NIO Inc.

Hello, ladies and gentlemen. Thank you for standing by for NIO Incorporated's fourth quarter and full year 2024 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 fourth quarter and full year 2024 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 of the Board and Chief Executive Officer, and Ms. Stanley Chu, Chief Financial Officer. 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 inherit risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risk and uncertainties is included in certain filings of the company with the U.S. Securities and Exchange Commission, the Stock Exchange of Hong Kong Limited, and the Singapore Exchange Securities Trading Limited. The company does not assume any obligation to update and forward-looking statements except as required under applicable law. Please also note that New 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 news press release which contains a reconciliation of unaudited non-GAAP measures to comparable GAAP measures. With that, I will now turn the call over to our CEO, Mr. William Lee. William, please go ahead.

Hello, everyone. Thank you for joining NIO's 2024 Q4 and the four-year earnings call. In Q4, the company delivered a total of 72,689 smart EVs, setting a new quarterly record. In December, our monthly deliveries surpassed 30,000 for the first time. For 2024, the company's total deliveries reached 221,970, marking a 38.7% increase year-over-year. The new brand continued to lead the premium segment, delivering 201,209 vehicles, securing a 40% market share in China's BEV segment, priced above 300,000 rand. The Anvor brand delivered 20,761 vehicles in the mainstream family market. The market share of the Anvor S60 have been steadily increasing since its launch, ranking among the top three in China's SUV market price between $200,000 and $300,000. In January and February, Due to seasonality and the Chinese New Year holiday, the company delivered 27,055 vehicles. We expect the total deliveries in Q1 to reach 41,000 to 43,000 units, reflecting a year-over-year growth of 36% to 43%. On the financial side, Our efforts in supply chain optimization and cost control have delivered strong results. Niel's vehicle margin improved to 14.9% in Q4, while Anvo achieved a positive vehicle margin in the early stage of production run-up. As a result, the company's overall vehicle margin reached 13.1% in Q4. At the same time, the profitability of our after-sales services continued to improve, along with growth in technology service revenue, leading to a positive growth margin in other sales in Q4. Now, I'd like to share some updates on our products and operations. Starting this year, our three smart EV brands have entered a new product cycle. For the premium brand NEO, at a new day on December 21st. They launched NIO 89, a flagship smart executive sedan. As the result of NIO's 10-year tech innovation, 89 set a new benchmark for premium smart executive EVs. With industry-leading technology and a distinctive experience, it has been well-received by users in the segment. The first edition in a limited offering of 999 units, sold out within hours. And the signature version continues to see strong demand. 89 delivery will begin at the end of this month. Besides, Nios version products, ET5, ET5T, ES6, and EC6, will launch their 2025 models in Q2, featuring upgrades in design, cutting experience, and a smart driving chip Moreover, with another major product launching in the second half of this year, they enhanced the product lineup with further solidified NIO's leadership in the premium BEV market via driving its overall profitability. For the mainstream mass market brand Anvo, the first product, L60, gained strong recognition among family users for its safety, space, class-leading energy efficiency, and a convenient recharging experience. ANVA's second product, L90, is positioned as a flagship large family SUV. It will be introduced in Q2 and delivered in Q3. ANVA's third product will be launched in Q4, forming a well-rounded SUV lineup to cater to a broader range of mass market users. For the high-end small car brand Firefly, since its debut in December 2024, Firefly has received bold attention, particularly from young buyers and the family looking for a second car. The brand is set to launch and begin delivery in April, leveraging Neostar's network for rapid market expansion. With these three brands, the company is building a comprehensive product matrix spanning 150,000 runs to 800,000 runs. Catering device user groups, as we expand our SaaS and service networks, we are set to reach more users and drive sustainable growth. In terms of smart driving technology and experience, AI technology continues to drive us towards our vision of a relieving stress and reducing accidents. Prioritizing AI-based safety enhancements, NIO released the industry-best automatic emergency steering feature. It leads the market in speed runs, object detection, and use case coverage. To date, NIO's smart safety has prevented over 3.4 million potential accidents for users. And the release of AES has further improved driving safety. Meanwhile, we've made breakthroughs in switching to our next-generation architecture based on the new world model, NVM. We'll provide driving, parking, and safety assistance across all scenarios. The early board program will begin in early April. with mass release gradually rolled out. Globally, NIO has 183 NIO houses and 462 NIO spaces, while Anvo has 449 stores in China, ensuring a well-balanced sales coverage. On the service side, the company operates 388 service centers and six for delivery centers. We are putting more efforts in improving operational efficiency so as to better support our new product cycle and deliver on exceptional user experience. As of now, the company has deployed 3,245 post-workstations worldwide, including 970 stations on highway in China. having provided over 69 million swaps for near and onboard users. In addition, near has built over 25,000 power chargers and destination chargers. BetterSwap remains the preferred recharging solution for near users on long trips. During the Chinese New Year holiday, they set a new record with over 100,000 and 37,000 battery swaps in a single day, with top stations handing over 180 swaps. With unmatched speed and convenience, battery swaps is the optimal recharging solution for long distance and holiday travel. It's a strategic advantage where we reinforce our competitive edge of the BEV market. laying a strong foundation for the sales goals of our three brands during the upcoming product cycle. We were actively engaging with partners in more countries and regions to expand our global footprint. As we grow our global sales channels and start Firefly deliveries, the company is accelerating its global expansion. while delivering best-in-class EV solutions to users worldwide. The company remains committed to social responsibility and sustainability. In December, MCSI upgraded its ESG rating from A to AA. In general, Corporate Knights ranked NIO as the number one car company in its list of 2025 global 100 most sustainable companies. The competition landscape in the smart EV industry is evolving rapidly, making 2025 a critical year for the market in shipping. This year, with nine new models across three brands, The company is forming a comprehensive product line-up. While the tech-driven cost optimization will further enhance profitability with global expansion picking up speed, the company will be able to unlock new revenue opportunities. In the meantime, the company is enhancing operational capabilities and business awareness across teams, ensuring greater value creation and efficiency. With this action in place, we are confident in navigating fair competition and achieving our full-year operating targets. Thank you for your support. With that, I will now turn the call over to Stanley for Q4's financial details. Over to you, Stanley. Thank you, William.

