Niu - Earnings Call - Q3 2020

Transcript

Speaker 0

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Neo Technologies Third Quarter twenty twenty Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, we are recording today's call.

If you have any objections, you may disconnect at this time. Now I will turn the call over to Mr. Jason Young, Investor Relations Manager of NIO Technologies. Mr. Young, please go ahead.

Speaker 1

Thank you, operator. Hello, Welcome to today's conference call to discuss NIO Technologies results for third quarter twenty twenty. The earnings press release, corporate presentation and financial spreadsheets have been posted on the NIO's Investor Relations website. This call is being webcast from the company's IR website and a replay of the call will be available soon. Please note today's discussion will contain forward looking statements made under the Safe Harbor provisions of The United States Private Securities Litigation Reform Act of 1995.

Forward looking statements involve risks, uncertainties, assumptions and other factors. The company's actual results may be materially different from those expressed today. Further information regarding the risk factors is included in the company's public filings with the Securities and Exchange Commission. The company does not assume any obligation to update any forward looking statements, except as required by law. Our earnings press release and this call include discussions of certain non GAAP financial measures.

The press release contains a definition of non GAAP financial measures and the reconciliation of GAAP to non GAAP financial results. On the call with me today are our CEO, Doctor. Yan Li and our CFO, Mr. Ali Zhang. Now let me turn the call over to Yan.

Speaker 2

Thanks Jason and thanks everyone for joining us on the call today. We have had a strong growth in Q3 with our total sales volume reaching 251,000 units, a 67.9% year over year increase. The sales volume in the China market reached 245,000 units, a 70% year over year increase, where the volume in the international market reached 5,600 units or 6.3% year over year increase. Now in the first three quarters, our sales volume reached 451,000 units, an increase of 43% compared with last year. Now our strong growth in China was driven both by the market factor and our operation performance in the new product rollout marketing and channel expansions.

Now first let me quickly comment on the overall market landscape in China. Now the overall electric bicycle market has increased by 30% to 22,000,000 units in the first nine months according to the Ministry of Industry and Information Technology. This increase was driven by three factors. First, the post COVID-nineteen sentiment led to a high demand of individual mobility devices as more people find electric bicycle and more convenient safer means for the daily commute. The second was adoption of 2019 China electric bicycle standard, more cities started to regulate this industry with license plates, removal of uncompliant products and such created a safer environment for the users.

And lastly, with the lithium ion battery costs continue to decline, the electric bicycle with portable lithium ion batteries become more affordable. It was estimated that 20% to 30% electric bicycle this year are lithium versus 10% to 15% in 2019. Now amid the fast growth of electric bicycle market and in particular the lithium ion based ones, we also accelerate our effort in new product rollout marketing and channel expansions. Mentioned in the last earnings call, we introduced the M2 model in Q2 and the MS model in July. Both M2 and MS inherited the family design of our signature M product view as a full cover electric bicycle.

In Q3, M2 and MS series accounted for 18% of our total sales volume. Meanwhile, we also enriched the Goa series family with our G0, G2 and upgrade G3 series. G0 entry level product was launched at the JD June '18 campaign. With G0, G1, G2, G3, the Goa series now serves the full range of customers' needs from electric bicycle to electric motorcycles in China with prices starting at RMB2299. The entire Govat series sales accounted for 37% of our total sales volume in Q3.

Now the successful launch of M and G Series continues to demonstrate our strong capability in product design and rollout. Furthermore with G Series entry price at RMB2299, they allowed us to cover the mid end consumer segment and open up more markets in the lower tier cities, which accounted for more than 70% of electric bicycle market. Now supported by the newly introduced product, we continue to expand our footprint throughout store expansions and new market entries. Now in Q3, we increased our dedicated branded store to twelve sixty six stores, an increase close to 200 stores as compared with Q2. This quarterly new store adds was the all time high as we significantly increased our effort in retail expansion.

