NIO Inc.

Hello, ladies and gentlemen. Thank you for standing by for NEO Incorporated's first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Mr. Ray Chen, head of investor relations and corporate finance of the company. Please go ahead, Ray.

Good morning and good evening, everyone. Welcome to NIO's first quarter 2026 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. 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 a certain filing of the company with the U.S. Securities and Exchange Commission, the Stock Exchange of Hong Kong Limited, and the Singapore Exchange Security 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 Niel's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. please refer to Niel's press release, which contains a reconciliation of the un-audited non-GAAP measures to comparable GAAP measures. With that, I will now turn the call over to our CEO, Mr. William Li.

William, please go ahead. Hello, everyone, and thank you for joining Niel Inc.'

's 2026 Q1 Earnings Call.

The company is expected to deliver 83,465 smart electric vehicles, with a growth of 98.3%. Among them, the future brand will deliver 58,543 new vehicles, which will stabilize China's sales price of more than 300,000, and become the champion of the industrial market. Lezao brand will deliver 13,339 new vehicles, and continue to release the potential for growth. Yinghuchong brand will deliver 11,583 new vehicles,

In Q1, 2026, the company delivered a total of 83,465 smart EVs, representing a year-over-year increase of 98.3%. Breaking it down by brand, the new brand delivered 58,543 vehicles, maintaining its leadership in China's BEV segment priced above 300,000 RMB. The AMO brand delivered 13,339 vehicles, continuing to unlock its growth potential. The Firefly brand delivered 11,583 vehicles, ranking number one in China's high-end small car segment.

In April 2016, the company delivered 29,356 autonomous electric vehicles, with a growth of 22.8%. From the second quarter, three major brands entered the new product market In April, the company delivered 29,356 vehicles, up 22.8% year over year.

Starting Q2, the three brands have entered an intensive product launch and delivery cycle. which is expected to support continued rapid delivery growth. We expected the total deliveries in Q2 to range between 11,000 and 11,500 units, representing year-over-year growth of 52.7% to 59.6%.

In terms of financial performance, in the first quarter, the company's overall net profit rate reached 19%, which is due to the increase in the proportion of high-profit models, On the financial side, the company's growth margin was 19% in Q1.

Driven by a higher contribution from higher margin products, vehicle margin came in at 18.8%. improving quarter-over-quarter for the fourth consecutive quarter. Margin for other sales, mainly services and community-related businesses, reached 20.6%, the highest level in the past four years, with both business scale and profitability achieving improvement.

In the first quarter, the company once again realized the profit of non-GAAP management profits and realized the positive management cash flow. The cash reserves were further increased to 482 billion yuan.

In Q1, the company maintained positive non-GAAP operating profit and positive operating cash flow, where cash reserves would have increased to 48.2 billion RMB.

In the future, we will stick to the pure electric technology route and continue to strengthen the creative ability of the system to build different competitive advantages through technology, products, services, and communities. Thanks to this, the three major brands' product competitiveness and comprehensive experience are widely recognized by their target users.

NIO has remained committed to the BEV roadmap while continuously strengthening its systemic innovation capabilities. Over the years, the company has built distinctive competitiveness across technology, products, services, and user community operations. Supported by these capabilities, the products and overall experiences of NIO, Anvo, and Firefly have gained broad recognition among their respective target users.

In the future, Since the launch of the new ES8 in September 2025, it has completed the 100,000th delivery in 215 days. It is the fastest delivery record of more than 400,000 cars in China's used car market. As of April this year, the new ES8 has received large SUVs and more than 400,000 cars in five consecutive months. It is the sales champion in energy form. In early April, the new ES6, EC6, ET5, ET5T, to be officially listed and delivered to meet the needs of multiple users with more comprehensive product power. On April 9, we conducted a product and technology release of the future ES9 of the technology administrative flagship SUV. ES9 is equipped with a number of industry-leading first-hand technology and the same-level leading configuration, which will redefine the standards of the administrative flagship SUV to lead the market and the market segment into the era of pure electricity. ES9 will be listed and delivered on May 27,

For the new brand since delivery began in late September 2025, the all-new ES8 reached its 100,000th delivery milestone in just 215 days, setting a new delivery record among passenger vehicles priced above 400,000 RMB in China. As of April this year, the all-new ES8 had remained number one in both the large SUV segment and the passenger vehicle segment priced above 400,000 RMB for five consecutive months, regardless of powertrain type. In early April, the 2026 ES6, EC6, ET5, and ET5T were launched and delivered, further addressing evolving user needs through enhanced product offerings. On April 9, we officially unveiled the new ES9, our flagship executive SUV. The ES9 integrates multiple industry-first technologies and class-leading features, redefining the standards of executive flagship SUVs and leading the segment into the BEV era. The ES9 will officially launch and begin deliveries on May 27, and we are confident that the ES9 will set a new benchmark in the flagship executive SUV market, priced above 500,000 RMB.

In terms of LeDou brand, L90 has been performing well in the first quarter market. It is the biggest sales champion in the range of $200,000 to $300,000. This year, LeDou brand will make a full progress in product generation and core technology. Currently, the 2016 LeDou L90 has been delivered to the market. After the upgrade, the L90 will be equipped with the future self-propelled self-propelled chip, the new NX9031, and the future 4G model. as well as SkyOS, the self-propelled all-wheel drive system. On May 15, the smart twin-seater five-seater flagship SUV, the LeDou L80, will be officially launched and delivered. The LeDou L80 is the innovation of the five-seater SUV market. It is currently the five-seater SUV with the strongest domestic storage space. With the innovation of technology and space scenarios, it will meet the diversified scenario needs of five-seater SUV users.

For the Envo brand, the L90 continued its strong market momentum in Q1 2026, ranking number one in the large SUV segment priced between 200,000 RMB and 300,000 RMB. This year, Envo will achieve comprehensive upgrades in both products as well as core technologies. The 2026 L90 has already been officially launched and delivered. The upgraded L90 now features new in-house developed NX1931 smart driving chip, new world model, and the SkyOS full-domain vehicle operating system. On May 15, the AMO-L80, a flagship large five-seat SUV with an innovative trunk and trunk layout, was officially launched and delivered. The L80 is a breakthrough product in the large five-seat SUV market and currently offers the largest cargo capacity among five-seat SUVs in China. Through innovative space and the scenario-based lifestyle solutions, the L80 supports a wide range of scenarios for large five-seat SUV users. In addition, the new L60 will make its debut in late May. The updated model will feature upgrades in exterior design and smart features,

further enhancing its competitiveness.