Let's now review our key financial results for the fourth quarter of 2024. Our total revenues reached 19.7 billion RMB. increased 15.2% year-over-year and 5.5% quarter-over-quarter. Vehicle sales were 17.5 billion RMB, up 13.2% year-over-year and 4.7% quarter-over-quarter, primarily driven by higher deliveries, partially offset by a lower average selling price due to changes in product mix. Our other business segments also delivered solid performance, Other sales were 2.2 billion RMB, grew by 33.8% year over year, and 12.7% quarter over quarter. The annual growth was from increased sales of parts, accessories, after sales vehicle services, and provision of power solutions, along with a rise in sales of technical R&D services. The increase quarter over quarter was driven by higher sales in technical R&D services, used cars and our parts accessories, and after sales vehicle services. Looking at margins, vehicle margin was 13.1% in this quarter, compared with 11.9% in the Q4 last year, and unchanged from last quarter. The year over year trend increase was mainly due to lower material cost per unit as the margin turned positive this quarter, mainly due to the increase in the provision of technical R&D services as well as the sales of parts, accessories, and after-sales vehicle services with relatively higher margins. Overall gross margin was 11.7% up from 7.5% in Q4 last year at 10.7% last quarter. Turning to OPEX, R&D expenses were 3.6 billion RMB, decreased 8.5% year-over-year, and increased 9.6% quarter-over-quarter. The year-over-year decrease was mainly driven by reduced personnel costs and the design and development cost, while the quarter-over-quarter rise reflects additional investments in design and development partially offset by the decreased personnel costs. SG&E expenses were 4.9 billion RMB, up 22.8% year-over-year and 18.7% quarter-over-quarter. The year-over-year increase was mainly driven by increased sales and marketing for new brands and products, and higher personnel costs from sales and service network expansion. The quarter-over-quarter increase was mainly due to the enhanced sales and marketing efforts and higher professional services costs for general corporate functions. Loss from operations was 6 billion RMB, down 8.9% year-over-year and up 15.2% quarter-over-quarter. Interest and investment loss was 0.2 billion RMB compared with investment income of $1.4 billion in 2023 Q4 and $0.3 billion in 2024 Q3, primarily due to the fair value change of equity investment. Other loss net in Q4 was $0.5 billion RMB, primarily due to the loss from the revaluation of overseas RMB-related assets caused by the depreciation of RMB against US dollars this quarter. Net loss was 7.1 billion RMB, showing an increase of 32.5% year-over-year and 40.6% quarter-over-quarter. Lastly, we ended the quarter with total cash at cash equivalents, restricted cash, short-term investment, and long-term time deposits amounting to 41.9 billion RMB. That wraps up our prepared remarks. For more information and the details of our unaudited fourth quarter and full year 2024 financial results, please refer to our earnings press release. Now I will turn the call over to the operator to start our Q&A session. Thank you.

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the 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. Your first question is from Tim Tsai from Morgan Stanley. Please go ahead.

Hi, this is Tim from Morgan Stanley. Thanks for taking my question. I have two questions. The first question is about cost reduction effort. because a lot of market focus has put on the latest round of restructuring. So I just want to know that how much of cost saving would management expect to achieve, and when are we going to see the contribution emerging in upcoming quarters? That's my first question. Thank you.

Thank you, Tim. In fact, last year, we have already started some cost mining measures. In fact, in terms of the whole year, the goal of the cost reduction has been achieved, so we can see that in Q4, the interest rate has reached our expectation, but the overall interest rate has still reached the expectation. Of course, in terms of the cost, But in terms of cost, we will continue to reduce the cost this year. From the supply chain, and also from some of our research, we will take some measures to reduce the cost. This can also help us in the second half of this year, from the beginning of Q2 this year, we can see some increases in interest rates. In terms of cost, because last year's Q4, Because of the loss of Le Dao, we have made a big investment in Le Dao's sales service network, including in the brand, because it is in the early stages of construction, so we also need to make some investments. This will also continue to this year's first quarter, about Le Dao's investment in some brands, as well as some expansion of sales service network. Of course, from this year's first quarter, within the company, We are also promoting the management of the development, supply chain, and sales service. We are also promoting the management of the development, supply chain, and sales service. We are also promoting the management of the development, supply chain, and sales service. We are also promoting the management of the development, supply chain, and sales service. We are also promoting the management of the development, supply chain, and sales service. We are also promoting the management of the development, supply chain, and sales service. We are also promoting the management of the development, supply chain, and sales service. We are also promoting the management of the development, supply chain, and sales service. We are also promoting the management of the development, supply chain, and sales service. Thank you for the question.

Regarding the cost reductions, actually, since last year, we have already started the cost mining initiatives. And for the 2024 full year, we were also on track for the cost reduction initiatives. As you can see, in our vehicle margin for Q4, it has fulfilled our expectation. And we will continue such cost reduction actions this year from multiple aspects, including supply chain, R&D. And in that case, we foresee that our vehicle margin will also continue to grow starting Q2. And in terms of expenses, actually in Q4 last year, as we have launched the new brand Enroll together with its product, we have started to make investments and expenses in developing its sales and service networks as well as in brand-related activities. And such activities and expenses will continue in Q1 this year in building up the new brand and also the sales and service networks. But in the meantime, starting Q1 this year, we have started an all-employee comprehensive cost reduction initiative covering R&D, supply chain, sales, and also service teams. We call it CBU or sales business unit. Basically, we ask all the teams and employees to take the ownership and accountabilities of the company's operational targets. We already have seen some good results and actions taken voluntarily by the R&D teams, by the sales and service teams in reducing the cost and improving the efficiency.

I believe that starting from Q2, we will be able to see some improvements in terms of both costs and expenses. In terms of Q3, we will continue to deepen the control of costs and expenses. We believe that with the increase in sales, with the increase in net profit, and the control of expenses, we are confident in achieving the goal of achieving this profit within our company's proposed Q4 this year.

And the results of such actions will be reflected in our balance sheet in the coming quarters starting Q2. As we continue to strengthen our cost control and also expenses management in the second half of this year, together with improvements in the sales volume, in the vehicle margin, as well as in the expense control, we are confident that we are going to achieve our break-even target in Q4.

Tim, please.