Now despite a fast increase of number of stores, our per store sales also increased by 40% to 50% in year over year compared with the same time last year. This demonstrates the healthiness of our retail operation as all the retail stores enjoying sales growth and were highly profitable. This is also a good indicator for future retail expansion. We are accelerating new store openings in Q4 this year as well as in 2021. Furthermore, with the goal of Sears, we were not only able to consolidate our leadership position in top tier cities, but also able to build a good retail presence in the lower tier cities.

To support retail expansion, we also scale up our marketing activities in Q3. On the mass media front, we kicked off a back to the street, this is new campaign and partnered with the hottest online competition show called three Days of China in Q3. This campaign was recorded an effort of advertising in the online show with more than 200,000,000 views, interaction with all social media channels like Douyin Kuaishou, WeChat and Weibo and offline advertising in subways and buses. It generated a total of 800,000,000 brands exposures and continue to enhance our brand image as a cool lifestyle brand. We also continue to build our brand image with co branding effort.

This time we work with the Gundam, a popular Japanese cartoon in China and rolled out a Gundam special edition based on our MS product. This co branding has received quite a bit market hype with close to 50,000,000 views of a new Gundam content across multiple channels. Now let me turn over to the overseas market. Our overseas market reached to 5,600 units, a small growth of 6.3% year over year. Well, in fact, we had about another 1,000 orders in Q3 not able to ship in time due to the scarcity of international shipping.

Now even without delay 1,000 orders, this demonstrate is swinging back to normality in the overseas market as our Q2 sales overseas were actually down by 62% year over year. This is only the start as most of people in our core demographics are working from home. So as more individuals goes back to work, we will continue to see growth across our markets for individual mobility. In Q3, we'll also increase our flagship and premium stores to 114 from 91 in Q2. And year to date, we have added 88 flagship premium stores with now more than 40% of our sales from branded flagships and premium stores.

Similar to China market, we will continue to expand our retail footprint with branded flagship and premium stores for Q4 and 2021. Along with our retail expansion, we have also up our effort in the social media with close to 800,000 interactions on Instagram and Facebook. Now while we're watching closely the COVID-nineteen situation globally, we're quite confident that our international sales will return to the healthy growth in Q4 this year. Now I will turn the call over to Hardy to discuss our financial results. Hardy?

Speaker 3

Thank you, Yan, and hello, everyone. Our press release contains all the figures and comparisons you need. We have also uploaded the Excel format figures to our IR website for easy reference. As I review our financial performance, we are referring to the third quarter figures unless as the otherwise, and that all monetary figures are RMB unless otherwise noted. Our Q3 sales volume reached 251,000 units, increased by 68% year over year.

China sales volume increased by 70% as a result of retail sales network expansion and new product launch. International sales volume increased by 6%, lower than our expectations, mainly due to the result of COVID-nineteen and the difficulty to book containers for international shipping. We expect some of these challenges continue into the fourth quarter. We are currently working on different initiatives in order to deliver continued growth from international markets. Regarding product mix, as we launched a few new products, the mix changed accordingly.

N Series accounted for 12% of total volume. M Series accounted for 23%, U Series accounted for 28% and the GOVA Series accounted for 37%. Out of the 37% from GOVA series, 27% is from the mid end product G0 model and the remaining 10% from G2 and other GOVA models. The high percentage of G0 sales volume had a negative impact on our Q3 AST and gross margin. Total revenues increased by 37% to million in line with the guidance we provided earlier.

The increase was driven by higher sales volume growth of 68%, partially offset by decreased revenue per scooter or ASP of 19%. There are a few key drivers for the ASP decline. First, sales of low priced model G0 negatively affected ASP by around 11%. Second, the change in product mix in other models, especially lower percentage of sales from the high priced N Series products negatively affect the ASP by around 4%. Third, the sales and promotion with directly comes to end customers affected our margin by around 1%.

