NIO - Q4 2022

Transcript

Operator (participant)

Hello, ladies and gentlemen. Thank you for standing by, and welcome to the NIO Inc. fourth quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. Today's conference call is being recorded. I would now like to hand the conference over to your host, Ms. Yi Tang from Capital Markets. Please go ahead.

Yi Tang (Director of Capital Markets)

Good morning and good evening, everyone. Welcome to NIO's fourth quarter 2022 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted at the company's IR website. On today's call, we have Mr. William Li, Founder, Chairman of the Board, and Chief Executive Officer, Mr. Steven Feng, Chief Financial Officer, Mr. Stanley Qu, Senior VP of Finance, and Ms. Jade Wei, VP of Capital Markets. 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.

William Li (Founder, Chairman of the Board, and CEO)

[Foreign language]

Speaker 13

Hello, everyone. Thank you for joining NIO's 2022 Q4 earnings conference.

William Li (Founder, Chairman of the Board, and CEO)

[Foreign language]

Speaker 13

In Q4 2022, NIO delivered a total of 40,052 smart electric vehicles, up 60% year-over-year, achieving a new quarterly record. According to the retail data released by CATARC, China Automotive Technology and Research Center, NIO was the best-selling brand in China's premium EV market, priced over RMB 300,000, with a market share of 54.8%, while our market share in the premium EV market, priced over RMB 400,000 reached 75.8%. In 2022, despite the impact posed by COVID and supply chain disruptions, NIO delivered a total of 122,486 smart electric vehicles, up 34% year-over-year. In January and February of 2023, we delivered 20,663 vehicles, representing a 30.89% increase year-over-year.

We expect the total deliveries in the first quarter of this year to be between 31,000 and 33,000 units. As the penetration rate of premium EV grows and more new products expected to be delivered in the second quarter, we have a strong confidence in the market demand in 2023. I would like to share some recent highlights of our products, R&D, and operations. Since we started to deliver ET5 in September of 2022, its production and delivery have been ramping up steadily. According to CATARC's retail data, this January, among all the midsize sedans priced over RMB 300,000, NIO ET5 outperformed popular internal combustion vehicles from well-established brands and became the top-selling model in Beijing, Shanghai, Guangzhou, Shenzhen, and other 15 cities in China, and the second best-selling model nationwide in China.

William Li (Founder, Chairman of the Board, and CEO)

[Foreign language]

Speaker 13

On December 24th, 2022, we held NIO Day 2022 in Hefei, where we launched the smart electric flagship coupe SUV EC7 and the all-round flagship SUV, the all-new ES8. EC7 is a mid-large size coupe SUV that inherits NIO's high performance DNA and delivers ultimate handling and riding experience. The delivery of the EC7 is expected to start in May. As NIO's flagship SUV, based on the technology platform NT 2.0, the six-seater all-new ES8 offers two-seat layouts, catering to all scenarios, including work, family, social, and exploration. The delivery of the all-new ES8 is expected to start in June. Both new products have attracted wide attention and received great feedback.

William Li (Founder, Chairman of the Board, and CEO)

[Foreign language]

Speaker 13

In the first half of this year, NIO will gradually launch more new products and shorten the waiting time from launch to user delivery. Our supply chain and manufacturing teams have been preparing for new product launches and production ramp-up, making sure that supply and production go hand in hand with the growing demand for the new products.

William Li (Founder, Chairman of the Board, and CEO)

[Foreign language]

Speaker 13

For intelligent driving, NIO has gradually rolled out NOP+ (Beta) to all NT 2.0 Vehicles. Based on our full-stack in-house developed intelligent driving technologies and the closed loop data management, NOP+ (Beta) has realized a significant improvement in areas of a sense of reassurance, comfort, and efficiency. The utilization rate has doubled with a total engaged mileage of over 1.75 million kilometers in the recent week. We plan to roll out more features and functions to our users, and we'll gradually release Power Swap Pilot for highway in the first half of this year.

William Li (Founder, Chairman of the Board, and CEO)

[Foreign language]

Speaker 13

With respect to the sales and service network, we now have 375 NIO Houses and NIO Spaces in 141 cities, and 305 NIO Service Centers and NIO Delivery Centers in 148 cities.

William Li (Founder, Chairman of the Board, and CEO)

[Foreign language]

Speaker 13

In terms of the charging and swapping network, NIO has installed a total of 1,331 Power Swap Stations, and provided over 18 million battery swaps for our users. In the meantime, NIO has cumulatively deployed 6,385 power chargers and 7,558 destination chargers. Our power map has been connected to over 1.04 million third-party chargers. In 2022, 50% of the power charged by our users is from battery swapping stations, which has become the most convenient and favorite solution among NIO users.

William Li (Founder, Chairman of the Board, and CEO)

[Foreign language]

Speaker 13

In 2023, NIO will speed up the development of the battery swapping network and plan to install additional 1,000 Power Swap Stations. By the end of 2023, there will be more than 2,300 Power Swap Stations in total. So far, the mass production of Power Swap Station 3.0 is going forward smoothly, with large scale production expected to start in April. The accelerated deployment of the Power Swap Stations can not only provide existing users with experiences beyond expectations, but also significantly boost user demand.

William Li (Founder, Chairman of the Board, and CEO)

[Foreign language]

Speaker 13

In Q4 2022, NIO started to offer NT 2.0 products and comprehensive services in Germany, the Netherlands, Denmark, and Sweden.

William Li (Founder, Chairman of the Board, and CEO)

[Foreign language]

Speaker 13

NIO products have been highly recognized by professional media in Europe, and the user satisfaction rate has also raised our expectations. After obtaining the prestigious Golden Steering Wheel award, ET7 was honored with multiple awards in Europe, such as the Technological Frontrunner of the Year at the Danish Auto Awards, Car of the Year and the Best in the Luxury Segment by Auto Motor & Sport, Sweden, and the Promise of 2023 by the Association of Business Drivers in Netherlands. On January 31st, 2023, we started to deliver EL7, our NIO large smart electric SUV to the first batch of users in Europe. As we continue to introduce a more diversified product portfolio, expand our sales service and power network, improve our brand awareness, we are confident in our long-term development in Europe.

William Li (Founder, Chairman of the Board, and CEO)

[Foreign language]

Speaker 13

The R&D efforts of our strategic new businesses, including batteries, AD chips, and mass market brand, are also well on track. The development of NIO wouldn't have been possible without our users continuing support. In 2022, 4,447 users volunteered at auto shows, NIO Day, and other events. NIO users have also been actively making contributions to society with the participation of public welfare activities, reaching 6,204 people-times in 2022.

William Li (Founder, Chairman of the Board, and CEO)

[Foreign language]

Speaker 13

On January 18th, 2023, NIO was recognized in Corporate Knights 2023 Global 100, the world's most sustainable companies list. Among 333 companies in the car and trucks manufacturing, including parts category, NIO ranked first. In the meantime, on January 31st, 2023, NIO's second advanced manufacturing base was certified Three-Star Green Building and LEED Gold, marking the first of its kind in China. We attach particular importance to low-carbon development, environmental production and ecosystem co-construction, and actively practice sustainable philosophy to continuously improve our ESG performance.

William Li (Founder, Chairman of the Board, and CEO)

[Foreign language]

Speaker 13

In 2022, to build our long-term competitiveness, we make decisive investment and achieve the positive strength in the research and development of core technologies and products, the deployment of charging and swapping infrastructure, as well as the sales and the service network, and the global market expansion, laying a solid foundation for the company's long-term growth.

William Li (Founder, Chairman of the Board, and CEO)

[Foreign language]

Speaker 13

As our product portfolio transitions to NT 2.0 with more new products to be launched and delivered in 2023, we will do our level best to provide users with experiences beyond expectations. At the same time, we aim for all-around execution efficiency improvements so as to compete in the global EV market in the long run in an agile and efficient manner.

William Li (Founder, Chairman of the Board, and CEO)

[Foreign language]

Speaker 13

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 fourth quarter. Over to you, Steven.

Steven Feng (CFO)

Thank you, William. I will now go over our key financial results for the fourth quarter of 2022. To be mindful of this length of this call, I will reference to RMB only in my discussion today. I encourage listeners to refer to our earnings press release, which is posted online for additional details. Our total revenues in the fourth quarter were RMB 16.1 billion, representing an increase of 62.2% year-over-year and 23.5% quarter-over-quarter. Our total revenues are made of two parts, vehicle sales and other sales. Vehicle sales in the fourth quarter were RMB 14.8 billion, representing an increase of 60.2% year-over-year and 23.7% quarter-over-quarter.