Thank you. My second question is about Onvo. Just want to know that what actions could Onvo take to regain the growth momentum? Will NEO stick to the bounty brand strategy or could potentially change Onvo to a sub-brand onto NEO to save cost and enhance efficiency? So that's my second question. Thank you.

Thank you. Le Dao's sales this year did not meet our expectations. But we did a comprehensive analysis. First of all, we realized that Le Dao is a new brand. Its brand's popularity is far lower than that of J&P. For example, according to our own research, its popularity, even compared to NEAR, It may also refer to one-third of NEO. So now this also reflects that after we have digested these heavy orders, in terms of new orders, in fact, there is some pressure. So this is really the first big reason. So for this, we have actually started recently. During this year's group meeting, We have added some brand investments. For example, in China's high-speed railway station, in the elevator room of residential apartments, we have made some significant investments. In social media, we have also conducted more active marketing activities. So from the perspective of brand visibility, we have also seen that recently, Thank you for the question.

Regarding envelope, performance starting this year didn't meet our expectation, and we have also reviewed the comprehensive reasons and causes for its performance. The first reason is because of the brand awareness and the exposure. as Anwo is still a new brand. In terms of its brand awareness, it is actually far below its competitors. We have also done some study and research on the influence of the brand awareness of Anwo, and in terms of the brand awareness, it is only one-third of that of Neo. In that case, as we consumed all the existing order backlogs, we are facing larger pressures regarding the fresh orders. Starting this year, especially during and after the spring festival holidays, we have also taken a series of actions to help strengthen and improve the brand awareness and exposure. We have rolled out some offline advertisements in the train stations and also in the elevators of the apartment buildings. We have also doubled down on the social media campaigns to help improve the exposures, and we are seeing some good effects in helping Anwu being more famous and well-known.

The second reason is the coverage of our sales stores. It also has a ramp-up process. Last year, when Le Dao was listed, we had 100 stores, 105 stores. At the end of last year, we added more than 100 stores. So far, we have more than 400 stores. We talked about it earlier. But these stores are new. These stores... and the efficiency of the power will be improved. Our data shows that the efficiency of more than three-month-old power outlets and the one-month-old power outlets is about three times higher. So we can see that after the power outlets are matured and managed, the efficiency will be improved. We are also improving the efficiency of the power outlets. So in general, our investment in the sales network, even though Q4 and this year's Q1 had some investment pressure, we believe that we can play a role in the sales network in the future.

And the second reason is regarding the coverage of the points of sales. We have been ramping up the sales store coverage of the Anbo brand Last year, when we just launched the brand, we have around 105 stores in China. And by the end of last year, we have opened up another 100 stores. And so far, we have more than 400 stores in China. Yet most of the stores are still quite new in terms of their efficiencies and the productivities. They are not yet to a mature level. So it will take some time for these new stores to start yield real results. We have also done a comparison between a mature store being in operations for more than three months in comparison to a newly established store, the productivity can be as different as three times. As this new store is getting more mature and skillful, we believe that they will also start to play a bigger role. So as you can see, we have made some investments in our sales and service networks in Q4 last year and also Q1 this year, and we've been under the pressure for this investment and expenses, yet we also believe that this source and the network will soon start to yield results and kicking with effect.

Of course, this is related to the maturity of the sales fellows. Now, 60% of our sales staff have joined the company within three months. So their training, their sales skills, this maturity is also a process. Then we see that these sales fellows, our colleagues are getting more and more mature. We have seen that their output has also begun to increase recently. So these are the new ones that we call the sales personnel who can open orders. Then we are now starting to get more and more. So for some of these training, including encouraging them to expand the opening of sales clues through outsourcing outside the store, Then we believe that this will be very helpful for our next orders. Then we can see that recently, if we look at the results, we can actually see that in fact, every month, our new orders are growing steadily. And our market volume, our test drive volume, we are actually increasing recently. Then we are creating a new high in the market volume every week.

所以我相信这些都会在将来都能转变成为订单和销量。 And the third reason is also relevant to the maturity, that is regarding the maturity level of our sales force. For the fellow teams of the Anvo brand, 60% of them have been in the company for less than three months, and it will take some time to train the team and for the sales teams to polish their sales skills to be able to yield good results and make deals. As the team is getting more mature day after day, we also see that more and more fellows are now able to make deals. And we also encourage these fellows to do more proactive outreach by going out of the stores to actively reach out to the potential users and help expand the funnel. And this will also help us to improve the order performance. And for this year, if we look at the month-over-month trend for the number of fresh orders, it has been increasing steadily. And in terms of the number of test drives that we've been receiving and doing month-over-month, it is also breaking the record. And we believe that these fresh orders and the test drives will also soon be converted into orders and self-volume.

那我们还有一点的话就是能够兼容乐道的欢天站的数量在过去的两个月里面 With the increase in the conversion station and the increase in the number of batteries, the number of users who are happy to use the conversion station has now exceeded 1,500. In the early stage, the supply of batteries was insufficient, so the number of batteries in the conversion station was relatively small, with only one battery per station. Now this problem has been solved, so this is also a very big improvement for our user experience, and it has also improved the reputation of our users. Then we also saw that in more developed places such as Huan Dian station, we can clearly see that the sales performance of Le Dao is better. So next, with some of our changes in Huan Dian line line, we think that for Le Dao to enter the three or four-line city or the lower-level market is very helpful. And the fourth reason is regarding the PowerSwap station's availability for the Anvo users

As in the past several months, we've been making more progressive modifications on the power swap stations to make sure that they're compatible with the Envo product and also providing more batteries for the swap stations. Now more than 1,500 power swap stations in China are available for Envo users. And also at the early stage of the product launch, we had the short supply of batteries In that case, there was only one battery for the available power swap stations, not enough for the onboard users to experience the full power swap service. But now we are supplying more batteries for the power swap. In that case, the experience for the power swap among onboard users are also improving, also enhancing a better workflow model for the brand. And also in many regions where we see more power swap stations available for Anvo users, we also see actually more self-volume for the Anvo products. Together with our Power Up County initiative, we believe that with more power swap stations available in the lower tier cities, this will also help improve the penetration rate of Anvo in those lower tier cities. And a very interesting number to share with you is that in Actually, in 12 regions in China, the sales volume of Anwo has already outnumbered the volume of NIO. This is also a good effect or result of our dual-brand synergy and also strategy.