The remaining 3% decrease is mainly due to relatively slower growth in spare parts sales from overseas operating or share operators due to the impact from COVID-nineteen. We expect some of these drivers continue into the fourth quarter. Therefore, the ASP when comparing with Q4 last year expected to decrease by similar percentage. Gross margin was 20.9%, 1.3 percentage points lower than this time last year. The lower gross margin was mainly due to a few factors.

First, the sales promotion and discounts we offered to end customers affected margin by 0.7%. Because we offered sales discounts to end customers, we are able to save on marketing and sales expense. As a percentage of revenue, our sales and marketing expense reduced by 3%. Second, we disposed discontinued products. The disposal price was below cost and hence negatively affect our margin by around 0.9%.

Third, higher sales volumes from mid end product G0, which has lower gross margin, the impact is around 4%. However, we are able to offset such negative impact from G0 by cost savings on battery packs and the various components. Overall speaking, the margins for the products are relatively stable compared with both last quarter and the last year. The decline in gross margin in Q3 was mainly caused by sales discount and disposal with total impact of 1.6%, which are both specific to this quarter. Our total operating expense excluding share based compensation were RMB97 million, increased by RMB16 million or 20% year over year.

The increase was mainly caused by the higher R and D expense of RMB10 million for staff costs and design expense. Higher G and A expense of RMB14 million mainly related to foreign exchange loss, tax and surcharge and professional fees. Sales and marketing expense, however, decreased by RMB8 million. As I mentioned earlier, we offered a sales discount to end consumers, which affected our revenue and the margin by 0.7%. We then able to reduce our marketing expenditures.

As a percentage of revenue, the sales and marketing expense excluding share based compensation was 5.4% compared with 8.5% in Q3 last year. Our government grants were RMB1.1 million in this quarter, significantly lower than the RMB12.6 million in Q3 last year. The company is eligible for additional government grants. We have applied for RMB10 million government grants, but the payment from government was delayed. We will book government grants into our income statement only after we receive it in cash.

Our share based compensation expense were RMB10.6 million, almost the same as what we had in the second quarter. Compared with Q3 last year, it is an increase of RMB4.5 million due to the new grants from employees in early quarters. Our GAAP net income was RMB18 million and adjusted net income was RMB91 million, an increase of 25% year over year. The adjusted net income margin was 10.1%, one percentage point lower than Q3 last year. The 1% decrease was caused by a few factors.

Our gross margin was 1.3% lower, but it was offset by higher operating leverage, which is 1.6%. We had a lower government grant, which negatively affected our net margin by 1.8%. If we exclude the negative impact from government grant, our adjusted net income margin has actually improved against the last year. Turning to our balance sheet and cash flow. We ended the quarter with RMB1.3 billion in cash, term deposits and short term investments, an improvement of million compared with last quarter.

Our operating cash flow was around RMB300 million because of improved profitability, reduced account receivable, reduced the inventory and increased accounts payable. Our capital expenditure was around million mainly related to new store openings in China and international markets, additional in machinery and R and D spending. We had a healthy balance sheet and a very strong cash flow in the third quarter. Now let's turn to guidance. We expect fourth quarter revenues to be in the range of to RMB615 million, an increase of 5% to 15% year over year.

We expect continued sales volume growth from both China and overseas market. The ASP will decrease year over year due to the change in product mix similar to what we saw in the second and the third quarter. In addition, in Q4 last year, we had a strong sales in accessory and spare parts to share more features from overseas market. We do not expect such high sales in this quarter. Throughout this year, our orders from sharing operators has reduced significantly as a result of COVID-nineteen.

The revenue and ASP for sharing operators are usually much higher than other orders because they order not only scooters, but also manufacturers spare parts. In the fourth quarter, we will continue expanding our retail sales network in China. We expect to open more new stores at faster speeds than what we did in Q3. We are also working on the construction of our new manufacturing facilities in Changzhou. This will better prepare us for continued growth in 2021.

Our overseas markets began to recover. We had a very strong order book for Q4, which is a good sign for demand recovery. With that, let's now open the call for any questions that you may have for us. Operator, please go ahead.

