able to satisfy both existing users and the new users with a benefit adjustment. And since then, we have been keeping a pretty stable price strategy, as we believe that it is beneficial to our brand image and also product competitiveness. And also users' experience and benefits. As going into Q4, the price worth deepens. The competition also gets more fierce. For many well-established brands, like our competitors BMW and Mercedes, they are also slashing prices pretty aggressively today. Even on their EV models, the price reduction can be as high as 31%. But we still keep a pretty stable price amid this fierce competition. These stable prices also are reflected in our improved vehicle margin. So our longer-term strategy will be keeping our price stable while continuously improving our vehicle margin. In the meantime, we will also improve our sales capacity, capability, and efficiency so that we can bolster our sales volume. But this can take time, and we will be staying patient. We will not realize or boost our sales volume at the cost of our product margin, as this is not healthy for the longer run. Maybe Stanley can also add more information regarding the specific financial numbers.

Hi, Anique. Our weekly gross profit margin is 11 for Q3, and we are confident to achieve a higher margin in Q4, considering more production efficiency, lower price of lithium carbonate, and also decreased part cost. Our target is also still kept at 15% for Q4. And from long run, as an important project internally, We have started to further improve our cost structure for NT2 products by optimizing design, improving supply chain and production efficiency, and also business negotiation with our partners. As mentioned by William, our new brand keeps focus on premium market segment, and we will keep product prices relatively stable. So combine all those factors together, we believe Our vehicle margin can be further increased to 15% to 18% in 2024. That's the general guidance for vehicle margin. Thank you.

And also, looking at our previous vehicle margin history, before the crisis of the lithium carbonate spike, we actually managed to realize a vehicle margin as good as 21%. So for a much longer term, we will also target as well like a vehicle margin of about 20%.

Thank you.

Okay. Thank you.

Our next question comes from Yu Qionding with HSBC. Please go ahead.

Thanks, Kim. This is Yuqian here. I've got two questions. Maybe we wrote it one by one. The first one is on the cash position. We noticed the cash balance increasing quarter on quarter. Other than the strategic investment and the convertible bond, there is also still a $1 billion increase. Does that come from the improving operations? Can you shed a little bit more light on that?

Hi, Yuchen, this is Danny. In fact, the new product delivery wrap-up in Q3, we achieved a positive operating cash flow. Yeah, going forward, if our sales continue to grow, we are confident to realize a healthy operating cash flow. So that's for your first question. Yes.

Okay, got it. Thank you. The second question is on the OPEC reduction. Thanks for William's sharing on optimizing the battery business. We also read there is also a headcount cut. Could you share more on whether there will be asset write-offs during the process of the cost optimization and when we would expect us to reach a lean yet sustainable shape?

Yeah, hi. About the cost optimization, yeah. We reduced 10% of working positions and completed the adjustment in November. But for Q4, there will be almost no financial impact since we need to pay additional compensation for the employees who left the company, offset with less payroll costs. But for next year, together with the haircut reductions, We also delayed or canceled a certain project, as mentioned by William. So the total impact to 2024 will be saving of total cost around 2 billion RMB.

Yeah.

Yeah, around $200 million.

Yes, this round of optimization has helped us to improve the financial performance slightly over our previous budget. However, we do need to have some one-time expenses due to the severance package for the terminated employees.

Got it. Thanks, William and Stanley.

Our next question comes from Ming Sun Lee with Bank of America. Please go ahead.

Hello, William, and management. Thank you for taking my question. My first question is regarding your second brand, Alpas, in 2024. In the future, will you consider to share the charging station and the battery stop station along with the new brand, and also, Will you also consider to share the sales channel with NIO Brand? Thank you.

Thank you, Mim. Yes, our second brand's first car, we have recently completed the VB car's status. The status should be very good. It is the best VB car in our history. So we are very confident about the competitiveness of this car. But we still have enough time to continue to optimize and improve. Our new brand, our exchange network will have a special network, NIO's special network and shared network. So next year we will build this shared network. So this shared network, NIO's users can use it. Then ARPS users can also use it, and it will be open to the third party. So when it comes to charging, it has always been open to us. Now it is already open. Sales will be separate. We will not use the store. But we will use part of the service network, this service center. So basically this is one of our directions.

