NIO Inc.

Good morning and good evening, everyone. Welcome to NIO's first quarter 2025 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 CEO, and Ms. Danny 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 Security Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain filings of the company with the U.S. Securities and Exchange Commission, the Stock Exchange of Hong Kong Limited, and the Singapore Exchange Securities Trading Limited. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that new earnings press release and this conference call include discussions of unaudited gap financial information as well as unaudited non-gap financial measures. Please refer to new press release which contains a reconciliation of the unaudited non-gap measures to comparable gap measures. With that, I will now turn the call over to our CEO, Mr. William Lee. William, please go ahead.

Hello, everyone. Thank you for joining NIO's 2025 Q1 earnings call. In Q1, the company delivered 42,094 smart EVs, up 40.1% year-over-year. This includes 27,313 deliveries from NIO and 14,781 deliveries from Envo. Since Q2, the company's deliveries have picked up pace month-over-month, supported by a solid start of delivery 89,500 and a growing demand for angle L60. In April and May, the total deliveries were 23,923,231. In late May, We successfully launched and delivered the new ES6, EC6, ET5, and ET5P. We expect total deliveries in Q2 to be between 72,000 and 75,000, representing 25.5% to 30.7% growth year-over-year. On the financial side, The company continues the cost reduction efforts on all fronts, achieving year-over-year growth in both vehicle gross margin and overall gross margin. Now, I'd like to share some updates on our products and operations. For the new brand, the delivery of ET9, NIO's executive flagships then surpassed BMW 7 Series and Audi A8 L in China in the first four delivery months. This marks the first time that our Chinese brand has made a breakthrough in the premium executive segment long led by BBA. On May 16, we launched the new ES6 and EC6 and started delivery on May 20. On May 25, the new ET5 and ET5T were launched and the delivery started on May 27. These upgraded models deliver greater perceived value and product strength, along with major improvements in cost. For the new brand, for the Anva brand, since April, Anva has rolled out a series of operational and organizational adjustments, significantly improving the productivity and operation efficiency of the sales force. Such a change also shifted Anvo towards a positive cycle of brand awareness and product reputation. With that, Anvo's orders have been rising steadily since late April. Anvo's second product, L90, a smart large-space flagship SUV, made its debut on Shanghai Auto Show. With a class-leading space, ultra-low energy consumption, and the extensive charging and swapping network. Anpo L90 has drawn strong interest from three-row SUV buyers. This model will be launched and delivered in Q3. The smart electric high-end small car brand Firefly has started product delivery in late April. Engineered for the five-star safety in China and Europe and with a thoughtful space, smart digital experience, and vivid driving dynamics, Firefly stands out in its segment. In terms of tech innovation, NIO's smart driving chip NS9031 has been deployed in the flagship model 89, as well as the new ES6, EC6, ET5, and ET5T, and will be rolled out on more new models of NIO. These new models are also equipped with near-to-full-domain vehicle operating system SkyOS and the intelligent chassis system. Such innovations not only enhance the product competitiveness and also improve the vehicle cost structure. As for smart driving, the first near-world mode-based version has been rolled out to vehicles on the Banyan platform since late May. The New World Model, or NWM, provides full upgrades in active safety, urban and highway driving, as well as parking, especially in key areas of active safety. NWM brings enhancements in handling driver emergency, mitigating and preventing rear collisions, and recognizing general objects Based on NWM's comprehensive understanding and reasoning of much model information in real time, Navigate on Pilot Plus or NOP Plus can guide cars through toll gates across China with automatic navigation to frequent parking spots, as well as map-less and non-memory-based wayfinding in parking lots. NOP Plus also delivers a seamless point-to-point smart driving experience. NIO's world model will continue to iterate, bringing safer and smarter driving costs to all scenarios. So far, NIO operates 184 NIO houses and 461 NIO spaces, and ANVIL has and 45 stores in China. On the service side, the company operates 391 service centers and 66 delivery centers. We will continue to improve efficiency and resource allocation through better operations and performance evaluation across the sales network. As of now, the company has 3,408 power source stations worldwide. including 989 stations on highways in China, and has provided over 75 million swaps to users. Besides, NIO has installed over 26,000 power chargers and destination chargers. To date, Niel's post-war network has achieved country-level coverage in Beijing, Shanghai, Jiangsu, Zhejiang, Guangdong, and Tianjin. Next, we will continue to expand the coverage through partnerships with site operations, great companies, and capital investors. In international expansion, NIO has partnered with more than 10 local partners in over 15 core markets worldwide, and is onboarding more partners. In Q3, Firefly will roll out in various markets, delivering global user experience beyond expectations. On April 7, NIO completed a share offering in Hong Kong, Raising over 4 billion Hong Kong dollars, this financial round was over-subscribed multiple times and has brought in a number of global long-term investors. 2025 is the harvest year for products. As multiple core models are to be launched in the second half, The company's deliveries are set to accelerate from Q3 with stronger sales, lower supply chain costs, and better boom efficiency from new products and technologies. Both vehicle and the overall cost margin will keep improving. In improving operational efficiency since Q1, they've implemented strict investment and return reviews of costs on the supply chain, SaaS, and service functions under the SaaS business unit mechanism. We have set clear goals for operationals and ROI. We structure the organization and consolidate teams, prioritize high-value projects, and introduce plans to improve productivity and cost efficiency. Measures have taken hold in Q2 and will continue through the year. With growing sales, improving margins, and better cost control, we are confident in improving the company's financial position starting Q2 and meeting our four-year business targets. Thank you for your support. With that, I will now turn the call over to Stanley for Q1 financial details.