For the Firefly brand, the refreshed model has already started the deliveries in Q2, bringing comprehensive upgrades in powertrain performance and smart experiences. Going forward, Firefly will continue to introduce limited edition models to further strengthen its distinctive brand identity.

In terms of smart value technology and experience, in the beginning of this year, we officially introduced the new version of the future world model NWM to our users. Through the world model NWM and the leading technology framework of closed-loop reinforcement learning, we significantly optimized the experience of full-space navigation. One quarter after the introduction of the latest version of the future world model, The driving force of the city-region navigation assistant has been increased by 92% in comparison to the usual ratio of 116%. At present, the technical structure is also able to enjoy the new product's self-driving experience. In June, both the future and the pleasure will welcome the new version of the future direct model NWM upgrade, including the full-scale self-driving experience in the vehicle, motor vehicle and road safety. It will continue to be significantly improved

On smart driving, earlier this year, we officially rolled out a major new version of New World Model, or NWM. Powered by the advanced architecture featuring the world model and reinforcement learning, the new version significantly enhanced the full scenario navigate on pilot experience. Within one quarter of the rollout, urban NLP knowledge increased by 92% quarter over quarter. while the proportion of smart driving usage time increased by 116%. So far, the smart driving system powered by NWM has been introduced across ANWO's new products. In June, both new and ANWO users will receive the next major NWM upgrade, bringing noticeable improvements across driving, parking, and active safety scenarios.

In terms of sales and service networks,

The company now operates 168 new houses, 389 new spaces, 430 anvil stores, as well as 408 service centers and 90 delivery centers. We continue to optimize our sales and service network layout through the highly coordinated SkyStore model, expanding market coverage while strengthening local presence and increasing network density.

In terms of the network, We have already set up 3,916 power stations around the world, and have built more than 28,000 supercharging stations and destination charging stations. On May 10, the future ES9 successfully completed the 10,000-kilometer shortest use challenge. The whole process took only 94 hours and 19 minutes and 11 seconds to successfully refresh the industry record, fully verifying the core advantages of the charging mode, reliability, efficiency, and convenience.

As of now, the company has 3,916 power swap stations worldwide, along with more than 28,000 power chargers and destination chargers. On May 10, the new ESMI successfully completed the 10,000 kilometer challenge in just 94 hours, 19 minutes, and 11 seconds, setting a new record among BEVs in China. This further demonstrated the reliability, efficiency, and convenience of battery swap.

May 20th.

the company released its 2025 environmental, social, and governance report and announced its greenhouse gas emissions reduction target, aiming to reduce the carbon footprint per vehicle by 43% by 2035 from the 2023 baseline. By delivering the high-performance smart EVs and exceptional user experiences, we aim to build a sustainable and a brighter future together with our users and partners.

After 11 years of long-term investment and persistence, the company's core technology around smart electric vehicles has built up a 12-generation full-time self-employed system and gradually formed an innovative system in the fields of engineering, supply chain, manufacturing, quality, energy and service. This not only marks the company's continued ability to launch innovative products and lead industry development, but also the core source of the long-term competitiveness of the brand. Currently, After 11 years of long-term investment and persistence, the company has built full spec technology capabilities around the core technologies of smart EVs.

At the same time, we have gradually established a systemic innovation capability, spanning R&D, supply chain, manufacturing, quality, power services, and user services. These capabilities not only enable us to continuously launch innovative products and lead industry development, but also serve as the core foundation for our continued brand development and long-term competitiveness. Today, Neo, Envo, and Firefly have each established clear market positioning, with their core products steadily increasing market share in their respective segments. We are confident in achieving our business targets for the year and delivering sustainable growth beyond 2026. Thank you for your support. With that, I will now turn the call over to Stanley for Q1 financial details. Over to you, Stanley.

Thank you, William. Let's now review our key financial results for the first quarter of 2026. Our total revenues reached 25.5 billion RMB at 112.2% year over year and down 26.3% quarter over quarter. Vehicle sales were 22.8 billion RMB up 129.2% year-over-year, and down 27.9% quarter-over-quarter. The year-over-year growth was mainly due to increased deliveries and a higher average selling price, given by positive product mix effect. The quarter-over-quarter decrease was mainly due to fewer deliveries. Other sales were 2.7 billion RMB, up 31.2% year-over-year, and down 9.7% quarter-over-quarter. The year-over-year growth was driven by increased sales of parts, accessories, and after-sales vehicle services and provision of power solutions, along with a rise in sales of auto financing services. The quarter-over-quarter decrease was due to decreasing revenues from technical R&D services and used car sales. Looking at margins, Vehicle margin was 18.8% compared with 10.2% in Q1 last year and 18.1% last quarter. The year-over-year and quarter-over-quarter improvements were driven by a more favorable product mix. Other sales margins reached a record high of 20.6% in recent four years, reflecting the continuing profitability improvements in our user-based driven service and community-related businesses. With the improvements in both vehicle and other sales margins, overall gross margin increased to 19%, compared with 7.6% in Q1 last year and 17.5% last quarter. Tending to OPEX, R&D expenses were 1.9 billion RMB, decreased 40.7% year over year and 7% quarter over quarter. The year over year decrease was mainly driven by lower personnel costs in R&D functions due to organizational optimization, reduced design and development costs from different development stages, and improved operational efficiency. The quarter over quarter decrease was also mainly due to lower design and development costs from different development stages and improved operational efficiencies. SGA expenses were 3.5 billion RMB, decreased 20.5% year-over-year and 1.1% quarter-over-quarter. The year-over-year decrease was mainly driven by lower personnel costs and related expenses in marketing and other supporting functions due to organizational optimization. as well as reduced sales and marketing activities. The quarter-over-quarter SGN expenses stayed stable. Loss from operations was 0.3 billion RMB, compared with loss from operations of 6.4 billion RMB in Q1 last year, and profit from operations of 0.8 billion RMB last quarter. Excluding share-based compensation expenses, Adjusted profit from operations was 66.8 million RMB. Net loss was 0.3 billion RMB compared with net loss of 6.8 billion RMB in Q1 last year and net profit of 0.3 billion RMB last quarter. Excluding share-based compensation expenses, adjusted net profit was 43.5 million RMB. Furthermore, We generated positive operating cash flow this quarter and ended the quarter with 48.2 billion RMB in total cash and cash equivalents, restricted cash, short-term investments, and long-term time deposits. That wraps up our prepared remarks. For more information and the details of our audited first quarter financial results, please refer to our earnings press release. Now I will turn the call over to the operator to start our queuing session. Operator, please.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you are on a speakerphone, please pick up 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 reenter the queue. The first question today comes from Ben Wong with Deutsche Bank. Please go ahead.

