NIO - Q3 2023

Transcript

Operator (participant)

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

Rui Chen (Head of Investor Relations)

Good morning and good evening, everyone. Welcome to NIO's third quarter 2023 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website. On today's call, we have Mr. William Li, Founder, Chairman, and CEO, Mr. Steven Feng, our CFO, and Mr. Stanley Qu, Senior VP of Finance. Before we continue, please be kindly reminded that today's discussion will contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today.

Further information regarding risks and uncertainties is included in certain filings of the company with the 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 NIO'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 NIO's press release, which contains a reconciliation of the unaudited Non-GAAP measures to comparable GAAP measures. With that, I will now turn the call over to our CEO, Mr. William Li. William, please go ahead.

Speaker 12

Hello, everyone. Thank you for joining NIO's 2023 Q3 earnings call. In the third quarter of 2023, by making the most of a complete product lineup on the NT2 platform, the improvement of overall sales capacity and capability, as well as the continuous expansion of sales, service, and power networks, NIO delivered a total of 55,432 premium smart electric vehicles, up 75.4% year-over-year. The retail stat from CATARC showed that in Q3, NIO ranked first in China's BEV segment with an average transaction price of over CNY 300,000, with market share above 45% in the segment.

In September, NIO launched and delivered the all-new EC6, a mid-size coupe SUV upgraded to the second generation. It also marked the completion of NIO's product lineup on the NT2.0 platform. In Q4, as price war deepens and competition gets tighter for smart EVs, NIO delivered a total of 32,033 vehicles in October and November, up 32.2% from last year, while maintaining our prices stable. In Q4, the total deliveries are expected to be between 47,000-49,000.

Going forward, we will stay focused on executing sales strategies and improving operational efficiency. We believe the competitiveness of NIO's second generation products will be further unleashed next year. In terms of NIO's financial performance, attributed to the increased sales mix for higher priced models, decreased parts costs, and improved economies of scale enabled by more deliveries. Combined with the refined management of sales policies, the vehicle margin in the third quarter reached 11%. Next, I would like to share with you the recent highlights of our products, R&D, and operations.

William Li (Founder, Chairman and CEO)

9月21日，蔚来举办创新科技日 NIO IN，首次全面呈现蔚来12大技术全栈，覆盖智能电动汽车业务全景，支撑蔚来多品牌、多平台的业务发展，并发布中国首个整车全域操作系统，天枢 SkyOS 和自研的激光雷达主控芯片杨戬，体现了蔚来行业领先的体系化研发能力。

Speaker 12

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

In terms of intelligent driving, NIO continues to rapidly iterate on system capabilities. On November 15, we launched the Beta of the highway service area navigation power swap function PSP. Currently, a cumulative 29 highway power swap stations nationwide already support PSP. PSP seamlessly connects NOP+, and deeply integrates the NIO power swap experience, realizing full-process automation and full-journey navigation experience in the highway power swap scenario.

Regarding assisted and intelligent driving, NIO has been quickly iterating the system capabilities. On November 15th, Power Swap Pilot for Highway Beta was released in China. So far, 29 power swap stations on highways already support this feature. PSP seamlessly combines NOP+ and the Power Swap, bringing new users a hassle-free highway driving and battery swapping experience that is automated and intelligent from end to end.

William Li (Founder, Chairman and CEO)

同时，增强领航辅助 NOP+ 从高速进入城区，为用户提供全域通行的点到点智能驾驶体验。我们基于通用泛化能力，以用户领航新能源汽车的热力为参考，按路线开通、路线共享、汇线成网的方式，于十一月开启城区增强领航辅助 NOP+ 的功能体验。目前，蔚来已经在部分主要城市对先锋用户开放了全域领航辅助 NOP+ 的使用。城区路线覆盖和触达城市的数量在快速增加，已经大大超过了创新科技日提出的目标。我们将在近期的智能驾驶沟通会上和大家分享更多相关信息和计划。

Speaker 12

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

William Li (Founder, Chairman and CEO)

销售和服务网络方面，截至目前，包括快闪店在内，我们开设了468家蔚来中心和蔚来空间，覆盖152个城市，拥有314家服务中心和62家交付中心，覆盖217个城市。

Speaker 12

In terms of the sales and service network, so far we have 468 NIO House, NIO Space, and pop-up stores in 152 cities, as well as 314 service centers and 62 delivery centers in 217 cities.

William Li (Founder, Chairman and CEO)

充换电网络方面，截至目前，我们全球已经累计布局2,226座换电站，超过9,400根充电超充桩和11,000根目的地充电桩。与此同时，我们的充电地图在全球接入第三方充电桩超过146万根。

Speaker 12

As for the charging and the swapping network, to date, we have installed 2,226 Power Swap stations, over 9,400 Power Chargers, and over 11,000 Destination Chargers worldwide. More than 1.46 million public chargers have been connected with NIO's Power Map.