Over to Stanley. Thank you, William. Let's now review our key financial results for the first quarter of 2025. Our total revenues reached 12 billion RMB, increased 21.5% year-over-year, and decreased 38.9% quarter-over-quarter. Legal sales were 9.9 billion RMB, up 18.6% year-over-year and down 43.1% quarter-over-quarter. The year-over-year growth was mainly due to higher deliveries, partially offset by a lower average selling price from product make changes. The quarter-over-quarter decrease was mainly attributable to fewer deliveries impacted by seasonality. Other sales were 2.1 billion RMB, grew by 37.2% year-over-year, and decreased 5.9% quarter-over-quarter. The annual growth was from increased sales of parts after sales of vehicle services and provision of power solutions, along with a rise in sales of used cars and technical R&D services. The decrease quarter over quarter was due to decreased sales in technical R&D services and auto financing services. Looking at margins, vehicle margin was 10.2%. compared with 9.2% in Q1 last year and 13.1% last quarter. The year-over-year increase was mainly due to lower material costs per unit, partially offset by changes in product mix. The quarter-over-quarter decline was mainly due to the increased manufacturing cost per unit from lower production volume. Overall gross margin was 7.6%, compared with 4.9% in Q1 last year, and 11.7% last quarter. The year-over-year increase was mainly driven by, first, higher sales of parts, accessories, after-sales vehicle services, and technical R&D services, which carry relatively higher margins. Second, higher vehicle margin. And third, the reduced gross loss rates from power solutions as our user base grew. the decrease quarter-over-quarter was mainly attributable to lower vehicle margin. Turning to OPEX, R&D expenses were 3.2 billion RMB, increased 11.1% year-over-year, and decreased 12.5% quarter-over-quarter. The year-over-year increase was mainly due to the incremental design and development costs for the new products and technologies. as well as the increased personnel cost in R&D functions. The quarter-over-quarter decrease was mainly driven by decreased design and development costs resulting from different stages of development, partially offset by increased personnel costs. SG&E expenses were 4.4 billion RMB, up 46.8% year-over-year. at a down 9.8% quarter-over-quarter. The year-over-year increase was mainly driven by the increase in personnel costs related to sales functions and the increase in sales and marketing activities. The quarter-over-quarter decrease was mainly due to the decrease in sales and marketing activities and professional services partially offset by the incremental personnel costs. Loss from operations was 6.4 billion RMB, up 19% year-over-year and 6.4% quarter-over-quarter. Net loss was 6.8 billion RMB, showing an increase of 30.2% year-over-year and a decrease of 5.1% year-over-quarter. That wraps up our prepared remarks. For more information and the details of our audited first quarter 2025 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 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up 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 then re-enter the queue. Your first question comes from Tim Sayle with Morgan Stanley. Please go ahead.

Hi, William Stanley and Tim. Thanks for taking my question. This is Tim from Morgan Stanley. I actually have two questions. The first one is about the volume sales. Because if you look at the announcement, the NEO has a second quarter volume guidance of 72,000 to 75,000 vehicles. I think that implies a more moderate sales increase despite the rest of launches of four new models. So looking forward, how could NEO give the salesmen if they sell you the 5 and 6 series an extra push in the following months to achieve Our previous target was 30,000 multi-cells for the NEOS membrane by year-end. That's my first question.

Thank you. Thank you, Tim. If we follow the guidance of 72,000 to 75,000, in June, the total number will be between 25,000 and 28,000. Of course, this is mainly because of NIO, our main sales model 5566, the new ET5, ET5T and the new ES6, EC6. So because it's the end of May, it's starting to deliver. In June, we started to enter a more complete delivery month. Of course, our actual price is equivalent to the price, although the public price has not increased. But in fact, because there is a light warehouse in front, There are some sales like this. In fact, our price has increased by more than 10%. So in the near future, we still hope to keep the price stable. When our profit margin increases, it will also almost increase by more than 10%. So if we look at the direction of the whole business, we still use this to guarantee this profit margin. Now we have the whole business goal, mainly from the perspective of the business side, so we will not put the quantity We will balance this issue to ensure the stability of the price. So from this point of view, the NEO brand will continue to grow, still relying on our entire operating system. But later, when it reaches 4G, our new ES8 will be delivered. We think it is a very competitive product. In general, we believe that in the fourth quarter of this year, our NIO brand still has a chance to reach a level of 25,000 units. Every month, we have a level of 25,000 units, which is about 20% higher than last year's relatively stable 20,000 units. However, we believe that its profit margin will be greatly improved, so we will still ensure that in Q4, Thank you for the question.

As we have stated, our quarterly guidance for the 72 to 75,000 units. In that case, we expect to deliver around 25 to 28,000 units in June. And in terms of the core volume driver for the new brand, as we have just recently upgraded and launched our all new 5, 5 and 6. These are our new EC6, ES6, ET5 and ET5 team in late May and we have just started delivery of these four new models. Then they are going to experience their first full delivery month in June. As you can tell from their MSRP, there is actually no major changes with the selling price of these four models, yet considering that before the launch of these four models to clean up the inventories, we had provided some promotions on these four models in the previous generation. With that, the actual price increase is around 10% from last generation to this generation. So for the next step, we're going to stabilize on the prices of these four new models. And looking at the vehicle gross margin, actually the improvement is more than 10% from last generation to the model year 25. And also, the bigger principle for us is to realize a good gross profit than simply looking at the vehicle sales volume. as we also look at our overall performance from the P&L perspective. In that case, we really need to strike a balance between the sales volume and also the selling prices of our product. And also, in the meantime, we will keep improving our operational efficiency and assistance. And going into the fourth quarter, we are going to introduce our all-new ES8, the next generation ES8, which is a highly competitive product. With that, we believe that in Q4, for the new brand, the monthly delivery will be around 25,000 units. That's around 20% year-over-year growth from last year's Q4, which was around 20,000 units a month. In that case, while improving the south volume, we are also going to improving our vehicle goals margin significantly for the new brand to be above 20% in Q4.

Thank you very much, Willie. Mike? Yeah, my second question is about the cost reduction, because we noticed that NIO has implemented a series of cost-cutting majors over the past six months. So we're now going to see more meaningful contribution from such cost-reduction effort. And could you please quantify and specify which categories we could probably see more significant improvement into second half? That's my second question. Thank you.