The increase in vehicle sales year-over-year was mainly attributed to higher deliveries as a result of a more diversified product mix offered to our users. The increase in vehicle sales quarter-over-quarter was mainly due to volume ramp-up of the ET5 and ES7. Other sales in the fourth quarter were RMB 1.3 billion, representing an increase of 90.3% year-over-year, an increase of 22% quarter-over-quarter. The increase in other sales year-over-year was mainly due to the increase of revenue from rendering of research and development services and increase in other revenues in line with the incremental vehicle sales.

The increase in other sales quarter-over-quarter was mainly due to the increase of revenue from rendering of research and development services and increase in sales for accessories, charging piles, and used cars in line with the incremental vehicle sales, partially offset by the sales of automotive regulatory credits in the third quarter of 2022. Gross margin in the fourth quarter of 2022 was 3.9%, compared with 17.2% in the fourth quarter of 2021, and 13.3% in the third quarter of 2022. The decrease of gross margin year-over-year was mainly attributed to decreased vehicle margin. Decrease of gross margin quarter-over-quarter was mainly attributed to decreased vehicle margin and the decreased other sales margin mainly resulted from the sales of automotive regulatory credits, with high gross margin in the third quarter of 2022.

More specifically, vehicle margin in the fourth quarter was 6.8%, compared with 20.9% in the fourth quarter of 2021, and 16.4% in the third quarter of 2022. The decrease of vehicle margin year-over-year was mainly attributed to, first, increased inventory provisions, accelerated depreciation on production facilities, and losses on purchase commitments for the existing generation of ES8, ES6, and EC6, that are expected to have lower production levels and deliveries due to the transition to new models on the NIO Technology Platform 2.0, which in totality negatively impacted vehicle margin by 6.7%.

Second, increased battery cost per unit. The decrease of vehicle margin from the third quarter of 2022 was mainly due to the increased inventory provisions, accelerated depreciation on production facilities, and the losses on purchased commitments for the existing generation of ES8, ES6, and EC6. R&D expenses in the fourth quarter were RMB 4.0 billion, representing an increase of 117.7% year-over-year and 35.2% quarter-over-quarter. The increase in R&D expenses year-over-year and quarter-over-quarter were mainly attributed to the increased personnel costs in research and development functions, as well as the incremental design and development costs of new products and technologies. SG&A expenses in the fourth quarter were RMB 3.5 billion, representing an increase of 49.6% year-over-year and 30% quarter-over-quarter.

The increase in SG&A expenses year-over-year and quarter-over-quarter was primarily due to, first, the increase in personnel costs related to sales and general corporate functions. Second, the increase in marketing and promotion activities to promote our vehicles in China and Europe. Third, increased expenses related to the company's sales and service network expansion. Loss from our operations in the fourth quarter was RMB 6.7 billion, representing an increase of 175.5% year-over-year and 74% quarter-over-quarter.

Other incomes net in the fourth quarter of 2022 was RMB 315.7 million, representing an increase of RMB 262.2 million from the fourth quarter of 2021, an increase of RMB 811.3 million from other losses of RMB 495.6 million in the third quarter of 2022. The increase of other incomes year-over-year and quarter-over-quarter was mainly due to the gains from the revaluation of our overseas RMB-related assets as a result of appreciation of RMB against its dollars in the fourth quarter of 2022. Net loss in the fourth quarter was RMB 5.8 billion, representing an increase of 169.9% year-over-year and 40.8% quarter-over-quarter.

Net loss attributable to NIO's ordinary shareholders in the fourth quarter was RMB 5.8 billion, representing an increase of 168.3% year-over-year and 41.2% quarter-over-quarter. Our balance of cash and cash equivalents restricted cash, short-term investment, and long-term time deposits was RMB 45.5 billion as of December 31st, 2022. This concludes our prepared remarks. I will now turn over to the operator to facilitate 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 then 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. If you have additional questions, you can re-enter the queue. Our first question today comes from Tim Hsiao with Morgan Stanley. Please go ahead.

Tim Hsiao (VP and Equity Research Analyst)

[Foreign language]

Speaker 14

My first question is about the supply chain and also the volume. Because NIO's shipment last year were seriously dragged by the supply bottleneck of aluminum parts, EDS and chips. According to the announcement of NIO's first quarter volume guidance of 31,000-33,000 also suggests more moderate vehicle sales in March. Is that because some components are still suffering from supply constraint? What's current vehicle production run rate, and how fast it could ramp up on weekly and monthly basis into second quarter?

William Li (Founder, Chairman of the Board, and CEO)

谢谢 Tim. 去年 的 四 季 度 确实 因为 零部件 的 供应 影响 了 我们 一些 车 的 交付, 但 在 你 也 知道 这个 今年 的 一 季 度, 这个 从 一 月 份 开始, 实际上 中国 的 这个 疫情 的 管控, 疫情 的 整 个 这 个 基本上 已经 结束 了. 所以 目前 来 讲 的 话 呢, 我们 的 零部件 的 供应, 总 体 来 说 已经 不 太 是 一个 瓶颈 了. 那 我们 当然 这 个, 在 二 季 度 开始, 随着 我们 新车 的 这 个 交付, 在 初期 的 话 呢, 我们 会 有 一些 爬坡 这样 的 一些 挑战. 但 从 全年 来 讲 的 话 呢, 如果 以 现在 的 情况 来 讲 的 话, 我们 认为 这个 供应 方面 的 需, 这 个 压力 对 我们 来 说 是 会 大大 地 下降, 从 目前 来 讲 不 太 会 成为 我们 的 一个 制约 因素.

Speaker 13

Thank you Tim for your question. In the fourth quarter of last year, the supply of the parts have affected our vehicle deliveries to some extent. Starting from the first quarter of this year, we have seen that the control and prevention measures regarding the COVID have been lifted. Currently we believe the supply of the parts is not the bottleneck for us. Starting from the second quarter, we believe with all the new vehicle deliveries, we will need to have some 时 间 to ramp up the production, but we don't believe that the parts supply will be a constraint for us.

Tim Hsiao (VP and Equity Research Analyst)

谢 谢 。 我 第 二 个 问 题 是 有 关 于 可 能 毛 利 率 跟 这 个 电 池 的 价 格 ， 因 为 的 确 是 我 们 看 到 Q4 毛 利 下 降 比 较 明 显 。 这 个 公 告 里 面 提 到 毛 利 率 这 个 6.7% 的 影 响 多 少 是 一 次 性 的 ， 多 少 是 会 延 续 到 Q1 。 同 时 间 今 年 的 好 消 息 可 能 是 电 池 降 价 吧 ， 就 是 和 CATL 采 购 这 个 长 期 采 购 的 合 作 ， 以 及 电 池 成 本 降 价 之 后 ， 就 是 对 于 集 团 利 润 的 一 个 贡 献 。 因 为 之 前 可 能 William 这 边 有 提 到 ， 就 是 lithium carbonate 价 格 的 变 动 算 元 会 影 响 未 来 这 边 2% 的 毛 利 。 所 以 我 们 在 和 这 个 电 池 厂 谈 判 的 话 ， 这 一 块 对 于 我 们 全 年 大 概 会 有 一 个 多 大 的 贡 献 ， 这 个 是 不 是 可 以 请 您 分 享 一 下 。

Speaker 14

My second question is about the battery cost and also the gross margin. Because the fourth quarter vehicle gross margin dropped more significantly. Within the 6.7 percentage point margin drop mentioned in the announcement, how much of that would be one-off? How much of that would be lasting into first quarter? In the meantime, on the bright side, battery prices continue to go well to the vehicle margin, most vehicle margin this year. How should we think about the contribution from the new battery country prices? Because as we call that we mentioned every RMB 100,000 decrease in bill of the company, will lead to about 2 percentage point vehicle gross margin expansion. Could you please share some updates regarding how much more contribution from the lower battery cost should we expect this year or in first half? Thank you.