Thank you. Congratulations for the great result. I got two questions. The first one is about ES9. ES9 will launch next week. Can you share with the customer for the order flow during the pre-sale period? And do you think the ES9 monthly volume in the next several months was the roughly monthly volume guidance? And tonight, ES9 impact the ESA order flow? That's my first question. And second question is about the gross margin. Can you provide a second quarter gross margin guidance even if you have a better volume And also, a cost increase such as memory. So basically, it was your outlook for the growth margin in the next several quarters.

Thank you. Okay, thank you. On January 9th, we will have a press conference.

Thank you, Wang Bin. On January 9th, we will have a press conference. We will have a press conference. Currently, ES9 has been highly recognized by users in terms of technical content, design, shape, and interior design. On May 11, we have opened all the pre-orders. The orders are still very strong, especially after the pre-order. After opening the pre-order, the pre-order of the Japanese army has gone up one step before the pre-order.

Thank you for the question. Regarding your question on the ES9, we will officially launch and deliver the new ES9 on May 27th. And since the prelaunch of the ES9, its technology as well as its exterior and interior design are well recognized and well received by the market and our users. We started the test drive of ES9 from May 11th. And after the test drive, we also witnessed the growing momentum of the order intake on the model.

However, we are not very confident about the specific monthly sales. However, we are very confident about the specific monthly sales. However, we are very confident about the specific monthly sales. However, we are very confident about the specific monthly sales. However, we are very confident about the specific monthly sales. However, we are very confident about the specific monthly sales. However, we are very confident about the specific monthly sales. However, we are very confident about the specific monthly sales. However, we are very confident about the specific monthly sales.

Of course, for us, we seldom disclose the specific order momentum or order intake for the new models. However, we do have confidence in its overall performance in the executive flagship SUV segment above 500,000 RMB in China. And we also believe that it is going to change the landscape of the battery electric vehicle segment above 500,000 RMB. Overall speaking, we are confident in its competitiveness.

In addition, we are very happy to see that after the release of ES9, since the release of our product technology on April 9th, it has not only not divided the order of ES8, but it has brought a very positive impact to ES8. Since the pre-sale and opening of ES9, our entire power flow has increased a lot. A lot of users who did not know about the future because of ES9 are out of power. After these users experience the comparison of the two cars, Some users will think that the size of ES8 and the use case scene are more in line with their needs. So our ES8's recent order performance is very good. After ES9 launched, ES8's average weekly orders increased by nearly 30% compared to the previous few weeks. On May 11, ES9 opened four stores in a week. The return of ES8 orders has further increased by 20%.

And also, since the pre-launch of the ES9, we actually didn't see that the launch of the ES9 saluting or cannibalizing the circus or even the attention to the ES8. Instead, it is generating positive impact on the attention and the order intake of the ES8. Especially after we had the pre-launch and also test drive started for the ES9, we have welcomed a lot of in-store visits and traffic. Many of them maybe didn't know about the new brand or our product, and after they were in the store by experiencing and comparing between the ES9 and the ES8. Some of them find that, as I mentioned, and also the use cases of the ES9 may be a better match for them. In that case, we have actually witnessed an increase in the order intake of the ES8 after the prelaunch of the ES9. One week after the ES9 launch, actually the order intake for the ES8 increased by 30%. And since the Tesla drive started from May 11th, within one week, the week-over-week, ES8 order intake increased by 30%.

In May, ES8 orders increased by 30%. ES8 orders increased by 30%. ES8 orders increased by 30%. ES8 orders increased by 30%. ES8 orders increased by 30%. ES8 orders increased by 30%. ES8 orders increased by 30%. ES8 orders increased by 30%. can ensure that it is still in a very high sales position. Of course, this premise is realized under very strong orders from ES9 itself. So it can be seen that the positioning of these two cars, its range is still very successful. ES9 is a technology administrative flagship SUV. Its core is to represent some traditional models such as BMW X7, Mercedes-Benz GLS, GLS, The ES8 is a full-scale SUV flagship. The scenery is richer. It can be used by both business and family. So the positioning of these two cars is very complementary. The price is also a bit different. So we can see very clearly that these two cars have attracted their target users in their own segment markets.

And in the first 20 days of May, actually the order intake on the ES8 has created a new history high since October, which is the ES8 launch last year. We actually, after, as we have been digesting the order backlogs on the ES8, we have also maintained a pretty stable and strong order intake on the ES8 without compromising on the strong order intake for the ES9. So by having the strong order performance for both models, we can see the positioning of these two products are quite distinguished or differentiated from each other. ES9 is more of a flagship executive SUV. Well, it is more competing with the conventional combustion engine executive flagship SUVs like BMW X7 or Mercedes GLS. Where for the ES8, it is more of an all-around SUV that is catering both business scenarios as well as family purposes. So these two products are complementing each other, while price-wise, they are well differentiated. So we are happy to see that those products are well received in their respective segments.