Speaker 0

Certainly. Ladies and gentlemen, we will now begin the question and answer session. We do have our first question from the line of Roger Duong. Please go ahead.

Speaker 4

Hi management, thank you for taking my question. I have three questions. First is there are several international countries in which we have local dealerships have reentered a lockdown. Can management share the magnitude of negative impact we can expect from these international markets for 4Q and potentially first quarter twenty twenty one? And my second question is somewhat tied to the first one.

How should we think about the ASP will trend for 4Q and 2021 given international markets continue to experience pressure and the lower price G Series products continue to grow as percentage of units sold? And my third question is with regard to the competition. Can management share any insights on how we're thinking about competitions with industry leaders? In the past, we have largely avoided competing directly with them by offering products in different price categories, but it has somewhat changed after our launch of G Series. What is our strategy to continue to take market share from these legacy scooter makers?

Thank you.

Speaker 2

All right. Thank you. I think those are great questions. I'll try to cover the end. So I'll try to cover questions one, three and then I'll have Hardy to cover two on the basic on the ASP front.

So I think on the international market, yes, I think our Q2 was our worst case where we actually see a decline of 60 plus percent in Q2, because a lot of stores closed in April, May ish, all those stores are closed and then gives little confidence to our distributors in terms of ordering. Because you have to keep in mind that a lot of Q2 sales, the quarterly sales we see on the international usually there is like that's actually the time we ship the product. So into my retail it's basically like a quarter after. Now what happened in Q2 is most of the stores closed and that forced our distributors to actually not order anything. That's why we start seeing huge decline.

But as in starting in May, stores start to open and then that gives us through bidders big confidence. So we're seeing uptake orders in Q3. That's why we're seeing up to about 6%. But in reality, think we should have seen more because we had like a thousand orders of scooters not able to out of door because there's really a scarcity of international shipping with containers. We are actually quite confident with our Q4 from order book point of view, actually a lot of orders are coming in.

We expect a really healthy growth for Q4. Now the issue is actually is booking the international shipping containers. This international shipping actually the containers at this point seems to be a scarce resource as a lot of ports in Europe, are not enough people working on the ports. But from order perspective, we're actually seeing a huge order take up in Q4 for the international market. I think this is on the 2C side.

Now a little bit on the 2B side. On the 2B side, we're not seeing a great year this year. By 2B, most of our orders are for the sharing operators. Sharing operators this year haven't really been doing well this year because with the COVID-nineteen situation with people working from home, you're not seeing a pickup in the sharing operators as opposed to last year where we see a lot of sharing operators order of scooters in both from United States that's from Europe. We are seeing some this year, but they've been the order has been slow.

So but on this one, we're hoping that with Q4 and the next basically Q1 in 2021 where the sharing operators the orders from sharing operators will come in, because I think we're already seeing a recovery like for example Rebel from United States, they're already seeing recovery in term of the riderships in The United States. So I think for the 2B side we're seeing probably this is Q4, but most likely Q1 next year, Q1, Q2 next year where we're to see a quite a bit uptick on international markets. Now lastly is actually where we are as we put on the press release, we are basically starting a pre sales marketing campaign for the Indonesian market. This will be sort of our official entry to the Indonesian market. The actual sales or the revenue won't we won't see net revenue in this year because the trade sales will happen in December, but most order fulfillment will be in February and March ish.

But that will actually will add a healthy growth in Q1 twenty twenty one and potentially the entire 2021 where basically this market is our first step to enter the Indonesia market of Southeast Asia, the major country in Southeast Asia. So hopefully that address your question number one. I think just lastly, I think our question I'll address question number three, then I'll give to Hardy to add on question number two. I think, yes, with completions, we are with the GoWear series, we are entering into the mid end market segment or mid to high, I think it's more or less mid to high market segment, where I think the traditional players like Yat, other brands have presence in that market. But so far we have seen that our Goa series has been able to achieve quite promising results.