Stanley Qu (SVP of Finance)

Thank you, Tim. This is Stanley. First I want to further clarify the Q4's 2020's gross profit margin. Since our brand-new ES8, ES6, EC6 will start user delivery in Q2 2023. We lower our order forecast for current generation ES8, ES6 and EC6 in Q4 2022. Inventory provision and losses on purchase commitments relate to those product was booked in Q4 with total amount of RMB 985 million. Excluding this impact, the vehicle margin in Q4 was 13.5%. Compared with the last quarter, the decrease results from the change of product mix, especially more ET5 sold in Q4 with lower gross profit margin. For the forecast of gross profit margin in 2023, I ask William to help explain. Okay.

William Li (Founder, Chairman of the Board, and CEO)

全 年 来 讲 的 话 呢 ， 我 们 这 个 认 为 这 个 在 呃 ， 这 个 Q4 或 者 说 全 年 吧 ， 那 个 Q4 吧 ， 我 们 认 为 到 爬 升 到 十 八 到 二 十 个 点 的 一 个 毛 利 ， 我 们 还 是 有 信 心 的 。 当 然 几 个 方 面 的 影 响 ， 一 个 的 话 呢 ， 是 我 们 的 产 品 组 合 ， 因 为 我 们 从 Q2 开 始 的 话 ， 我 们 的 相 对 来 说 高 端 一 些 的 产 品 会 陆 续 地 交 付 。 那 么 第 二 个 来 讲 的 话 呢 ， 是 这 个 你 也 谈 到 了 ， 这 个 锂 价 和 原 材 料 价 格 的 一 些 下 降 啊 ， 包 括 芯 片 成 本 的 一 些 下 降 ， 那 么 这 个 对 我 们 的 影 响 还 是 比 较 大 的 。 那 目 前 来 讲 的 话 ， 我 们 看 到 碳 酸 锂 最 近 的 话 呢 ， 在 比 较 快 速 地 下 降 ， 啊 我 们 也 看 到 了 市 场 上 一 般 的 这 个 认 为 的 话 呢 ， 是 包 括 我 们 前 两 天 我 们 也 刚 刚 跟 很 多 上 游 的 材 料 的 公 司 做 了 非 常 密 集 的 交 流 啊 ， 也 了 解 他 们 的 产 能 的 情 况 和 投 产 的 情 况 。

那 么 在 今 年 还 是 有 非 常 多 的 这 种 锂 的 产 出 ， 啊 ， 这 个 在 今 年 投 产 。 那 么 呃 ， 我 们 也 看 到 需 求 的 话 呢 ， 肯 定 不 会 像 去 年 那 么 强 劲 ， 这 个 去 年 确 实 是 超 过 了 大 家 的 预 计 。 所 以 总 的 来 说 ， 我 们 认 为 在 Q4， 呃 ， 是 有 机 会 下 降 到 二 十 万 甚 至 于 比 它 更 低 的 碳 酸 锂 的 这 么 一 个 价 格 。 那 么 第 三 个 当 然 也 是 我 们 认 为 从 Q3 开 始 ， 我 们 的 这 个 ， 呃 ， 整 个 的 交 付 量 会 显 著 地 上 升 ， 因 为 我 们 在 Q2 的 话 ， 我 们 的 新 产 品 都 会 陆 续 地 交 付 。 那 么 呃 ， 随 着 这 个 新 ， 这 个 销 量 和 交 付 量 的 上 升 的 话我 们 很 多 固 定 的 成 本 的 分 摊 啊 ， 也 会 能 够 得 到 很 好 的 一 个 改 善 。 所 以 总 的 来 说 ， 我 们 认 为 ， 呃 ， 回 到 十 八 到 二 十 个 点 的 一 个 毛 利 的 水 平 ， 是 我 们 追 求 的 一 个 目 标 ， 我 们 认 为 也 是 有 信 心 实 现 的 。

Speaker 13

For the gross margin for the full year of 2023. We are confident that in the Q4 of 2023, the vehicle gross margin will go back to 18%-20% due to several factors. The first one is our product portfolio. Starting from the second quarter of this year, we are going to start the delivery of the vehicle models with higher vehicle gross margins. The second factor is, just like you mentioned, recently, we have witnessed the cost reductions of the raw materials, including the lithium carbonate, chips, and other commodities. We believe this will also contribute to our vehicle gross margin improvement in this year, especially when it comes to the lithium carbonate cost. We have witnessed significant cost reductions. We have also engaged discussions with the upstream companies in the battery supply chain.

We understand there are some capacities reserved for the lithium carbonate this year. Starting from this year, we are going to see more output from the upstream capacities. At the same time, considering the market demand, we believe the demand probably is not going to be that strong compared with the past. If we balance the supply and the demand regarding the lithium carbonate, we believe probably in the fourth quarter of this year is quite likely the lithium carbonate cost will go down to probably around RMB 200,000 or even lower. The third factor, we believe, is that starting from the third quarter of this year, we are going to start more product deliveries. This is mainly because more new product will be delivered to our users starting from the second quarter of this year.

We believe with the ramp up of the vehicle deliveries, the amortization rate of the fixed cost will also improve. Our target still remains that we can achieve the vehicle gross margin of 18%-20%, and we are very confident that we can achieve that.

William Li (Founder, Chairman of the Board, and CEO)

我 想 补 充 一 下 ， 一 季 度 我 们 还 是 会 面 临 比 较 大 的 压 力 ， 因 为 一 季 度 对 我 们 来 说 还 是 一 个 转 换 期 。 大 家 也 看 到 了 ， 我 们 的 销 量 的 话 呢 ， 也 在 一 个 转 换 期 ， 因 为 我 们 要 这 个 等 着 这 个 切 换 到 第 二 代 平 台 。 另 外 一 方 面 的 话 呢 ， 现 有 的 我 们 这 个 已 经 生 产 出 来 的 这 样 的 一 些 八 六 六 的 车 型 ， 啊 ， 那 我 们 为 了 这 个 补 贴 ， 这 个 国 ， 为 了 补 贴 这 个 国 补 的 退 坡 ， 啊 ， 还 有 我 们 展 车 的 一 些 清 库 ， 啊 ， 我 们 有 一 些 金 融 贴 息 这 方 面 的 一 些 政 策 ， 那 么 对 短 期 毛 利 是 有 影 响 的 。 还 有 一 点 的 话 呢 ， 就 是 我 们 F1 的 工 厂 ， 因 为 要 ， 要 为 八 六 六 新 的 第 二 代 车 型 的 生 产 做 准 备 ， 所 以 总 的 来 说 ， 第 一 F1 工 厂 在 一 季 度 的 产 出 也 是 比 较 低 的 。 那 么 这 个 对 于 我 们 整 个 的 单 车 盘 销 也 会 ， 也 会 有 一 些 影 响 。 啊 ， 所 以 包 括 我 们 一 ， 产 品 组 合 ， 因 为 一 季 度 的 交 付 主 要 是 ET5， 它 相 对 来 说 毛 利 率 也 会 低 一 些 ， 所 以 一 季 度 的 我 们 的 毛 利 率 的 压 力 是 比 较 大 的 。

Speaker 13

For the first quarter of this year, we believe that we're going to face more pressure on the vehicle gross margin considering the overall situation, because this is a transitional period for the company when it comes to the vehicle sales, because we are transitioning into a new technology platform for our product portfolio to the NT 2.0. It means that for the existing generation of the ES8, ES6, and EC6, we will need to have some measures to accommodate the subsidy reduction as well as some subsidization of the show carts. At the same time, when it comes to the production capacities, because we need to prepare for the launch of the new generation ES8, ES6, and EC6 in our Factory One, so we need to do some modifications and toolings of the production lines.

This has affected the output of the Factory One in the first quarter, which resulting a higher vehicle cost for of our products. At the same time, when it comes to the specific quarter, that is the first quarter of this year, we will also see that the ET5 contribute as a large portion of the overall vehicle delivery, which will also affect our vehicle's margin in the first quarter.

William Li (Founder, Chairman of the Board, and CEO)

Thank you, Tim.

Tim Hsiao (VP and Equity Research Analyst)

Great. Thank you for sharing. Thank you very much.

Operator (participant)

The next question comes from Ming Hsun Lee with Bank of America. Please go ahead.