In the first quarter, we achieved 18.8% of the total interest rate. Compared to the same rate and the same rate, a good result. Of course, this is mainly because we have a very high proportion of high horsepower in the first quarter, especially ES8. The overall proportion is more than 50%. The horsepower of ES8 is still maintained at a relatively high level. It is still more than 20% in the first quarter. The second is that the risk caused by the increase in the cost of materials in the first quarter has not been fully manifested yet. Because we still have some to reduce the risk of such an increase. Of course, from the second quarter and the whole year, I believe everyone has noticed that since the beginning of the year, the price of such a large volume of materials has brought a lot of cost pressure. This includes the increase in the price of memory, and the increase in the price of the main raw materials of the battery, carbon dioxide, And we will use more copper and aluminum for the whole car. In fact, there will be more or less growth. In general, the average cost of each car is actually more than 10,000 yuan. Of course, from our whole company's point of view, our goal is to maintain the overall wool rate of the whole car at 17% to 18%. In this,

Thank you for the question. Regarding your question on the gross margin, in Q1 we have achieved the vehicle margin of 18.8%, achieving quite good increments from both year over year as well as quarter over quarter. And in Q1, the increase in the vehicle margins mainly because of the higher contribution by the higher margin models, especially the ES8 contributing 50% of the margin, where ES8 itself has over 20%. vehicle margin in Q1. And also, in the meantime, although there are rising cost pressure because of the rising material costs, however, our advanced inventories on such parts and components have partially offset such pressure in Q1. And in terms of the Q2 and the four-year, as you may have noticed that there is the rising material cost pressure facing by the entire industry. including the memory chips, battery materials like the lithium carbonate as well as NCM, and also copper and aluminum raw materials. So starting Q2 and beyond, on average, the cost impact per unit is around 10,000 or more than 10,000 RMB. But for the full year, the company still aims to achieve a vehicle margin of around 17% to 18%.

We will do the following work here. One is that William just introduced our high-price, high-performance models, ES8 and ES9. The stand in the entire sales will still maintain a relatively high level, which will bring a relatively high stand. The second is that other models will also ensure the stability of the sales policy. to simply do the work of changing the price. On the third aspect, we will continue to coordinate the cooperation partners of our supply chain, including engineering optimization, efficiency improvement, business negotiation, etc., in various ways to counteract the impact of various cost increases just mentioned. So, overall, our entire Q2 and year-round goals still hope to achieve a comprehensive policy efficiency rate of 17% to 18%.

And to achieve a Q2 and a full year vehicle margin of 17% to 18%, we will be taking several actions. The first is to further increase the product mix of products with higher prices and also higher margin contributions, like the ES8 and the ES9. And for other products with moderate margin, we will also maintain a stable pricing and also promotional policies. we will not compromise on the margin performance of such cars for the sake of a volume contribution. And thirdly, we will also work closely with our supply chain partners to promote the engineering improvement, efficiency improvement, as well as commercial negotiations to together mitigate the cost of pressure. With that, we will target for a Q2 and a full-year vehicle margin of around 17% to 18%.

Thank you very much.

The next question comes from Tim Sao with Morgan Stanley. Please go ahead.

Hi, this is Tim Sao from Morgan Stanley. Thanks for taking my questions, and congratulations on another solid quarter. I have two questions. The first question is about the vehicle sales. because we noticed that cells of the 8 and 9 series large SUV are expected to likely more than triple year-over-year this year, while the rest of the lineup is likely to see a roughly 20% year-over-year decline under our 40% to 50% four-year volume guidance. So once the growth of the 8 and 9 series is fully unfolded and the groups that total volume might approach like a 500,000 units target, how does NIO plan to re-boost the growth of the subsequent models, for example, like a 5, 6, 7 series, which are likely to face greater competition in the market?

That's my first question.

Thank you, Tim.

This year, we have seen the growth of new products, especially high-end new products, This is still a very good support for the growth of the whole world. The growth of the quantity and the growth of the horsepower, we are all very confident. Of course, we also have ES8's five-seat version, such as ES9, which will be delivered soon. Our current ES8 still maintains a very stable sales volume. Then L90 and L80, we believe that in the market of 200,000 to 300,000, it will continue to maintain its leading market share. From next year, we will of course enter a new product cycle. From ET5, ET5T, ES6, EC6, we will of course carry on with our latest smart platform. From an onward perspective, we will also have a new product plan. So now our overall strategy is that every year, Thank you for the question.

As you can see The overall volume growth this year is mainly driven by the models with high price and also high margin. They are playing an important role in supporting both our volume growth as well as our vehicle margin improvement. For the ES8, we will maintain its stable and strong market performance. Well, very soon we are going to start to deliver the ES9, and later we will also introduce the 5-seater of the ES8, as they will all play in such a role. And for the AMO brand, we have L90 and L80 continue to lead the market share and sell in the price segment between 200,000 to 300,000 RMB. And also starting next year, our entire product portfolio will enter into a new phase of development where we are going to upgrade our ET5, ET5T, ES6, and ES6 also to the latest technology platform and digital platform. We believe that the current product planning can

to support the company's competitiveness in the market. From January to April of this year, NIO's existing products, in Shanghai, among all the companies in Shanghai, we are the number one in the market. It accounts for 8% of the total market share in Shanghai. So we are very confident that our existing products China China China China

And we also believe that our existing product portfolio and offering can support and assist in our competition and competitiveness in the market. In the first four months, the total sales of the company actually topped the passenger vehicle market in Shanghai. We've achieved 8% of the market share among Shanghai's passenger vehicle market. And as we continue to expand our channels and the network coverage, as we continue to deploy power swap stations and facilities, as the users in the lower tier cities open up their mind for the battery electric vehicle products, we believe that our existing product lines, as well as our upcoming products, will help us to achieve a reasonable market share within the passenger vehicle market in China.

Thank you very much. Thank you. My second question is about the profit and OPEX, because NIO has posted two consecutive non-GAAP profitable quarters. So do you anticipate maintaining the quarterly non-GAAP profit target throughout 2026? In the meantime, can the current OPEX parameters i.e. SG&A ratio below 10%, and the quarterly R&D spending is at 2 to 2.5 billion. Be adequate to support robust business growth moving forward, and when is the next R&D investment upcycle expected to begin?

That's my second question. Thank you.