Okay, Tim. In the past, since March, the company has adopted a series of cost control measures and efficiency measures. I would like to talk about these aspects. One is that we are still focusing on some short-term projects. For projects and organizations that have no investment return this year, we have made some firm adjustments. In terms of improvement efficiency, William just talked about In this speech, we also mentioned a few aspects. One is that in terms of R&D, we have integrated the R&D resources of Future Fun and Fireflies into the organization of the car product line set up by our company. This continues to improve the efficiency of our entire R&D team. In terms of industrialization, including manufacturing,

Thank you for the question. As you've mentioned, since March we have conducted a series of cost control and efficiency improvement measures, and here I would like to further elaborate on that from the following aspects. The first is regarding our short-term work. Basically, we review and sort out all the key matters, projects, and organizations, and to look at the things that are not going to generate positive return on investment within the year, and we have made determined actions in terminating or postponing them for the short-term return. And the second is regarding the efficiency improvement. This is also mentioned by William in his prepared remark. In terms of improving efficiency, we also conducted the actions in the following aspects. The first is from the R&D perspective. We have established a new mechanism called vehicle product line. With that, we have majorly merged the R&D resources of the new brand, our brand, and the Firefly brand to further improve the overall efficiency of our R&D activities.

In terms of industrialization, we have further integrated the logistics, quality, and supply chain of the entire company. We have also further narrowed the size of the team. In terms of sales and service, we have improved the ratio of the middle and back-end personnel at the same time as ensuring the production power of the first line. By reducing the number of personnel and narrowing the position, we have improved the range of support for the middle and back-end personnel. We have also further improved the efficiency of the entire sales and service team. Through these forecasts, we can see that the overall cost of OPEX will gradually be reflected in our report from the second quarter. If we eliminate the one-time impact, the efficiency of our cost will gradually improve from the second quarter.

And the second is regarding the improvements in the industrialization cluster. We have optimized and restructured the logistics functions, quality functions, and also supply chain functions by streamlining the team and also merging repetitive roles. And certainly, we have also made improvements in the sales and the service side. For the non-frontline teams, we have also made major improvements and also consolidations on the teams, including their roles and also positions to better improve the efficiency and the productivity of the teams, especially the back-end teams. With that, we are going to witness the savings from the operating spending perspective, and such savings will be reflected in our Q2 earnings and also the corresponding results.

Q2's goal is to achieve a 15% increase in efficiency compared to the first quarter. Q4's goal is to achieve a balance of profit and loss. We hope to control Q4's development cost between 20 to 25 billion yuan per quarter. Compared to Q1 and Q4 last year, there should be a total of 20 billion yuan. uh uh From the second to the third to the fourth quarter, we will gradually increase the cost of sales. The whole goal is to combine our profit and loss balance when it comes to the fourth quarter. We hope to reach our sales ratio of about 10% under the amount of SGA's fee.

More specifically on the tighter control over the spending, regarding the R&D spending, in Q2, our target is after excluding the one of impact, we would like to achieve a 15% improvement where actually R&D spends reduction. And in Q4, as we also have the break-even target, we aim to control our RMD expenses to be within 2 to 2.5 billion RMD per quarter. That represents a 20 to 25% year-over-year decrease from last year. And regarding the SG&A expenses, This is also relevant to the marketing activities and also the tightened competition in the market as well as our sales performance. So we will also manage the SG&A expenses in a very careful and prudent way, carefully balancing the return and also the investments on all these campaigns and activities. The target is to reduce the SG&A expenses quarter over quarter from Q2 this year. And by Q4, considering the break-even target as well, our target is to control our non-GAAP SG&A expenses to be within 10% of the sales revenue.

Thank you. Thank you. Thanks a lot.

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

Thank you, Benjamin. This is Ming. I also have two questions. My first question is related to your new water model. So after you launch the new water model, what is the feedback from your users? And also, compared to your original rule-based autonomous driving solution, how more advanced after you launch your water model? And for your chip, because right now, in certain models, you are using your own desired chip, so you already save some cost. Do you also give up those benefit to the users? In the future, will Anvo also use the same chips? Thank you, that's my first question.

Thank you, Ming. At the end of May, we sent NWM, the first version of the future world model, to our second-generation product users. From the current user and media feedback, it is still very positive.

Thank you for the question. In late May, we have started to release and roll out our first smart driving version based on the new world model, NWM, to the Banyan users. Those are the users who are running on our second generation platform products.

In fact, in the last few versions, we have already released some of our end-to-end solutions in terms of initiative and safety. We have already seen significant improvements in terms of reducing accidents and increasing safety. Actually, in the previous versions, we have already released a series of active safety features based on our end-to-end architecture and solution.

With that, we also see significant decrease in the accidents and also the avoidance of the accidents and a better driving safety with our active safety features. For example, for the new world model, we have also released the emergency safety pullover. This also is one of the first in the industry. Overall speaking, our vision for smart driving is to reduce traffic accidents.

And in that case, our active safety and our smart driving feature in general has been leading in the industry. That's right. uh uh uh And the second key vision of our smart driving is to relieve the driving pressure and stress.

In that case, NWM-based version has also provided better experience across all scenarios. For example, we are also one of the first to release the point-to-point smart driving and also parking. Our overall experience is better than our peers in the industry. With NWM, we have achieved better experience in highways and also urban expressways. Our original experience based on the previous version was already good. And right now, we have made the overall driving experience even more seamless. For example, automatic pass-through of the toll gates on highways. And in terms of the smart driving in urban roads, we have also achieved very good point-to-point smart driving. That's basically smart driving from a parking lot to a parking lot with a high usability and good experience. So basically, we have achieved good smart driving experience across three key scenarios of our users.