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

William， 还 有 各 位 领 导 ， 你 们 好 。 谢 谢 ， 让 我 提 问 。 我 这 边 ， 也 是 2 个 问 题 。 第 1 个 问 题 呢 ， 是 关 于 ， 就 是 ， 这 个 费 用 的 指 引 。 记 得 ， 上 个 季 度 那 个 时 候 ， William 应 该 有 提 到 ， 就 是 希 望 ， 未 来 还 是 每 个 季 度 希 望 能 够 在 这 个 R&D 能 够 控 在 ， RMB 3 billion 左 右 这 样 的 一 个 金 额 。 不 晓 得 就 是 ， 管 理 层 现 在 有 没 有 比 较 新 的 整 个 一 个 OPEX 的 一 个 指 引 ， 刚 才 ， 管 理 层 也 提 到 说 今 年 的 一 个 目 标 也 是 要 增 加 这 个 资 金 运 用 效 率 。 想 了 解 一 下 ， Sales and Marketing， 然 后 还 有 R&D 这 边 的 一 个 费 用 ， 有 没 有 一 个 新 的 指 引 。

My first question is related to operating expense. In the past, William mentioned that R&D per quarter is expected to be around RMB 3 billion. This quarter, we saw that the expense is close to RMB 4 billion. We want to understand if there is a new guidance for Sales and Marketing as well as R&D expense. 谢 谢 ， 这 是 我 第 1 个 问 题 。

Stanley Qu (SVP of Finance)

Hi Ming, this is Stanley. The guidance for R&D expense, I think we keep this guidance. Our average base for each quarter of 2023, we will, the non-GAAP R&D expense will be around RMB 3 billion-RMB 3.5 billion. That's for R&D expense. For SG&A, as mentioned by William, along with the start of user delivery of our new NT 2.0 Product in Q2, we think our sales efficiency will be improved gradually. The ratio of SG&A versus sales revenue is expected to drop significantly. That's for the first question. Thank you, Ming.

William Li (Founder, Chairman of the Board, and CEO)

[Foreign language]

Speaker 13

Just to add to Stanley's point, regarding the SG&A, because we also need to consider the investment for the European markets. For the European market, right now, we're still at a relatively early stage in terms of the vehicle sales and the delivery. We believe this is more like a investment period for our global market expansion. Thank you for your question. Actually, for the second quarter of this year, according to our latest plan, we expected to launch four new models, including our most important product probably that is the ES6. In July, we plan to deliver the fifth model.

Actually, this is a little bit late compared with our previous plan, because our previous plan is that in the second quarter of this year, we are going to deliver all the five new models. We realized that probably it's better for us to have some breathing room between different product launches, so we can probably ensure much higher quality of the products and also make sure the teams have a much better pace for the product deliveries and sales. In terms of the product upgrades, we have been continuously making product improvements. We will keep the market informed if there's any kind of update.

When it comes to the product launch cadence for the next year, I think probably this is not the right timing for us to share those information because right now, I believe the teams are facing tremendous pressure we can deliver the five new models this year with very high standards. All in all, we have our own pace and our own schedules when it comes to our new product launch and also of a new brand. In terms of the product launch cadence and of a new brand, everything is on track according to the plan.

William Li (Founder, Chairman of the Board, and CEO)

Thank you, Ming.

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

Thank you, William.

Operator (participant)

The next question comes from Bin Wang with Credit Suisse. Please go ahead.

Bin Wang (Co-Head of APAC Autos Securities Research)

Thank you. I actually got two questions about guidance. Number one is about the volume. For full year, do you maintain the guidance for 250,000? Because given that recently the price cut by the competitors in the first quarter delivery, you actually early phase of the product, so would you actually maintain the full year volume guidance about 250,000? That's Number one. Number two, you actually mentioned earlier the number four quarter four NIO brands that alone will be turned around to profitable. Given a change in the internal competition, do you actually maintain the same guidance? Thank you.

William Li (Founder, Chairman of the Board, and CEO)

对，我 们 从 全 年 来 讲，我 们 相 信 我 们 今 年 的 这 个 目 标 是 能 够 完 成 了。我 们 这 个 新 产 品 交 付 了 以 后，我 们 对 需 求 还 是 非 常 有 信 心 的，基 于 三 个 方 面。第 一 个 当 然 是 我 们 今 年 上 半 年 我 们 会 交 付 ...

今 年 我 们 会 交 付 5 款 全 新 的 基 于 NT 2.0 平台 的 产 品 。 我 们 整 个 的 产 品 都 会 切 换 到 这 个 新 的 平 台 。 对 于 这 个 ， 应 该 说 进 入 一 个 比 较 强 的 一 个 产 品 周 期 。 避 免 两 代 产 品 同 时 卖 还 是 很 重 要 ， 对 我 们 一 线 的 这 个 效 率 也 能 提 升 很 多 。 这 个 和 去 年 Q4 和 今 年 Q1 的 情 况 是 很 不 一 样 的 。 第 二 个 来 讲 呢 ， 就 ， 我 们 就 说 了 产 品 切 换 ， 我 们 产 品 切 换 完 了 以 后 ， 我 们 是 能 够 覆 盖 BBA 80% 的 销 量 占 比 的 这 样 一 个 主 销 车 型 ， 而 且 我 们 在 各 个 细 分 市 场 ， 从 产 品 的 优 势 的 角 度 来 讲 的 话 ， 都 是 非 常 巨 大 的 ， 就 是 碾 压 式 的 ， 这 是 第 一 点 。

Speaker 13

For the full year of 2023, we are confident that we can achieve our targets. After we complete product deliveries, we believe we will see some upside momentum for our vehicle deliveries. For this year, we are going to deliver five new products based on the NT 2.0 Technology platform. After all of our product portfolio transitions to the NT 2.0 Platforms, it means that we are going to enter a very strong product cycle. We believe that this can actually improve our team efficiency much better because the teams don't need to sell two generation products at the same time. After we transition all the product portfolio into the Technology platform 2.0, we believe we are going to cover probably 80% of the mainstream vehicle models for the BMW, Audi and Mercedes-Benz. When you compare our products with their products, we believe our product competitiveness is much stronger.

William Li (Founder, Chairman of the Board, and CEO)

第 二 个 增 长 的 动 力 呢 ， 是 我 们 的 这 个 充 换 电 体 系 。 你 们 应 该 也 看 到 了 ， 我 们 今 年 要 新 增 1,000 个 Power Swap Station 。 我 们 想 这 个 也 是 会 给 我 们 进 到 更 多 的 市 场 ， 比 如 说 三 四 线 的 城 市 ， 提 供 了 一 个 动 力 ， 这 个 是 非 常 重 要 的 。 我 们 现 在 ， 去 年 我 们 ， 到 目 前 为 止 ， 我 们 half 的 用 户 ， 50%+ 的 用 户 分 布 在 Shanghai 、 Jiangsu 和 Zhejiang 这 三 个 省 市 。 从 另 外 一 方 面 来 讲 的 话 呢 ， 也 能 说 明 的 话 呢 ， 我 们 还 有 巨 大 的 这 个 市 场 空 间 等 着 我 们 去 拓 展 。 我 们 今 年 的 这 1,000 个 Power Swap Station 不 光 是 补 充 现 在 的 用 户 的 这 样 的 一 些 体 验 ， 更 多 的 还 是 对 这 个 进 入 更 多 市 场 的 这 样 一 个 支 撑 。

Speaker 13

The second driver is going to be our charging and swapping network. This year we plan to deploy additional 1,000 Power Swap Stations to cover more markets. Especially, we believe that this is going to help us to boost our demand in the Tier 3 and Tier 4 cities. Probably some of you know that for our current vehicle deliveries, over 50% of our vehicle deliveries happens in Shanghai, Jiangsu and Zhejiang. At the same time, if you look at the overall vehicle delivery landscape of NIO products, it means that we have a huge potential to explore in other cities and the regions. We believe with the deployment of the additional 1,000 Power Swap Stations, we can cover more users and also improve the experience of the existing users, which can also support our vehicle demand growth in other different cities and regions as well.