Yes, Tim. First of all, from a goal standpoint, in 2026, we will still maintain the goal of operating profits of non-GAAP for the whole year. So specifically, you just talked about OPEC's guidance. Let's look at the development cost first. We still maintain the institutional development cost of 20 to 25 billion, such a guidance of non-GAAP's institutional development cost. But we think that such a question is actually First of all, it can ensure our investment in the field of key technologies, such as chips and many other underlying operating systems. It can also maintain the competitiveness of the company in core technology. Such an investment can also ensure that we will have competitive products every year. William just introduced it to you. In addition, 2 billion is also 20 to 25 billion, we have done a lot of work in the field of marketing. Since we started implementing such a CPU mechanism last year, we have actually used less money to do more things. In fact, from the cost-effectiveness point of view, we think that 20 billion is actually the same as the previous 30 billion. 30 to 30 billion is equivalent, right. Of course, there is also a very important aspect, which is the cost of development. We think that from the technical route, because the future has always been a pure electrical technical route, we have not Thank you for the question.

For the full year 2026, our financial target is due to achieve positive non-GAAP operating profit. In terms of the OPEX guidance, for the R&D expenses, we target to maintain our non-GAAP R&D investment expenses to be around 2 to 2.5 billion per quarter. For this level of spending, We believe that it will be enough to sustain and support our investments into the key technologies, such as chips, operating systems, and et cetera, to make sure that we have strong competitiveness and also technical leadership. And secondly, such investment skill will also support the launch and the rollout of new models every year, as introduced by William. And in the meantime, as we keep the expenses flat, we are also putting efforts in improving the overall efficiency and utilization of such resources. Last year, we rolled out the CBU mechanism, where under that mechanism, we are now using less money to yield more R&D results. As mentioned, the productivity or the yield of 2 billion R&D investment as of today is equivalent to maybe the results of 3.5 billion R&D investment in the past years. And also, for the entire company, we've been staying with the battery electric vehicle roadmap, which can make us more focused than spreading our efforts for range-extended vehicles or P-Hive. In that case, we can be more efficient in making our investments, which is different from some of our peers, where they have to split their efforts for different powertrain systems.

Thank you, S.J. In general, we hope to achieve 10% sales and revenue. However, there will be some fluxes in the quarter. For example, in the second quarter, our main launch and marketing activities this year are in the second quarter. Therefore, in the second quarter, the absolute amount, especially the selling expense, And regarding the SG&A expenses, in general we hope that the SG&A as a percentage of the revenue is around 10%.

but it can be different from quarter to quarter. For example, in Q2, we have a quite intensive product launch and the delivery cycle where the corresponding marketing and the launch expenses are actually higher than the previous quarter. So the absolute amount in Q2 had a surge, especially the selling expenses in Q2 surged a lot from the Q1 baseline. But in Q3 and Q4, as most of the new products will be already in the market by then, then the absolute amount in the second half will also be relatively lower. So there will be also differences from quarter to quarter.

Thank you, Kim.

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

Thank you.

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

Thanks, everyone. Thanks for taking my questions and congrats on this quarter. I have two questions. The first question is regarding the competition in the 9 Series or largest UV segment. I think the success of the ES8 since last year has attracted competitors launching the largest UV as we see in this Beijing Auto Show. and quite of them are even priced with very aggressive pricing. How do you think about the competition in this segment and what is the mode for NIO and how can NIO stay ahead in this segment as a sales lead champion in this high-end large SUV segment? That is my first question.

Thank you, Paul. Indeed, ES8 has created a lot of records.

We completed 100,000 delivery in 215 days. It is the fastest delivery record of a single model of more than 400,000 Chinese brands. In addition, we have won the sales champion in the market of more than 400,000 models and large SUVs for five months in a row. So it is the champion in energy efficiency. So it is very successful. There is half of the big three SUVs with more than 400,000. We have about half of the share, which is 49.7%. I think this success reflects our future 11 years of continuous system ability construction. Such an advantage is now fully reflected through the ES8 product.

Thank you for the question. It's true that the ONU-ESAID has created many records. It has achieved 100,000 delivery milestones in just 215 days, which is the fastest among all the cars priced above 400,000 RMB in China. And for five consecutive months, it has been the sales champion in the press segment above 400,000 RMB, as well as in the large SUV segment, regardless of the powertrain. And looking at the sales of the large three-row SUV priced above 400,000 RMB, yes, it has achieved a 49.7% market share. The reason for its success is because itself is an embodiment of our 11 years of systematic capability and innovation development.

So this system, of course, includes the ability to develop such a technology in 12 stations, as well as our innovative supply chain, because we have Why do I emphasize the innovative supply chain? Because many of our technologies are the first to be used in the industry. So how to manage this innovative supply chain is actually a very big challenge. It also includes our advanced manufacturing, the quality of the whole life cycle, and we are in the third party. Some of these quality rankings have always been number one and number two. There is also our charging power network, the charging power network of social energy. Another very important point, especially for high-end users, In terms of such systemic capabilities and innovation, it includes our in-house capabilities for full stack technologies,

as well as our capabilities for the innovative supply chain. The reason I would like to highlight the innovative supply chain is that on the ES9 we have applied a lot of industry first technologies where we need to work hardly with our supply chain partners to mass produce and make this advanced technologies happen. We also have leading capabilities for the advanced manufacturing, lifecycle quality, which is well-recognized by many authorities in the automotive industry. We also have our smart power systems, our charging and the swapping network. And also, we have established a nationwide premium and holistic car user scenarios and also holistic experience for our users. With the six system capabilities established In the past 11 years, we now are establishing ourselves as a premium brand and also is leading in the premium segment.