William Li (Founder, Chairman and CEO)

蔚来换电体系已经过多年的验证，为蔚来用户提供了超过3,200万次便捷、高效、安全的换电补能服务，成为蔚来用户最信赖的补充方式。蔚来能源云与蔚来换电网络开始向行业开放。11月，蔚来与长安汽车、吉利控股分别签署了换电合作协议，蔚来将与更多的行业伙伴一起，在换电电池标准、换电网络、换电车型研发、电池资产管理等领域展开合作，为更多的智能电动汽车用户提供可充、可换、可升级的加电体验，共同推动换电模式的发展和普及。

Speaker 12

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

Well, NIO Day, NIO's grand annual gatherings with users will be held on December 23rd in Xi'an, Shaanxi Province. This year, we will unveil a brand new flagship model, a real epitome of NIO's innovative technologies. This product will become a technology benchmark for smart EVs and a trendsetter of the smart EV technologies worldwide. NIO Day, NIO's grand annual gatherings with users will be held on December 23rd in Xi'an, Shaanxi Province. This year, we will unveil a brand new flagship model, a real epitome of NIO's innovative technologies. This product will become a technology benchmark for smart EVs and a trendsetter of the smart EV technologies worldwide. On September 26th, with contributions to shaping a low-carbon industry with innovative EV battery swapping, NIO received the Green Innovation Award of the 2023 Paulson Prize for Sustainability.

This award is a recognition of the novelty and expandability, as well as the economic and environmental benefits of NIO's battery swapping technology and business model. On September 26th, with contributions to shaping a low-carbon industry with innovative EV battery swapping, NIO received the Green Innovation Award of the 2023 Paulson Prize for Sustainability. This award is a recognition of the novelty and expandability, as well as the economic and environmental benefits of NIO's battery swapping technology and business model. The 2023 NIO Cup Formula Student China, a racing car design competition for college students, was held from November 8th to November 12 in Hefei. NIO has been sponsoring and supporting the competition since 2015.

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

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

As always, thank you for your support. With that, I will now turn the call over to Steven to provide the financial details for the third quarter. Over to you, Steven.

Steven Feng (CFO)

Thank you, William. I will now go over our key financial results for the third quarter of 2023, and to be mindful of the length of this call, I will reference to RMB only in my discussion today. I encourage listeners to refer to our earlier press release, which is posted online for additional details. Our total revenues in the third quarter were CNY 19.1 billion, representing an increase of 46.6% year-over-year, an increase of 117.4% quarter-over-quarter. Our total revenues are made of two parts, vehicle sales and other sales. Vehicle sales in the third quarter were CNY 70.4 billion, representing an increase of 45.9% year-over-year, and 142.3% quarter-over-quarter.

The increase in vehicle sales year-over-year and quarter-over-quarter was mainly attributable to higher vehicle deliveries. Other sales in the third quarter were CNY 1.7 billion, representing increase of 55% year-over-year, an increase of 4.5% quarter-over-quarter. Gross margin in the third quarter of 2023 was 8%, compared with 13.3% in the third quarter of 2022, and 1% in the second quarter of 2023. The changes of gross margin year-over-year and quarter-over-quarter was mainly attributable to the changes of vehicle margin. More specifically, vehicle margin in the third quarter was 11%, compared with 16.4% in the third quarter of 2022, and 6.2% in the second quarter of 2023.

The decrease in vehicle margin year-over-year was mainly attributable to changes in product mix, partially offset by the decreased battery cost per unit. The increase in vehicle margin quarter-over-quarter was mainly due to changes in product mix, as well as decreased promotion. R&D expenses in the third quarter were CNY 3 billion, representing an increase of 3.2% year-over-year, and a decrease of 9.1% quarter-over-quarter. The slight increase in research and development expenses year-over-year was mainly attributable to increased personal costs in research and development functions, partially offset by the decreased design and development costs, and deduction of expenses due to support for technology advancement provided by local government authorities during the third quarter of 2023.

The decrease in research and development (R&D) expenses quarter-over-quarter was mainly due to the support for technology advancement provided by local government authorities during the third quarter of 2023. Sales, general and administrative expenses in the third quarter were CNY 3.6 billion, representing an increase of 33.1% year-over-year and an increase of 26.3% quarter-over-quarter. Loss from operations in the third quarter was CNY 4.8 billion, representing an increase of 25.2% year-over-year and a decrease of 20.3% quarter-over-quarter. Net loss in the third quarter was CNY 4.6 billion, representing an increase of 10.8% year-over-year and a decrease of 24.8% quarter-over-quarter.

Our balance of cash and cash equivalents, restricted cash, short-term investment and long-term time deposits was CNY 45.2 billion as of September 30, 2023. Now, this concludes our prepared remarks. I will now turn the call over to the operator to proceed our Q&A session.

Operator (participant)

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up your handset to ask your question. For the benefit of all participants on today's call, please limit yourself to two questions, and if you have additional questions, you can reenter the queue. Our first question comes from Tim Zhang with Morgan Stanley. Please go ahead.

Timothy Chan (Executive Director)

Thank you very much for taking my questions. I actually have two parts of the questions. The first one is about the battery swapping, because I know, as just mentioned, we expanded the strategic alliance in battery swapping from previous partner, like Sinopec, to Changan and the Geely. Could you share a little bit more about your plans of how to structure the new alliance of battery swapping and the potential financial impact, like your CapEx and operating loss? So in the long term, will you consider to spin off the battery swapping business and operate it independently, or even go public as a standalone third-party battery swapping or utility operator? So that's my first question.