William Li (Founder, Chairman of the Board, and CEO)

第 三 个 ， 呃 ， 增 长 的 动 力 来 自 于 我 们 在 ， 呃 ，NT 2.0 平 台 上 的 这 样 一 些 ， 呃 ， 软 件 的 逐 步 的 这 个 功 能 的 释 放 和 更 加 成 熟 。 呃 ， 我 前 面 也 讲 到 了 ， 最 近 一 周 我 们 NOP+ 的 使 用 里 程 就 超 过 了 一 百 七 十 五 万 公 里 。 那 我 们 这 个 ， 我 们 因 为 所 有 的 车 都 是 标 配 的 ， 这 个 ， 呃 ， 这 个 算 力 和 这 个 传 感 器 ， 那 ， 呃 ， 这 个 数 据 闭 环 的 这 个 优 势 是 巨 大 的 。 呃 ， 我 们 已 经 在 很 多 第 三 方 测 评 里 面 ， 我 们 的 这 个 NOP+ 都 是 处 在 第 一 名 啊 。 那 我 想 这 一 点 ， 呃 ， 包 括 还 有 其 他 的 这 个 ， 呃 ， 我 们 NT 2.0 平 台 的 这 样 一 些 ， 包 括 座 舱 啊 ， 包 括 音 响 这 方 面 的 一 些 体 验 都 是 逐 步 的 完 善 。 我 们 相 信 这 也 是 能 够 极 大 地 增 加 我 们 的 产 品 竞 争 力 ， 因 为 我 们 的 一 些 同 行 ， 他 们 都 选 择 的 是 这 个 选 配 的 这 样 一 些 ， 呃 ， 这 样 的 一 些 策 略 ， 就 是 标 配 的 这 样 一 个 策 略 。 那 我 们 从 这 个 今 年 随 着 更 多 功 能 的 释 放 ， 这 个 会 极 大 地 增 加 我 们 产 品 的 竞 争 力 。

Speaker 13

At the same time, when we look at the software features and functions that are planned to be released on the NT 2.0, we believe it will also contribute to other vehicle demands. Just like I mentioned in the recent week, the engaged mileage of the NOP+ (Beta) is over 1.75 million kilometers. All of our products come standard with the strong computing power and the sensor suite. This actually provides a huge foundation for us to have a closed loop data management. If you look at all the tests, by the third parties or by the professional medias, NOP+ (Beta) ranks the first in all those tests.

We believe together with other improvements in terms of the digital cockpit and as well as the audio systems and other softwares and features in our product, this will significantly boost all the product competitiveness of a product. Because when you look at the competitors or the peers in the market, most competitors, they offer those functions and features as an option. But for us, because everything come as a standard, so it means that we will have a huge room to upgrade the experience of our users.

William Li (Founder, Chairman of the Board, and CEO)

综 合 来 说 ， 我 们 的 目 标 还 是 按 照 全 年 去 翻 倍 的 这 样 的 1 个 目 标 。 团 队 对 这 个 还 是 非 常 有 信 心 的 。 至 于 说 到 整 个 盈 利 能 力 的 问 题 ， 这 个 当 然 跟 毛 利 率 ， 因 为 我 们 的 费 用 相 对 来 说 是 固 定 的 ， 这 个 跟 毛 利 率 当 然 是 高 度 相 关 。 如 果 这 个 原 材 料 的 价 格 按 照 这 个 目 前 的 这 个 趋 势 是 能 达 到 我 们 的 1 个 预 期 的 下 降 的 速 度 的 话 ， 我 们 仍 然 认 为 我 们 在 今 年 的 Q 四 ， 不 考 虑 我 们 的 一 些 创 新 业 务 的 投 入 ， 因 为 这 个 和 我 们 当 时 这 个 制 定 这 个 计 划 的 时 候 相 比 的 话 呢 ， 这 是 我 们 新 增 在 的 一 些 投 入 ， 不 考 虑 到 这 些 创 新 业 务 的 投 入 的 话 呢 ， 我 们 仍 然 是 按 照 在 今 年 的 Q 四 ， 我 们 的 这 个 可 比 业 务 去 实 现 这 个 盈 利 ， 实 现 breakeven， 还 是 按 照 这 个 目 标 去 制 定 的 。

Speaker 13

In a nutshell, our target is still to double the volume in this year, and our teams are quite confident to achieve this target. When it comes to the profitability, this is closely bundled together with the gross margin. If the raw material cost reduction can meet our expectations, like I explained before, then for the fourth quarter, we believe this probably can still achieve the target that we set before. When we made the plan to become positive, we didn't consider the strategic new business investment. It means that for the fourth quarter of this year, our target is that put aside the investment for the strategic new businesses, our new brand, the main business of the new brand can still achieve breakeven.

William Li (Founder, Chairman of the Board, and CEO)

Thank you. Thank you, team.

Bin Wang (Co-Head of APAC Autos Securities Research)

Thank you so much.

Operator (participant)

Next question comes from Yuqian Ding with HSBC. Please go ahead.

Yuqian Ding (Equity Research Analyst)

Thanks team. Yuqian here. I got two. First on ET5, we noticed order book contraction on this flagship volume model ET5. How would the management look at and stabilize the monthly sales volume on ET5 to 10,000 per month? What's the key driver to support? Is it broadly a sector demand related or any specific service network expansion supported? The second question is on lithium to margin. The lithium price is correcting. We talked about before about a RMB 100,000 per ton price correction roughly release 2% margin, so roughly we might get 4%-8% buffer this year. Can we keep them all? We might have to pass some to the consumers given the universal pricing pressure. On that notion, will us take the CATL deal to get lower lithium price but to lock up more shopping share with them? Thank you.

William Li (Founder, Chairman of the Board, and CEO)

谢 谢。 总 的 来 说 的 话 呢， 我 们 如 果 去 看 我 们 Q2 或 者 说 今 年 我 们 的 NT 2.0 的 产 品 都 发 布 了 以 后， 你 可 以 基 本 上 来 讲 把 我 们 的 产 品 分 成 3 个 类。 第 一 个 当 然 就 是 我 们 的 主 要 的 这 个 销 量， 包 括 你 说 的 ET5， 包 括 我 们 ES6。 但 我 们 会 和 ET5 的 touring 版 大 家 也 都 已 经 知 道 了， 虽 然 我 们 还 没 有 正 式 发 布， 这 个 我 们 会 combine 在 一 起。 我 们 认 为 ET5 加 上 ET5 的 touring 和 ES6， 我 们 的 目 标 是 希 望 能 够 实 现 20,000 一 个 月 的 销 量。 我 们 认 为 这 个 市 场 的 容 量 是 足 够 容 纳 我 们 制 定 这 个 目 标 的。 那 么 在 这 个 上 面 的 话 呢， 我 们 当 然 会 有 一 些 销 量 的 贡 献 的 一 些 车 型， 比 如 说 ET7、ES7、ES8。 那 么 在 这 些 车 的 话， 每 款 车 差 不 多 是 2,000 到 4,000 台 之 间 的 这 么 一 个 数。

所 以 加 起 来 的 话， 可 能 差 不 多 是 在 10,000 台 左 右， 8,000 到 10,000 台 左 右。 那 么 如 果 再 去 看 的 话 呢， 再 往 上 一 些 就 是 我 们 一 些 润 滑 我 们 品 牌 的 这 样 的 一 些 车 型， 比 如 说 我 们 的 coupe SUV， EC7、EC6 这 样 的 一 些 车 型。 那 么 这 个 当 然， 这 个 它 主 要 是 表 现 我 们 在 设 计， 在 品 味 这 方 面 的 一 些 追 求 的。 那 有 些 个 性， 比 较 追 求 个 性 的 用 户 比 较 喜 欢 这 样 的 车， 那 我 们 当 然 希 望 它 能 多 卖 一 些， 但 这 个 当 然 它 会 小 众 一 些。 那 差 不 多 是 1,000 到 2,000 台 一 个 月 的 销 量。 所 以 总 的 来 说， 结 合 在 一 起

Speaker 13

Thank you for your question. Starting from the second quarter of this year, we are going to gradually launch and deliver all the products based on the NT 2.0. When it comes to the total product portfolio, we can look at them into three different dimensions. The first one is the volume driver, that is the ET5, ES6, and the ET5 Touring that we haven't released, but I believe everyone knows. If we combine the ET5 Touring, and the ES6 together, we believe is possible for us to achieve 20,000 units per month, if we consider the addressable market. When it comes to the second dimension, that is the volume contributor, that includes the ET7, ES7, and the ES8.

We believe that for those models, each model can achieve a delivery volume around 2,000-4,000 per month. If we combine them together, for this volume contributor segment, this probably can contribute 8,000-10,000 units for overall vehicle delivery and sales. For the third dimension, that is the brand shaper, that is of a coupe SUV, the EC7 and the EC6. Because the coupe SUV is a relatively niche market, we believe that this can probably help us to better showcase of a brand design taste. For those users who would like it to be different, they want to show off their taste and their sense of design, probably they can choose this brand shaper product.