In addition to these system capabilities, I think there are two points that we have recently discovered from the market. The first is that we believe that the competition between China's smart electric vehicles and new electric vehicles This brand of a wonton period began to enter into a brand of a clear period Then we are still very happy to see that the future as a high-end brand Has been recognized and accepted by users Users actually already have one BBA's next choice in the future More and more people have this consensus Then our first quarter of the average sales price of future brands is to 390,000, which is more than 50,000 yuan for BMW, more than Audi, almost 1.5 times as much as Audi. I think this is a very good example. In Shanghai, in the long triangle, in the first-tier cities, we have surpassed the market share of traditional luxury brands. In fact, their oil cars, compared to their oil cars, also surpassed the market share. I think these are all explanations

In addition to this systemic capabilities, we also have spotted two findings among new users who have chosen our products. The first is that the competition landscape of China's new energy vehicle market is now transitioning from a chaotic brand competition with a more clarified competition where the clarity has been introduced to the overall brand and competition landscape for the new energy vehicle market in China, where among all these competitors, NIO is widely recognized as a premium brand and also well accepted by the public as a premium brand. Among many users, they have already established a consensus where NIO will be the next car after Mercedes-Benz BMW and Audi. And in Q1, the new brand has the average selling price of 390,000 RMB. That is around 50,000 RMB higher than that of BMW and 50% higher than that of Audi. So these are lively examples. And in cities like Shanghai or around the Yangtze River Delta area or in the first tier cities in China, actually our market share has already surpassed the market share of the ICE models from all those traditional luxury brands. So in general, in the Chinese market, NIO has already established or starting to establish itself as a well-recognized premium brand.

包括乐道,乐道的平均售价也是24万人民币。 那么其实也比很多二线豪华品牌的平均单价还要高。 那么实际上它已经成为很多家庭用户的一个高品质的这样一个选择。 那么FiveFlight的话呢,在高端小车市场, Then it also successfully achieved more than two-thirds of such a market share. It is about 50% higher than the average price of other small cars of other brands in China. Of course, its quality, its safety, and its design provide users with very good user value. So in general, we insist on NIO And for the Anvo brand, its average selling price is around 240,000 RMB, which is also comparable with many tier two luxury brands.

And now Anvo is also the go-to option for many families pursuing high quality and also premium car usage experience. And for Firefly, it has achieved two-thirds of the market share in the high-end small car market. Its average selling price is around 50% higher than other small car competitors. But in terms of its design, safety, and also build quality, it is providing our users with sufficient value and also creating sufficient user value for them. So for the entire company, be it the new brand or our brand or the Firefly brand, we are positioning ourselves as premium in general. And this is also a consensus among the users.

第二点就是我们未来乐道用户群三个品牌 一直都坚持着这个原创设计 还有长期主义的这样一些 还有包括我们的公司的一些企业的使命 这样一些价值观 确实跟我们的目标用户群 There is a very good spiritual resonance Then I think this is also a lot of users When he chooses a car In addition to looking at these functions and configurations Still a lot of users also care about this place So our emotional experience Including our community This brings some emotional experiences Become our competitive advantage This also supports us It doesn't need to be simple to compare prices How to set prices Because today's cost pressure is so high, the low pricing does not bring the advantage of this scale. Because many of the costs today are not economical. For example, the internal layer, the material of the battery, such as copper, aluminum, and other materials, are not economical. So in fact, simple demand can not bring significant improvement in horsepower. And also in addition for the new Envo and the Firefly brand, we have been insisting on the original design.

We have been making long-term dedication and a commitment to our product. And we also have a corporate missions and values where our users find themselves can really identify with and resonate with all this mindset and mentality. Many users actually pursue beyond simple functions or configurations. They are more seeking for the emotion, connection, and the resonance. Plus, we also have the community to create them such emotion experience. So when it comes to competition, such emotion touchpoints can really create a unique competitive edge where we don't need to be over-aggressive with the prices. Not to mention that when the entire industry is under heavy cost pressure, a low price point may not generate you scale effect or economies of scale. In that case, a low price may not necessarily translate into an advantage, especially for the rising raw material costs on the memory chips, batteries, copper, aluminum. There is no economy of scales for such components, which means that a higher volume does not translate into a good margin performance of the car. In that case, for us, we will insist on our premium brand positioning and insist on providing our users good emotion experience.

Thanks, and well understood. My second question is regarding the potential indirect price risk under the challenge of the raw material cost inflation. Just now, Stanley mentioned the cost inflates by about $10,000 or more than $10,000. I think it's not only your... But it's even a bigger challenge for your competitors who price their products at a cheaper price level. Under this competition and the cost inflation challenge, do you think there is an opportunity to cut some of the incentives and indirectly raise a little bit of pricing for the industry and for yourself?

Indeed, this year, the price of raw materials, chips, and memory, especially the price of memory chips, is still a great pressure on the entire industry. In the previous three years, we actually had a price increase of more than $10,000 per car. On the one hand, we have maintained the stability of the price. On the other hand, we have also made a lot of discounts in terms of discounts. Then I think the whole industry may be under the same pressure, but the competitive strategy of each company may be a little different. I also talked about it before. In general, we keep the price stable and maintain the comprehensive competitiveness of this product service. Then we may not take quantity as the most important business feature. We will maintain a reasonable growth in quantity, but we value this horsepower and this Thank you for the question.

It's true that the entire industry is facing the cost of pressure mainly driven by the raw material costs, as well as the prices of the semiconductors, especially the memory chips. As mentioned by Stanley, the cost impact is over 10,000 RMB per car for our company. But our overall strategy is still to stabilize our prices. Well, in the meantime, we are also dialing back on some discounts and promotions. Facing the same pressure, different companies may have different coping mechanisms. For us, it's about stabilizing the prices while maintaining and improving our overall competitiveness on the products and the services, then just sacrificing on the margin for the shape of the volume. Our strategy is to maintain a reasonable volume increase while keep improving our margin and the EBIT performance as those are our key business targets. So overall speaking, different companies have different coping mechanism and strategies. And for us, we will be insisting on our philosophy and to mitigate the impact.

In terms of the supply chain, we have also launched some new... Since last year, we have launched some new cooperation modes. We call it the transparent supply chain and the cooperation mode of first choice and best choice. In fact, it is with our supply chain partners to find out some costs that do not create value for users. This is what we are going to do together to reduce some of these costs that do not create value, including some processes. So we think the space in this is also very large. In the middle of this, 5% to 10% of such a space that does not create user value is completely possible. So in general, this year we are going to reduce the cost of And in the meantime, on the supply chain, since last year, we've been promoting some new models working with our partners.