This time, we also launched, for example, in some parking lots, in some environments, to support users to use natural language commands to achieve cross-district, cross-street, independent search, export, or certain location functions. Of course, this is just the first scene of development, but we also saw the whole . . . . . . . . to further enhance the possibility of NWM.

For example, we have released this automatic wayfinding in the parking lot where our users can provide natural language commands to ask the car to navigate to a parking space across different floors or even regions within the parking lot. And this is just one of the many new features that we are going to release based on the enable smart driving features. And with that, we also see the possibilities in improving the experience with the NWM. So overall speaking, this is a version that we have restructured the entire smart driving with our data closed loop and also feature closed loop. For the next step, we will keep improving and iterating this feature based on the feedback provided by our users to make the overall experience more seamless and also more useful.

使用我们自研芯片9031的 The NWM version will be released at the end of June, which is about a month later than what we planned. Of course, this still depends on the progress of the announcement and the backup, but the overall development progress is smooth.

So that's the NWM-based smart driving version released to the Banyan system. And in the meantime, as our third-generation platforms, SIDA and SIDA-S, ET9, and also the new 5.5 and 6.6 products, they are running on our in-house developed smart driving chip, NX9031. And the NWM-based version running on the NX9031 will be released in late 2021. That's our expected release date, but that is around one month later than the release to Banyan platform, and the specific release date will also be dependent on the actual approving process and the reporting process.

The R&D process is actually in good progress.

For the long term, Anvo products will also switch to the in-house developed smart driving chips.

Thank you. So our next question is related to EnvoBrand. So after you have some measurement change, what is the strategy to enhance the volume sales of L60? And also, what is your expectation of L80 and L90?

We saw that in April, We adjusted the sales of Anvo and the entire core management team. We also made a big adjustment in the area. In fact, the adjustment in the first two months is still very, very big. But from another perspective, we can clearly see that these adjustments did not affect the sales of RL-60. Even from the end of April, we saw a steady recovery of its orders. Thank you for the question.

In April, we have made major organizational and operational adjustments to Envol, including the adjustments to the core management team, south team, as well as the regional teams. As we were making major investments, the good sign is that we didn't see major impact or negative impact on the sales volume of L60. Actually, in late April, we witnessed the growing order momentum of this product. And in May, the monthly delivery of L60 is more than 40% higher than in April. And these are the positive changes that we've seen.

From this figure, we can see that the competitiveness of Angle's entire product is still very strong. In fact, from January to April of this year, we are in a pure electric market of 200,000 to 300,000. L60 is basically in the top three. And if you look at the actual product performance and competitiveness in the market regarding L60 in the first four months of this year,

Among the battery electric vehicles priced between 200,000 to 300,000 yuan, Anwo L60 has been the top three best-selling product in that segment. And we also expect its performance to continue to pick up in May and June. And this has also demonstrated the strong product performance and strength in the market.

产品的竞争力是个基础,我们还是要看到我们的销售服务网络, . . .

However, the product competitiveness and performance is just one of the foundations. In the meantime, we also see the maturity with our sales and service network. Anwo now has more than 440 stores, and many of the stores, including the front line and the follow teams, are also getting more mature and adapted to the job. In that case, for the next step, we will also, as they are making major contribution or growing contribution to the sales volume, For the next step, we will also keep improving the operating efficiency and also productivity of the teams and stores.

第三个增长的动力还是来自于我们充换电网络的优势。 因为我们乐道可用的换电站的数量也在逐步增加,现在的话是已经超过1900座了。 Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan And the third key driver is regarding

battery swap and also battery charging and the swapping network, mainly the battery swapping network. Right now, in China, more than 1,900 PowerSwap stations are available for AnWu users with a lot more batteries available or circulating in the PowerSwap systems for the AnWu users. And in the meantime, we are rolling out this PowerApp Conti plan where we are increasing the Conti-level coverage of our PowerSwap network. In Beijing, Shanghai, Jiangsu, Zhejiang, Guangdong, and Tianjin, we already see the county-level coverage of our PowerSwap network. And for the next step, we will continue to increase such coverage across more provinces and counties, which will be actually even more important for the Anvo users and products.

We have also been experimenting in three or four counties and some even lower-level cities. We have been exploring how to use PowerSwap to carry out a low-cost sales operation mode. In terms of the current initial testing, the results are still very good. That is to say, in the city of Huanlian Station, or in some local cities, we do not need to open stores. We rely on Huanlian Station as a product exhibition and a place for user experience. There are also some local sales team. We believe that this method is unique to NIO and unique to LeDao in the future. This year, we will increase sales through HuanMianZhan. This will become a very systematic work. We believe that this will be of great help to LeDao's sales improvement.

And in the meantime, in lower tier cities like third or fourth tier cities, we are also trying to use a power swap station as a window of opportunities or a point of sales for the sales and operations, but of a lower fixed cost than a physical store. So to put it simple, basically, in some counties and also prefecture-level cities, we don't need to open up the actual stores or showrooms. Instead, we can use a power swap station as a point of sale to present our product and provide experience and trust-to-drive sessions for our users supported and facilitated by the local sales team. This is actually a unique advantage of the of NIO as the entire company, especially to boost the sales in the lower tier cities. This will be very important and also a systematic approach to boost the sales of Angle.

So in general, we think that L60 will return to a sales level of more than 10,000 units. We think we still have confidence. Then L90 will officially hand over in the third quarter. From now on, after Shanghai's mass production, we have also done some product demonstrations in some cities. Our users' expectations are very high. This solves some of the users' pain points of doing large SUVs in three rows. And recently, the Ministry of Industry and Industry also announced that our energy consumption level is also a level that makes users very satisfied. So L90 will enter, I think it will change the large-space flagship SUV, or the market pattern of three-seater SUVs. It is a product power. Then the subsequent L80 will be sold out in the fourth quarter. So this year, there will be three products with very good productivity. These are high-quality products that focus on the family market. That will form a better co-operative advantage. So if we add up the three products, we also hope that the fourth quarter can achieve a sales target of 25,000 units a month.