Our recent sales growth has indeed been affected by some, including competition, including some negative fishing. We think our impact is probably in According to our research, it is about 30% to 40%. So the impact is still relatively large. But we also saw that the user reputation of LeDao L60 is very good. It should be said that it is the highest user satisfaction from the product point of view in the future. A product with the highest user satisfaction. So even in today's situation, We can still see that the recommendation rate of our users, their NPS, is still very high. From this point of view, it also gives us a lot of confidence. So recently we have seen that its orders are growing and the supply is continuously increasing. I believe that as our brand becomes more and more famous, as our sales service network becomes more mature, as our sales team becomes more mature, and as the

And also another compound factor is that our recent sales volume is majorly affected by the fierce competition as well as the negative public opinions on the brand and also PR attacks. That has affected our volume by around 30% to 40%. But still, even against this difficult environment, we still see a very high user satisfaction on the product L60. Actually, L60 has the highest product user satisfaction among all the products launched by the new company. And we also see a pretty good referral rate on the L60. This has gave us confidence on the product going forward. As we pick up speed with our orders and also test drives as we further enhance the brand awareness, expanding our sales and service network, growing our team and their maturity level, and also enhance the coverage and availability of the power swap stations for the onboard users. We believe that the sales volume of L60 will pick up and also fulfill our expectation.

In terms of efficiency improvement, will it be used with NIO? Of course, we are working with NIO We have been trying to manage the support team in some areas of financial personnel. We have been trying to manage the support team in some areas of financial personnel. We have been trying to manage the support team in some areas of financial personnel. We have been trying to manage the support team in some areas of financial personnel. But in general, LeDao will still maintain its own independent sales network. LeDao and NIO will have their own independent sales network separately. The stores must be separated. This is mainly because of the gap between the user group and the brand. We will not merge at the store level.

And regarding your question on the efficiency improvement and also the synergies can be leveraged between two brands, actually, in terms of the after-sales services, power swap stations, and as well as the supporting functions such as finance, human resources, and some regional functions, this has been shared across two brands from the beginning. And recently, we are also making further adjustments in some regions for the supporting and the management roles we are also trying to have one team to oversee both brands, and we see some good effects by having one team overseeing two brands in terms of the sales and the service management. And in terms of the point of sales of Anwo, or the sales network of Anwo, we will keep it separated and independent of the new brand, as these two brands are targeting different user groups and also are from different brand segments.

Recently, we have been implementing some mechanisms Recently, we are also having some pilot programs where we have the incentives and the policies to encourage the sales team to also sell the product from the other brand.

we already have seen some good results by rolling out the pilot program.

Thank you, Tim.

Thank you. The next question is from Bin Wang from Deutsche Bank. Please go ahead.

My first question is about the guidance about the including the vehicle gross margin and overall gross margin. Meanwhile, you mentioned that you were even in the number four quarter this year. So what's your assumption in terms of gross margin and volume? This is the first question. The second question, I want to ask, our previous year's goal was to double. After this quarter, what is our latest target? And my second last question is that previously you guided your 2025 volume will be double year over year. After the first quarter, Can you provide an update on the volume guidance? Thank you.

您好,王明。 关于那个毛利率, 一季度呢,因为本身也是这个销售的代理, 在加上呢,我们未来品牌的这个产品啊, 其中的这个5566也面临这个2025款的切换, 所以呢,这个清库的影响呢, 会给我们一季度的未来品牌的毛利率 带来一定的这个压力。 As William said, there is a certain distance between the sales and our expectations. Therefore, there will be some challenges for the net profit of Le Dao. In general, the net profit of the first quarter will be more stressful than that of the fourth quarter. However, in terms of the goal for the whole year and the goal for the fourth quarter, Thank you for the question.

Regarding your questions on the vehicle margin, normally Q1 is the off-season in the south of the vehicle product. And also in Q1, we are in between generations for our 5 and the 6 series as they will soon be upgraded to the model year 2025. To clean up the inventories for the existing generation, we are also under pressure regarding the vehicle margin for the new brand. And in terms of the onboard brand, as William has mentioned, the sales performance of the onboard product didn't meet our expectation in this year. Considering the amortizations and other factors, we are also under pressure pressure and a challenging situation managing the on-wall products and its vehicle margin. So overall speaking, the company's vehicle margin in Q1 will not be as good as you would expect it based on our margin performance in Q4 last year. But still, our four-year target is to achieve break-even in Q4. In that case, we have also mapped out a roadmap of our product margin. For the new brand, we would like to achieve a margin, a vehicle margin of 20%, and for the on-road brand, it will be 15%.

Of course, the improvement of the horsepower rate also depends on these two aspects of work. One is that we have also carried out a series of mechanical downgrade work since last year. For example, through the platforming of the vehicle and the mechanization of the parts, This also brings us a lot of discounts, such as the platformization of the seat and the stock price platform. All of our models, including the future and the Anvo brand, we actually share a set of stock price platforms. In this way, the cost of the entire seat can bring us a 10% cost reduction. For example, the smart hardware interface on our car, we actually unified it, so that the cost of the entire data line and data interface can be reduced from 2,000 yuan per car to 1,000 yuan per car. In addition, we have also done a lot of work on speech in the past two years. This has also started to bring us a lot of help in the last year and this year. For example, this year, along with 179, to install the 9031 chip. Next, it will also be installed on the 5566 chip. The cost savings that this chip brings to us will be about 10,000 yuan compared to the CCC chip of four Auron chips. Of course, we also made some overall adjustments to the system. For example, our company itself has a long cost management and analysis team. In the previous year, we also gave them some improvements in terms of their ability and influence. Now, the cost team will also report to me independently. If each location exceeds 7.5% of the cost, it will also be submitted to me and the members of our board of directors to review. These above-average measures, in fact, in 2024, we achieved a 10% reduction in the number of cars with full capacity. Regarding the actual actions that we have taken to control the cost and also improve the vehicle margin, there are several actions.