One is transparent supply chain, and another is a mechanism or a principle called primary and preferred partners. In general, we work closely with our partners to identify costs and processes that are not creating user value, and we work with them to lower such costs or optimize such processes. In general, we believe that on the supply side, there should be around 5% to 10% opportunities driven by such optimization. So for this year on the supply chain, we will be focusing on doing meticulous operations and management together with our partners to identify opportunities that can offset or mitigate the impact on the rising raw material cost.

Thank you, Paul.

Thank you very much.

That's quite helpful. Thank you.

The next question comes from Nikolai with JP Morgan. Please go ahead.

Okay. Thank you, William and Ms. Banting. Thank you for taking my question. This is Nick from J.T. Morgan. Two simple questions. The first question is, can you give us a quick recap and quick update of our ADA strategy? And you mentioned earlier at the call that our own in-house chips and G-Sync has started to be put in our select model for now. And I wonder how fast will our in-house chip be deployed to the rest of the model and how this data strategy is going to make our product much more competitive compared with our competitors. And at the same time, I'm aware that our in-house chip subsidiary has raised 2 billion RMB through fundraising in the first quarter. How would that help our financing and R&D? Thank you. That's the first question.

Thank you.

From NEO's point of view, we are based on our own chip. We are now level 9031. This chip is the world's first special 5nm chip. Its reasoning and computing power, the bandwidth, the ability of ISP, and the ability of the Internet between chips should be said to be leading in the industry. And this chip has been delivered to more than 250,000 people since the end of March last year. In fact, it is also a very mature chip. So now we put this chip, as you can see, we will use it on a roadside car. In this way, its range of operation will be wider. It also helps us to unify the entire AD's baseline. It also improves the efficiency of our AD and the ability to protect data. Thank you for the question.

For NIO's in-house developed smart driving chip, NX9031, it is the world's first automotive-grade chip of a 5 nanometer process, and it comes with the industry-leading capabilities in inference, data bandwidth, ISP performance, as well as the interchip communications. And it was firstly mass-produced on the new ET9 in last And to date, we have already shipped more than 250 pieces, more than 250,000 pieces of these chips to our product. So the chip solution itself is already pretty mature. And earlier, we have also introduced this chip to the Anvo's new product starting with L90. By introducing this to the Anvo brand, we can also merge the autonomous driving where A, the software baseline improving the overall R&D efficiency, as well as enhance their data close-loop capabilities.

At present, in the second half of the year, more than 80% or more than 80% of our vehicles will be equipped with our own chips. From the perspective of AD's vehicle, we have seen that our world model plus the way of B-ring enhanced learning, its top-line is very high, and its efficiency is also very high. In fact, With only about 20% of our colleagues' cloud training calculations, we have achieved a better self-driving experience than most of our colleagues now. From the perspective of our latest version, the users' reputation is very good now. We still have two major overlays this year, so in terms of direction, we are still very confident in our overall AD technology route. Its upper limit is still very high. uh uh This new user, the first car owner, we have five years or more of such a delivery time. But for our second-hand car users, we are collecting their subscription fees. So the income in this respect is actually continuing to grow. So overall, we have completed from the chip model data avoidance to the overall avoidance of the business model. And in the second half of this year, we believe that more than 80% or 85% of our cars

will be equipped with our in-house developed smart driving chip. And in terms of our AD solution and AD roadmap, as you see that starting this year, we are moving to the architecture featuring our new word model plus the closed-loop reinforcement learning. And it has great potential for the continuous development and iterations, as well as good efficiency, because we are only using 20% of the cloud computing power in comparison to our competitors or peers to achieve the same level or even better smart driving experience and performance. With this major version and upgrade, our users actually speak highly of the smart driving experience. And later this year, we will have another two major upgrades. So we are quite confident with the overall AD performance as well as its growth potential. And in terms of the business model for the ADAS, we will continue our subscription services and the business model on the ADAS as it will also become a very important revenue driver among our other sales revenue, mainly based on the services and also community-related businesses. Although right now we are offering free subscriptions to some early users or new users, But for the use of cars, they will have to pay for the ADAS subscription. So for the long term, we see the potential in that. So in terms of our AD solution, we have already completed the entire chain from the chip to the model and architecture to the closed-loop data as well as the business model. And in terms of the Shenji and the recent financing, of course, a smooth financing driven by the Shenji chip business also give us more resources and the flexibility in developing our upcoming chip products, especially chips that are more affordable.

Thank you, Nick.

Next question comes from Jing Chong with CICC. Please go ahead.

Yeah, hi. Thank you for taking my question, and congrats congratulations on our robust profit in the first quarter. So my first question is about UNGLO. We see that L88 has officially launched this month. So how do you see from the market feedback on the orders? And also we see competition is currently So how will the L80 overcome the new vehicle effect, which means we see some new models have quite large orders in the beginning, but later they will encounter sharp decrease. So what's our exact on the L80's sustainable mass-based sales performance? And also, for the overall Envo brand, what's our strategy to be employed to enhance the brand awareness for Envo in total?

Thank you, Chan-Jing.

The L80 is a new version of the SUV. Thank you for the question.

For the AMO-L80, we believe it's a defining and also revolutionary product in the large five-seater SUV segment. In general, the market size for the five-seat SUVs, three times of that for the three-row SUV segment, which means that for the L80, it is being able to tap into a greater and a broader market than the L90.

The whole L80 market feedback is very positive. From the media and private users, the evaluation of this product is very positive. The order is also in line with our expectations. The target customer group of L80 is indeed a very large target customer group that can be served. From families with two or three children, or families with pets, or families with children who have grown up, It should be said that they are all very suitable. We believe that its core competitiveness is still dependent on our technology innovation and power supply system, which has saved the long-term experience of the space and life of 50 SUVs. It really solves the problem of space being difficult to use, and the user pain point cannot be troubled. We are very confident that it can lead the SUVs made by DaWu

And since the official launch of the Envoy L80 on April 29th, we actually have received positive feedback both from the media as well as from the users who test drove the vehicles, and its order intake is also meeting our expectations. Regarding the target users of the Envoy L80, actually, the car can cater to a pretty wide range of user groups, including young couples, couples with grandchildren, families with pets, or families with kids that are already growing up. So for the Envo L80, we believe that its core competitiveness still is powered by the technology, as well as its overall product performance, including how it has how it has reimagined the space, as well as all these lifestyle and scenario-based solutions. So I would believe that the annual L80 will drive the entire large five-seater SUV segment into the BEV era, just like how L90 and the ES8 did with the large three-row SUV segment.