With entry price at $22.99 I think we have price product range from $22.99 up to RMB4000. And the Goa series in Q3 actually accounts for about like 37 of our sales. And it basically demonstrates we are able to when we compete with traditional brands in that market range, used to be we're the only ones sitting on the high end, but now we come to the mid end with the mid end product still with good looking design and also a great writing experience into another product experience, we are able to gain huge gain market share from the traditional players. Now the issue is we are not this really marked the beginning of this journey where if you look at Q3, we add about 200 stores. So even with additional 200 store ads, our per store sales actually went up by 40%.

This is particularly because with this mid end product, the stores are able to use this product to gain market share from competitors. And this also allows us to open more stores in our stronger cities like Tier one cities, Tier two cities where we're able to approach basically target the mid end market consumers in that cities as well as allow us to open more stores in the lower tier cities where we used to have little presence or zero presence. And so with that, I think that's where we actually have more confident looking at, we're going to accelerate the store opening efforts. I mean 200 store openings in one quarter has marked an all time high, but we don't I think that's a historical all time high and we'll continue to beat our record into more store openings. Now I'll pass to Hari Yang to address the pricing part.

Speaker 3

Yes, for the ASP as you already see in the third quarter numbers, the ASP in the third quarter was down by 19% year over year. In the fourth quarter, in short, we expect the ASP will compare with Q4 last year will decline at a similar percentage. However, we encourage you to look at the ASP by product segment. So the ASP for China scooter sales, ASP for international market and then ASP for accessory and spare parts. If you break them down and then you tell a different story.

So the ASP for China market, if you look at the third quarter, the price was down by around 18%. Of that 18%, around 13% was affected by higher percentage of sales coming from G0. Last year, there's no Miani product to Europe. This year, G0 take up around 27% of total sales volume that's affected China by around 13%. The remaining 5% came from the changing product mix from other models, especially we have a lower sales in the series product.

If you look at this trend in China going forward, the period G0 model will continue to be there. However, we do expect in the other models, we will see some improvement. Therefore, the ASP for the China market, if you compare year over year, we will have some improvement in the fourth quarter. Then we look at ASP for international market. If you look at the year over year change, actually in the eighth quarter our ASP for international market increased by 27%, quite significantly improvement mainly because there is more sales volume therefore a big change in the ASP.

So the international market our ASP is relatively stable, it's always anywhere between around RMB9000 to RMB10000. So for international market, we do see quite a stable, relatively stable pricing. Then lastly on the ESP4 accessory and spare parts services, this one for the China market, the price was relatively stable. However, for the overseas market, it was significantly affected by how much merit pass we can sell to those sharing operators. As mentioned in the call, this year we do not have as much as orders from sharing operators in Q3 and expected in Q4.

Therefore, we do see some pressure for the ASP going down. However, for next year with the recovery from the international market, we do begin to see some of the new orders coming in for both shared more grippers and also for both the shared scooters and also for the sharing spare parts. So for this part, we do see pressure in the Q4, but next year we do see some potential for improvement. So in short, I think if you compare year over year in the fourth quarter, the ASP will decline a similar percentage. But if you compare quarter to quarter, we do expect the fourth quarter ASP will improve compared with third quarter.

If you look at next year, and I believe the Q3 and Q4, ASP will be a quite good profit. So it's actually how much we will have for the next year. So this answer you in your second question.

Speaker 4

Thank you so much. Very clear.

Speaker 0

Thank you. We have our next question coming from the line of Alex Potter from Piper Sandler. Please go ahead.

Speaker 5

Great. Thank you guys. I guess my first question is regarding capacity in Changzhou. You mentioned you're still in the process of expanding the capacity there. How what I guess what's the update?

How much is left to spend in terms of CapEx and what is your annual capacity now versus what it will be next year?

Speaker 3

Alex, let me address for your question. Currently, our design capacity around 1,000,000 unit and the new capacity, the new factory has another 1,000,000 capacity and we plan to bring the new capacity on board sometime during the second quarter next year, because from the second quarter the peak season started. The total CapEx for this new capacity will be anywhere between 100,000,000 to 120,000,000 including the land, including land. We started the construction in October and it may take us around six months five to six months to complete the full construction. So I hope this answered your question.