We hope to sell more products, including the brand shaper, but this is a relatively niche market segment. We believe for this brand shaper, that is the EC7 and the EC6, probably the volume is around 1,000-2,000 per month for each product. If we look at the complete product portfolio of all those products, we believe, those strong product portfolio and diversified product portfolio should be able to support us to achieve a volume of 30,000 units per month.

Steven Feng (CFO)

Okay. Yuqian, this is Steven. I would like to answer your second question about the lithium price. First, we do agree that our GP margin is very sensitive to the lithium price. As you have mentioned, if the lithium price by RMB 100,000 per ton, our GP margin can be boosted by as far as 2 percentage points. That means, we expect or we believe this year, there's a good chance that the lithium carbonate price will trade to around RMB 200,000 per ton, and that will translate a good GP margin elasticity for NIO.

If you look at the lithium carbonate price, in the past, it was just like around RMB 100. It peaked around RMB 570,000 in November 2022, which increased the whole EV industry. From the beginning of this year, the lithium carbonate price has already retreated to around RMB 400,000 per ton. Looking forward, on the supply side, as several battery suppliers invested in the upstream raw material efforts, and these efforts started to yield meaningful lithium carbonate supply from the second quarter of this year. From the supply side, we do see a stable increase. On demand side, yes, that year, China's EV sales volume almost doubled. If you look at this year, a good estimation is around 30%.

We expect the gap between the supply and demand will reduce significantly, which will lead to a lower and more reasonable lithium carbonate price around RMB 2,000 per ton. Last but not least, when we look at the production cost of lithium carbonate, if you look at the lepidolite price cost, which is around RMB 150,000. A lithium carbonate price around RMB 200,000 per ton can offer a good profit room for such lepidolite supply to offer stable. In short, the lithium carbonate price will retreat quite a lot this year, and that's good for the whole industry.

William Li (Founder, Chairman of the Board, and CEO)

Thank you, Chen.

Operator (participant)

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

Paul Gong (Head of China Autos Research)

Thanks. Thanks for take my questions. Two questions. The first one is regarding the latest sales trend of ES7 and ET7. I understand that the 866 these three models are phasing out now that is a temporary weakness before switching to the new platform. I also see you have put a lot of the expectation on the NT 2.0 Platform products. What has been driving the weakness of the ES7 and ET7 recently? Is it due to the immediate the hangover effect of the subsidy cut, or is it due to the supply chain bottleneck, or is it like capacity allocation to ET5 that has cannibalized the ES7 and ET7 sales? What has been the reason for the recent weakness of these two new platform kind of flagship models? My second question is regarding the efficiency improvement.

I think William has spoken internally beginning of this year regarding the key effort of efficiency improvement in 2023. What has been the key area that you want to improve? We can still see you invest a lot for the future, including the 1,000 battery swapping stations to be deployed for this year, including the expansion and the NIO House in Europe. Where can we find the efficiency improvements and thus the expense ratio or reduction for rest of this year?

William Li (Founder, Chairman of the Board, and CEO)

谢 谢 Paul. 我 们 看 今 年 的 一 月 份、二 月 份 的 话 呢, 确 实 市 场 的 需 求 还 是 特 别 是 纯 电 的 这 个 需 求 还 是 受 到 了 一 些 影 响. 大 家 如 果 去 看 的 话 呢, 当 然 我 们 的 同 行 也 都 早 都 已 经 发 布 了 一 月 份 的 交 付 数, 都 是 有 些 压 力 的. 当 然 很 重 要 的 一 个 原 因 呢, 还 是 因 为 这 个 去 年 这 个

到 年 底 ， 经 过 这 个 中 国 的 补 贴 是 到 了 去 年 年 底 就 彻 底 的 退 坡 了 啊 。 那 也 就 是 说 今 年 是 完 全 没 有 补 贴 了 。 那 么 我 想 这 个 对 ， 呃 ， 每 一 家 来 讲 的 话 呢 ， 都 有 ， 都 会 有 一 些 短 期 的 影 响 。 那 当 然 对 我 们 的 影 响 呢 ， 相 对 来 说 会 少 一 点 ， 因 为 我 们 毕 竟 我 们 整 个 的 车 的 这 个 MSRP 还 是 相 对 来 说 比 较 高 ， 啊 ， 那 我 们 这 个 补 贴 对 这 个 影 响 ， 这 个 是 相 对 来 说 小 一 些 吧 ， 但 它 还 是 会 有 影 响 的 。 那 如 果 去 问 我 的 角 度 来 讲 的 话 ， 我 们 从 二 月 份 开 始 还 是 每 周 都 能 看 到 需 求 的 这 个 不 断 的 增 长 啊 ， 呃 ， 包 括 在 ES7 和 ET7 上 面 ， 和 今 年 一 月 份 相 比 的 话 ， 那 么 它 的 需 求 我 们 能 看 到 每 周 都 是 在 ， 啊 ， 这 个 都 在 增 长 的 过 程 中 。

所 以 总 的 来 说 的 话 呢 ， 我 觉 得 ES7 和 ET7 在 它 所 在 的 市 场 仍 然 是 非 常 有 竞 争 力 的 啊 ， 我 们 对 它 的 长 期 需 求 是 有 信 心 的 ， 但 短 期 确 实 会 有 点 压 力 ， 这 个 我 们 认 为 包 括 跟 春 节 ， 包 括 跟 这 个 季 节 性 的 影 响 ， 包 括 跟 补 贴 退 坡 ， 啊 ， 当 然 也 可 能 会 受 一 些 宏 观 的 经 济 的 一 些 影 响 ， 都 会 有 这 样 的 一 些 影 响 。 但 是 我 们 看 到 的 好 的 地 方 就 在 于 从 二 月 份 开 始 ， 我 们 能 看 到 这 个 需 求 是 每 周 比 每 周 都 要 更 好 一 些 。 所 以 总 的 来 说 我 们 是 有 信 心 的 。

Speaker 13

Thank you, Paul, for your question. We can see that for the first two months of this year, the market demand is not that strong, especially when it comes to the demand for the BEV. We see this has suffered some impact. If you look at all the peers, I believe most peers have published their delivery results for the first two months. This is actually affecting everyone in the market. I believe a very important factor is the subsidy cut. Starting from this year, there will be no more subsidies, this will create some short-term effect on everyone in this market. When it comes to NIO specifically, because we have a relatively higher MSRP, this impact on us is actually relatively lower compared with others.

Starting from February, we can see the demand is recovering week by week, including the ES7 and the ET7 compared with January. For the ES7 and the ET7, we can see that in their specific segment, they're still very competitive. We are very confident when it comes to the demand for the ES7 and ET7 in the long run. In the short-term, yes, we are facing some pressure. I believe there are multiple factors we have to consider, probably like the Spring Festival and the low seasonality of the auto market, as well as the subsidies or other macro environment. Still, we are very confident with our product competitiveness in their specific segment.

William Li (Founder, Chairman of the Board, and CEO)

那 ， 那 ， 呃 ， 在 效 率 提 升 方 面 ， 这 个 确 实 是 我 们 今 年 的 一 个 工 作 的 重 点 ， 因 为 去 年 来 讲 的 话 呢 ， 我 们 的 人 员 扩 展 得 非 常 的 快 ， 那 我 们 有 很 多 项 目 开 展 ， 呃 ， 这 个 很 多 项 目 开 始 这 个 进 行 投 入 。 那 ， 呃 ， 今 年 对 我 们 来 说 的 话 呢 ， 我 们 倒 不 是 说 是 要 去 消 减 项 目 ， 消 减 人 员 ， 或 者 说 关 停 项 目 ， 我 们 更 多 的 还 是 ， 呃 ， 把 人 效 要 提 高 ， 就 是 同 样 多 的 人 ， 我 们 要 有 更 高 的 产 出 ， 更 高 质 量 的 产 出 。

那 ， 呃 ， 不 管 是 在 研 发 还 是 在 销 售 ， 还 是 在 管 理 方 面 。 那 另 外 一 方 面 的 话 呢 ， 我 们 也 会 去 ， 呃 ， 重 新 地 去 看 看 我 们 这 些 项 目 的 优 先 级 ， 啊 ， 包 括 这 个 ， 呃 ， 研 发 ， 还 有 包 括 一 些 固 定 资 产 的 投 资 ， 我 们 会 更 去 评 估 这 个 ， 呃 ， 时 间 的 这 个 ， 这 个 ， 这 个 ， 呃 ， 优 先 级 ， 我 们 包 括 投 资 的 一 些 优 先 级 。那 么 这 个 也 是 我 们 在 节 奏 调 整 方 面 很 重 要 的 一 个 方 向 。 所 以 总 的 来 说 ， 我 们 效 率 的 提 升 更 多 的 是 在 产 出 ， 产 出 的 质 量 ， 还 有 包 括 这 个 呃 ， 优 先 级 方 面 。

Speaker 13

Yes. Actually the efficiency improvement is the most important task for NIO this year. Last year because of the project progress and we have multiple projects are going in parallel, so the human resources increase is much faster compared with the past. When it comes to the efficiency improvement, we are not talking about cutting project, we believe the efficiency is more about improving the efficiency per person. We can improve the overall efficiency of the whole organization when it comes to the R&D, sales and service and also management. At the same time, we also need to do some prioritization of different kinds of project, including the R&D project and also the CapEx investment.