William Li (Founder, Chairman and CEO)

Thank you, Tim. Announce Changan Geely network. Swap station network. Cloud service infrastructure, very strong. Investment. So first, this is充分的验证和这个被证明它是符合这个，用户的需求的，然后再开始对外开放。所以经过五年的实际的运营，我们认为，我们现在是可以对外进行这样的开放，我们的能力已经具备这样一个开放的能力。

Speaker 12

...Thank you, Tim, for your question. Yes, recently we have announced the cooperation agreements with both Changan and Geely on the battery swapping. And in terms of the battery swap network, the way we look at it is a bit similar to the cloud service or the cloud infrastructure. Both Power Swap stations and the cloud infrastructure require and rely on the network effect, both can have a pretty long investment cycles, and both are actually started with the internal services first, and after sufficient validations and verifying the demands and the fulfillments for our users needs, we will then open up the service to the public. So after five years of validation and internal services, we believe that we are ready to provide such network and service to the industry, and it's about time to open up the network to the industry.

William Li (Founder, Chairman and CEO)

当然，这个，在说到换电的时候，我们都知道，我们一直说它有非常多的优势，当然是更快，用户体验更好，那么对用户来说和社会效益来说都有非常多的优势。我们需要大家注意的就是中国的这个城市用户，绝大多数的城市用户啊，他是居住在这个公寓里边，所以很多的用户，啊，一半以上的用户事实上是很难有条件去安装这个充电桩的。所以对于中国的用户来讲，这个换电是一个体验最好的需求，我把这个background跟大家讲一下，特别是对于massive market的用户，这一点尤为其重要，因为NIO的用户相对来说还高端一些，所以家庭装的安装条件还好一点。但是对于massive market的用户，这个其实是这个能够家里面安装充电桩的比例是更低的。所以这就是为什么我们决定把我们的第二品牌，就是massive market这个brand的这个，standard，这个package standard的这个电池包开放给大家以后，我们看到了中国的这些汽车企业都非常的积极，啊，我们已经有两家宣布了这个签约，那还有几家在谈判的过程中。所以，我们相信，我们的这样一个服务的能力、技术的水准、基础的网络的建设是，都是他们需要的，啊他们也是从用户的利益的角度来讲，看到了这个服务的优势。

Speaker 12

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

William Li (Founder, Chairman and CEO)

当然，我们相信换电的 business 长期来说肯定是一个可以持续，也有非常好的盈利能力 的这样一个 business，这个我们是，经过我们的实际的运营，我们已经充分地相信这一点。但 NIO Power 的话，在投资方面，CapEx 投资方面，确实如果进行投资，再进行进一步的网络的建设，当然是需要这样一些 CapEx，这个投资。那我们也在用各种方式在对外去开展一些合作啊，最近有一些这个，合作伙伴跟我们已经开展 了这样的 一些合作，他们去建设换电站，交给我们来运营，按照购买我们的换电站的这个产品，啊他们去持有这个换电站，然后交，进入到我们的网络里面，交给我们来运营。我们已经有几十个换电站，这个啊，采用了这样的一个合作的方式，啊将来这个也会是我们很持续的一个对外合作的方式，也就是我们的换电站的资产，这个呃，由第三方来持有的这样一个模式。当然，NIO Power 本身来说，我们的充电业务已经基本上 break even 了，因为我们 80% 多的这个，电量都是由 NIO 以外的这个用户，品牌的用户来使用的。那我们相信长期来讲的话呢，这个这个 swap，swap service 也是能够盈利的。那在有些区域啊，我们已经看到了这样的一个盈利的现，事实啊。当然也有一些投资者对于 NIO Power 分拆融资感兴趣，也有一些初步的一些接触，当然今天我们还没有更多的 information 可以跟大家说，但是我们不排除这样的可能性。

Speaker 12

Also in terms of the business model for the power swap, we believe that it is sustainable both from the business perspective as well as from the finance perspective, especially after five years of operations and validation. We have confidence in the sustainability of battery swap. In terms of our battery swap network, as we will continue to expand our power swap network, there will be CapEx also relevant to such network development. But in the meantime, we are also looking for approaches where we may introduce partners into our power swap network. Basically, they will buy the battery swap station as a product from us and then they will install the stations and hand it over to us for the operations. In this case, they will be holding this battery assets for us.

There are 12 stations already running based on this business model. For the longer term, we will also be looking for partners holding the battery swap station assets. In terms of the NIO Power's charging service, this also is already almost breaking even. As you may know, 80% of our power was charged for the non-new users. For the longer term, NIO Power charging will also be a profitable business. Actually, in certain areas and with certain charging stations, the operations-

Swap stations.

With certain swap stations, the operations is already profitable. This is also... in terms of, spinning of the power swap stations, there are some investors showing their interest into having power swap or power swap business as a independent, business. We are also in conversation with them.

Operator (participant)

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

Timothy Chan (Executive Director)

Sure. Thank you. Thank you, William, for sharing all the details. So my next question is about the car manufacturing, because as you just mentioned, NIO announced to acquire the production facility from JAC. So first, does that mean NIO has been granted the manufacturing license? In the meantime, I think that means NIO officially shifted from the asset-light business model to asset-heavy. So in the near term, how should we think about the unit cost of vehicle manufacturing from fourth quarter onwards? So I think previously we provide the vehicle margin guidance for 15% for December quarter.

In the long term, do you still think that the full stack in-house development, production, and direct vehicle sales without relying on dealers will be the most ideal model for both NIO and Alps, the mass market brand, or if there will be any major difference? That's my second question. Thank you.