Le Dao brand is indeed facing a problem. . . . . . It is very useful to improve the credibility of Le Dao's brand. In addition, we are also more active and proactive in expanding customers. We go out of the store to expand customers and then let more users try it. Through these, it looks stupid, but it is also a method that we are pushing to let more users understand us. So this really needs a process. The good thing is that once you understand Le Dao,

And right now for the Anvo brand, the major challenge is still because of its overall brand awareness. Since after all, Anvo has just started its delivery for around 20 months, and we've also found a study on the Unvolve's awareness. Its current awareness is basically on par with the awareness of a new brand in the year of 2020. To raise its brand awareness, we are also taking different approaches so that more people will be able to know about the brand. For example, we have collaborated and invited some celebrities to promote our products and brands where many of the celebrities have good reach among the target users of Unvolve. And we are also asking our frontline colleagues and teams to really go into the field, to go door to door, to promote our products and invite users for the test drives. It takes a lot of effort, but it is also taking effect. So overall speaking, it takes time to really establish and build the brand awareness on the envelope. But the good thing is that once the public or the users know about the brand, we have a pretty efficient conversion from knowing about the brand all the way to the order placement. Thank you.

Thank you. My second question is regarding to the other sales. we have seen that the gross profit margin of other sales have a significant improvement in the first quarter to above 20%, which I think is a historical high. So could you quantify the main drivers behind this margin growth? And also, is there any one-off effect? And also, pride us. maybe some outlook on the trend this year.

Okay. 其他业务呢,包含我们售后, 维保,车商城,能源,金融,Neolife, 这样所有在内的服务和社区的相关的业务。 其实从去年四季度开始呢, 这个我们服务和社区相关的业务在经营结果上其实有了 uh uh This includes our post-sales services, including our shopping malls, including Neolife and other businesses. In fact, the cost of this user is very high, and then this profit is also continuously increasing. On the other hand, we are also continuously increasing our efficiency, especially in this energy business. The cost of our single-use operation is also constantly being optimized. In addition, the efficiency of the energy sector, Thank you for the questions.

Regarding other sales, it mainly includes after-sales services, service and maintenance, accessory e-shop, power services, and also new life merchandise. And we've been witnessing significant improvement in the after-sales performance and also financial since Q4. last year. And in Q1 this year, we have achieved over 20% other sales margin. And with this result, there was no one-off impact. And the key drivers of the improvement in other sales margin is mainly because, first of all, NIO, the entire company, has been committed to establishing this brand connections with our users and to deliver holistic experiences throughout the life cycle of the product that can go beyond their expectations. With that, we have a very strong user stickiness and also a strong willingness to pay for these premium services. For example, after-sales services, the accessory e-shop, and the new live products all have actually are popular among our users, and they also generate good results. And secondly, with the improving the overall efficiency of such services, especially power services, for the operating capex where operating cost per station we've actually achieved quite significant improvement. And thirdly, we're also leveraging our energy and power services by doing off-peak charging and also great interactions and also electricity trading to be able to also generate good results.

This is a turning point for other businesses. It also means that our services and community-related businesses are entering a new stage. And with that, we believe that our other cells, mainly our services and community-related businesses, are also embracing an inflection point and entering into a new phase of development.

And for the full year 2026, we have the target for a 20% other self-margin.

Of course, from a longer term perspective, with the continuous increase in the number of users, with the increase in efficiency, I believe that our other business, that is, the business related to our service and community, will also continue to improve. It will also become our future

And going into a longer term, as we continue to increase our user base and also the efficiency of such services, we believe that the profitability of other cells, as mentioned, the services and the community-related businesses will also continue to improve. So in the long run, in addition to the new car cells, other cells will also become a very important and the key driver for our sustainable growth.

Thank you, Changmin.

Thank you.

The next question comes from Yuqian Ding with HSBC. Please go ahead.

Thank you, Tim. You can hear conscious of the time. I just got one question. So regarding the second half, could you talk a bit more about the new comp plan? Other than the current new models ramp up into second half, what's the biggest expectation in second half? Could you share the ES7 timeline and position among the current big size premium SUV pack you have? Thank you.

Thank you for the question.

In the second half of this year, the major new product we're going to launch will be the five-seater version of the all-new ES8. So in addition to that, our primary focus in the second half will be dedicated to selling cars and also serving our users well.

Thank you. Operator, next in the line, please.

The next question comes from Joey Yang with Bank of America. Please go ahead.

Thank you, management, for taking my questions. I also have one question on your battery swap station. Can you talk about what are the target number of your battery swap stations and also the targeted utilization rate by end of this year? When will the battery swap business achieve probability on a standalone basis? Thank you.

So it's just that we are now in the peak period, about an average, but it can go up to 40 45 times or so, when it's peak time, three times a day, three times a day, it's like a holiday, but the bottle is a little less. Now the bottle is about 30, more than 30 times. So we actually don't. In the short term, we will still set the network layout to a high priority, so this year we . . . . . . . . Thank you for the question.

For our power swap stations at its peak, mainly during the holidays or busy hours, on average, each station can deliver around 45 swaps per day. And on the average days, it's around 30 swaps per day. And for the short term, our focus will still be on rolling out and expanding our power swap network. And this year, our target is to build a total of more than 1,000 power swap stations. Especially starting Q3, we will be able to roll out our fifth generation power swap station at the scale. In the meantime, we are continuously improving the operational efficiency of our SLOP stations. But for the short term, we will still need to make upfront investment and early deployment of stations. So for the short term, the profitability of the PowerSLOP network is not our primary focus. But I would like to mention that for the services and community-related businesses, basically other cells, it has already achieved profit In that case, the power swap business is also included in that part of the profit, which means that we will have resources to sustain the continuous expansion of our swap station network.

Thank you, Joy.

Thank you very much. That's very helpful.

Thank you. There are no further questions. 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 the IR team through the contact information on the website. This concludes the conference call. You may now disconnect your line. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.