The first is is to implement a more systematic cost reduction initiative by making our products more platform-based and improving the commonalities across different products and also across brands. There are several examples. For example, we have implemented an overall platform strategy for the seats. Now the products from the new brand and our brand share the same seat structure. With that, we are able to reduce the total bomb cost for the system by 10%. And the second example is regarding the smart hardware. We have standardized the interfaces of most of the smart hardware in the vehicles. In that case, we can further reduce the cost on the cables and connectors. The piece price per vehicle is reduced from 2,000 RMB to only 1,000 RMB. And the third example is regarding the in-house developed parts and also components. As we've been making efforts in doing in-house development in the past two to three years, and we also see a very helpful cost reduction result over the past two years. For example, ET9 will soon be delivered with the NX9031, our chip for the smart driving. And this chip will also be available on the model year 25 for the 5 and the 6 series product, our volume product. In that case, the piece price will be decreased by around 10,000 RMB in comparison to the 4-hour ring solution. And in addition to this cost reduction measures, we are also taking some systematic measures. For example, we have a very capable team doing cost management analysis and engineering. And starting 2023, we have been enabling and empowering the team. And now the team directly reports to me for any quotation where nominating prices surpassing the cost estimation without 7.5%, such nomination decisions will need to be escalated to the EC level for the joint approval. With all these measures taken together, in 2024, we managed to reduce our bond cost by 10%, and we will continue such efforts in 2025. Okay.

The second factor in increasing the interest rate is our new vehicles. William just mentioned that we have nine new vehicles launched this year. Of course, some of them are annual vehicles. We just mentioned that we will do some There are also a few very important products that will fill the blank or relatively weak areas of our current model. In the second half of the year, there will be a new heavy-duty car in the future. Its horsepower rate and the position of this model are relatively high, so its horsepower contribution to future brands will actually be very significant. For the LeDao model, L90 will be released in April, and the third quarter will be delivered. In the fourth quarter, we will have LeDao's third model. These two new models are also in a relatively high price range and high horsepower range, which will also increase LeDao's horsepower, which will bring a lot of assistance. So, combined with the listing of these new products, And the second major action or the second major contributor of improved vehicle margin

will be contributed by the launch of our new models. As mentioned by William, this year we are going to introduce and launch nine new models, including completely new models as well as the model year phase leaps. For the model year phase leaps, they will help improve the overall cost for these existing models. And in terms of the new models, in the second half of this year, the new brand is going to unveil and introduce a major product with better or with actually higher margin as well as more elevated brand and product positioning. This will help improve the overall vehicle margin of the new brand. And for the Anvo brand in Q2, actually in April, they will unveil their second brand, L90, and then start to deliver this product in Q3. And in the meantime, in Q4, Anvo is going to introduce another product. Both products from the Anvo brand will target higher margin and also higher press segments. This will also help improve the overall product margin for our brand. So together with the cost reduction actions that we've been taking as well as the margin increase driven by the new products, we will gradually achieve our margin targets in Q4 and also for the full year.

. . . . . . . We have nine new models in three brands this year. We believe that the effect of new cars will be a very big motivation for our sales growth. Then the second one is mainly the maturity of the sales network and sales team. Including the increase in brand popularity, we believe that although the sales of the first quarter did not reach our original plan, but we believe that the subsequent

And regarding your questions on the source volume and the guidance for this year, in Q1, our source guidance is to achieve a year-over-year growth of 36% to 43%, so around 40% year-over-year growth for the deliveries in Q1. And as for the full year, our target is still the same, just to double the sales volume from last year. And there are several drivers behind this. The first is the new car effect. As we've mentioned that this year, we are going to introduce nine new products under three brands. Starting next week, we are going to deliver ET9. And with the launch and the delivery of these nine new models, we will be able to fill up our sales volume for this year. And the second key driver is regarding the Anvo brand, as we are improving the overall sales network and service network of Anvo, enhancing the maturity level of the team, and also strengthening its brand awareness. It will also gradually yield better results, even if it didn't fulfill the sales target we set for Q1, yet we are confident in the continuous improvement in the Anvo brand.

I also hope that everyone can see the effect of the exchange of electricity network on the promotion of sales. If you look at NIO, half of the accumulated sales of NIO brands are in the Long Triangle, which is Jiangsu, Zhejiang and Shanghai. Jiangsu has already achieved this line-by-line, every line has an exchange of electricity. In Zhejiang, we will achieve it on March 28. This is the county of Zhejiang. In addition to the two islands, there will be this line this year. We will have sales this year. We will continue to build on the exchange network. Of course, everyone should also see CTL and our strategic cooperation. So this year we will continue to promote this. This is the plan to change the power line. In the first half of this year, more than ten organizations will realize this. uh, uh, That is far more than the growth of the previous two years, including Hubei. Last year, we increased the change of power station. After that, the growth of our Hubei sales last year is also far more than the average growth of our whole year. So these measures this year, the network effect of the change of power station, we think that with us in more provinces, like we used to have a low sales, some areas that are not so advantageous, some big provinces like Hebei, like Henan, Shandong, And also, a further comment on the key driver behind the sales volume is the network effect of our power swap network and the recharging network in general.

If you look at the cumulative south volume of the new brand and the distribution of the south, actually half of this volume is contributed by the south in the Yangtze River Delta area. For the Jiangsu province, we have already achieved the power-up county plan, which means that in every county in Jiangsu province, there is at least one power stop station. And for the Zhejiang province, we aim to achieve also county-level coverage by end of this month. except for two islands where they will not have the power swap stations. And also, for the power swap strategy in general, as you may know, our recent strategic partnership with CATL, this will further help us to expand our reach in the county levels with our power swap facilities. In the first half of this year, our power swap network will cover the counties of more than 10 provinces in China. And by the end of this year, cumulatively 27,000 provincial level divisions will have power swap stations available at the county level and the network effect of this swap station will play a very important role because we have already proved that last year we doubled our efforts on the power swap networks in bigger provinces like Hubei and Anhui provinces and we already see some good results before the swap stations were merely available in big cities but then we find that the county-level coverage is more important in promoting the south. And for the south volume in these two provinces, after we achieve the county-level coverage, their south volume is far above the average. And this year, we will continue such efforts to cover more counties in more provinces, especially big provinces like Henan, Shandong, and Sichuan. With that, we will help improve the overall market share and the market reach of not only the new brand, but also the AMO brand.

especially on-world brands. Thank you.

Thank you. The next question is from Paul Gong from UBS. Please go ahead.