Operator (participant)

Steven will answer this question.

Steven Feng (CFO)

Okay. So, let me start with your question about the manufacturing, car manufacturing. During this acquisition, the manufacturing agreements between NIO and JAC are still performed, stipulated, and the production activities of the models in the cooperation are going on normally. Going forward, if there is any changes to the manufacturing cooperation with regards to rest models, between NIO and JAC or other situation that constitute significant information after this acquisition or in the future, NIO will communicate with and disclose the capital market in a timely manner, complying with the right laws and regulations and the rules for listed companies.

Yeah. So overall, if we completely manufacture this by ourselves, then our manufacturing cost will roughly decrease 10%.

William Li (Founder, Chairman and CEO)

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

Timothy Chan (Executive Director)

Great. Thank you very much, William and Steven, for the details. Thank you. Thanks a lot.

Operator (participant)

Our next question comes from Nick Lai with JP Morgan. Please go ahead.

Nick Lai (Equity Analyst, Autos)

好，那么跟宋伟跟管玉成，大家好，我有两个比较简单的问题。第一个是刚刚William提到说，我们最近有一些目标调整，组织增加组织的这个效率，可不可以在这部分可以再跟我们就深聊一下，我们在哪些是比较，觉得是比较中长期是需要focus的目标，那哪些目标是可以往后，就是下面有，没有这么urgent，可以往后推迟。My first simple question is really about NIO's plan to increase or enhance operational efficiency, and we allocate, we allocate our resources to more important priorities.

If William can give us some example and elaborate a bit more on this initiative.

Steven Feng (CFO)

Thank you, Nick. Thank you, Nick.

William Li (Founder, Chairman and CEO)

总的来说的话呢，我们的一个原则吧，当然首先我们经过这几年的发展，我们确实内部组织的话，有一些低效的和重复建设的这样的一些，情况，所以我们这次首先还是有一些合并了一些重复建设的一些部门与岗位，有一些比较低效的一些内部工作流程和分工，那我们也做了一些变革，还有一些比较低效的岗位。具体在项目上来说的话呢，就是我们有一个比较基础的原则，就是三年内不能提升公司财务表现的项目投入，比如说不能提升毛利，或者不能提升这个P&L的这样一些，这个，表现的这样一些项目，我们都削减或者推迟。举一个例子来讲，比如说电池的自制，那我们评估下来的话，我们认为这个，我们在电池的自制方面，就自己生产电池这件事上，我们看不到三年内能改善我们的毛利率。所以，我们就选择了另外的一些方法，我们还会研发这个电芯，还会研发这个材料，还会研发这个pack，但是我们会，委托别人生产，用这种方式来降本。举这么一个例子，我们其实，这些调整呢，都是非常这个细致地去基于业务的发展的这样的一个规律，和公司的资源，去非常细致地进行这样的这些，这个，调整。

Speaker 12

... In this round of organizational optimizations, we have identified several principles, because over the years of development, we have some low efficiency positions and jobs, and also some duplicated roles and responsibilities. In this case, we have identified these low efficiencies or redundancies in the organization. We've improved the processes of lower efficiencies, and we've also eliminated jobs and positions that are duplicated or are of low efficiencies. And also in terms of the projects deferred or terminated, basically, we look at the projects and their financial contribution. If they cannot bring any financial contribution in the coming three years, we will be thinking about deferring them or terminating them. For example, if they cannot contribute to the growth margin or the P&L, they may need to be deferred or reconsidered.

A quick example is regarding the in-house manufacturing of our batteries. We've identified that in the coming three years, bringing battery production in-house will not help us with the gross margin improvement. In this case, we have decided to defer the plan. We will still continue to do the in-house R&D of battery cells, battery materials, and the battery packs, but we will outsource the manufacturing of the battery packs for better overall efficiency and performance. So for this round of optimization, we've done a detailed and thorough review and adjustments, and also made necessary adjustments based on the needs of the business and the resources of the entire company. But in the meantime, we will still make sure that we don't miss our focus or dilute our investment and resources for the high priority items for the coming two years.

The first is the long-term investment for the core technologies, so that we can still keep leading in terms of the products and the technologies. As I've mentioned earlier today, at the NIO Day 2023, we are going to unveil a brand new flagship model, and this car will be equipped with a lot of state-of-the-art technologies that are leading the entire automotive industry. Our second priority is the continuous development of our sales and service networks. Recently, we have enlarged the sales teams. We have also increased the number of the point of sales, so that we can get ready for the more intense competition in the coming two years, because if we don't make such preparation, we will not be navigating the intense competition.

An example is that in October, in Shanghai, our sales volume has outnumbered that of BMW and Mercedes running on all power sources, including ICE cars as well as EVs. In cities from Jiangsu or Zhejiang provinces, we are also establishing a pretty solid foothold with a pretty significant market share. But when it comes to lower tier cities, like fourth tier or fifth tier cities, we still have a long way to go, or in cities where the EV infrastructure is not yet ready, we are also not outperforming those well-established brands. In this case, we need to continue to develop our sales and service networks. In terms of our sales performance in Zhejiang, Jiangsu, and Shanghai, actually 50% of our sales volume is contributed by the sales in these three areas.