With that, we are confident that the monthly sales volume of Anwo L60 will be bouncing back to more than 10,000 units. In the meantime, the second product of Anwo L90 will be released and delivered in Q3 this year. Since its debut at the Shanghai Auto Show, we have also brought the product to several cities for the showcasing, and our users are actually looking forward to this product as L-90 comes with a huge flunk. This has also solved one of the biggest pinpoints of a three-row SUV without enough space for storage and the luggages. And also in the recent information released by the MIIT, Anwu L-90 also boasts impressive energy consumption and energy efficiency within its class. So basically, we believe that L90 will be a game changer in the large space SUV or three-row SUV segment. And in Q4, we will also release the L80 product. Then by end of this year, there will be three products under the Envo brand, and these three products will all be targeting family segments with high build qualities and experiences. And this lineup will also provide better synergies, and in that case, Our target is to realize a monthly delivery of 25,000 units of this three products in Q4.

Thank you, Min. Thank you, William.

Your next question comes from Ben Wang with Deutsche Bank. Please go ahead.

Thank you. My first question is about the second quarter, because you've got a new festive product at a higher price and use the in-house semiconductor. In any chance, you've got a further margin expansion in the second quarter for the vehicle margin, which will help the overall gross margin back to double-digit.

Okay, Huang Ming. The second quarter, as we just said, the 2025 model, new ES6-146-175-175T from NIO, we successfully completed the replacement of the product. Therefore, the corresponding price of the whole transaction will also rise. In addition, we have also communicated with everyone before that we will also provide a cost optimization of about 10,000 yuan for the single car. Uh, uh, This is the manufacturing cost of this single car, which brings some optimization. Because it is only a single model, so in general, the profit margin of Onworld may be... There will be some improvement, but it won't be that huge. The main improvement will come from the launch of new products in the third quarter. So, in general, the overall strength of the product in the second quarter, the three brands together, should be improved than in the first quarter. And then back to the two-digit level, I think it's still our goal.

Thank you for the question.

As in Q2, we have completed the product transition for the new brand. We have successfully launched and started to deliver our new ET5, ET5T, EC6, and ES6. With that, we also witnessed the increase in the average product price of the new models And also, as the new models are equipped with the in-house developed chip, this can also contribute around 10,000 RMB saving and cost reduction per unit. With that in Q2, the vehicle growth margin of the new brand will be improved to around 15%. And for the Anwu brand, as in the second quarter, it will still only have one product, L60, as the L90 will be released in Q3. Then, as we expect the growing volume for the L60, we also expect certain improvements regarding the manufacturing cost, driven by the volume increase. But as it is only contributed by one model, the improvements from the manufacturing cost perspective will be limited. And the major growth margin driver for the Anwo brand will still be happening in Q3, driven by the launch of the new model. With that, we believe that the overall growth margin In Q2, we'll be coming back to double-digit.

That's our target. And a little bit more information on the new products.

As our core volume products 5.5 and 6.6 were having the vertical product transition during the April and May with that to clean up the inventory for the previous generations. We offered the promotions with that the actual vehicle margin for that generation was relatively low. But starting to run as we are rolling out and delivering new products We also witnessed better or improved margin on this product. For ES6, the vehicle growth margin will be around 20%. EC6 is slightly higher than the S6. And also for the ET5 and ET5 Touring, we also expect improved vehicle growth margin. So overall speaking for the new brand, the vehicle margin improvement is on the right track.

Okay, my second question is about CDO. Let me give you an example. According to the company's guidance, the future of 25,000 units, let's say our CDO can make 130,000 units and make $3.5 billion in profit with $250,000. If the profit is $18, then we will have a profit of more than $60 billion, minus the $2.5 billion in development expenses, which is $35 billion. How do you think this is a company's idea? How can we achieve a specific and profitable assumption? My question is about the number four quarter break-even assumptions. New brand will reach 25K in the number four quarter this year. Similarly, all the brands will also have 25K. Let's assume they can sell 130K in the number four quarter. We have 250,000 in BST. Roughly, we can reach 35 billion top line. So if we got 18% gross margin, we can reach roughly 6 billion first profit. You have mentioned you prefer the R&D space will decline to 2.5 billion. You also actually guide that in the same space will be around 10% of the top line. So overall, the total OPEX will be around 6 billion. And I assume this is roughly the assumption to reach a break-even in number four quarter. Thank you.

Thank you, Mr. Wang. I think the company you run, the profit company, is not much different from what we have in terms of business. That's our goal. So in general, we think that the sales of 50,000 units per month, the three brands add up, may be a little more than 50,000. Then 17% to 18% of the profit, The cost of development and sales management is about 10 points, and the cost of development is about 6 to 7 points. So it can be realized. But in fact, we also have a lot of peers. There are also some peers who almost use such a scale to realize profits. I think we can of course. So this is currently a basic plan of our business.

Thank you for the question. Actually, the equation you have mentioned is more or less our operational target internally as well. Regarding the monthly sales volume, slightly over 50,000 units a month, equal gross margin 17 to 18 percent combined margin. FG&A expenses within 10 percent of the sales revenues and for the R&D expenses also achieving That level of management and control, with that we are able or we have the confidence of achieving the break even as we see also our peers who achieve the profitability running on a similar scale and also the similar numbers.

那在21年的时候呢,我们在毛利率是达到过超过20%的。 So, because at that time we had not yet entered three brands in a high investment cycle, we have a lot of R&D projects that have just begun. So, our one-dose, every Q of Cuisine is also within a controllable range. Of course, in the past few years, it has been our high investment period, whether it is in R&D, multi-brands, as well as our infrastructure construction, sales service network. . . . Back in 2021, when we just had one new brand, we also managed to achieve a vehicle growth margin of over 20%.