Yes, when it comes to our mass market brand codenamed Alps, actually recently we have just had the very first validation build of this brand, a road of the production line. Actually, the condition of this verification build is pretty good. It can be maybe one of the best VB cars we have in the history. of NIO, so we are very confident in the competitiveness of this project. And before the official launch and the delivery, we still have time to continue to optimize and improve the project. In terms of our power swap and the charging network strategy, for NIO, our battery swap network will be coming in two parts. The first is the exclusive network for NIO and NIO users, and the second will be a shared network not only for new users, but also for ELPS users and other brands with swappable vehicles. In terms of the charging network, we've been sharing our chargers already to many non-NEO brands. In terms of the sales network, this will be separated. So they will have their own sales stores, but we will be sharing the service capacities and the facilities. So service centers will be shared between NEO and ELPS.

Thank you, William. Thank you. So my second question regarding your 2024 product, because this year you already update all of your new models and also launch some new models. So in 2024, will you have some facelifted version of the existing model and start to use 800-voltage charging system on your car?

So in this case, do you have any

guidance about the battery stop station you will expect. Thank you.

Yeah.

There won't be any major changes. There will be some minor changes. In terms of Huanlian Station itself, we have now initially established this network. Next, as I mentioned earlier, we will build this public network. We will start to build this shared network. On the other hand, we will add some more networks according to the needs of NEO users. We will continue to build them.

Yes, it's a common standard and the practices for the automotive industry to have model years or phase leaps. But for our NT2 products, we will not have any major modifications or upgrades as many of them were just newly launched or delivered to the market. To stabilize our quality and the supply chain, we will only make minor improvements and upgrades on our NT2 projects. In terms of our plan for the power swap stations in 2024, as I've mentioned, we will be not only building our exclusive battery swap network, but also a battery swap network for sharing. On the one hand, we will build this power swap network for other brands, or that can be shared with other brands. In the meantime, we will also continue to be looking at the demand of our new users so that if there are any requirements or high-demand stations or locations, we will also install stations there. But we are still working on the specific plans and the numbers.

Thank you. Thank you, William.

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

Hi, thanks. Thanks for taking my question. My first question is regarding your sales force, sales team. I think in last quarter's earnings, you mentioned that you are going to significantly increase your sales people's headcount. May I double check how this has been proceeding at this moment? Have you achieved your original target of expanding sales team or have you adjusted your original plan?

Thank you, Paul. From now on, our sales consultant has more than 5,000 people.

Currently, it's about 5,700 people. But most of them have just joined the company within a few months. More than 3,000 people have just joined the company recently. So they need some time to develop their sales capabilities. Because the first half of the month before we join the company, we mostly use it for training. China China China China China China China At present, for our frontline fellows, we have a team of around 5,700 persons, but many of them were just newly on board.

Around 3,300 of them were newly on board into the company. And it still takes some time for them to really get to know the brands and also get familiar with the entire sales processes. Because for the newly hired fellows, we will spend around one month and a half on the trainings. And afterwards, they can start to sell vehicles to our users. According to our history data, a seasoned fellow on average will need to spend around six months to be familiar with the brand and the processes and will be becoming a real sales force for the company. So we need to stay patient with these newly hired fellows, as many of them just joined the company in September and October. But in the meantime, we were also completing and improving our assessment and evaluation systems our training systems, we will also bring these fellows more efficient tools so that they can really make full use of their self-capacity and capability.

Thanks. My second question is regarding the R&D spending. I think this quarter you had about $300 million quarter-over-quarter decline on the R&D, and the explanation is some incentives from the local governments May I quantify that number? And more importantly, going forward, what would be your projected quarterly R&D spending?

There are some slight decreases considering some support we received from the local authorities. But on the long run, as we mentioned during the past also earnings core, our non-GAAP R&D investments per quarter will also be kept at RMB 3 to 3.5 billion. We, as also mentioned by William in previous statement, we will also, we will ensure investment in core technologies and also the The advantages of technology and product guarantee the timely launch of the new product. So the investment on R&D will not decrease. There will be a slight fluctuation across different quarters. Thank you, Paul.

Thank you. That's very helpful. Thank you.

Our next question comes from Changing with CICC. Please go ahead.

Okay, thank you for the introduction. I have two questions here. First of all, the first one is about driving. We have started to open the route of the transit line from September. We still want to do this through the way of community intelligence. The function of the city ONA is to expand. It's different from other vehicles. Can you introduce some ideas about the landing of our city ONA function? And then in terms of goals, it also shows that by the end of this year, the journey of the accumulation of cities can reach 60,000 kilometers to be opened. Then next year, 2Q may reach 400,000 kilometers or a faster growth. I want to ask how the current progress is. So my first question is regarding to autonomous driving. We have already opened the submission of wish list in September. So relying on group intelligence, we try to expand the function, NOA function in MAP cities, which is a little bit different from other OEMs. They open up city by city. So could you please introduce our ideas on the implementation of NOA function in this area? And also, what's our, again, our target of the cumulative mileage of 60,000 kilometers by the end of this year.