On the one hand, it shows that our products are well recognized in the highly competitive markets in these three places. On the other hand, it also means that we need to further enhance our brand awareness in the lower tier cities. The third priority in the coming two years is to secure the on time release of our nine core products from the third brand. We have already made investments, and the products of this third brand will be coming into the market very quickly in the coming two years.

Thank you, Nick.

William Li (Founder, Chairman and CEO)

嗯，好，谢谢，非常清楚。我这个问题也比较简单，就是行业非常竞争的环境下，比较多客户关心说，问题就是我们在销量跟获利中间怎么取舍？刚才，在电话会刚开始有提到说，今年四季度的目标是4.7-4.9万台，那中间的目标，中间的考量点是要维持这个比较好的价格。那我想说，在这个前提下，我们是不是一样维持四季度15%的这个整车毛利，包含说中长期，比如说明年，有没有机会在整车毛利这部分还是一样维持这个之前公司提到的long term的目标，20%或者22%左右的目标，我们怎么思考这个，销量跟获利能力这个跷跷板的关系。 My second question is really about the balance or the choice between sales volume and margin, and how should we consider these two factors when it comes to the market competition, and are we still maintaining 15% vehicle GP margin in 4Q and a long-term target of let's say, 20%-22% vehicle GP margin, sometime to 24% or beyond?

Nick Lai (Equity Analyst, Autos)

Thanks.

William Li (Founder, Chairman and CEO)

Yeah。对，我们从，如果从我们这个第三季度的策略角度来讲，已经非常清晰，就是我们会保持价格的稳定。第三季度到现在，我们当然我们在六月份的时候做过一次用户权益的调整，那么这个调整的话呢，这个，老用户也比较也能接受，也...

新用户当然也很高兴啊，所以我们估计是全世界唯一的一个调整的价格，新用户和老用户都感到开心的一件事情，或者都能觉得比较，都不能说开心嘛，但是总的都觉得还挺好的一件事情。那在此之后，我们就保持了价格的一个稳定，那，我们觉得这个对用户利益来说，对 brand 来说，都是非常重要的。那么进入到四季度，我们当然看到了这个价格战，进一步激烈啊，那我们看到了，即使在 premium 的这个市场，我们的竞争对手，比如说 Mercedes 和 BMW，他们很多车型，这个特别是电动车型，都有甚至于 30% 以上的价格的下降，啊，超过三分之一的价格下降，那，我们还是保持价格的稳定，我觉得这一点来说是很重要的。那，这也能够反映在我们毛利的提升上边。所以我们在 NIO brand 上面呢，一个策略，一个我们的一个思考，就是保持价格稳定，持续提升毛利率。在这个基础上，我们再通过销售和服务体系效能的提升，和这个销售的过程的效率的改善，去提高我们的销量，我们会保持一些耐心，啊，我们不会用降低毛利率去降价的方式去换取销量，我们认为从长期来讲，这是健康的。所以具体来说的话，Stanley一会儿也可以讲一下这个毛利的一些涨落的情况。

Speaker 12

Our strategy for the third quarter is pretty clear, that is to keep our prices stable. Earlier this year in June, we have adjusted our user benefits. Actually, both our existing users and the new users were accepting this adjustment pretty well. So we may be the only company able to satisfy both existing users and the new users with a benefit adjustment. And since then, we have been keeping a pretty stable price strategy, as we believe that it is beneficial to our brand image and also product competitiveness-

And user bene-

Also users experience and benefits. As going into Q4, the price wars deepens, the competition also gets more fierce. For many well-established brands, like our competitors, BMW and Mercedes, they are also slashing prices pretty aggressively. Even on their EV models, the price reduction can be as high as 31%, but we still keep a pretty stable price amid this fierce competition. This is also reflected, this stable prices also are reflected in our improved vehicle margin.

So our longer term strategy will be keeping our price stable while continuously improving our vehicle margin. In the meantime, we will also improve our sales capacity, capability and efficiency so that we can bolster our sales volume. But this can take time and we will be staying patient. We will not, we will not realize or boost our sales volume at the cost of our product margin, as this is not healthy for the longer run. Maybe Stanley can also add more information regarding the specific financial numbers.

Stanley Qu (Senior VP of Finance)

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

That's the general guidance for vehicle margin. Thank you.

William Li (Founder, Chairman and CEO)

Yeah.

Speaker 12

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

Stanley Qu (Senior VP of Finance)

Thank you.

Operator (participant)

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

Yuqian Ding (Head of China Autos Research)

Thanks, team. This is Yuqian here. I got two question. Maybe we roll it one by one. The first one is on the cash position. We noticed the cash balance increasing quarter-over-quarter. Other than the strategic investment and the convertible bond, there is also still a CNY 1 billion increase. Does that coming from the improving operation? Can you shed a little bit more light on that?

Stanley Qu (Senior VP of Finance)

Hi, Yuqian, this is Stanley. As thanks to the new product delivery ramp up in Q3, we achieved, we achieved a positive operating cash flow. Yeah, going forward, sorry, if our sales can continue to grow, we are confident to, to realize the, the healthy operating cash flow. So that's for your first question. Yes.

Yuqian Ding (Head of China Autos Research)

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

Stanley Qu (Senior VP of Finance)

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

Yeah, to around CNY 200 million.

Speaker 12

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

Yuqian Ding (Head of China Autos Research)

Got it. That's clear.

Stanley Qu (Senior VP of Finance)

Thank you.