Hi, William. Thanks for taking my question. The AI and robotics has been a very hot topic in this early season. One of your peers on this call The AI has been mentioned by 49 times during the whole call, but I guess it hasn't been mentioned here. Can you please remind us your latest thoughts on the AI, autonomous driving, robotics, etc.?

Thank you. Thank you, Paul. Of course, if we look at it from NEAR, we are the first in the world There is an AI companion called Nomi on the car, which is very popular with our users. Of course, we now use the latest models of Nomi, including the models of our own machines, as well as the models of some of our third parties. So now the satisfaction and interaction frequency of Nomi is getting higher and higher. In fact, Nomi has become a very a profitable IP for us. There are also a lot of surroundings. It has a very high choice. Of course, we also saw some of the directions of our world model last year. We will use it on AD recently. We are still looking forward to this version. I also saw some of its effects, including This is the main security aspect. I have also recently experienced some internal test versions. It is still very, very worth looking forward to. Of course, from these basic capabilities to expand to the whole of this, including this universal AGI, including some robots. So, of course, from an ability model point of view, it can be expanded. But from our point of view, we will still focus on The core business of NIO is mainly the business of our cars. Using AI to replenish our internal management. Because AI is one of our 12 full-fledged capabilities. It is actually everywhere. I believe that not only the car is an intelligent body, but I believe that the company will also become an intelligent body in the long term. Of course, this is actually a direction that everyone is discussing. So there is nothing particularly new about it. From our point of view, our recent task is still to focus on our core business and achieve our annual business goal. This is still our focus. Of course, I can also add another point. From the point of view of NEO Capital, we have also invested in the best AI companies in the industry. On the other hand, we have been working with some of the leading companies in the industry, Thank you for the question.

Regarding the application of AI technologies, NIO is the first car company to introduce an AI companion in the car. It's known and it's loved and well-received by many users. For Nomi, it has its own large language model capabilities, Nomi GPT, but on top of that, it is also supporting third-party large language models. With that, the satisfaction and also the interaction rate of Nomi is growing. Nomi is also a quite profit-making IP with a lot of popular merchandise and also high take rates. And in addition to the AI application on NOMI, we also have AI applied to our smart driving technologies and experience. As last year, we have introduced the new word model, NWM. And the latest AD version with smart driving release will be based on the new word model. And actually, I have participated in some internal beta version tryout. And I can say that I really look forward to that version. quite good performance in terms of the active safety and the experience in general. And of course, AI is a very important basic capabilities in terms of AGI, in terms of robots, in terms of the fundamental capabilities for AI. But for the foreseeable future, for us, we will mainly focus on our core business, that is the automotive product. And in that case, AI will be more of an enabler to achieve better product experience as well as better business and management, as AI itself is one of our top full stack capabilities, and it is ever-present in every aspect of our business. And as many people are talking about how the automotive product is becoming an AI agent, and I believe that the company itself is also turning into an AI agent. But still, for the short term, our primary focus is still our core business as well as our operating targets. But a side note here is that Neo Capital has invested in a lot of AI companies, especially industry-leading AI companies. And in that case, we're in close contact with the cutting-edge technologies and also the outstanding funding teams in the AI arena. And in-house, we also have capable AI talents working on the relevant fields.

Thank you, Pao. Sorry, my second question. My second question is regarding the number of models. I think the company has eight models at the same time right now, and after this year's new model launch, it would move into some mid-teens. Given the categorization between each other and also one of the peers has demonstrated with even only one single model, the volume could still be achieved. Shall we consider to concentrate more into some blockbuster models and eliminate some of the less popular models to be more focused? What do you think is the most optimal number of models for each of the brands?

Thank you, Paul. Of course, from the point of view of NIO, Envoy, and FiveFly, our strategy will be different. This also has to do with the distribution market and its positioning. From the point of view of NIO, we will maintain a relatively stable number of models. From $300,000 to $800,000, we can basically cover, whether it's for business, or for family, or what we call for me, which is for our personal needs. We think that with the introduction of ET9, we can basically cover the premium market of $300,000 to $800,000. Because in the premium market, everyone still has their own needs for personalization. So if we look at it, BMW, Mercedes, these premium brands, they actually have about 40 to 50 new models. So these are some of the characteristics of this industry. Users have their own needs when it comes to personalization. At the Onward level, we will be very cautious in controlling the number of models. We will launch two new models this year, plus L60. We have three models. We will not increase the number of models in the future. We will control the number of models of this angle to a reasonable scale. From the point of view of FiveFly, we only have one model at the moment. Because it is a high-end small car, it is actually not necessary to produce too many models. So this is our overall strategy. Overall, our number of models will be controlled at a reasonable scale. Thank you for the question.

As we now have three brands, Neo, Envo, and Firefly, our overall product strategy and portfolio for these three brands will also be quite different as it is also dependent on their respective segment and also brand positioning. For the new brand, we will basically keep the existing lineup, spending from 300,000 RMB all the way to 800,000 RMB, and it will covering for me, for family, and for business segments. With ET9 being delivered, we are completing this price coverage from 300,000 all the way to 800,000 per segment in the premium markets. And for the premium market users, they actually care more on the personalization and also the unique identity of the vehicle products. If you look at other premium brands like BMW and Mercedes, they actually offer 40, 50 products in their lineup. So for this segment, users care more about the differentiation and also the personality of their products. As for the Omo brand, we will be more careful with the number of products in the lineup. This year, we are going to introduce two new products under the Envo brand together with L60. There will be three products in the lineup by end of this year, and we will not drastically increase or expand the existing portfolio, but to control that within a reasonable range. As for the Firefly brand, it is a high-end small car brand. In that case, it's not necessary to really offer too many different products. So our overall strategy is to have a differentiated product portfolio and lineups for different brands, but overall maintaining a rather stable and reasonable product lineup across three brands. But for each model, there will be also emphasized highlights and also targeted user groups.

Thank you.

Thank you. The next question is from Yuqun Ding from HSBC. Please go ahead.