So how is our current progress?

Thank you, Changjing. From NEO's point of view, our NOP in the city NLP Plus is based on the ability to let go, and then to open the path. We have established a data-saving production model based on the ability to let go, and then to open the path. From the current point of view, it should be said that this progress exceeds our expectations. So it must be able to exceed the 60,000 kilometers of mileage we said on Near In. In fact, as of now, we should say that we have more than 100 cities to carry out this kind of ability to use such an ability to open this open test for先锋用户开放测试的使用了近期我们会非常这个逐步的去邀请用户进行这样一个试用当然这个从城区的领航辅助的角度来讲我们也看到了很多的 We have some marketing statements from our colleagues. We believe that the navigation service in the city is still a very serious service. We will go step by step to ensure that the user experience and safety will be in place. What I can say is that the current progress of data security, the development of community intelligence according to the route, In terms of news, NLP Plus for cities, actually we leverage our generalization capabilities as well as the cloud-sourcing AI capabilities so that we can roll out

this NLP route by route for our users based on their demand. Of course, in the meantime, we have also formulated the data closed-loop capabilities where we can really leverage all this data coming from the generalization and also called AI. At the new in, we have announced that by end of this year, we are going to open up the routes covering around 60,000 kilometers of mileage. And so far, our progress is pretty good. And we already have established the capabilities of releasing NLP Plus for early bird users in more than 100 cities. And we will be rolling out such a service and invite our users into the program step by step so that it can be covering more cities with more users regularly. Of course, in terms of city-based or road-based programs, Alternative Thriving, or NOP, will be some of our peers. They have some marketing slogans regarding their services. But we believe that NOP+, especially NOP+, for cities, is a pretty serious service. And we would like to make sure that our users have a safe and also good experience. And then we will roll out the service and its coverage step by step. But overall speaking, our progress has far surpassed our expectations. And after all, we already have more than 100,000 vehicles running on the road. This will also help us to further formulate and improve our data culture.

我想强调的就是我们现在我们所有NTR的车,每一辆车都是标配了我们CircleRing的芯片, 再加上我们30多个传感器,所有的车都是一样的配置。 Especially for every new NT2 vehicle, it is standard with four O-ring chips and also 33 high-performance sensors.

This will further help us to formulate the data closed loop and improve the data capabilities, and in return, we will also accelerate the capabilities for iteration. This is also a very unique advantage of new, which is quite different from any other competitors offering the similar service.

Okay, thank you. And then my second question. The second question is about the overseas market. Is this still one of our strategic centers? Can you briefly introduce the operation situation of our overseas market this year, 2023, including our current sales scale, core area, channel, and infrastructure construction? So my second question is regarding to overseas market, will it still be one of our strategic focus? Could you please introduce the current operation situation of our overseas market this year regarding to our sales volume, our layout program of our co-regions and

also about the dealerships and the infrastructure, and also our next year's target and plan.

Yeah.

We have opened six new houses in five European countries, eight future spaces, two multi-functional service centers, and 54 collection service centers. Of course, we have about 30 more. At the moment in five European countries we have opened six new houses, eight new spaces,

two multifunction service centers, and also partnered with 54 authorized service centers. We have also installed 30 power swap stations in five European countries. But in terms of our business development in Europe, we're still at the early stage of the business development and expansion. We want to continue to test the water, ensure we have good user experience before we scale our operations and the business there. That's why volume is not a priority for us in terms of our European business. And in the coming one year, we will continue to be staying at this stage. We will make sure that our capability and capacity are sufficient to serve our users in Europe before we start to work on a higher scale.

Thank you.

Our next question comes from Jason Goetz with Missouri Securities USA. Please go ahead.

Hi, guys. Thanks for letting me ask the question. You talked a couple months back about 20,000 vehicles a month in December. We're running a little bit below that now. What have been the biggest headwinds there? Has it been some production challenges, maybe broader macro weakness? And then what would it take to get to that 20,000 units, and how should we think about the run rate moving through 2024 with the new sales force?