Yuqian Ding (Head of China Autos Research)

Thanks, thanks, William and Stanley. Yeah.

Operator (participant)

Our next question comes from Ming-Hsun Lee, with Bank of America. Please go ahead.

Ming-Hsun Lee (Managing Director, Head of Greater China Auto Research)

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

Speaker 12

Yes, when it comes to our mass market brand, nicknamed Alps, actually recently we have just had the very first validation build of this brand roll off the production line. Actually, the condition of this verification build is pretty good. It can be maybe one of the best VB cars we have in the history of NIO. So we are very confident in the competitiveness of this product. Before the official launch and the delivery, we still have time to continue to optimize and improve the product. In terms of our Power Swap and the charging network strategy, for NIO, our battery swap network will be coming in two parts.

The first is the exclusive network for NIO and the NIO users, and the second will be a shared network, not only for NIO users, but also for Alps users and other brands with swappable vehicles. In terms of the charging network, we've been sharing our chargers already to many non-NIO brands. In terms of the sales network, this will be separated, so they will have their own self stores, but we will be sharing the service capacities and the facilities, so service centers will be shared between NIO and Alps.

Ming-Hsun Lee (Managing Director, Head of Greater China Auto Research)

Thank you. Thank you, William. Thank you. So my second questions regarding your 2024 product, because this year, you already update all of your new models and also launched some new models. So, in 2024, will you have some facelift version of the existing model and start to use 800 voltage charging system on your car? So in this case, do you have any guidance about the battery swap station you will expand? Thank you.

Speaker 12

Yeah. Yes, of course, in this automotive industry, of course, there will be some small model changes as is common, but we will not have this big change, because our cars have all just been released not long ago, so, overall, we will still maintain this quality and the stability of this supply chain, will not have big changes, will have some small changes. As for the swap stations themselves, we have now preliminarily established this network. Next, as I mentioned earlier, we will build this public swap station network, this shared network. We will start building this shared network. On the other hand, we will also, based on NIO's users' demand of this kind, go supplement some networks. We will still continuously build, but for the specific quantity, we are still conducting the final prediction of this demand. So, of course, we will still continue building. We will definitely continue building the entire network.

Yes, it's a common standard, and the practice is for the automotive industry to have model years or face lifts. But for our NT2 products, we will not have any major modifications or upgrades, as many of them were just newly launched or delivered to the market. To stabilize our quality and the supply chain, we will only make minor improvements and upgrades on our NT2 products. In terms of our plan for the power swap stations in 2024, as I've mentioned, we will be not only building our exclusive battery swap network, but also a battery swap network for sharing. On the one hand, we will build this power swap network for other brands, or that can be shared with other brands.

In the meantime, we will also continuously looking at the demand of our new users, so that if there are any requirements where high demand stations or locations, we will also install stations there. But we are still working on the specific plans and the numbers.

Ming-Hsun Lee (Managing Director, Head of Greater China Auto Research)

Thanks, Ming. Xie xie William.

Operator (participant)

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

Paul Gong (Head of China Autos Research)

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

William Li (Founder, Chairman and CEO)

Thank you, Paul. 我们从目前来讲，我们，我们，NIO的fellow，也就是我们的销售，这个顾问，现在是已经超过5,000多人，目前是，5,700人左右。但这里面呢，大部分的话呢，都是，几个月内刚刚入职的，是超过...

大部分吧，超过3000，超过3000多人是这个近期刚刚入职的，所以他们要形成这个销售的能力的话，还需要一些时间。因为我们基本上我们前一个半月入职的同事的前一个半月，我们更多是用来做培训，他还不能够去这个，不允许他去销售车。那么，培训了1.5个月以后，我们会开始让他来销售车辆。我们能看到，如果是超过6个月的成熟的这样一个销售人员的话，那么他的销售能力还是不错的，他的这个销售的能力还是不错的。所以我们在，在这方面我们还需要一点耐心，因为大部分的同事都是9月份、10月份才入职。

当然，接下来呢，我们会建立一个更好的考核机制，包括一个培训机制，也会给他们更高效的这样一些销售工具。我们相信，接下来呢，他们会逐步发挥出这个能力。

Speaker 12

At the present for our front line fellows, we have a team of around 5,700 persons, but many of them were just newly on board. Around 3,300 of them were newly on board into the company, and they, it still take some time for them to really get to know the brands and also get familiar with the entire sales processes. Because for the newly hired fellows, we will spend around one and a half months on the trainings and afterwards they can start to sell vehicles to our users. According to our history data, a seasoned fellow on average will needed to spend around six months to be familiar with the brands and the processes and will becoming a real sales force for the company. So we need to be stay patient with this newly hired fellows as many of them just to join the company in September and October. But in the meantime, we were also completing and improving our assessment and evaluation systems, our training systems. We will also bring these fellows more efficient tools, so that they can really make full use of their sales capacity and capability.

Paul Gong (Head of China Autos Research)

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

William Li (Founder, Chairman and CEO)

answer the question.

Stanley Qu (Senior VP of Finance)

is a slight decrease considering the support we received from the local authorities. So, but, on the long run, as we mentioned during the past also earnings call, our Non-GAAP R&D investments per quarter will also be kept at CNY 3 billion-CNY 3.5 billion. As also mentioned by William in previous statement, we will ensure investment in core technologies and also the maintenance of the advantages of technology and product, and guarantee the timely launch of the new product. So, the R&D investment will not decrease, there will be a slight like fluctuation across different quarters. Thank you, Paul.