It means that we need to look at the priority in terms of the timeline and also the investment. Overall, all in all, the efficiency improvement will more focus on the output and the quality of the output as well as the prioritization.

William Li (Founder, Chairman of the Board, and CEO)

Thank you, Paul.

Paul Gong (Head of China Autos Research)

Thank you.

Operator (participant)

The next question comes from Nick Lai with JPMorgan. Please go ahead.

Nick Lai (Head of China Equity Research)

William 跟 冠 宇 晨 ， 大 家 好 ， 谢谢 让 我 问 题 。 我 就 2 个 比 较 简 单 的 战 略 性 的 问 题 ， 1 个 是 有 关 电 池 的 问 题 ， 第 2 个 是 财 务 的 问 题 。 电 池 的 问 题 的 话 ， 我 想 请 教 一 下 ， 我 们 跟 CATL 这 个 采 购 合 约 会 不 会 从 去 年 就 可 能 是 随 时 调 整 ， 市 场 上 也 有 比 较 多 的 讨 论 ， 说 会 跟 CATL 会 签 1 个 比 较 中 长 期 的 合 约 。 我 想 知 道 说 我 们 跟 CATL 这 个 签 约 的 模 式 在 未 来 中 长 期 会 不 会 有 些 比 较 重 要 的 改 变 。 同 时 间 在 电 池 的 问 题 上 面 可 以 跟 我 们 update 一 下 ， 那 个 我 们 半 固 态 电 池 什 么 时 候 会 在 产 品 会 发 表 ， 会 看 到 。

这 是 第 1 个 电 池 的 问 题 。 第 2 个 问 题 就 有 关 刚 刚 William 提 到 说 今 年 Q4 不 考 虑 新 的 业 务 能 够 break even， 我 换 个 方 式 来 看 这 个 问 题 ， 我 们 的 新 的 业 务 ， 就 是 这 个 mass market brand， 可 能 包 含 一些 手 机 等 等 ， 它 的 投 资 的 量 级 就 是 ， 当 然 我 知 道 可 能 没 有 具 体 ， 它 的 这 个 investment 的 这 个 或 是 相 对 CapEx size， 我 们 该 怎 么 去 考 虑 这 个 事 情 ？ 就 是 把 这 全 部 考 虑 的 话 ， 我 们 整 体 的 break even 是 会 在 哪 1 年 ， 2024、2025、2026， 还 是 提 供 一些 方 向 让 我 们 参 考 。

Let me translate my question very fast. The first question is about the purchasing agreement with CATL and pricing arrangement with CATL, and also a quick update on semi-solid-state battery. Secondly, can we talk about the potential investment size for new initiatives? Thank you.

William Li (Founder, Chairman of the Board, and CEO)

好 ， 谢 谢 Nick。 呃 ， 我 们 这 个 今 年 的 话 ， 当 然 我 们 会 一 方 面 会 引 进 新 的 这 个 电 池 的 这 个 合 作 伙 伴 ， 我 我 们 和 我 们 在 今 年 这 个 啊 三 月 份 吧 ， 我 们 应 该 是 最 近 的 话 呢 ， 我 们 和 这 个 中 航 的 合 作 的 这 个 电 池 包 就 会 上 线 啊 。 那 么 当 然 我 们 和 宁 德 当 然 会 保 持 一 个 长 期 的 战 略 合 作 的 关 系 ， 那 么 我 们 也 在 跟 他 们 讨 论 一 些 新 的 价 格 的 机 制 啊 ， 当 然 ， 呃 ， 还 没 有 签 署 最 终 的 协 议 ， 但 是 从 方 向 上 来 讲 的 话 呢 ， 呃 ， 我 想 电 池 公 司 也 是 认 识 到 这 个 必 须 和 这 个 汽 车 公 司 一 起 去 承 担 这 个 电 池 材 料 的 这 样 的 一 些 价 格 的 这 样 的 一 些 波 动 。 那 当 然 我 们 还 在 跟 他 们 在 讨 论 的 过 程 中 。 呃 ， 半 固 态 电 池 我 们 还 在 努 力 地 量 产 的 过 程 中 啊 ， 我 们 也 派 出 我 们 自 己 的 电 池 团 队 啊 ， 帮 助 我 们 的 合 作 伙 伴 加 快 量 产 。 当 然 我 ， 我 也 非 常 希 望 早 一 些 这 个 能 够 呃 ， 提 供 给 我 们 的 用 户 ， 呃 ， 还 需 要 点 时 间 ， 嗯 ， 还 需 要 几 个 月 的 时 间 吧 。

Speaker 13

Nick, thank you for your question. For this year, we will introduce new battery partners, I believe probably around March, we are going to launch new battery packs in collaboration with CALB. At the same time, we will also keep our long term strategic relationship with CATL. Right now we're in discussion with CATL in terms of the new agreement, but we haven't signed the agreement yet. I believe the discussion direction is basically that the battery companies will start to work in parallel with the auto companies, and we are going to share the volatilities of the raw material cost together throughout the supply chain.

When it comes to the semi-solid battery, we have a sent battery teams to help our partners in the semi-solid battery and make sure they can have a smooth mass production for the batteries. We're really sorry for the delay, but probably, this will be available. We estimate this will be available probably after several month.

William Li (Founder, Chairman of the Board, and CEO)

第 二 个 问 题 就 是 我 们 新 业 务 的 投 资 规 模 。 总 体 来 说 的 话 呢 ， 全 年 差 不 多 是 RMB 4 billion-RMB 5 billion 的 这 样 一 个 投 资 的 规 模 。 那 么 每 个 Q 的 话 呢 ， 就 是 超 过 RMB 1 billion 了 ， 整 个 投 资 规 模 差 不 多 是 这 样 。 当 然 从 我 们 总 体 的 一 个 目 标 的 角 度 来 讲 ， 我 们 仍 然 是 希 望 实 现 在 明 年 整 个 公 司 能 够 break even 的 这 样 的 一 个 目 标 。 这 仍 然 是 我 们 一 个 目 标 。

Speaker 13

Regarding the investment for the strategic new businesses, for the full year, we estimate that this will be around RMB 4 billion-RMB 5 billion. If we break it down, then it means that probably around RMB 1 billion every quarter. The overall target for the company is that for the group, we still aim to achieve a break-even for the company in 2024.

Operator (participant)

The next question comes from Edison Yu with Deutsche Bank. Please go ahead.

Edison Yu (Director and Senior Equity Research Analyst)

Hey, thank you for taking the questions. First one, can you maybe go over some feedback you've gotten in Europe? You've been in Norway for over one year, you recently launched in several other countries. What has been the user feedback? What is a reasonable amount of volume we could expect there in the next few years? Second question, really quick. On the other margin, it's still quite negative, it's been quite negative. When can we see some recovery in that level? Thank you.

William Li (Founder, Chairman of the Board, and CEO)

[Foreign language]

Speaker 13

Thank you for your question. For European markets, we have delivered our products to some users, and those users have been speaking very highly about our products. We have been tracking the user satisfaction rates on a weekly basis, and we believe that this basically meets our expectation. The one aspect that we think is lagging behind is the infrastructure building in Europe. Right now, we have around 11 Power Swap Stations. This is actually far behind our original planning. That's the same with the deployment of the NIO Houses in Europe. We believe because the infrastructure deployment in Europe is lagging behind, which also affected the delivery and the sales in the European market.

When we look at the user demand and the test drive data, we can see there are some improvement on a weekly basis, and the team building is also on track for the European market. The only thing that we need to speed up is the infrastructure building in the European market. For this year, we believe the sales is not our top priority. To be honest, our target of in terms of the sales volume for the European market this year is probably less than 10,000. We believe the most important thing for us is actually the user satisfaction rate.