OK, if we look at the share of our high-end pure electricity market, for example, we have a market share of more than 300,000. Our market share in Q3 this year is at 45. We have basically remained at more than 40. What does that mean? In fact, in the high-end pure electricity market, the share has always been very stable. And this has always maintained a relatively high proportion. From another perspective, we think that in the high-end users, it is necessary to turn it into users from oil cars to electric cars. If you suddenly turn to electric cars, it is indeed difficult. Maybe it will be easier to convert more than 100,000 cars into 200,000 cars, because more Korean companies will pay more attention to the cost of use. For high-end users, there are more things to consider. We have to be patient with this. On the other hand, I mentioned the problem of basic facilities earlier. If we look at the three Shanghai, Jiangsu, Zhejiang, and Changsha corners, Our sales have actually exceeded the same price in many cities, such as BMW, Mercedes, Audi, etc. But we also see that in this area, for example, in three provinces, we have more than 700 exchange stations. So the infrastructure is still very effective in promoting sales. Of course, in the whole country, we now have more than 2,000 exchange stations, and nearly 700 are on the highway. In many areas, the coverage is still not enough. So the infrastructure is also a limitation for the broader market users. So these two points, I think, are the two main difficulties at present. One is the psychological purchase of high-end users. The other is the infrastructure in broader areas. In the past two years, we believe that the trend will increase. In fact, in the past two years, it was more in the massive market. In the past two years, we believe that the trend of the high-end market to turn to pure electricity will increase. We also saw that some of our peers have also launched products that they used to only do genuine products, and now they are also starting to launch products that are pure electricity. This will accelerate the process of traditional oil users turning to pure electricity. because other forms of power are excessive. This is something we are very happy to see. Another thing is the construction of infrastructure. More and more people are starting to build superchargers. Of course, we will also build power stations. I think this will also promote the penetration rate of power users. Overall, I think that in 2024 and 2023, it will be better for us. In addition, we do not need to deal with the frequent switching of products in 2024.

Thank you for your questions. As we've mentioned earlier today, in the premium battery electric vehicle segment priced over RMB 300,000, NIO has realized a 45% market share in the third quarter of this year. Actually, our market share in this segment has been pretty stable, around 40%. So this has proven that we have a relatively solid foothold in the premium BEV segment. We have a pretty significant, also stable market share already established in the segment. But when it comes to convincing users of premium ICE cars of buying a premium EV, it is actually more difficult than convincing a mass market user. Because for the mass market users buying a car of 100,000 or 200,000 RMBs, they pay attention to the ownership cost and also the usage cost of the product. But for the users of premium electric vehicles, they pay more attention to other factors. And the second reason that may be affecting the wider adoption of the premium BEV is regarding the coverage of infrastructure. As I've also shared in the Yangtze River Delta areas, mainly Shanghai, Jiangsu, and Zhejiang, We have a pretty significant market share. Our south volume has outnumbered that of BMW, Audi, and Mercedes with their ICE car sales. A very important reason behind is because we have 700 power swap stations already established in this area. So infrastructure is also playing a very important role in boosting the south volume and the adoption of electric vehicles. So far in China, we have already installed over 2,000 power swap stations, but roughly 700 of them are along the highways. In some regions and areas, our power swap stations are still not widely accessible. In this case, we will need to also speed up and enhance our infrastructure coverage so that we can further boost the water adoption of electric vehicles. So basically, two main reasons. The first is regarding the consumption habits of the premium vehicle users and the second is mainly because of the coverage of the infrastructures for electric vehicles. But we believe that this trend convincing ICAE users of buying EVs where this overall trend of transforming into battery electric vehicles will be picking up its speed because we also find that some of our peers and competitors before they only had hybrid vehicles or range extended vehicles but now they're also launching their battery electric vehicles. Such strategy will also push the transformation of the entire industry, so we are actually happy to see such transformation. And also, many car companies are now also installing and expanding their charging network, and NIO is working on our battery swap network. With wider infrastructure, we will also boost the adoption of the battery electric vehicles. So overall speaking, we believe that 2024 will be better off than in 2023, because in 2024, we will also be having a more stable product portfolio without frequent product launch and delivery, which has also slightly disturbed our overall execution.

Got it. Thanks. And then quick follow-up. On the battery swap partnership side, is there any kind of design changes that your partners would have to do to their vehicles in order for them to use the swap stations? And if so, have you guys talked about what percent of mix of vehicles they produce might need to be kind of changed or edited in the production process in order to do battery swapping?

Yes, we are opening up the battery pack used by Massive Market Brand as a standard battery pack to other car companies. They will develop their models based on our electronic bag. They need to modify the chassis and the car. Actually, we have shared the battery spikes and also the design details of our battery packs for the mass market brand to our battery swap partners, and they will need to

design and engineer their vehicle products, mainly chassis interfaces, following our battery standards. It will take some time for them to decide on the right models and complete the product R&D. But the overall investment and R&D expenses for developing such new models based on our battery standards won't be very high.

Got it. Thank you. Thank you.

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

Thank you again for joining us today. If you have further questions, please feel free to contact Neil's investor relations team through the contact information provided on our website. This concludes today's conference call. You may now disconnect the online. Thank you.