Paul Gong (Head of China Autos Research)

Thank you, that's very helpful. Thank you.

Operator (participant)

The next question comes from Changjing with CICC. Please go ahead.

Changjing Ran (Investment Banking Associate)

So my first question is regarding to our autonomous driving. We have already opened the submission of wish list in September. So, relying on group intelligence, we expect, we try to extend the function, NOA function, in and map cities, which is a little bit different from other OEMs, they open up city by city. So could you please introduce our ideas on the implementation of NOA function in city area? And also, what's our given our target of the cumulative mileage of 60,000 kilometers by the end of this year, so how is our current progress?

William Li (Founder, Chairman and CEO)

谢谢长静。对，从NIO来说的话呢，我们的这个城区这个nop，城区NOP+，我们是基于通用的这个泛化能力，然后去按路线开通。我们已经建立了一个基于群体智能，按路，基于通，通用泛化能力，按路线开通的这么一个，数据闭环的这样的一个展现模式。那从目前来讲的话，应该说这个进展，超过我们的预计，那么肯定是能够超过我们在NIO IN上说的这个60,000公里的这个里程数的。事实上的，目前为止吧，我们应该说已经具备在一百多个城市去进行这种对先锋用户开放，这个开放测试的使用这样的一个能力了。近期我们会，非常这个，这逐步地去，邀请用户进行这样的一个试用。当然，这个城区领航辅助的角度来讲呢，我们也看到了很多的这样的我们同行的一些marketing的这样的的一些说法。我们认为，城区这个领航辅助还是非常serious的一个，一个，一个服务，我们会step by step地去，在确保，这个用户体验和安全的情况下去落地。那么这我能说的是，目前的数据闭环的这个进展......

Speaker 12

The progress of enabling collective intelligence along the route like this is exceeding our expectations. Moreover, subsequently, because we now already have this, over 100,000 vehicles on the streets running, so our entire data closed-loop capability is very strong, and also exceeds our competitors'.

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

William Li (Founder, Chairman and CEO)

Yeah，我想强调的就是我们现在，我们所有的NT2的车，每一辆车都是标配了这个，我们这个，4颗Orin的这个芯片，再加上我们30多个传感器，所有的车都是一样的配置。所以，我们现在把这个数据闭环体系建立了以后，那我们后续的迭代的能力，是会非常快的，这个其实也是我们独特的一个优势，和现在市场上同行的相比的话。

Speaker 12

Especially for every new NT2 vehicle, it is standard with 4 Orin chips and also 33 high performance sensors. This will further help us to formulate the data closed-loop and improve the data capabilities, and in return, we will also accelerate the capabilities for iteration. This is also a very unique advantage of NIO, which is quite different from any other competitors offering the similar service.

Changjing Ran (Investment Banking Associate)

好的，谢谢。然后我这边第二个问题是关于这个海外市场，这点是否还会成...

现在是我们这个战略重心之一，然后能否请这个再简单介绍一下整个今年二三年我们在海外市场的这个运营情况，包括我们可能目前的一个销量的规模，然后核心的区域，以及渠道和这个基础设施建设的进展情况吧。然后另外就是我们明年的目标和规划。So my second question is regarding to overseas markets. Will it still be one of our strategic focus?

Please introduce the current operation situation of our overseas market this year. Regarding our sales volumes, our layout progress of our core regions, and also about the dealerships and the infrastructure, and also our next year's target and plan.

William Li (Founder, Chairman and CEO)

Yeah. 目前我们在欧洲5个国家，我们一共开业了6家NIO House，8家NIO Space，2家这个多功能的服务中心和54家授权服务中心。当然我们还有，30座左右的，是3，是数字，你看一下，好像30座左右的换电站。那么，我们在欧洲整个的业务来讲的话呢，我们目前应该说总的来说都还是在一个，业务的早期吧，我们会更多的是要跑通我们整个的这个业务的模式，啊我们要确保我们的服务的体验，用户的服务体验，那所以我们并没有把这个量放在这个第一位，啊所以啊，我们还是在一个早期阶段，我们，我们认为接下来，1年左右的时间，我们也还是处于这么一个状态，啊。我们要确保我们有了这个扩展的能力，才会加快这个，加-加快我们网络的建设。所以总的来说，现在销量占我们的比例还是比较低的。

Speaker 12

At the moment, in 5 European countries, we have opened six NIO Houses, eight NIO Spaces, two multifunction service centers, and also partnered with 54 authorized service centers. We have also installed 30 Power Swap stations in 5 European countries. But in terms of our business development in Europe, we are still at the early stage of the business development and expansion. We want to continue to test the water, ensure we have good user experience before we scale our operations and the business there. That's why volume is not a priority for us in terms of our European business. And in the coming 1 year, we will continue to be staying at this stage. We will make sure that our capability and capacity are sufficient to serve our users in Europe before we start to work on a higher scale.

Changjing Ran (Investment Banking Associate)

...好，谢谢。我这边没有其他问题了。谢谢。

Operator (participant)

Our next question comes from Jason Getz with Mizuho Securities USA. Please go ahead.

Jason Getz (VP, Equity Research)

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

William Li (Founder, Chairman and CEO)

Okay, 如果我们去看我们在高端的纯电的市场的份额，就是...