For the long run, we are very confident about our performance in the European market, when we consider the user satisfaction rate that we're seeing right now and the product competitiveness of our product portfolio in the market.

Stanley Qu (SVP of Finance)

Okay. For the second question about the other loss. As the sales and car park grow in China, the losses from vehicle repair and maintenance are continuously narrowing. We kept expanding our Power Swap Station network in 2022, which drove the loss increase of other loss. We will stick to the continuous deployment of power network and plan to newly build 1,000 Power Swap Stations in 2023, as William mentioned. Therefore, we expect the loss of other business will continue to increase in 2023. The continuous expansion of our power infrastructure will not only help us improve our user satisfaction, but also help us to sell more cars in the market.

That's all. Thank you, Edison.

William Li (Founder, Chairman of the Board, and CEO)

Thank you, Edison.

Operator (participant)

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

Jing Chang (Research Analyst)

好的，非常感谢管理层。我这边是申万宏源 长鑫。然后我这边就根据两个小的问题，大家问的可能比较重复了。第一个问题就是关于可能，整体渠道数量如果进一步增长的话，我们可能会覆盖更多这个低线级的城市。考虑到这些市场可能相对而言，消费客群的话，对传统这个豪华品牌粘性还是比较强的。在这个层级的产品里面，相关我们会做哪些可能比较有针对性的一个调整。

My first question is about with the further increase in the number of our distribution stocks, we will cover more lower tier cities. Considering that these customers in those markets are very sticky to traditional luxury brands. Will we make some more targeted adjustments in our products and marketing?

William Li (Founder, Chairman of the Board, and CEO)

呃 ， 谢 谢 。 呃 ， 总 的 来 说 的 话 呢 ， 我 们 觉 得 在 ， 呃 ， 这 些 市 场 的 话 呢 ， 这 下 沉 市 场 我 们 不 一 定 是 要 去 投 资 门 店 这 样 的 一 些 方 式 ， 呃 ， 我 们 为 什 么 今 年 要 去 布 更 多 的 换 电 站 ， 呃 ， 也 是 从 我 们 一 些 实 践 中 去 得 到 的 一 些 这 样 的 一 些 总 结 。 我 举 一 个 例 子 ， 比 如 说 ， 呃 ， 我 们 在 山 东 的 滨 州 博 兴 县 下 面 有 一 个 ， 呃 ， 新 福 镇 ， 这 个 我 们 有 在 那 个 地 方 有 五 百 多 用 户 ， 在 一 个 镇 里 面 ， 这 个 镇 的 人 口 ， 户 籍 人 口 不 - 不 足 五 万 ， 但 是 有 五 百 多 个 我 们 的 用 户 。

呃 ， 当 然 ， 这 个 它 的 这 个 ， 这 个 用 户 的 增 长 是 跟 我 们 在 当 地 用 户 ， 在 早 期 他 们 自 己 一 起 想 办 法 布 了 一 个 换 电 站 ， 啊 ， 然 后 就 随 着 这 样 的 话 就 把 用 户 就 发 展 起 来 了 。 那 么 ， 呃 ， 我 们 后 来 当 然 又 增 加 了 了 一 个 换 电 站 ， 我 们 看 到 这 边 这 样 一 个 镇 里 面 有 两 个 换 电 站 ， 我 们 能 够 有 五 百 多 个 用 户 ， 这 也 给 了 我 们 很 多 的 启 发 啊 。 那 我 们 以 前 在 这 方 面 的 话 呢 ， 我 们 的 换 电 站 更 多 是 在 一 线 大 城 市 ， 那 我 们 认 识 到 在 三 四 线 城 市 ， 甚 至 一 些 更 小 的 地 方 ， 我 们 通 过 换 电 站 是 能 够 增 加 这 个 用 户 的 这 个 ， 呃 ， 用 户 数 量 的 ， 啊 。 那 是 非 常 高 效 的 一 个 方 式 。 所 以 我 们 今 年 的 这 种 下 沉 市 场 的 发 展 更 多 的 是 根 据 这 样 的 一 些 方 式 ， 啊 ， 是 非 常 高 效 的 一 个 发 展 用 户 的 方 式 。

Speaker 13

Thank you Jing Chang for your question. When it comes to the expansion into the sub-tier cities, we're not talking about the deployment of the new houses or new spaces. We believe that the more efficient way is to deploy the Power Swap Stations in the sub-tier cities. For example, in Boxing, under in Shandong Province, Binzhou, Boxing, there's some growing user base and the users at the beginning, they actually grow the user base themselves, and then they worked together with us to deploy the Power Swap Stations. That's the first Power Swap Stations. Later we deployed the second Power Swap Stations in this town, and now this town has around 500 users.

For those sub-tier cities, especially when it comes to the Tier 3 and Tier 4 cities, we think the more efficient way for us to grow our user base is to deploy the Power Swap Stations. Previously our Power Swap Station is mainly deployed in the Tier 1 and Tier 2 cities. This is our strategy this year to make sure we can deploy more Power Swap Stations in the Tier 3 and Tier 4 cities.

Jing Chang (Research Analyst)

好 的 ， 谢 谢 。 我 还 有 一 个 问 题 是 关 于 整 体 的 定 价 的 战 略 ， 尤 其 是 新 的 产 品 。 今 年 开 始 能 够 看 到 整 体 新 的 市 场 ， 价 格 竞 争 还 是 比 较 激 烈 的 ， 虽 然 我 们 可 能 定 位 的 还 是 比 较 豪 华 市 场 ， 但 是 仍 然 能 够 看 到 ， 无 论 在 C 新 能 源 还 是 燃 油 车 竞 品 ， 可 能 都 会 有 更 大 的 一 个 降 价 和 促 销 。 我 们 在 这 个 尤 其 是 新 发 布 的 这 个 车 型 ， 像 新 的 866， 以 及 可 能 这 个 全 新 的 这 个 车 型 上 面 ， 价 格 策 略 会 不 会 更 加 的 下 沉 和 激 进 一 些 ， 或 者 会 否 考 虑 可 能 减 配 的 一 些 方 式 ， 去 推 出 更 多 更 低 的 一 些 价 格 的 这 个 款 型 。

My second question about, we can see that at the beginning of this year, the price competition in the new energy vehicle market has become more fierce. Although we are positioning luxury brand market, we can still see a greater price reduction in both new energy and ICE vehicle markets. We will be more aggressive in the price strategy of new models. Will you consider the way of reducing some configuration and to introduce more models with lower price?

William Li (Founder, Chairman of the Board, and CEO)

我 们 一 直 的 策 略 都 是 ， 希 望 是 一 个 稳 定 的 一 个 价 格 的 策 略 。 我 们 也 没 有 去 推 出 减 配 的 这 样 一 些 计 划 。 我 们 认 为 我 们 的 定 价 是 对 用 户 来 说 是 足 够 有 价 值 的 。 这 个 不 管 是 我 们 每 一 款 车 ， 如 果 去 看 它 的 配 置 、 它 的 性 能 、 它 的 智 能 化 的 程 度 ， 以 及 相 关 的 一 些 服 务 的 权 益 ， 那 对 用 户 来 说 是 这 个 物 有 所 值 的 。 我 们 并 没 有 去 在 NIO 这 个 brand 下 面 ， 我 们 并 没 有 这 个 去 做 减 配 这 样 的 一 些 想 法 ， 因 为 也 不 ， 低 价 也 不 是 我 们 一 个 NIO 这 个 brand 下 面 一 个 策 略 。

Speaker 13

Our constant consistent strategy is to keep our product pricing stable. We do not have any plan to cut the features and functions for our product. For each of our product in our product portfolio, we believe when we look at the features, the functions and the performance of those products as well as the user benefits, we think every aspect of the product is well deserved and well established when it comes to the product pricing and strategy. For the NIO brand, we do not have any plan to cut the features and functions of our product. I think this is consistent of our branding and the pricing strategy. Low pricing is not a part of the strategy or the DNA of the NIO brand.

William Li (Founder, Chairman of the Board, and CEO)

Thank you, Jing.

Jing Chang (Research Analyst)

好 的 ， 谢 谢 。

Operator (participant)

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

Yi Tang (Director of Capital Markets)

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

William Li (Founder, Chairman of the Board, and CEO)

Thank you.

Operator (participant)

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