But back then, we haven't started. the major investment in the R&D or the multi-brand strategy. As starting recent years, we have witnessed quarter-over-quarter losses mainly because of our intensive investment into the R&D of the new products and technologies, multi-brand strategy, and also the network development, especially infrastructure network. But starting Q2 this year, we are also starting up as a year of harvest or a period of harvest where we are going to see the tangible results starting Q2 and then towards Q4 this year, the results from our brand development, product development network, and also network development as well as the cost reductions and efficiency improvement. With that, I think your equation or your assumption is kind of also a guidance for us to achieve our operational target and also profitability. in Q4 this year, and we are confident in that.

Thank you. Thank you very much. Thank you.

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

Hi, William. Thanks for taking my question. My first question is regarding the market feedback after the delivery of the 5 Series and 6 Series. I have seen some positive comments, but also have seen some disappointment among some of the car buyers saying it is still using like 400 volts battery instead of like the 900 volts like the ET9. Do you have any plan to switch into the 900 volts battery system at certain points? And what other feedback have you received from the car buyers? That's my first question. Thank you.

Thank you, Paul. Our 2025 model is our new ES6, EC6, ET5, ET5T. After the launch in May, the overall market feedback is still relatively positive. Because the product power has indeed improved a lot. And some of the technologies we used on ET9, such as chips, Thank you for the question.

Since the launch of our new ES6, EC6, ET5, and ET5 team in late May, we have received quite a lot of market feedback and mostly positive, as people do see significant improvement in the product competitiveness. especially for the chip technologies, iOS vehicle operating system, and also active safety features we have debuted on the ET9 are also now available on the 5 and the 6 series models.

We have not upgraded the high-pressure platform this time. We think that at this stage, we can provide users with a good experience by exchanging power networks. In terms of energy efficiency, we have made a significant improvement. For example, the battery life of this car is still better than before. So in general, the user experience in this aspect is not bad. Because this is indeed a advantage of NIO, which can be changed and upgraded. . . . . . 我们短期内没有把这几款车升级到800伏平台的计划。

And regarding the high voltage platform for the 55 and the 66, they are still running on the 400 volt. The overall feedback is also OK, as we not only have improved the energy efficiency of these four models for extended driving range than the previous generation, we also have our power swap network that can ensure a good experience for our users. Especially, we have this chargeable, swappable, and upgradable network enabled by the power swap. We also provided the flexible battery upgrade vouchers to our users for the new 55 and the 66 models In that case, they have the flexibility to upgrade to 100-kilowatt-hour battery for longer range. And if they would like to have an even longer range, they can also choose to upgrade to 150-kilowatt-hour battery with more than 1,000-kilometer driving range. So overall speaking, with improved energy efficiency and also chargeable, swappable network, the feedback on the high-voltage system is fine. And for the short term, we don't have plan to upgrade these four models to the 900-volt architecture platform.

Thank you, Paul.

Yeah, thank you. My second question is regarding the channel network. Right now, you have the NEO and the Anvo, two networks, and Firefly is sold within the NEO system. And just now, you have mentioned that... there is some innovative and new exclusive solutions by leveraging with the battery swap station and to do the product demo and show up. Do you foresee at certain points that you could further reform the channels and by leveraging with the synergies between the two networks and perhaps some cross-sell or certain like merger of the network? How do you think about the channel management?

NIO and Le Dao are still independent in terms of sales and stores, but many aspects of our back-and-forth system have been opened, including the headquarters and the area. We also have some areas where the general manager of the future Le Dao area will be appointed by the same person. There are also some attempts in some areas. So we are still looking at how to balance the efficiency and the two brands' difference in competition. So in general, the direction will increase the coordination, but it will not merge. This is a big direction.

Thank you for the questions. Regarding the point of sales for the Envoy and the new brands, we will still keep them separated. But in the mid and the back end, we are leveraging the synergies and also better integrate between these two brands, both in the headquarters and also in the regions. Actually, in many regions, the general managers of those regions are taking the concurrent roles to manage the sales of both new and the Envoy brands. So overall speaking, we will better integrate these two brands from the mid- and the back-end perspective for better efficiency and synergies. But in the meantime, we will also need to strike a balance between efficiency and the brand differentiations. So the longer term is to further integrate and leverage the synergies, but we will not be combining the point of sales.

. . . . . Our product and service experience is a point of display. Because this is our very unique competitive advantage. Then NIO's Anvo users, we also did a survey. Anvo users have about 60% will take the decision point because it can change electricity as the first purchase. So we also saw that the change station is a very big value for Anvo to sell. In fact, from the perspective of NEO's own practice, we have a town in Shandong. This town does not actually have the store of NEO's sales, but we have a few exchange stations. In this town, it is called Xingfu Town. There are more than 1,000 future users in this town.

Regarding using power swap stations as a point of sales, we are doing some demonstrations and the pilot rounds in certain regions where we will not open the stores but use the power swap stations as a window to reach out to our users and demonstrate our products and services. In that case, we will have the sales team and the fellows on-site, but they will promote the product without having the stores. This is actually a unique selling point or a unique advantage of the new company by leveraging the PowerSwap stations. And especially for the Envoy users, in our survey, we have found that around 60% of Envoy users actually think PowerSwap station or the capability of doing power swap is the top purchasing reason for them to buy the Anvo products. This is also another demonstration of the significant value of a power swap for the Anvo products and Anvo cells. And the same actually happens to the new brand as there is a small county in Shandong called Xinfu County. And in that place... Actually, it's a town. There's a town in Shandong called Xinfu Town. And in that place, we have no storage or showrooms, but only several power swap stations. Yet in that place, we have more than 1,000 new users. This is also a lively case showing how a power swap station can contribute to the sales volume. In that case, we are doing a series of systematic measures and also designs centering on using power swap as a point of sales.

Thank you, Pao.

Thank you very much, William. That's quite helpful.

Your next question comes from Yukin Ding with HSBC. Please go ahead.