Speaker 5

Okay. Yes, yes. Thanks very much.

Speaker 2

I was wondering if you could talk

Speaker 5

a little bit about the promotions and some of the price discounting you talked about also in the quarter which was an impact on gross margin and ASP. What were the what products were you promoting specifically? What promotions were you running and how long do you expect to keep doing that?

Speaker 3

Yes, I think a very good question. I think for Q3, we have a different format of promotion this year compared with both early years and also from last quarter. If we give cash coupon to our end customers, then they can use this cash coupon to deduct the sales price. And therefore, we spent around RMB8 million for this promotion, mainly the direct deductions from our revenue and also our gross margin. And we have this kind of promotion mainly because this Q3 mean because of the COVID-nineteen people are more sensitive for price.

Therefore, we believe give a direct discount to end consumers is better than we spend money in different ways. However, from Q4 this year, we have no such promotion plans. Therefore, we more attribute to this kind of promotion as one kind of one off promotion in the third quarter.

Speaker 5

Okay. And was this specific for any certain types of products or was it broad?

Speaker 3

No, it's broad. So basically the customer and the consumer and the consumer go to the store and see if they pick the model they like then they go to a lottery system. And if they everyone will win, we'll get something. Someone get 100 cash coupon and a direct deduction for their sales price, someone can get absolute dollars cash coupon which can be deducted directly from the sales price.

Speaker 6

And

Speaker 5

then the last question from me is on the regulatory change. Can you remind us when exactly the new regulation will be enforced? And it sounds like you do think that you're getting some demand because I know people are obviously going to be forced by the new regulation to replace their scooters. Do you think that people are doing that now? When do you expect the most of that demand to materialize?

Speaker 2

Alex, it depends on city by city. First of all, basically the temporary new regulation was announced in 2018. They started in force on April 1539 and different city actually different give different year. For example, city of Beijing, they gave temporary license plate in 2018 and as they said, they will basically the temporary license plate you can have a you can use the scooter for three years, which essentially means some of the scooters will be out of three by 2021 or I think early twenty twenty two. So which we'll expect to see what they call replacement uncompliant temporary license scooters starting actually starting next year.

So I think that's also this is also an indicator. I think this is actually a driver for us to quickly expand add more source in those cities that are in highly regulated cities. And the good thing for us is actually our market share and our presence is actually much, much stronger in the highly regulated cities, because most of the highly regulated cities are the Tier one, Tier two cities. Where in the Tier three, Tier four cities, I think the regulation is still being enforced very some places very loosely where you won't see this uptake in tamale replacement yet.

Speaker 5

Okay, great. Thanks very much guys.

Speaker 0

Thank you. We have our next question coming from the line of Bin Wong from Credit Suisse. Please go ahead.

Speaker 7

Okay, thank you. I actually also got three one. The first one is about a very top down angle about overall market because if you will see the number from MIT in the number three quarter, the overall production in China increased by 61% year over year. And for you actually outperformed, yes, but if you really excluding the G Series actually in the high end, it's only around 11% growth. So can I make sure the conclusion is that in the high end market actually is much slowing down and EMEA is the key driver?

Can I have that conclusion? Meanwhile, actually, because regulation is timing, regulation really does have some impact on the high end and the low end simply people don't care. So how to elaborate? How to understand the different segment have quite a big difference growth? That's number one.

And number two is about the guidance. Basically, can you explain why the sales numbers is so bad and why the huge rebound in the growth in the November and December? So based on your guidance in the revenue, we cannot get a number, say, 150,000 net of gas. So it means that November and December have more than 50% growth. So can you elaborate whether my calculation is correct or not about November, December growth?

If it was correct, why the reason have such high growth after big dip in October? Meanwhile, what's the guidance for next year 2021 based on the November and December momentum? The second one. And third one is about new products and new store because if you see in the past one year, you have been launched quite a few showcase called MRI and RRI. But it doesn't seem this new product really bring any volume.