我们比如说我们在CNY 30万以上的这个纯电的市场，我们的市场在今年的Q3是在45%，那我们其实一直都基本上保持在40%以上。那意味着什么？意味着就是我们事实上来讲，在高端的纯电的市场份额是一直非常稳定的，而且这个一直都是保持一个比较高的比例。那，从另外一个角度来说的话，确实我们认为在高端的用户这一块，要把它转变为从油车的用户转到电车用户，一下子转到电车的话，确实这个难度，是有的。可能在CNY 十几万的车，CNY 20多万的车，转化起来要更容易一些，因为他们更多的还是会比较注重这个使用成本。高端用户他是考虑的事情更多一些，那，这是我们对于这个，我们是要有一些耐心。另外一方面的话，我前面也提到了基础设施的问题，就是，如果我们就看我们在上海、江苏、浙江、长三角，我们的销量其实已经在很多城市都已经超过了同样价位的宝马、奔驰、奥迪的燃油车的销量。但是，我们也看到我们在这些区域，我们有比如说我们在三个省市，我们有700多座换电站，所以，基础设施对销量的促进还是非常有作用的。那，当然在全国来讲的话，我们现在2,000多个换电站，有近700座是在高速上，在很多区域的覆盖其实还是不太够的。所以基础设施对于更广阔的这些市场的用户来说，也是一个限制因素。所以这两点的话，我觉得是目前两个主要的难点吧，一个是高端用户的购买的心理，啊；另外一个就是这个基础设施，在更广阔的区域的基础设施。那2024年，我们相信这个trend的话，高端市场我们相信这个转换会提速。其实在过去两年里面，更多是在massive market，2024年我们相信高端市场往纯电转的这个趋势会提速。那么，我们也看到我们一些同行，他们也推出了，原来他们只做增程的产品，现在也开始推出纯电的产品，那这都会加速这个传统的油车用户往纯电转的这个过程，因为别的动力形式毕竟都是一个过渡性的。那这个其实对我们来说，我们是很乐于看到的一点。另外一点，当然就是基础设施的建设，也越来越多的人开始建设超充桩，当然我们也会进一步建设换电站，那我觉得这些也会推动纯电用户的渗透率。所以整个来说，我认为2024年比2023年应该，对我们来说应该会更好一些，而且我们2024年也不需要去应对产品的频繁的切换，这个也会打扰一些我们自己的销售的节奏。

Speaker 12

Thank you for your questions. As we've mentioned earlier today, in the premium battery electric vehicle segment priced over CNY 300,000, NIO has realized a 45% market share in the third quarter of this year. Actually, our market share in this segment has been pretty stable, around 40%.

So this has proven that we have a relatively solid foothold in the premium BEV segment. We have a pretty significant, also stable market share already established in the segment. But when it comes to convincing users of premium ICE cars of buying a premium EV, it is actually more difficult than convincing a mass market users. Because for the mass market users, buying a car of CNY 100,000 or CNY 200,000, they pay attention to the ownership cost and also the usage cost of the product. But for the users of premium electric vehicles, they pay more attention to other factors. And the second reason that may be affecting the wider adoption of premium BEV is regarding the coverage of infrastructure. As I've also shared in the Yangtze River Delta areas, mainly Shanghai, Jiangsu and Zhejiang, we have a pretty significant market share. Our sales volume has outnumbered that of BMW, Audi and Mercedes with their ICE car sales. A very important reason behind is because we have 700 power swap stations already established in this area.

So infrastructure is also playing a very important role in boosting the sales volume and the adoption of electric vehicles. So far, in China, we have already installed over 2,000 power swap stations, but roughly 700 of them are along the highways. In some regions and areas, our power swap stations are still not widely accessible. In this case, we will need to also speed up and enhance our infrastructure coverage so that we can further boost the wider adoption of electric vehicles. So basically, two main reasons: The first is regarding the consumption habits of the premium vehicle users, and the second is mainly because of the coverage of the infrastructures for electric vehicles. But we believe that this trend, convincing EV-ICE users of buying EVs, where this overall trend of transforming into battery electric vehicles will be picking up its speed.

Because we also find that some of our peers and competitors, before they only had, have hybrid vehicles or range extended vehicles, but now they're also launching their battery electric vehicles. Such strategy will also push the transformation of the entire industry, so we are actually happy to see such transformation. And also, many car companies are now also installing and expanding their charging network, and NIO is working on our battery swap network. With wider infrastructure, we will also boost the adoption of the battery electric vehicles. So overall speaking, we believe that 2024 will be better off than in 2023, because in 2024, we will also be having a more stable product portfolio without frequent product launch and delivery, which has also slightly disturbed our overall execution.

Jason Getz (VP, Equity Research)

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

Speaker 12

Actually, we have shared the battery specs and also the design details of our battery packs for the mass market brand to our battery swap partners. And they will need to design and engineer their vehicle products, meaning chassis, interfaces, following our battery standards. It will take some time for them to decide on the right models and complete the product R&D. But the overall investment and R&D expenses for developing such new models based on our battery standards won't be very high.

Jason Getz (VP, Equity Research)

Got it. Thank you.

Rui Chen (Head of Investor Relations)

Thank you.

Operator (participant)

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

Rui Chen (Head of Investor Relations)

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