Thank you, Ding. I've got two questions. The first is continuous on the overall model. So the two new models are actually at a higher pricing point. What was the key selling point against the current backdrop that seems to be a little bit of a consumption downgrade this year? And roughly what's the mix between 60-80 and 90 expectation, especially by the end of the fourth quarter?

Yes, the L90 is a large-space flagship SUV. It is a three-seater SUV. The L80 is a five-seater SUV. Of course, these two models are mainly aimed at the family market.

Thank you for the question. Envo L90 is a smart large-space flagship SUV. It's a three-row SUV, and the L80 is a large five-seater SUV, and both models are mainly for the family users.

从乐道品牌的角度来讲,我们的产品的话呢,

And overall speaking, for the Anvo's products, it is based out on NEO's technology and innovation with a targeted design for the family users.

Yes, we have a value company for family vehicles. We will analyze the users' scenarios of Chinese family vehicles. Our products' experiences and functions are developed according to the value creation of users.

And with that, we actually studied the mainstream family users in the Chinese market, and we have developed a value equation for the product definition and also development of our brand. With that, our design and also functionalities of the product will mainly serve the value creation for the family users.

那我们在上海车展的时候已经展示了我们L90的一个空间的一个竞争力啊,我们通过这个前备舱啊,那让大家看到了我们在坐六个人的情况下仍然可以装载十个行李箱,那么这个在现在的这种不管是什么燃油形式的这样的一个三排座的SUV的角度来讲的话呢,是没有人做得到的。

And as we have debuted the L90 at the Shanghai Auto Show, we have demonstrated how large the space is with this model, especially with its big trunk. With six occupants on board, the cars are still enough to accommodate ten suitcases. Actually, this is an unprecedented functionality for a three-row SUV, be it running on batteries or ice or range extender. This is actually a product innovation driven by our tech innovation and space innovation.

Recently, the Ministry of Industry's product announcement This shows that we have a technical ability in terms of energy efficiency. Our 85V battery, L90, can run 600 kilometers of battery life with such a large SUV. This is also much better than our peers. This is also very important for family users. The cost of use is very important and the ability to run.

And in the recent information released by the MIIT people is also impressed by the low energy consumption and the energy efficiency of the L90. Because it's such a big three-row SUV and running on 85 kilowatt-hour battery, the car still manages to achieve 600-kilometer driving range. This is actually an impressive result achieved on this model and also a very important advantage for the family users considering the overall driving range and also the cost of their ownership.

We believe that technology innovation, including the drop in battery prices, Let the medium-sized and above SUVs market should be in this year Will attract such a real-time turning point If we look at it, in fact, this year In the medium-sized and large SUV market in L90 and L80 In fact, let's look at the growth of BEV in the first four months 63% But the real-time growth of Wave is only 1% But PHEV has also grown a lot, more than 60% So we believe that L90 and L80 should be able to change the two products of this industry. We are very confident. Behind it is mainly the experience of the users brought by technology innovation. And actually driven by the tech innovation and also the lowering lithium price or in general battery cost,

we are seeing a turning point for the growth of the mid and the large SUV, battery electric SUV. If you look at the first four months of this year regarding the growth rate in the mid to large and also large SUV segments, The growth rate for the BAF models is actually 63% year-over-year. For the range-extended version, it's only 1%. For P-Hive, it's also roughly 60%. With this as a backdrop, we believe that L80 and L90 will be two game changers in this segment, and we have confidence for that as well. We are creating better experience and also more user value through our tech innovation and the product innovation. Plus, we have our nationwide available PowerSwap network to help relieve the range anxiety of our users. With that, we believe that this year we'll also witness the turning point for the growth of mid and large battery electric SUV segment.

Thank you, Yuchen.

Thank you, William. The next question is about... Yes, go ahead, please. Yes, sorry. While the company is heading towards the fourth quarter break-even target, we are also conscious that the bearing ratio is also running high. Could you share a little bit more about the cash flow improvement and the cash management?

Yes, I have a few questions. In the first quarter, the cash flow dropped a lot, of course, because of the seasonal reason. Our sales in the fourth quarter last year was more than 72,000 units, and this year the first quarter is more than 42,000 units. So the flow of working capital is actually about one hundred billion. In addition, we also have some CAPEX investments in the first quarter, and we have to pay back about 270 billion yuan of C.B. of C.B. of C.B. of C.B. of C.B. of C.B. of C.B. of C.B. of C.B. of C.B. of C.B. of C.B. of C.B. of C.B. Of course, in the end of March, we also completed the financing of a Hong Kong stock, which is a total of 40.3 billion Hong Kong dollars. This money actually came to our account in early April and did not enter the report of the first quarter. So in general, our sales began to return to a normal track in April and May, which I just shared with you. Thank you for the question.

In Q1 this year, we see the lower range of our cash position. This is partially due to the synonymy of the car sales. As in Q4 last year, our sales volume was 72,000 units. Well, in Q1, it's 42,000 units. that has actually caused the outflow of the working capital of more than 10 billion RMB. And in the meantime, we also have some capital expenses as well as one of the expenses, for example, the put option for our convertible bonds, which is around 2.7 billion RMB. But in the meantime, we are also raising funds. In late March, we have completed the fundraising through our um in hong kong stock exchange and raising around 4.03 billion hong kong dollars yet this part of the fund raising was not recognized until early april so it was actually not recognized in our q1 financial results but as we have shared starting april we are seeing our south volume to pick up the pace with that this will also help bring our operating cash flow to the um to the normal tracks

Q3 and Q4, we have a higher target for sales. So, based on the Q3 and Q4 sales, our cash flow will continue to increase. From the current year's goal, we should be able to achieve a positive flow of free cash flow.

As we have mentioned, our volume guidance for Q2 is between 72,000 to 75,000 units. This will help further improve our operating cash flow. In Q3 and Q4, we have higher expectations and targets for the sales volume, which will help our operating cash flow to continue to grow and improve in Q4 this year. For the full year, we also see the possibility of achieving positive free cash flow.