Thank you, Mr. Gao. I have two questions. First, I would like to ask about the cash reserve and the feedback of the supply chain and our current financing plan. Our cash reserve is more than 250 billion yuan. But if there are some fluctuations in our business, will the supply chain be a little worried? Because the supply chain's approach may be that the company's reserves may be stronger. From this perspective, will the company have a further financing plan? The first question is about cash position, supply chain perspective against that and also potential financing. So we see our net cash position at above $25 billion, but given the volatility between quarters, the supply chain coming from a more conservative perspective and how to stand with that, would that require additional financing? No matter it's debt or equity, can we have a little bit more clarification on that? Second question is about the CapEx guidance. Can we see a little bit breakdown into a refreshed CapEx guidance this year? We talked about a commitment into SWAP network, but since we signed up the collaboration with Cato, can we leverage partnership to do some CapEx building? Can we expect CapEx to taper off this year? Thank you.

Okay, Yujian. The first question is, by the end of 2024, the company's cash reserves will be 4.9 billion yuan. Yes, in fact, QE, of course, the entire sales volume, according to our guidance, there will be a slowdown. There will be some flow of cash flow. Of course, as we mentioned earlier, this year is a big year for products. With the increase in sales in the second quarter, we are confident that the next cash flow will be greatly improved. So, as we mentioned earlier, in the first quarter, we also made a lot of adjustments and classic actions. This financial impact will also be reflected in the second quarter report. In general, we will still be more cautious in managing our cash flow to ensure that our existing resources can support the development of our next business. Regarding financing, whether it is the US dollar market or the RMB market, whether it is public or non-public market, our financing channels are still relatively rich. Thank you for the question.

Regarding your first question on the cash reserves, by the end of 2024 our cash position was 49.1 billion RMB. And in Q1, as we see the decrease in the sales volume quarter over quarter, we did experience an operating cash outflow. Yet, as we have introduced that this year will be a pivotal year for our product launch, as we witness the rebound starting Q2, we will also see major improvement in the operating cash flow. And also, as we have previously introduced, starting Q1 this year, we have conducted a series of adjustments and also streamlining activities this will also reflected in our performance financial performance starting q2 overall speaking we will be prudent with our cash flow management to make sure that our resources can sustain our continuous growth and development and regarding your second questions on the fundraising we have various options um we have a variety of fundraising channels for the capital market for the u.s capital market rmb capital market public or private we will be planning our fundraising requirements and activities according to the operations of the company as well as the changes in the market.

Okay. The third factory in Hefei will also invest in the operation of our new products. Therefore, this year's capacity of CapEx will increase a little bit more than in 2024. Of course, we will carefully control the overall rhythm to manage the use of cash as I just mentioned. Regarding the distribution, You also mentioned the capital spending of the power station. In fact, since last year, the principle of the network construction of the power station is that we try our best to coordinate the resources of our partners. Last year, we also launched a plan of a partner for home appliances. So, in this year's plan of home appliances, our plan is still to hope that most of the construction of the power station And regarding the question on the CapEx, as we have mentioned that this year we will launch major products.

In that case, we have made the CapEx spending in the toolings and also the production equipment together with our supply chain partners. And in the meantime, as we are launching new products, our third factory is also going to be put in operations depending on the overall production plan. So our capex this year will be higher than in last year, but still we will have a very prudent measure and the manner in managing our investment pacing and also our cash position to make sure that we have a very good control over the spending. In terms of the capex for the power swap stations, Starting last year, in terms of the PowerSwap network expansion, we have already started to adopt one principle, that is to leverage the resources of our PowerSwap partners as much as possible. As last year, we have announced the PowerUp Partner Plan, where we invite the partners to jointly build the swap stations and the network. For the PowerUp County Plan this year, most of the stations will actually be sponsored or built by our partners. And by ourselves, in that case, the CAPEX utilization for the power substations will also be relatively limited.

Thank you, Yuchen.

Thank you. The next question is from Ming Sun Li from Bank of America. Please go ahead.

William, hello, Guan Yuchen. I'll just ask you in English. So first question is regarding your autonomous driving technology plan. When do you plan to roll out your end-to-end model? And in the future, do you consider to use the Thor chips in your car, or you will use your Shenji chips in all of your Neo-branded model? Thank you. That's my first question.

Yeah, Xie Jianming. In fact, we have already fully applied the technology from end-to-end last year. Because each company may use this technology in a different priority. We will use this technology in terms of safety first. We have seen that it has greatly improved the performance of this safety. We can see that 40% growth will occur every week. This is a very big improvement. Of course, if we put it in the city area as a security assistant, we are currently conducting internal testing. We have recently started this small-scale test. So at the end of April, our current goal is at the end of April, of course, we still need to go through some preparation and then be able to release it to the user. That is our current plan. From the beginning of ET9, NIO's models will gradually... ET9 has already launched the world's first 5nm self-propelled chip, the SYNC9031. This year, we will use our own chips for the 2025 5566 models. For the subsequent models, NIO's models will use their own chips. X. Thank you for the question.

Actually, last year we have already implemented the end-to-end solution to our active safety features. as different companies may have a different priority or force ranking on the technology applications. And for us, we believe that safety matters the most. That's why we have implemented the end-to-end model, firstly, in our active safety features. And we did see major improvement regarding the safety level week over week by 40%. So it is playing a very important role in providing a safer trip for our users. And in terms of the end-to-end solution based navigate on pilot, Plus, for the city roads, we have also started small-scale testing and internal testing, and we plan to release that to our users by the end of April after a series of preparations and also approval applications. And regarding the use of the chip for smart driving, ET9 is going to premiere our in-house developed chip for the smart driving. It is made with advanced manufacturing process, NX95. And after 189, our 2025 model year, the 5 and the 6 series will also be launched and equipped with the in-house developed chip for the smart driving. So all the future new models will be equipped with this in-house chip. As for the Onvo brand, currently it is using the O-ring X chip for the smart driving functionalities, and it does not have plan to use Thorpe.

Thank you. My next question is regarding the OPEX. Because in the past few quarters, we continue to see your gross margin continue to improve for QLQ. But for the operating expense, do you have the latest guidance and new plan? For example, in the past, William mentioned that the stabilized IMD will be RMB 13 billion every year. And could you give any new updates for this number? And also, for the sales and marketing expense, do you have any target ratio, OPEX ratio for this number? Thank you.