So kind of one, when will be next products, volume products? And why this new product didn't really bring in volume? So how we should think about your new product plan for the coming years? Meanwhile, what's your store guidance for next year or maybe end of this year and next year? Thank you.

Speaker 3

I think your first question is about the volume you raised. I think if you look at the information published by the Minister of Information and Technology Information Industry Technology, their Q3 electric motor electric bicycle volume growth is anywhere between 40% to 50%, depending on which market you're talking about. Our growth definitely is much higher. We are growing China growth going about 70%. You are also correct that G0 is a key driver for us to grow in China and our high end, the NLU series has a growth around 11%.

I think one of the key reasons is after the new regulation was being formed, the new regulation set the top speed also gave some great limit to the electric bicycles. Therefore, a lot of the functions also including driver rating including other functions, we were not able to add to this electric bicycles. Because of that, definitely customer do not want to pay high price for extremely high priced models. I think that's one of the key reason why the high priced model has a slower growth rate compared with low end model in electric bicycle category. And for your second question about the sales volume in October, November and December, I think that you have reached roughly okay.

I think in October, as already mentioned in our earnings release, it's partially because of the operational disruption in our factory because in September we used up to the usage of our utilization of our factory because of the huge demand in the third quarter. Therefore, have to make some maintenance for our machinery, for our factory to make sure we have a safe environment to produce for to prepare for November and December. Because of that region some of the sales will shift to November and also December. This is one reason that's why you see the higher volume in November and December. Second reason as we already mentioned, we continue to open new stores in China as we already see our there's more places for us to open new stores as we launch the increase our sales volume in personal website by MTC December.

So there's been a few drivers for continued sales volume growth in November in December. For next year's guidance, are making this even in next year. So we want to mention the full during this call. In terms of new product launch, I think I will comment a few words and I will leave to Yan to comment on the next year's plan. For the new products, the TQI, RQI and also the EUV product we launched in early this year, they are not they have not entered into mass production yet.

Therefore,

Speaker 0

we have mainly had issues for overseas market. Their sales price was much higher. This year, because of the COVID-nineteen, the overseas market for different reasons, we are not able to achieve very high volume growth.

Speaker 3

Therefore, we postponed the mass production of some of the models for TQR2 TQI and EUV. For next year, we do plan to launch additional models for the China market and the new products will launch in some past due to the second quarter. We believe some of the new models we launched in China will be huge production and continue to drive our volume growth in China. For the overseas market, what we are doing is we began to use our own series of products to launch to enter into the Southeast Asian market, Yes, I think this is the answer to question from David.

Speaker 7

Okay. Thank you.

Speaker 0

Thank you. We have our next question from the line of Jing Zhang from CICC. Please go ahead.

Speaker 8

Thank you for taking my questions. Basically, I have two questions. First one is about the store and channel expansion. So what's our target next year for store expansion? And we see other competitors opening stores at higher speeds.

So I want to know what are our major concerns or difficulties in terms of opening stores? And my second question is, we are going to sell motorcycles in Indonesia. So can you share some details on our strategy in terms of like production? So whether we export all dealer factories there and our channels and also our product compared to local brands motorcycles and also maybe a long term sales target? Thank you.

Speaker 2

Thanks. Think great question. The first one is store openings. As I mentioned earlier, so in Q3 we're able to add about 200 stores. And so keep in mind Q3 usually this year Q3 usually it's been our busy sales quarter where our distributors are not willing to open stores.

But this year actually with the effort we see we actually have a capability to open 200 stores in one quarter. And now we're actually thinking about after that game in Q4 opening more stores than Q3 and we actually have the higher ambition for next year. So we don't it depends, I guess it really depends on how we wrap up the Q4 this year, we'll have a more relative growth for next year. So I think that's basically on the store expansion. And more importantly, if you look at the data here is actually we have the capability to open faster more because even with Q3 with 200 store ads, our per store sales still went up by 40%.