In the meantime, we will continue our cost reduction and efficiency improvement efforts to have a tighter control over our OPEX and CAPEX to make sure that our expenses are necessary.

Thank you. Thank you.

The next question comes from Jing Chang with CICC. Please go ahead.

Thank you for taking my question. I only have one question about overseas market strategy or target and especially for the Firefly Global expansion. So regarding to the overseas market, I think that the last year we have already achieved sales volume of several thousand units, especially in European market. So in this year, from the beginning, we see that several brands in European market, they expand a lot and grow rapidly. And also considering the potential adjustment of the tariff policies, where European market or overseas extension become a strategic priority for 2024 and what's our overseas sales target for this year. And also, we see that we have mentioned the Firefly's global expansion, so ClearShare more details, including the timing, also region priority, and also the pricing strategy.

Thank you, Tangjing. In general, this year we have actually changed our strategy to enter the global market. In the past, when we went to Europe, we mainly used direct sales. This year, we have changed to find a partner in each country. As I said before, we have been working with 10 partners in 15 markets. Of course, we will add more partners. For the global market, we will think about it from a long-term perspective. FY this year will enter some European countries, including some global markets. Next, we will look at Envoy. Taiwan Taiwan Taiwan

As mentioned, starting this year, we have started to change our global expansion strategy. Before, in Europe, we mainly relied on our own sales and service network via the direct sales model. Starting this year, we started to switch to look for local partners for each country. And as I've mentioned, we have already partnered with more than 10 partners in more than 15 and we are bringing more partners on board for more or for broader market entry. And regarding the overall global expansion and the strategy, we actually have a pretty long-term view for our international development. For the Firefly brand, it will be rolled out to several European countries as well as several other countries this year. And regarding the product from the UNWO and the new brand, depending on the demands of the markets, we will also see if there are good products for some countries and regions worldwide. But overall speaking, we don't have a very aggressive volume assumption or target for the global market because we mainly look at this for a very long-term perspective.

Your next question comes from Tina Howell with Goldman Sachs. Please go ahead.

Thanks, management, for taking my questions. I have two questions. The first one is as we are targeting to reach the more than 50,000 monthly volume at the 4Q of this year, how are we planning our production capacity? What kind of production capacity do we have now? And then what level will we reach by 4Q? And then are we adding new lines or adding double shift to achieve that?

Tina, our current production capacity should be able to meet our 4Q plan. Our third factory should be the first to start production in September. Thank you for the question.

Our current production capacity will be enough to support our delivery assumptions for Q4 this year. We are preparing our third factory and it will be put in operation starting September. And for certain production lines in some factories, we also have the flexibility to arrange double shifts. In that case, production capacity won't be a problem for us.

Thank you. And then my second question is regarding our working capital, our cash conversion cycle, because we have observed that both if we look at full year 2024 versus 2023, the account payable days, account receivable, as well as inventory days have actually gotten longer. And if we look at 1Q25 versus 1Q24, these days also got longer on a year-over-year basis. So going forward, I think for the full year of 2025 and maybe longer term, how should we think about these cash conversion cycles? What is the optimal days for these working capitals? Thanks.

Tina, in general, when you mentioned the two weekly problems, one is inventory and the other is payment accounts, let's talk about the inventory first. Indeed, as the entire market competition intensifies, the entire sales model has changed from a complete OTD model to a model that focuses on line vehicles and OTD as the main model. uh uh uh uh uh uh Thank you for the question.

As you have mentioned two key parameters, inventory level and also the account payable. Regarding the inventory level, as we see growing intensity in terms of the market competition, we are also switching our sales model from OTD that's order-to-delivery model to more inventory-based In that case, this is also a better practice to cater to the demands of the consumers where many of them would like to pick up their cars as soon as possible. So as now we are switching to the inventory-based sales model, we also are seeing higher inventory levels regarding the vehicles as well as the production materials in comparison to the OTD mode. If we would like to continue to keep up the sales volume against the growing fierce competition, Then we will also see the growing level of the inventory, but we will have a very strict and tight control over the inventories of both vehicles and the materials. Basically, the reasonable inventory level of the vehicles will be around one-third to half of the monthly sales volume of each brand.

There hasn't been much change in the balance sheet for supply and demand. However, you can see that the balance sheet is fluctuating from a report to a calculation. Quote over quote, there will be some flux, mainly because of the fluctuation caused by the use of the money in it. Uh, uh, uh, 100% cash, which depends on the accuracy of the material and the situation of the supplier. So, in general, the balance period for our payment accounts has not changed. Of course, with the increase in our payment amount, our balance period based on such a balance period, the balance of our AP will definitely increase, because the balance period is based on our purchase amount.

And regarding your second question on where the second parameter on the account payable, actually the payment duration we set for our suppliers has always been the same, that's around the 90 days. but due to the accounting and also financial releases quarter over quarter, there are certain fluctuations that is also related to the use of the check for the payment. Within the 90-day payment duration, normally we will pay half in cash to our suppliers and another half in check, but depending on the Supply of the goods and also the urgency of the supply were the types of suppliers They will also have a variety of terms and conditions for the payment certain receive a hundred percent payment only a hundred percent payment in check and certain will only receive or allow for a hundred percent payment in cash within 60 days so the payments terms and conditions also vary from supplier to supplier, but the overall duration is consistent as we see growing self volume and In that case, we will also see growth in the purchasing value of these commodities and goods from our suppliers multiplied by the volume and also the duration. We will also see the rising level with our account payable. But overall speaking, that's actually normal as it's relevant to the volume, the sales volume of the product.

Thank you, Tina.

Thank you. That's very clear. Thanks, William and Stanley.

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 our IR team through the contact information on the website. This concludes the conference call. You may now disconnect the line. Thank you.