How that may... Regarding OPEX, the first one is the cost of development. This year, we will basically maintain the rhythm of investing RMB 3 billion in non-GAAP in each quarter. Of course, this year we will also combine the gold mechanism that William just mentioned. We will also focus on the project of high investment return to optimize our ideal process and ensure that the cost of development Thank you for the question.

Regarding OPEX, in terms of the R&D funding and expenses, for this year, we will continue to have the same intensity level for the R&D expenses, around 3 billion RMB every quarter on the non-GAAP basis. Of course, as mentioned by William, this year we have rolled out the CBU mechanism where we emphasize more on the project with high return and also high yield. In that case, we will also optimize our project initiation and approval process to make sure that our R&D expenses are reasonable and also efficient.

Regarding SG&A, the first quarter is indeed challenging, mainly because the sales of the first quarter is the overall turnover. the sales volume is relatively low. So, compared to the overall sales volume, the proportion will be higher. Secondly, due to the expansion of Le Dao's personnel and sales capacity, Q1 is still in the process of progress. So, Q1's cost of Le Dao's sales SG&A will also increase relatively. However, we have already adopted some of the management actions mentioned earlier. we will increase the sales efficiency, reduce the scale of non-one-line salespeople, and combine the skills of the future and the joy of both brands and other management-supported skills. We have done some merger and reduction, and we will also sell the car type of Farfly in the Neo system. All of these will be reflected in our report in the second quarter. In general, the proportion of sales revenue in SG&A with the growth of our sales and the goal of achieving a balance of profit in the fourth quarter. In the end, compared to the first quarter or compared to the fourth quarter of last year, I believe there will be a great improvement. This efficiency will gradually emerge with the improvement of our sales and the improvement of our human cost and tax.

And regarding the SG&A expenses, we did have bigger challenges to manage in the first quarter of this year as Q1 is normally the off-peak season for the sales, the overall volume in Q1. is not so high. In that case, the SG&A expenses account for a bigger part to the sales revenue. And also, in this quarter, we are still building up and expanding the sales and service network, as well as growing the Salesforce capabilities for the Envol brand. In that case, Envol's SG&A expenses is also higher. But as we have introduced, we are going to take a series of actions to improve the efficiency and the productivity. of the teams and also to streamline the non-frontline sales functions to consolidate some of the sales functions between the new and the onboard brand and also to leverage news network for the sales of Firefly. With all these actions taken, we expect the better results to be reflected in our financial performance in the coming quarters. As we grow our sales volume and also gradually achieve the break-even target in Q4, you will also see SG&A accounting for smaller portions to the sales revenue. And with that, you will see also the effect reflected by the improvement in both volume and also in the efficiency of people and expenses.

Thank you, William. Thank you, Stanley. That's all my questions.

Thank you. The next question is from Jing Chang from CICC. Please go ahead.

Thank you for the question. I would like to ask a small question. We saw that the turnover rate of other companies in the fourth quarter reached 1.1%. Can you tell us more about the reason for this? Is it because of the delay or because of the delay in the transfer service? So my question is regarding to the other sales, other revenues, and we can see that in the fourth quarter, the gross profit margin of other sales has already turned positive and reached 1.1%. So could you please break down the reasons

For this. for the sake of our sales, we are still in the early stages. So, this loss has not been narrowed down. The profit of the fourth quarter is mainly from the technical service we provide to foreign countries. For our supply chain partners and some related enterprises, we provide some of our technical income. In the fourth quarter, we also reached RMB 2.2 billion. This is because with the cycle of our projects, to record our financial statements in a routine manner. So, it will be reflected in the following seasons, but it is not so regular. From a perspective of 2025, with the increase in our maintenance capacity, the efficiency of our after-sales service will continue to improve. As for the loss of the exchange station, we are still in the early stages of this year's linear communication plan. So, due to the loss of the early stages, So in general, if other businesses do not consider technology services in 2025, they will still be at a disadvantage. If the development of technology services has some big progress, it will also bring us some positive improvements in some areas.

Thank you for the question. Regarding the gross margin of other cells, it mainly consists of three things. The revenues from the after-sales services, revenues from the power services, and also revenues from the technical services we provide to the supply chain partners and also to affiliated parties. And in Q4, we have the positive margin on other cells. It's mainly because we have been continuously improving the efficiency of the after-sales Of course, in terms of the power swap or the power service in general, as we are still making advanced deployment of the facilities and infrastructure network, the loss is actually not significantly narrowed from the power perspective. And for the other cells to be with positive growth margin in Q4 last year, it's mainly because of the revenues from our technology services provided to the partners and also the affiliated parties. It's around 220 million RMB in Q4 last year. Yet such revenues are more project-based, and also it's relevant to the cadence and the progress of the services we provide to them. In that case, in the future, there will be also similar revenues, but it will not be a recurring regular revenues from that perspective. In 2025, as we continue to increase our vehicle population, we also foresee continuous increase in the efficiency of our after-sales services. As for the power networks, as we are still making advanced deployment of the power substations, we will still encounter slight loss-making with the combined margin of the after-sales services and the power services, if we exclude the technical services. In terms of the technical services, if we can make major deals or if we can make major progress, probably there will be some good news to disclose.

Thank you.

Thank you. The next question is from Tina Hao from Goldman Sachs. Please go ahead.

Thanks, management, for taking my question. So I have a quick one just regarding our longer-term outlook, say, By 2030, do we still maintain our previous, I think, volume and margin outlook? And could you please remind us of your revenue scale, sorry, your sales volume scale target as well as your maybe overall growth margin as well as operating margin? Thank you.

Yes, of course. Although we are still to achieve this year's four-year profit. But if we look at the long-term, in the smart EV industry or in the automotive industry, if we want to maintain a certain relative competitiveness, we can do more than 2 million in the long term. We can achieve a profit margin of 20%. As right now the company is striving to be breaking even in Q4.

this year. If we set for a longer-term outlook for the future, we believe that for the smart EV companies, or for the automotive industry in general, to maintain a relative competitive edge among the competition, an annual volume of 2 million units with 20% gross margin, 7% to 8% net margin, that will be a baseline for a smart EV company to survive for the longer term.

Thank you, Tina.

Oh, thank you. Thank you, William.

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

Thank you so much for joining us today. If you have further questions, please feel free to contact Neil's IR team through the contact information on our website. This concludes the conference call. You may now disconnect the line. Thank you.