So that means there's actually a lot of room to open new stores at this point. So you can either see we can actually get to 200 or 300, even 400 stores in Q4 and we'll see how that depends on how fast this construction can finished. And that will actually serve the guidance for next year as well on a quarterly basis. Now with the international with the Indonesian market, I think it's yes, one, we will have to initially we'll be local it will be sort of a CKD matter because Indonesia has a huge tariff. If you shift the entire product from China, I think the tariff is about 40%, so that will make the pricing not relevant.

We want to actually enter the Indonesian market not we have a high end product, but we want to enter sort of our mass affordable product level affordable price range product, so which actually will ensure we're not being viewed as a luxury product, but more a mass daily commute product. So this will actually right now we have a basically manufacturing partner in Indonesia will help us to assemble the product even with some of the parts being locally sourced and that will actually get to a lower tariff issue about like 8% to 10%, because it's mostly on parts and that's probably will happen for next year. In the later half of next year we'll see depending on how the sales volume will go. We are we might have to actually invest to build a factory in Indonesia. Hopefully that answer your questions.

Speaker 0

Thank you. Thank you. That's all for my questions. Thank you. We have our next question coming from the line of Sebastian Varenhorst.

Please go ahead.

Speaker 2

Hi, good evening. With the upcoming importance of the Gova series, to what extent do you intend to use after sales to protect your margin? Thank you. Think even with Gova series, I think the after sales will be still conducted by our branded retail stores. So from using after sales to protect margin, I think it's similar method as in this other series.

I think the question, we look at the actual margin of the Goa series, it's actually slightly less than our new series, but not significantly less. Probably just a couple of percentage less because even though it's actually marked at the lower prices, some of the because it's using a the battery uses it's a it's not NCM or NCA batteries, it's actually our FP batteries which actually it's an alternative, but it's actually cheaper than the NCM NCA batteries. And some the lower end of Goa series doesn't have the Smart IoT, the Smart IoT is add on. So for people who actually take a series as a base or basic level, it doesn't have the Smart IoT, so that actually helps to reduce the cost and reduce the price set as well. But our app does support a product where the users can actually with or without IoT, the user can download the app and they actually register the scooter on the app and be able to receive the same level of after sales services on the app as well.

Speaker 4

Okay. Thank you.

Speaker 0

Thank you. We have our next question from the line of Paul Gong from UBS. Please go ahead.

Speaker 6

Yes. Hi. Thanks for taking my question. Actually, have only one question. You mentioned the tariff between the retail market is 40%.

So that's why you decided to build a factory over there. So in view of the ECLP and how shall we foresee the tariffs going forward? And the local factory is that still required?

Speaker 2

No, I think that's a great question. So I think we are actually looking we saw the news as well, but we haven't really gathered throughout the details information yet. So if the actual detailed information basically like motorcycle, electric motorcycles actually covered by the treaties, then actually that will solve a lot of our issues as well. Let me put this way, frankly we'd rather have everything manufacturing in China where we have a really tight control with our own factories into more quality insurance everything and from management complexity, it's actually much easier to get manufacturing in China versus shipping parts to Indonesia and have a locally assembled manufactured there. We understood why the tariff was there because a lot of motorcycle brands are locally manufactured there.

So there is actually sort of locally protection there in terms of that industry. But if that opened up where the tariff is being reduced significantly, actually that actually will change our manufacturing planning. That's one of the reasons right now we don't actually we decide not to for example buy a land or build our own factory in Indonesia, we're simply still watching out to see, but using a more flexible, using a partner as a simple option at this point, because that gives us the flexibility depending on how that whole trading thing goes.

Speaker 6

Thank you very much. Very helpful. Thank you.

Speaker 0

You. Seeing no more questions in the queue, let me turn the call back to Mr. Li for closing remarks.

Speaker 2

Right. So thank you, operator, and thank you all for participating on today's call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress. Thank you.